Morals and Ethics
- Morals are personal beliefs about what is right and wrong.
- Ethics are rules which say what is acceptable behaviour for members of a group. Business ethics are about doing the "right thing".
Ethical behaviour in business
- Business ethics help businesses make socially responsible decisions.
- In recent years, changes in consumer concerns have led many firms to consider whether their behaviour is ethical. Not everyone agrees on what's ethical and what's not. e.g. most people agree that child labour is unethical, but opinions differ on whether it's unethical to sell cigarettes even though they cause cancer.
- In the UK, one of the ethical issues that manufacturing businesses have to consider is the balance between capital and labour. It might be more effecient for them to replace some of their workforce with machines, but some people think that this is unethical if it leads to high numbers of redundancies.
- Ethical behaviour can affect profit, e.g. if it means paying suppliers a higher price. However, it has positive effects too - behaving ethically attracts customers who approve of this approach. It can be unique selling point, particularly in retail. Ethics can be good PR.
- Growth objectives can also be affected by ethical behaviour. So a company producing fair trade clothes (giving their suppliers in developing countries fair pay and fair conditions) is likely to have longer lead times than a non-fair trade company, so retailers' concerns about supply times might stop it expanding rapidly.
- Businesses might also try to accommodate their employees' spiritual needs. This might mean providing separate kitchen facilities for employees with religious dietary needs or providing a quiet place to pray.
Corporate Social Responsibility (CSR) (1)
- CSR is the voluntary role of business in looking after society and the environment.
- Businesses have special responsibility to their stakeholders.
- Every firm has legal responsibilities to its staff.
- Firms have a responsibility to train employees.
- Firms can choose to give their employees a better deal than the bare legal minimum. Firms that operate internationally can choose to give workers abroad similar rights to UK workers.
- It's not in a firm's best interest to treat their suppliers badly. For good results, be honest and pay on time.
- Firms can build long-term relationships with suppliers e.g. by offering long-term exclusive supply contracts and placing regular orders. A good relationship makes it more likely that the supplier will pull all the stops out to deliver fast service when it's really needed.
- There's also a responsibility to the rest of society to choose suppliers who don't exploit their workers or pollute excessively. Firms may not see this as worthwhile, unless customers care enough to boycott the product.
- Firms who treat their customers well can build up customer goodwill. Good customer service, good quality products and reasonable prices all encourage customer loyalty and repeat business.
- Customers are more and more willing to complain when firms don't treat them well. Customers can even campaign against firms who disappoint, and persuade other people not to buy their goods and services.
- Firms can be responsible to the local community by keeping jobs secure, and using local suppliers.
- They can also avoid noise pollution, air pollution and excess traffic on local roads.
- Businesses can earn goodwill by making charity donations or sponsoring schools, leisure centres, parks etc.
Some people claim that it's unethical to produce certain types of product, e.g. tobacco and weapons, and that even if the companies who make these things behave in a socially responsible way in terms of how they treat their staff, etc, it's only to distract consumers and get positive PR. These people tend to think that government regulations and laws are the only real way of getting businesses to behave responsibly.
CSR's impact on decision-making
- Traditionally, the decision-making process put the needs of shareholders first - which meant that the business was concerned with its profits above all else.
- Corporate social responsibility means that the needs of other stakeholders also have to be considered during the decision-making process. E.g. a company that makes chocolate bars for children might put some stuff on the website about the importance of healthy eating and being active.
- In reality though, it can be hard to take into account the needs of all shareholders. If a company has promised to invest in a local school for the next 5 years but its profits fall sharply, it has to decide which is more important - keeping shareholders happy or the need to behave ethically.
Business activity can be harmful to the environmen
- Businesses pollute the environment through production processes, through traffic pollution caused by transporting raw materials and finished goods, through dumping waste in waterways and seas, and through burying or burning waste. Packaging creates a large amount of landfill waste.
- Businesses also damage the environment through unsustainable resource management - e.g. cutting down rainforest for mining developments, building on greenfield sites.
- The Environment Act (1995) set up the Environment Agency, which coordinates pollution control. Businesses can't release dangerous substances into waterways or the air without a permit from the Environment Agency. There are also a lot of EU directives relating to pollution.
- Most environmental costs are external costs, i.e. they affect society, not the business itself. External costs include health issues caused by air pollution, the greenhouse effect and acid rain.
- The government fines businesses who pollute more than a certain level. Pollution control is also done by taxation. This means that pollution has internal financial costs.
- Many businesses now try to minimise the impact they have on the environment. One way they can do this is to ensure that their activities are sustainable, e.g. replacing resources as they use them. This might mean cleaning waste water before it's pumped back into rivers and lakes, planting new trees to replace trees that are cut down for timber or making sure that overfishing doesn't cause certain species to die out altogether.
- An environmental audit is a review of the environmental effects of the firm's activities. It assesses whether the firm is meeting legal environmental protection requirements, and whether it's meeting it's own targets. Environmental audits show businesses where they need to change their waste management practices.
- For example, one of the environmental costs of business activitiy is the emission of greenhouse gases. A business which has decided to reduce the amount of greenhouse gases emitted into the atmosphere would set a clear objective for reducing emissions and check their progress towards this objective through an environmental audit.
- Environmental audits only work if a company has something to compare its waste output to (e.g. legal requirements or company policy) and if it knows what action will be taken to reduce the amount of waste if it's too high. Firms aiming to reduce their waste output over time need to keep accurate records of waste levels.
Positive and Negative Externalities
- Positive externalities (also called external benefits) are the positive effects that a firm's activities have on the outside world. If a construction company builds an upmarket housing estate, it's likely to attract high income families. This creates a positive externality because those families spend money in local shops etc. Training is another example of a positive externality - it benefits companies who employ the trained workers in the future.
- Negative externalities are things like pollution and the health issues caused by certain products, e.g. cigarettes. They're a cost to society.
- Positive and negative externalities can cause problems if they lead to market failure.