Chapter 80- Ethics

Question 1

International ethics

Answer 1

At an international level ethics may or may not be reflected in a country’s laws and regulations.

If firm establishes in a country, it will have to work within the institutional framework of both the home and host country, meaning a firm may be acting within the laws of the home country but be seen as unethically in the other, vice versa.

Question 2

Stakeholder conflicts

Answer 2

Many people have a stake in the decisions that firms make.  
Types of stakeholders in an international firm:
•	Go’s + NGOs
•	Communities 
•	Customers
•	Shareholders 
•	Managers and employees
•	Suppliers

Question 3

Stakeholder issues can arise in any area of a business, including:

Answer 3

• Consumers
• Employees
• Shareholders
• Countries and Communities

Question 4

Consumer stakeholder issues

Answer 4

• Conflicts of interest e.g. where an energy firm
manipulates markets resulting in consumers paying more.
• Product safety, e.g. tainted meat that reaches consumers.
• Misleading advertising

Question 5

Employees stakeholder issues

Answer 5

• Employee safety, ensuring health and safety conditions
• Employee redundancies
• Pay and conditions

Question 6

Shareholder stakeholder issues

Answer 6

• Conflicts of interest between management and shareholders.
• Short- term vs long term returns on shares. The business will want to give out less dividends in the short term, so they can reinvest into the business using retained profit which is the cheapest option. However shareholders may want their money in the short term.

Question 7

Countries or communities stakeholder issues

Answer 7

• Safety e.g. where peoples well-being is compromised, such as the reported pesticide chemical leak at the Union Carbide plant in Bhopal, India, that poisoned over 300,000 people and caused 5,200 deaths.
• Environmental concerns e.g. pollution or damage to environment.
• Resource depletion, where a company’s extraction objectives conflict with the best possible future for that country.

Question 8

Pay and Working Conditions

Answer 8

• Major problem in business ethics is the complexities of global supply chains and the working conditions of employees. In UK there are many laws in place and high levels of legislation, which define the rights of workers such as holiday entitlement, health and safety etc. However, such laws usually do not exist in other countries, which usually attracts large TNCs that can benefit from cheap labour, although working conditions are low for the people there.
• E.g. Sweatshops which often have poor ventilation, little space, dangerous chemicals etc.
• MNC’s can locate anywhere therefore highly comp market where the lower the wages the higher the revenue can be made.
• However, MNC’s customers now not happy with this due to ethical issues and morals.
• Initiatives and organisation are now there to promote fair working practises for all e.g. the Ethical Trading Initiative (British NGO) or the body shop.
• Pay can also be an issue, with managers also being stakeholders of the business therefore, getting e.g. executive pay unlike employees.

Question 9

Environmental considerations

Answer 9

• Companies concerned with environment- due to wanting to please all stakeholder, increasing gov regulation and how to reduce running costs.
• Emissions: Climate change important international issue- strict legislation in UK, unlike in LDCs where MNC’s base their manufacturing industry = other priorities in these places such as employment – therefore LDCs can suffer from bad air pollution etc., e.g. Bhopal chemical leak in India.
• Waste Disposal: Waste disposal monitor in UK, not in LDCs though + many barriers to effective waste disposal in LEDCs such as infrastructure etc. Waste is being dropped illegally in LEDC’s containing toxic elements which are of concern.

Question 10

Supply Chain Considerations

Answer 10

• Products may have a long supply chain that businesses do not want to check the ethical sourcing of every part of the product yet it could be being made by enslaved workforces etc.
• Exploitation of labour: Common throughout the world. Life as a ‘modern slave’ can be seen where an individual in an LEDC seeks wok from a recruiter, employing firm will pay recruiter back, but will insist the new employee pays them back. This is called ‘bonded labour’.
• Child labour: Happens in LDC’s countries where with tradition children are sent to work yet in the UK this is morally wrong, however it can also be morally wrong to take away work from that child that may need for their family. Therefore MNC’s can choose whether to use child labour or not, or find other initiatives for use.

Question 11

Marketing Considerations

Answer 11

• Misleading labelling: labels should not be misleading, so consumers know whether they want to purchase the product or not. Labels must be accurate and cannot have false info. However, these laws are not permitted outside the UK so businesses have to ensure they are complying with foreign rules.
• Inappropriate promotional activities: Product promotion can cover a broad range of activities such as advertising, publicity and direct marketing – can be considered to be inappropriate if they illegal or offensive. This can be affected by social and cultural norms of the country. E.g. in China, the use of personal connections in business is common and can include gift-gift, doing favours etc., however in the UK these practises might be deemed unethical or illegal.

Question 12

Ethics

Answer 12

Moral rules or principles of behaviour that should guide member of profession or organisation and make them deal honestly and fairly with each other and with their stakeholders.

Question 13

Institutional framework

Answer 13

The system of formal laws, regulations and procedures, and informal conventions customs and norms that shape activity and behaviour.

Question 14

Code of conduct

Answer 14

A set of rules outlining the proper practises of an organisation that contributes to the welfare of key stakeholders and respects the rights of all affected by its operations.

Question 15

Stakeholders

Answer 15

Groups or individuals who can affect or be affected by the actions of a business.