Business Ethics

Business Ethics

1. What is business ethics

   • Examines how people and institutions should behave in the world of commerce, for example, appropriate limits of self-interest or profits for firms and when the actions of individual firms affect others.
     • Companies may publish codes of conduct for the corporation or for individuals within them which may include their responsibilities towards the environment and the developing world created by globalisation of markets and free trade between countries.
       • Includes application of general ethical concepts to the unique situations confronted in business. It asks what is right or wrong behaviour in business and what principles or rules can be used as guidance in business situations.

2. Key Issues in Business Ethics

   • Many of the ethical issues in business are covered by codes of ethics. These concern both employers and employees.
     • Employees, for example should avoid any conflicts of interest such as investing in competing firms, should not accept bribes and should not buy or sell information.
       • Employers should treat their workers well, train them and develop their careers, take care of health and safety issues, etc. Businesses also tend to have an environmental policy that aims at sustainability.
         • Just because a business has a policy does not mean that it will behave in an ethical way - child labour, ignore workers rights.
           • Unethical Practices: Child or forced labour, production in sweatshops or other hazardous environments, violation of the basic rights of workers, ignoring health, safety and environmental standards.
             • An ethical business has to be concerned with the behaviour of all businesses that operate in the supply chain, including: suppliers, contractors, distributors and sale agents.

3. Employers or Employees

   • When a business behaves unethically, an employee may decide to inform the authorities - this is known as whistleblowing.
     • If someone finds out the company they work for is acting unethically, do they have a responsibility to blow the whistle? They may lose their job, and they may not be compensated for this.
       • They also risk harming the business, and ultimately many of their friend and co-workers may suffer. Sometimes both employers and employees behave unethically.
         • Employers in seeking profit might become involved in industrial espionage of rival businesses and both employers and employees might use their knowledge to enrich themselves through 'insider trading'

4. Business and Consumers

   • The role of consumers in ethical business practice is also important. Consumers may take action against:
     • Businesses they consider to be unethical in some ways.
     • Businesses acting irresponsibly. Businesses that use business practices they find unacceptable.
       • Consumer action can also be positive - supporting businesses with a strong ethical stance and record. A good example of this is Fairtrade.
         • Does ethical behaviour help business? Advantages - Higher revenues demand from positive consumer support. Improved brand and business awareness and recognition.
           • Better employee motivation and recruitment. New sources of finance - eg from ethical investors.
             • Disadvantages - Higher costs, eg sourcing from Fairtrade rather than lowest price. Higher overheads, eg. training and communication of ethical policy. A danger of building up false expectations and that people will think the business is ethical in every aspect.

5. Examples

   • Ford Pinto
     • Design and production for the car was rushed which resulted in a fault. To put it right it would have meant recalling all Ford Pintos and spending between $10 to $20 on each car. The overall estimated bill was $137 million.
       • Ford then calculated the likely number of accidents resulting from this fault; they reckoned there would be 180 deaths, 180 serious burn injuries, 2100 vehicles lost. This would cost $49.5 million in lawsuits.
         • It would be cheaper not to recall the cars and to pay out when people started dying as a result of the fault.
   • The Co-operative Bank
     • Launched it ethical policies in 1992 after extensive consultation with its customers - a first among UK high street banks and still unique today. It allows customers to have a say on issues that matter to them, such as human rights, animal welfare, fair trade and the environment.
       • Since this it has withheld over £1.2 billion of funding from business activities that its customers have said are unethical, while stimulating increasing commercial lending to ethical businesses sixteenfold to almost £9 billion.
   • Primark
     • Use of child labour was 'outed' in 2008. Primark then halted all business with those suppliers, cancelling millions of pounds worth of orders and stated that the suppliers had deliberately deceived Primark.
       • Child protection groups disagreed with this action calling it irresponsible, they argued they should have sought for better conditions and pay. 2008 new ethical code to check on new and existing suppliers. Now slowly regaining its lost reputation.

6. Stakeholders

   • A stakeholder is an individual or group who has a stake in the success or failure of a company. It includes internal stakeholders (managers, employees, shareholders) and external (the local community, customers and suppliers, local authorities, government, other countries)
     • Any business is accountable to its shareholders, but it is also ethically responsible for a number of different stakeholders.
       • Stakeholder theory suggests that the interests of all the stakeholders should be considered in any decision.
         • Social responsibilities does a business have to these different stakeholder groups?
           • Shareholders: The business needs to generate profits and pay dividends. Customers: Provide good quality products at reasonable prices and safety, honesty, decency and truthfulness.
             • Employees: Health and safety at work, security, fair pay. Suppliers: Pay on time, pay fair rates for the work done, provide element of security. Local Community: Provide employment, safe working environment, minimise pollution and negative externalities (provide external benefits)
               • Government: The business needs to abide by the law, pay taxes, abide by regulations. Management: Their aims versus those of the organisation as a whole need considering. Environment: Limit pollution, congestion, environmental degradation, development, etc.
                 • Milton Friedman: Argued that companies have a duty only to their shareholders (to increase profits) it is for society to set the other ethical rules.

7. Business and the environment

   • Environmental damage is a natural consequence of the growth of business and industry. The natural habit is destroyed as factories are built.
     • Growth leads to energy demands and to the building of more and more power stations. Pollution is rife.
       • The devastation of the environment in the West during the industrial revolution is now being repeated on a larger scale in emerging economies. China has one of the fastest growing economies, with accompanying increases in pollution.
         • In 2010, more than 200 million Chinese people did not have access to safe drinking water because of this.
           • A child born in Britain, America or France will consume, waste and pollute more in a lifetime than 50 children in developing nations. Ones billion people in developing countries will bear the brunt of environmental damage because they tend to burn traditional fuels, use leaded petrol or live near factories and rubbish dumps.
             • The poverty of a nation may lead its governments to take shortcuts with respect to the environment.

8. Business and Globalisation

   • Globalisation is the process of increasing connections between people, companies and countries around the world. A key feature is the growth of huge corporations that dominate markets.
     • Developments in IT enabled these countries to operate across the world much more easily. Globalisation has brought ethical problems for business.
       • These include justice towards poorer countries: trade us not always fair because of trade barriers; wages in less developed countries are much lower; safety standards may not be upheld often with disastrous results such as the Bhopal disaster which is still having an effect on health decades later.