3.4.4. business ethics

business ethics

look at morality in decision making

• can be affected by law e.g. minimum wage

• can be not guided by law e.g. using sweatshop labour

ethical codes of practice

statements about how employees in a business should behave in particular circumstances where ethical issues arise

• environmental responsibility

• dealing with customers / suppliers in a fair and honest way

• competing fairly

• how staff are treated

trade off

when a business must choose between two conflicting objectives

trade off for: fair treatment of suppliers

paying suppliers fairly or on time may increase costs and reduce profit margins

trade off for: do not exploit workers

paying fair wages, providing safe conditions and limiting hours increases labour costs and reduces short-term profit

trade off for: ethically sourced ingredients

higher material costs from sustainable suppliers can reduce short-term profit

benefits of treating staff in this way

• lower wage costs → higher short-term profits

• strict controlling increases efficiency temporarily

• flexible workforce can reduce overheads

drawbacks of treating staff in this way

• high staff turnover

• damage to brand reputation

• lower productivity due to poor motivation

• potential legal issues

• difficulty attracting skilled workers

corporate social responsibility

a business’ decision to accept responsibility to its stakeholders for its social, environmental and ethical actions

• stakeholders include: employees, customers, suppliers

reasons for CSR

• financial benefits

• HR benefits

• marketing benefits

• operational benefits

financial benefits of CSR

• improves brand image → can attract more customers and boosts long-term profits

• reduces risk of bad publicity / PR

• may attract ethical investors

• increases customer loyalty

• may reduce costs through energy efficiency or waste reduction

HR benefits of CSR

• improved employee motivation

• lower staff turnover

• attracts better candidates → wide pool of talent

• higher productivity

marketing benefits of CSR

• stronger brand image and reputation

• customer loyalty

• positive media coverage 

  • external bodies e.g. investors

• product differentiation / USP

• access to new markets

operational benefits of CSR

• efficiency gains

• lower long-term costs

• better supplier relationships

reasons against CSR

• financial cost

• not meeting corporate objectives

• opportunity costs

financial cost of CSR

• looking after employees e.g. training,pay,working conditions

• ethical suppliers, direct and throughout the supply chain

• appointing a director to be responsible for CSR

not meeting corporate objectives of CSR

• short-term shareholders’ returns

• growth: entering new markets

opportunity costs of CSR

• time spent on CSR, policies, reports and monitoring

• day-to-day functions