Ethical Considerations (OCR GCSE Business)

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

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

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