GCSE / Level 2 Revision Notes

FExternal Environment: Business Ethics in practice

Ethics in practice

You’ll find lots of examples of business ethical decisions and dilemmas in areas such as:

• Advertising
• Personal selling
• Business contracts
• Pricing
• Dealing with suppliers

Let’s take one of the above – suppliers.

A business cannot claim to be ethical firm if it ignores unethical practices by its suppliers – e.g.

• Use of child labour and forced labour
• Production in sweatshops
• 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 – i.e.

• Suppliers
• Contractors
• Distributors
• Sales agents

Pressure for businesses to act ethically

Businesses and industries increasingly find themselves facing external pressure to improve their ethical track record.  An interesting feature of the rise of consumer activism online has been increased scrutiny of business activities.
Pressure groups are a good example of this. Pressure groups are external stakeholders they

• Tend to focus on activities & ethical practice of multinationals or industries with ethical issues
• Combine direct and indirect action can damage the target business or industry

Direct consumer action is another way in which business ethics can be challenged. Consumers may take action against:

• Businesses they consider to be unethical in some ways (e.g. animal furs)
• Business acting irresponsibly
• Businesses that use business practices they find unacceptable

Consumer action can also be positive – supporting businesses with a strong ethical stance & record.  A good example of this is Fairtrade.

Is ethical behaviour good or bad for business?

You might think the above question is an easy one for businesses to answer? Surely acting ethically makes good business sense? As with all issues in business studies, there are two sides to every argument:
The advantages of ethical behaviour include:

• Higher revenues – demand from positive consumer support
• Improved brand and business awareness and recognition
• Better employee motivation and recruitment
• New sources of finance – e.g. from ethical investors

The disadvantages claimed for ethical business include:

• Higher costs – e.g. sourcing from Fairtrade suppliers rather than lowest price
• Higher overheads – e.g. training & communication of ethical policy
• A danger of building up false expectations