Business Ethics (AQA GCSE Business): Revision Note

Trade-offs between ethics and profit

• Ethics relates to the rights or wrongs of making a business decision that are beyond legal requirements

• Businesses that choose to adopt ethical principles can attract long-term loyalty from employees and customers

  • They may find that their approach, if it is unique amongst rivals, provides a useful competitive advantage

  • Consumers are increasingly aware, through media coverage, of the behaviour of businesses

  • More and more consumers are choosing to buy from responsible businesses, sometimes boycotting those with poor reputations

• Taking an ethical approach is likely to increase business costs and may not increase revenue

  • Paying fair wages and ensuring the welfare of workers is likely to increase staffing costs

  • Improving environmental controls may require significant capital investment in green technologies

  • Paying suppliers on time reduces the amount of working capital available to fund day-to-day business activities

  • Implementing a responsible supply chain may mean paying more for raw materials and components, as well as the expense of carrying our regular audits

  • If a business is unable to raise their prices to compensate or fails to attract sufficient ethically-minded customers, its revenue may not rise enough to cover these increased costs

• Overall, whilst behaving ethically is both the right and commercially responsible way to behave, it is likely to reduce the overall level of profits generated by a business

• This is known as a trade-off between ethics and profit

Ethical business behaviour

• Businesses that consider how their activities impact on a wide range of stakeholders accept this trade-off between ethics and profit

  • They make ethical choices, rather than the most profitable ones

    • They are honest and responsible in their marketing activities

    • Their production processes are environmentally sound

    • They source raw materials and components from sustainable, responsible suppliers

    • They treat their workers fairly, paying them a sufficient wage, and provide secure contracts

    • They take steps to eliminate gender bias and other areas of potential discrimination

    • They avoid investing in unethical projects and do not engage in tax avoidance

• Ethical businesses value the positive reputation gained from doing the right thing

  • Ethical behaviour can increase awareness of a business and may be used in promotional campaigns, which should lead to increased sales

Examples of business responses to ethical issues

Ethical codes of practice

• Some businesses have an ethical code of practice that determines the behaviour of all members of the organisation

• These codes commonly cover aspects such as how the business intends to:

  • Be environmentally responsible  (for example, using recycled materials in packaging)

  • Avoid negative impacts on animals (e.g animal testing or the destruction of habitats)

  • Adopt fair working practices (e.g. paying a real living wage or avoiding zero hours contracts)

  • Implement responsible supply chains (e.g. using sustainably-sourced raw materials in production)

  • Eliminate corruption (e.g. ensuring appropriate tax is paid in the countries in which the business operates)

  • Avoid controversial products or take steps to minimise their impact or access to them (e.g. putting strict age verification procedures in place prior to cosmetic surgery procedures being carried out)

  • Break links with questionable suppliers or customers (e.g. cancelling a supply contract with a supplier that uses child labour)

The benefits and drawbacks of behaving ethically

• Businesses that behave ethically can benefit themselves, as well as society as a whole, in a number of ways

Business benefits of behaving ethically

• However, as well as increasing costs, behaving ethically can mean that a business is subject to high levels of scrutiny

  • Failure to meet the highest standards of behaviour risks negative media exposure that can have a significant impact on reputation and sales

    • E.g. In 2017, personal scandal surrounding the CEO of The Cooperative Bank, as as well as serious incidents of mismanagement, seriously undermined its claim to be the UK's 'ethical bank'

  • Some large businesses have been accused of greenwashing

    • Greenwashing may involve

      • Making sustainability claims without evidence

      • Overstating positive environmental effects in advertising

      • Advertising products as eco-friendly whilst sourcing raw materials from unsustainable suppliers

      • E.g. IKEA received criticism for building its “greenest store” in Greenwich, despite tearing down another green building to make way for it