Business Ethics (Edexcel A Level Business)

• Ethics relates to the rights or wrongs of making a strategic decision that are beyond legal requirements and in accordance with a businesses corporate responsibility principles
  
  
• Some ethical businesses adopt an ethical code of practice which informs decision-making and may set out how a they
  • behave responsibly with regards to the environment (for example, using recycled materials in packaging)
  • avoids negative impacts on animals (e.g animal testing)
  • adopts fair working practices (e.g. paying a real living wage)
  • implements robust and equitable supply chains (e.g. using sustainably-sourced raw materials in production)
  • takes steps to eliminate corruption (e.g. ensuring appropriate tax is paid in the countries in which the business operates)
  • avoids controversial products or take steps to minimise their impact or access to them (e.g. having strict verification procedures in place prior to cosmetic surgery procedures being carried out)
  • ceases trading with questionable suppliers or customers (e.g. cancelling a supply contract with a supplier that uses child labour)
    
    

Trade-offs between profit and ethics

• Businesses will embed their ethical code of practice into every aspect of their operations and ethical priorities will feature heavily in
  • • Recruitment documentation and HR procedures
    • Induction and training programmes
    • Performance management cycles and rewards systems
    • Promotional literature and other communications
       

An extract from Intel's ethical code of conduct

(Source Intel)

  

• Businesses that choose to adopt ethical principles usually attract long-term loyalty from employees and customers and may find that their approach provides a useful competitive advantage
  
  
• Taking an ethical approach costs more and may reduce the overall level of profits if the business is not able to raise their prices to compensate
  
  

Ethics in pay and rewards

• Salaries, wages and other forms of financial reward (e.g. performance-related bonuses) play an important role in
  • rewarding and motivating existing staff
  • attracting new employees
  • maximising productivity levels
     

Current Ethical Concerns with Regard to pay

The Gender Pay Gap	Minimum Wages	Executive Bonuses
In the UK the gender pay gap stands at around 10% which means on average women earn 10% less than men per hour, despite 50-year old Equal Pay legislation Unilever and Evans Cycles have taken steps to successfully eliminate the gender pay gap though Easyjet and fashion retailer Phase Eight have gender pay gaps of more than 50%	Many businesses pay workers the legally required minimum wage To supplement their earnings many low-paid workers are entitled to benefits such as Tax Credits which are a significant cost to the economy In 2015 more than £1bn in benefits was paid to workers of the four largest UK supermarket chains leading to accusations that the government subsidises the profits of big businesses	In 2022 the pay of CEOs of FTSE 100 companies jumped by an average of 25% largely as a result of record bonus payments At the same time many businesses were restricting pay increases for employees to help them cope with increasing levels of inflation

 

Ethics and corporate social responsibility

• Corporate social responsibility involved conducting business activity in an ethical way and balancing the interests of shareholders with those of the wider community
  
  

Examples of Socially Responsible Activities 

Socially Responsible Activity	Example
Sustainable sourcing of raw materials and components	High street retailer H&M has a goal of using only recycled or sustainably sourced materials by 2030 It also publishes a list of the majority of their supplier’s information which is updated regularly, allowing stakeholders to verify and hold the company responsible for their suppliers’ conduct
Responsible marketing	Marks and Spencer ensures that it never actively directs any marketing communications to children under the age of 12 and does not directly advertise any products high in fat, sugar or salt to children under the age of eighteen
Protecting the environment	Cafe chain Prêt à Manger offers discounts to customers who bring their own coffee cup, reducing the number of single-use plastic containers it dispenses
Responsible customer service	John Lewis's famous 'Never Knowingly Undersold' slogan refers to the company's commitment to checking competitor prices regularly to ensure that the price its customers pay is the lowest available in the local area at that time

 

• It is now common practice for large companies to publish annual Corporate Responsibility Reports which provide an audit of the steps being taken to meet their commitments to a range of stakeholders alongside annual financial reports
• Extra costs are involved in operating in a socially responsible way and these costs must be passed on to consumers
    

The Benefits of CSR

• CSR can enhance the business image and reputation
• CSR is attractive to many stakeholders
• CSR can be very profitable as it adds value for many stakeholders
• CSR may improve employee motivation and productivity
• CSR can help to recruit strong candidates for jobs advertised
• CSR may help to solve social problems e.g. resource depletion