Ethical Considerations (OCR GCSE Business)

Revision Note

Lisa Eades

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

  • Existing and potential suppliers may be keen to form strong partnerships with an ethical business

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

  • Existing and potential customers may be more attracted to its products

Added value

  • In competitive markets treating workers and suppliers well 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 and motivation

  • 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, increasing productivity

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

Fairtrade products such as bananas, chocolate, coffee, ice cream and snacks are widely available in UK supermarkets
Fairtrade products such as bananas, chocolate, coffee, ice cream and snacks are widely available in UK supermarkets
  • 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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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.