Business ethics 3.4.4

Question 1

What are business ethics?

Answer 1

The moral principles that guide the way a business behaves.

Question 2

What is a trade-off?

Answer 2

Is when one decision results in the loss of an alternative outcome, for each decision made there may be multiple trade-offs.

Question 3

How do a business’s ethical standards play a crucial role in the decision-making?

Answer 3

• Used by individuals to make choices about how to behave
• They define acceptable conduct in business
• Should underpin decision making
• An ethical decision is one that is both legal and meets the shared ethical standards of the relevant business community
• Note: different countries and cultures have different attitudes to what constitutes acceptable ethical behaviour.

Question 4

Ethics in strategic decisions include:

Answer 4

1) Location decisions
- Ability to exploit workers
- Impact on the environment

2) Mergers, takeovers and retrenchment (reducing costs of the business e.g. staffing)
- Impact on workers
- Ability to exploit customers or control suppliers
- Transparency of deals

3) Corruption
- Dealing with authorities
- Power over suppliers or customers

4) Working with suppliers
- Ethical sourcing e.g. Fairtrade
- Fair payment terms

Question 5

What are examples of the ethical decision and how it leads to a potential trade-off?

Answer 5

Fair treatment of suppliers: Paying more for materials so increase the costs of business.

Pay taxes in the UK: Make less profit for the company.

Don’t exploit workers: Cost will go up within the business e.g pay.

Product placement in stores to reduce pester power: People buy less from the business.

Pay above the minimum wage: More money on staff could mean not being able to finance a large number of employees.

Ethically sourced ingredients: Increased production costs.

Question 6

What are the benefits and drawbacks of ethical strategic decisions?

Answer 6

• Benefits of ethical strategic decisions may include higher revenues due to positive consumer support, improved brand and business awareness and recognition, better employee motivation and recruitment, and new sources of finance e.g. ethical investors.
• Drawbacks include higher costs and higher overheads, such as training, as well as the danger of building up false expectations.

Question 7

What is remuneration?

Answer 7

The reward for employment in the form of pay, salary, or wage, including allowances, fringe benefits, bonuses, cash incentives etc.

Question 8

Ethics can be reflected in the way the business recruits, motivates and rewards staff.

Answer 8

• Is it ethical to pay just the living wage?
• Should London businesses pay above the living wage?
• Should senior managers be paid higher remuneration than others in the business?
• Is it ethical for CEOs to be paid hundreds of more times better than the average employee in the business?

Question 9

How can recruitment be fair?

Answer 9

The recruitment process needs to be fair and free from bias and should at least follow the law. A company needs to spend money regularly on staff training and development. The trade-off is that these strategies require a significant amount of ongoing financial investment which reduces the business’s profits, at least in the short term.

Question 10

How can staff be praised for their work?

Answer 10

Rewards for staff, such as basic pay and bonuses, need to be equal across the business in order to be considered ethical, which incurs greater costs in the short term but in the longer term has a positive impact on staff motivation and higher revenues.

Question 11

What is the role of ethical pay?

Answer 11

Ethical pay also covers the differences between senior managers and staff. Employees do not expect the approach taken by Dan Price, chief executive of American company Gravity Payments, who cut his own pay so that all staff would receive a minimum wage of $70,000, but ethical decisions would require employees to understand any large issue with the company not being equal.

Question 12

What is corporate social responsibility?

Answer 12

• A business’s initiatives regarding the community and environment and willingness to take responsibility for the effects the company’s actions have on environmental and social issues and the impact on a range of stakeholders.
• CSR is based on the concept that society needs businesses to employ staff, make investments and raise taxes from profits and the business needs society to create demand, to use public infrastructure, such as roads and power, and for legal protection.

Question 13

What are pressure groups?

Answer 13

A group that tries to influence company policy in the interest of a particular cause.

Question 14

What is the shareholder concept?

Answer 14

Not all business organisations operate in a socially responsible manner. Some argue that it is not the job of businesses to be concerned about social issues and problems.

The shareholder concept is closely associated with the writing of US economist Milton Friedman who argued that:

“…the only responsibility of business towards the society is the maximization of profits to the shareholders, within the legal framework and the ethical custom of the country”.

Question 15

The key arguments for businesses focusing on meeting the needs of shareholders rather than wider societal needs include:

Answer 15

• The only social responsibility / corporate objective of business is to create shareholder wealth.
• The efficient use of resources will be reduced if businesses are restricted in how they act.
• Businesses cannot decide what is in society’s interest.
• Extra costs will be incurred which must be passed onto the consumers such as costs in looking after employees, using ethical suppliers, and enforcing environmentally friendly practices throughout the business’ operation.
• CSR stifles innovation and growth.
• The opportunity cost of spending lots of time on CSR, policies, reports and monitoring.

Question 16

What are the key concepts underpinning the stakeholder concept?

Answer 16

• Businesses do not have an unquestioned right to operate in society.
• Those managing businesses should recognise that they depend on society.
• Business relies on inputs from society and on socially created institutions.
• There is a social contract between business and society involving mutual obligations that society and business recognise that they have each other.

Question 17

What are the key arguments for businesses embracing CSR?

Answer 17

• It is the ethical thing to do.
• Greater customer loyalty.
• Potential for differentiation and using CSR as a USP that can allow for premium pricing.
• Brings much more positive media attention than negative.
• Improves a business’ image and reputation.
• Necessary in order to avoid excessive regulation.
• Socially responsible actions can be profitable.
• Improved social environment benefits business.
• Helps attract investors.
• Avoids fines and environmental taxes.
• Lower production costs through
  efficient procedures and recycling.
• Positive relationship with suppliers.
• Can increase employee motivation.
• Recruitment and retention of staff - attract a wider pool of talent and skills.
• Helps to correct the social problems caused by the business.

Question 18

What is Carroll’s CSR pyramid?

Answer 18

Carroll’s CSR Pyramid is a simple framework that helps argue how and why organisations should meet their social responsibilities.

The key features of Carroll’s CSR Pyramid are that:
- CSR is built on the foundation of profit – profit must come first.
- Then comes the need for a business to ensure it complies with all laws & regulations.
- Before a business considers its philanthropic options, it also needs to meet its ethical duties.

Question 19

What are the 4 responsibilities displayed on the pyramid?

Answer 19

ECONOMIC:
- This is the responsibility of the business to be profitable.
- Only way to survive and benefit society in the long-term.
- Have the obligation to pay a fair rate to employees and suppliers whilst rewarding investors.
LEGAL:
- This is the responsibility to obey laws and other regulations.
- E.g. Employment, Competition, Health & Safety.
ETHICAL:
- This is the responsibility to act morally and ethically correctly.
- With this responsibility, businesses should go beyond the narrow requirements of the law.
- E.g. Treatment of suppliers & employees.
PHILANTHROPIC:
- This is the responsibility to give back to society and do good.
- The responsibility is discretionary but still important.
- E.g. charitable donations, staff time on projects.

Question 20

Evaluating Carroll’s CSR pyramid?

Answer 20

Strengths:
- The model is easy to understand.
- Simple message – CSR has more than one element.
- Emphasises the importance of profit.

Weaknesses:
- Perhaps too simplistic?
- Should ethics be at the top?
- Businesses don’t always do what they claim when it comes to CSR.

Question 21

Pressure can be put on businesses to behave in a socially responsible way:

Answer 21

Pressure groups have emphasised conflicts with the community by providing a way of voicing opinions that the business will find difficult to ignore, including financial and legal expertise and backing.

• Consumer actions
• Pressure groups
• Government actions
• Media coverage / Social media
• Investors