Business Ethics (AQA GCSE Business)

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Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

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


Ethical Issue


Example

Sustainable sourcing of raw materials and components

  • Spanish fashion brand El Naturalista make recycled products to match non-recycled fashion items and has developed more than 500 recycled fabrics since its launch in 2009

Responsible marketing

  • Aldi 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

  • Café 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

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


Reason


Explanation

Improved reputation

  • Ethical businesses often have a positive image and reputation, which is attractive to stakeholders 

    • Existing and potential customers may be attracted to its products

    • It should lead to positive media coverage

    • The business may be able to retain and attract quality workers to fill job roles

    • It may be looked upon favourably by investors, especially those that prefer ethical investment

Added value

  • Ethical behaviour adds value

    • In competitive markets behaving ethically can provide an important USP that may mean the business can use premium pricing

    • E.g. Tony's Chocolate's, whose mission is to be commercially successful whilst being committed to using cocoa only from slavery-free sources, is able to charge around 200% more for its products than its mass market rivals

Employee morale & motivation

  • Employees in ethical business are likely to be motivated and productive

    • Workers are more likely to feel connected to a business that 'does the right thing' and may be more inclined to work hard to ensure that the business is a success

    • Employees are also less likely to leave the business or take time off work

Solve social problems

  • Ethical behaviour can help solve social problems e.g. poverty

    • Ethical businesses understand that they can play a key role in solving some of the emerging social, ethical and environmental problems faced by communities around the world

    • E.g. Businesses that pay workers fairly and offer stable contracts make a contribution to the reduction of poverty levels

  • 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 Tips and Tricks

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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Lisa Eades

Author: Lisa Eades

Expertise: Business Content Creator

Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.

Steve Vorster

Author: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.