Business Ethics (AQA GCSE Business)
Revision Note
Trade-offs Between Ethics & Profit
Ethics relates to the rights or wrongs of making a business decision that are beyond legal requirements
Businesses that choose to adopt ethical principles can attract long-term loyalty from employees and customers
They may find that their approach, if it is unique amongst rivals, provides a useful competitive advantage
Consumers are increasingly aware, through media coverage, of the behaviour of businesses
More and more consumers are choosing to buy from responsible businesses, sometimes boycotting those with poor reputations
Taking an ethical approach is likely to increase business costs and may not increase revenue
Paying fair wages and ensuring the welfare of workers is likely to increase staffing costs
Improving environmental controls may require significant capital investment in green technologies
Paying suppliers on time reduces the amount of working capital available to fund day-to-day business activities
Implementing a responsible supply chain may mean paying more for raw materials and components, as well as the expense of carrying our regular audits
If a business is unable to raise their prices to compensate or fails to attract sufficient ethically-minded customers, its revenue may not rise enough to cover these increased costs
Overall, whilst behaving ethically is both the right and commercially responsible way to behave, it is likely to reduce the overall level of profits generated by a business
This is known as a trade-off between ethics and profit
Ethical Business Behaviour
Businesses that consider how their activities impact on a wide range of stakeholders accept this trade-off between ethics and profit
They make ethical choices, rather than the most profitable ones
They are honest and responsible in their marketing activities
Their production processes are environmentally sound
They source raw materials and components from sustainable, responsible suppliers
They treat their workers fairly, paying them a sufficient wage, and provide secure contracts
They take steps to eliminate gender bias and other areas of potential discrimination
They avoid investing in unethical projects and do not engage in tax avoidance
Ethical businesses value the positive reputation gained from doing the right thing
Ethical behaviour can increase awareness of a business and may be used in promotional campaigns, which should lead to increased sales
Examples of Business Responses to Ethical Issues
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Sustainable sourcing of raw materials and components |
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Responsible marketing |
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Protecting the environment |
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Responsible customer service |
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Ethical codes of practice
Some businesses have an ethical code of practice that determines the behaviour of all members of the organisation
These codes commonly cover aspects such as how the business intends to:
Be environmentally responsible (for example, using recycled materials in packaging)
Avoid negative impacts on animals (e.g animal testing or the destruction of habitats)
Adopt fair working practices (e.g. paying a real living wage or avoiding zero hours contracts)
Implement responsible supply chains (e.g. using sustainably-sourced raw materials in production)
Eliminate corruption (e.g. ensuring appropriate tax is paid in the countries in which the business operates)
Avoid controversial products or take steps to minimise their impact or access to them (e.g. putting strict age verification procedures in place prior to cosmetic surgery procedures being carried out)
Break links with questionable suppliers or customers (e.g. cancelling a supply contract with a supplier that uses child labour)
The Benefits & Drawbacks of Behaving Ethically
Businesses that behave ethically can benefit themselves, as well as society as a whole, in a number of ways
Business Benefits of Behaving Ethically
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Improved reputation |
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Added value |
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Employee morale & motivation |
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Solve social problems |
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However, as well as increasing costs, behaving ethically can mean that a business is subject to high levels of scrutiny
Failure to meet the highest standards of behaviour risks negative media exposure that can have a significant impact on reputation and sales
E.g. In 2017, personal scandal surrounding the CEO of The Cooperative Bank, as as well as serious incidents of mismanagement, seriously undermined its claim to be the UK's 'ethical bank'
Some large businesses have been accused of greenwashing
Greenwashing may involve
Making sustainability claims without evidence
Overstating positive environmental effects in advertising
Advertising products as eco-friendly whilst sourcing raw materials from unsustainable suppliers
E.g. IKEA received criticism for building its “greenest store” in Greenwich, despite tearing down another green building to make way for it
Examiner Tip
Businesses make decisions that involve trade-offs all the time. They offer you a great chance to frame your analysis in longer answers and can be a great basis for evaluation in 12-mark questions. Consider, for example, what a business might have to give up if it makes a particular choice. How might this affect different stakeholders?
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