ethical issues in business
Ethical issues arising from the nature of markets
- The 18th Century economist Adam Smith demonstrated how in a free market the self interest of producers and consumers will produce an outcome desirable to all concerned
- But the market can also lead to inequality of income, wealth and market power:
- Monopoly suppliers can exploit consumers
- Monopsony buyers can exploit supply firms
- World wide inequality of income can result in unethical practices such as the child labour
Ethical issues and society - examples
- Involvement in the community
- Honesty, truthfulness and fairness in marketing
- Use of animals in product testing
- Agricultural practices e.g. intensive faming
- The degree of safety built into product design
- Donation to good causes
- The extent to which a business accepts its alleged responsibilities for mishaps, spillages and
- leaks
- The selling of addictive products e.g. tobacco
- Involvement in the arms trade
- Trading with repressive regimes
Ethical issues arising from internal and industry practices - examples
- Treatment of customers - e.g. honouring the spirit as well as the letter of the law in respect to warranties and after sales service
- The number and proportion of women and ethnic minority people in senior positions
- The organisation’s loyalty to employees when it is in difficult economic conditions
- Employment of disabled people
- Working conditions and treatment of workers
- Bribes to secure contracts
- Child labour in the developing world
- Business practices of supply firms
Unethical practices in marketing - examples
- Pricing lack of clarity in pricing
- Dumping – selling at a loss to increase market share and destroy competition in order to subsequently raise prices
- Price fixing cartels
- Encouraging people to claim prizes when they phoning premium rate numbers
- “Bait and switch” selling - attracting customers and then subjecting them to high pressure selling techniques to switch to an more expensive alternative
- High pressure selling - especially in relation to groups such as the elderly
- Counterfeit goods and brand piracy
- Copying the style of packaging in an attempt to mislead consumers
- Deceptive advertising
- Irresponsible issue of credit cards and the irresponsible raising of credit limits
- Unethical practices in market research and competitor intelligence
Unethical practices relating to products - examples
- Selling goods abroad which are banned at home
- Omitting to provide information on side effects
- Unsafe products
- Built in obsolescence
- Wasteful and unnecessary packaging
- Deception on size and content
- Inaccurate and incomplete testing of products
- Treatment of animals in product testing
Ethics and the supply chain
- It would be hypocritical to claim to be a ethical firm if it turned a blind to unethical practices by suppliers in the supply chain. In particular:
- The use of child labour and forced labour
- Production in sweatshops
- Violation of the basic rights of workers
- Ignoring of health, safety and environmental standards
An ethical producer has to be concerned with what is practiced by all firms (upstream and downstream) in the supply chain.
Bribery
This is a key ethical issue in business
- It first needs to be stated that bribery to secure a contract (especially a contract with a public sector body) is against the law and severe penalties can result
- However, it is sometimes seem (wrongly) as a victimless crime and is often rationalised in terms of “if we don’t offer a bribery, others will”
- From a moral or ethical perspective it should be approached not in terms of “can we get away” with it but is it right to offer a bribe to secure a contract
Institute of Business Ethics Suggestions for Good Practice
The Institute recommends that organisations issue statements of ethical practice in respect of:
- Relations with customers
- Relations with shareholders and other investors
- Relations with employees
- Relations with suppliers
- Relations with the government and the local community
- The environment
- Relations with competitors
- Issues relating to international business
- Behaviour in relations to mergers and takeovers
- Ethical issues concerning directors and managers
- Compliance and verification
What is an Ethical code?
- This is a set of principles governing morality and acceptable behaviour
It is likely to cover:
- Personal behaviour e.g. when dealing with customers and suppliers
- Corporate behaviour e.g. when negotiating deals
- Behaviour towards society e.g. when recruiting
- Behaviour towards the environment e.g. when deciding on process
Ethical audit
- This is an audit of all the firms activities
Purpose:
- To check that ethical principles are being pursued
- To check the extent to which actions are consistent with the organisation’s stated ethical intentions
- And to establish action plans if they are not
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