Ethical Issues in Operations (AQA A Level Business): Revision Note

Sourcing suppliers

• Ethical issues arise when a business must decide how much priority to give to cost and efficiency versus fair and responsible treatment of suppliers and their workers

Examples of ethical issues

• Paying suppliers unfairly low prices, which may force them to cut corners on wages or working conditions in order to remain profitable

Example

In 2020, an investigation found factory workers in Leicester producing clothes for Boohoo were being paid as little as £3.50 an hour, well below the UK minimum wage at the time of £8.72.

In the Levitt report, Boohoo's directors were found to have known 'for a fact' about poor conditions since December 2019 but hadn't put adequate monitoring in place

• Using suppliers based in countries with weaker labour laws or lower minimum wages, raising questions about whether workers are being treated fairly

Example

In 2013, the Rana Plaza garment factory building collapsed in Bangladesh, killing more than 1,100 workers. The factories inside supplied major Western clothing brands, including Walmart, Primark and Mango.

The disaster led to reforms including higher minimum wages and new factory safety agreements across the industry

• Delaying payments to suppliers, causing cash flow problems, particularly for smaller suppliers who rely on being paid promptly

Example

In 2016, the UK's Groceries Code Adjudicator found that Tesco had seriously breached rules protecting suppliers by delaying payments to some of them for more than two years, often because of pricing errors or unexplained deductions.

• Sourcing materials linked to environmental damage, human rights abuses or conflict, even where this isn't illegal in the country of origin

Example

Tin, tungsten, tantalum and gold used in smartphones and laptops are often mined in the Democratic Republic of Congo, where profits have been linked to funding armed conflict.

Since 2012, US law has required companies such as Apple and Intel to check and report on whether their supply chains use these "conflict minerals".

• Weighing up the money saved from using cheaper suppliers against the damage to reputation if those suppliers are later found to be acting unethically

Example

Shein has faced repeated allegations about its Chinese supplier factories, including a BBC investigation finding workers doing up to 75-hour weeks and a 2024 report disclosing child labour cases among its suppliers.

Despite pledging reforms, later investigations found many of the same problems still occurring

Product safety

• Businesses have a responsibility to ensure their products do not cause harm to customers

  • However, ethical dilemmas can arise around how much a business invests in safety versus cost and speed to market

Examples of ethical issues

• Deciding how much to invest in safety testing, when additional testing increases costs and delays a product's launch

• Balancing legal minimum safety standards against what might be considered a genuinely safe standard

  • Meeting the legal minimum does not always guarantee a product poses no risk

• Deciding whether, and how quickly, to recall a product once a safety concern is identified, given the cost and reputational damage a recall can cause

Example

In 2016, Samsung recalled over 3 million Galaxy Note 7 phones after batteries began catching fire, then had to recall the replacement phones too when even those caught fire.

The delayed, staged response cost Samsung an estimated $5.3 billion and seriously damaged its reputation.

• Ensuring safety information and warnings are clear and accessible to all customers, including those with additional needs

• Weighing the cost of using higher-quality, safer materials or components against pressure to keep production costs low

Example

Boeing designed its 737 MAX aircraft with a new automated safety system, partly to avoid the cost of requiring pilots to complete additional training.

Its engineers had raised concerns about the system before two fatal crashes in 2018 and 2019 that killed 346 people combined, and the resulting crisis is estimated to have cost Boeing around $20 billion.

The environmental impact of operations

• Operations decisions can create environmental damage

  • Businesses face ethical questions about how far they should go to reduce this impact, particularly when doing so increases costs

Examples of ethical issues

• Deciding whether to invest in more environmentally friendly processes or equipment, even where it isn't legally required and increases costs

• Balancing the environmental impact of sourcing decisions, such as cheaper materials produced with higher emissions, against a business's cost and profit objectives

• Considering the impact of waste and pollution on local communities near a business's operations, even where legal limits are being met

Example

Thames Water was fined £122.7 million by the water industry regulator after an investigation found nearly three-quarters of its storm overflows were spilling sewage into rivers routinely, rather than only in genuine emergencies, despite the company technically operating within the law.

• Deciding how transparent to be with customers and investors about the true environmental impact of the business's operations

Example

In 2022, the UK's Advertising Standards Authority banned a TV advert for Innocent Drinks after ruling it misleading, as it implied buying the drinks was good for the environment without acknowledging that most of the packaging was still made from new, rather than recycled, plastic

• Balancing short-term financial pressures against the longer-term environmental consequences of a business's decisions