Unit 2.2 - ethical influence on business activity

Question 1

Define ethics.

Answer 1

Ethics refers to a business decision that is thought to be morally right or wrong

Question 2

How do businesses behave ethically towards shareholders? (1)

Answer 2

Fair share of profits – this may not be the case as directors and managers award themselves high wages

Question 3

How do businesses behave ethically towards employees? (4)

Answer 3

Fair wage​
Good working conditions​
Fair working hours​
Training

Question 4

How do businesses behave ethically towards customers? (4)

Answer 4

Promote goods so customers are treated honestly and fairly​
Provide goods and services in a quality appropriate to the price being paid​
Not include harmful materials or ingredients in their products​
Be aware of the concerns of consumers regarding treatment of animals

Question 5

How do businesses behave ethically towards the government? (1)

Answer 5

Pay tax – don’t evade

Question 6

How do businesses behave ethically towards suppliers? (5)

Answer 6

Payments for suppliers are made on time​
They are not forced to provide goods at lower prices than they can afford​
They sign contracts which are not ended at short notice by their customers​
Fair trade products – producers are not exploited but paid a fair price for what they provide allowing them a better quality of life​
Suppliers treat their own stakeholders in an ethical manner​

Question 7

How do businesses behave ethically towards local communities? (3)

Answer 7

Show consideration for the environment by reducing pollution​
Provide facilities for communities such as improved roads, nurseries or libraries​
Give charitable donations to local groups or sponsor local sports teams

Question 8

Define fair trade.

Answer 8

The fair treatment of farmers in getting a fair price for their products

Question 9

How does acting ethically impact negatively on profitability? (2)

Answer 9

Costs are likely to rise. For example, paying a ‘living wage’, as opposed to complying with the minimum wage legislation, will increase labour costs. Building improved canteen facilities or providing sports facilities for employees would prove to be very costly​
Revenues are likely to fall. For example, a toy retailer that refuses to target children with blanket advertising prior to Christmas will no doubt lose sales to their competitors. A construction company that declines to offer a bribe to a LEDC’s government official when tendering for a contract may well not be considered for that project​

Question 10

How does acting ethically impact positively on profitability? (7)

Answer 10

Some customers are attracted to those businesses that adopt an ethical approach. Businesses who act in an ethical way will be viewed in a better light by consumers, which in turn may result in consumer loyalty. The business may see its sales increase or maybe able to charge a higher price for its products, as a result of its ethical credentials​
Employees who work for an ethical business are likely to have the same ethical beliefs and proud that they work for such a business. This is likely to increase their motivation to work hard and remain loyal to the business​
Restaurants and coffee shops that source their ingredients from ethical suppliers appeal to a growing number of customers. Using ‘ethics’ at the heart of their marketing campaigns can boost sales in certain instances. The growth of the Fairtrade movement is evidence of such a trend​
Acting ethically can improve public relations (PR) and have a positive impact on the image that a business portrays. No business wants to have its name splashed all over the newspapers for mistreating its employees or using low quality ingredients that may be harmful to consumers. Checking supply chains carefully is not only ethical but can also prevent significant loss of revenue and reputation
Suppliers are more stable and in a better position to fulfil orders​
May be able to hire better workers​
Competitive advantage