Ethical Considerations (OCR GCSE Business)
Revision Note
Written by: Lisa Eades
Reviewed by: Steve Vorster
An Introduction to Ethics
Ethics relates to the rights or wrongs of making a business decision that are beyond legal requirements
What is considered ethical changes over time
E.g. The use of animals in cosmetics testing was widespread until the 1990s, when public opinion shifted, largely as a result of pressure group activity and increased awareness
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
However, 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
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
E.g. IKEA received criticism for building its “greenest store” in Greenwich, despite tearing down another green building to make way for it
Businesses that consider how their activities impact on a wide range of stakeholders accept this trade-off, and make ethical choices, rather than the most profitable ones
Examiner Tips and Tricks
In the exam, you may be asked to evaluate the benefits and drawbacks of ethical behaviour. Consideration of the trade-off between ethical behaviour and profit is a key concept you may find useful in your judgement.
Treatment of Workers and Suppliers
The treatment of workers and suppliers has become an increasingly important ethical issue in recent years
Ethical businesses treat their workers well, ensuring that they avoid practices such as:
Paying low wages or expecting employees to work long hours
Discrimination on the grounds of gender, ethnicity, disability or age
Requiring workers to operate in dangerous or unhealthy conditions
Refusing to recognise trade unions
Employing child labour
Ethical businesses also deal responsibly with their suppliers, ensuring that they:
Avoid unfair supply terms, such as harsh penalties for logistics problems that are beyond their control
Pay suppliers promptly so that they are not exposed to cash flow problems
Do not restrict suppliers sales to rival businesses
Pay fair prices to suppliers, enabling them to make a profit
Evaluation of the Ethical Treatment of Workers and Suppliers
Reason | Explanation |
---|---|
Improved reputation |
|
Added value |
|
Employee morale and motivation |
|
Ethical Sourcing
Ethical sourcing means that products at each point in a business’s supply chain are obtained in an ethical way
This includes purchasing raw materials, components and business services from suppliers that:
Actively uphold workers' rights
Implement and maintain safe working conditions
Pay workers fairly and do not use child labour
Make a positive contribution to their local economy, such as investing in education or improving social conditions
Are not associated with corruption
Avoid negative impacts on animals or the environment
The Fairtrade Foundation issues certification for products that are sourced responsibly
Fairtrade products, including chocolate, coffee and bananas, are widely available in UK supermarkets and can often be sold at a premium price
Criticisms of Fairtrade include:
Prices paid by large businesses to ethical producers are not much higher than those paid to less responsible suppliers
There may be an overdependency on Fairtrade in some countries, restricting development, particularly in technology
Marketing Decisions and Customers
Ethical businesses ensure that they treat customers fairly, avoiding practices such as:
Making misleading claims in promotional campaigns
The Advertising Standards Association's code of practice requires promotions to be legal, decent, honest and truthful
It has the power to refer cases to Trading Standards, which may lead to prosecution
Targeting younger customers with products that may be harmful
In the UK, many grocery stores now avoid placing sugary treats, often purchased on impulse, near checkouts
Overcharging customers or failing to pass savings on to customers
Some UK banks have recently received criticism for failing to pass on interest rate rises to savers
Cold-calling customers to pursue sales
Pressure group Money Saving Expert has issued advice to customers about tactics used by energy and broadband suppliers, who often approach customers by phone or in person
Carrying out animal testing on cosmetic products
People for the Ethical Treatment of Animals (Peta), a pressure group campaigning for an end to all animal testing, publishes lists of businesses that do and do not test their products on animals
Businesses that behave responsibly towards their customers are more likely to gain their loyalty, increasing sales
In addition, investors are increasingly attracted to businesses that behave responsibly, providing an important source of finance
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