Ethics (Edexcel A Level Business): Revision Note

An introduction to ethics

• Business ethics refers to the moral principles that guide how a business conducts itself and makes decisions, distinct from what it is merely legally required to do

  • They determine how it operates and its decision-making process

• Unethical actions can damage the brand and result in a loss of profitability

  • Unethical actions are often pursued, as they result in higher levels of profit for the business (or its owners)

  • Customers around the world are putting more and more pressure on brands to behave ethically

Ethical considerations

Ethical considerations explained

Stakeholder conflicts

• A stakeholder is an individual or group that has an interest in or can be affected by a business 

• Different stakeholders have different levels of power and different priorities, which inevitably creates the potential for conflict

Conflicts between stakeholders

Pay and working conditions

• Multinational corporations (MNCs) often operate in countries that have different employment regulations and working conditions

  • MNCs need to decide if they will comply with the regulations of their base location or the other country

• MNCs may demonstrate unethical behaviour by exploiting workers in LEDCs by paying them lower wages 

  • MNCs argue that the wages they pay provide a decent standard of living within that country

Example

In 2015, Apple came under scrutiny as its production facilities in China were found to pay workers approximately $1.85 an hour, nowhere near enough to cover workers' living expenses

• Some MNCs also behave unethically by providing poor working conditions in order to cut costs

  • Factories and warehouses with poor working conditions are referred to as "sweatshops"

    • Nike was accused of using sweatshops in countries such as China and Vietnam, paying workers just 14 cents an hour

Environmental considerations

• Climate change and global warming have become a priority for governments across the world 

• Governments are encouraging businesses to improve the environmental impact of their business activity

Waste management

• Many developed countries have regulations about how businesses should dispose of their waste 

• LEDCs usually have less regulation and enforcement on waste management

  • There is usually poor waste management infrastructure

• MNCs can also dispose of waste in LEDCs at a cheaper cost, which allows them to maintain their high profits

Example

Four major MNCs (Coca-Cola, Pepsi, Nestle and Unilever) dispose of half a million metric tonnes of plastic across six developing countries (Tearfund, 2020)

Emissions

• Emissions are often released from factories or from products made by MNCs 

  • Just 100 companies are responsible for 71% of the global emissions that cause global warming

• The emissions MNCs produce have a negative impact on local communities, causing health issues such as asthma, cancer and skin irritations

Supply chain considerations

• The supply chain consists of all the suppliers involved in the manufacturing of a product/service

• Many MNCs have suppliers in different countries, and increasingly, they are held accountable for the working conditions of these suppliers 

• Many MNCs are now taking action to reduce unethical labour practices as part of their corporate social responsibility (CSR) practices 

Child labour

• Some MNCs have manufacturing facilities in countries where child labour is common

  • Usually in areas where children are working to generate income for the family

Example

Starbucks was found to have children under 13 working 40-hour weeks in Guatemala picking beans for as little as £5 a day

• MNCs using child labour in their supply chain face backlash, which can damage their brand and affect sales

Example

Protests took place outside Primark's flagship Oxford Street store after a documentary revealed that child labour was used in its factories in India

Exploitation of labour

• Exploitation of labour can take the form of low wages and poor working conditions

  • E.g. workers having to work long hours and with poor ventilation

• MNCs are under increasing pressure from governments, customers and institutions, such as the International Labour Organisation, to take action to ensure that their products and services do not involve exploitative labour practices

Marketing considerations

• When developing their marketing strategies, MNCs must consider the cultural and social (opens in a new tab)differences in the countries in which they operate

Misleading labelling

• Labelling must comply with the regulations of the country

  • The information must be correct and not include any false information aimed at generating higher sales 

• Examples of misleading information include false information about a product's:

  • Size

  • Content

  • Features 

  • Functionality

Example

Volkswagen was found to falsely promote "clean diesel" vehicles and had to pay approximately $34bn in fines, severely damaging the brand

Inappropriate promotional activities

• Promotional activities should not be offensive or illegal

  • MNCs face a particular risk, as a campaign designed for one country may carry very different meanings or connotations in another

• Promotion can be considered inappropriate if it

  • Uses imagery, language or symbols that cause offence in a particular culture or region

  • Draws on stereotypes about race, gender, religion or nationality

  • Makes misleading or exaggerated claims about a product's benefits

  • Fails to consider a country's political, historical or religious sensitivities

Example

Nivea had to pull its "White is purity" campaign for its deodorant in the Middle East, as the public believed it was promoting white supremacy