Welcome to the World of Business Ethics!
In this chapter, we are exploring Ethical factors. This is a key part of the External influences section of your OCR AS Level Business course. We’re going to look at the difference between doing what you have to do (the law) and doing what you should do (ethics).
Don’t worry if this seems a bit "philosophical" at first—at its heart, business ethics is just about how a company treats people and the planet while trying to make a profit. Let's dive in!
1. Law vs. Ethics: What’s the Difference?
It is very common for students to get these two mixed up, but there is a clear line between them. Think of it like this:
The Law: These are the "must-follow" rules set by the government. If a business breaks the law, it can be fined or the owners sent to prison. For example, paying the National Minimum Wage is a legal requirement.
Ethics: These are the moral guidelines. They are about "doing the right thing" even when there isn't a law forcing you to. It's about a business's values. For example, a business might choose to pay a Living Wage (which is higher than the minimum wage) because they believe it’s the right way to treat their staff.
The "Speed Limit" Analogy
Imagine you are driving. The Law says you must not go over 30mph in a town. However, Ethics might suggest you drive even slower (say 20mph) past a school because it is the safer, more "right" thing to do for the children, even though you wouldn't be arrested for doing 30mph.
Quick Review:
• Law = What you MUST do (Legal vs. Illegal).
• Ethics = What you SHOULD do (Right vs. Wrong).
2. Ethical Issues Influencing a Business
Businesses face ethical dilemmas every day. Here are some of the most common issues that influence how they operate:
A. Sourcing and Supply Chains: Where does the business buy its materials? Is it using suppliers that use child labour or have poor working conditions? Choosing "Fair Trade" suppliers is an ethical decision.
B. Marketing Practices: Is the business being honest in its ads? An ethical business avoids "greenwashing" (pretending to be more eco-friendly than they really are) or targeting vulnerable people with misleading prices.
C. Treatment of Employees: Beyond just following safety laws, does the business provide a good work-life balance? Do they promote diversity and inclusion?
D. Executive Pay: Is it ethical for a CEO to earn 500 times more than the lowest-paid worker in the same company?
Did you know?
Some businesses are now "B Corps." This is a certification that proves a business meets the highest standards of verified social and environmental performance and public transparency.
3. How to Improve an Ethical Profile
If a business wants to be seen as more ethical (improving its "ethical profile"), they can take several steps. If you are asked to recommend ways to improve in an exam, consider these:
1. Create a Code of Practice: This is a document that tells all employees how they are expected to behave. It sets the "moral compass" for the company.
2. Ethical Sourcing: Switching to suppliers who guarantee fair wages and no environmental damage. Example: A coffee shop switching to 100% Fairtrade-certified beans.
3. Corporate Social Responsibility (CSR): This is when a business takes action to benefit society. This could be donating a percentage of profits to charity or giving staff paid time off to volunteer.
4. Transparency: Being open about where products come from and how much profit the business makes. This builds trust with stakeholders.
Key Takeaway: Improving an ethical profile isn't just about one action; it’s about changing the culture of the business to value more than just money.
4. Behaving Ethically: The Pros and Cons
In your exam, you will often need to evaluate ethical behavior. This means looking at both the "good" and "bad" sides for the business and its stakeholders.
Advantages (The "Pros")
• Brand Image and Reputation: Customers are more likely to buy from a business they trust. This can lead to customer loyalty.
• Attracting Staff: Many people (especially younger workers) prefer to work for ethical companies. This helps the business recruit the best talent.
• Investor Appeal: More investors now look for "Ethical Investment" opportunities (ESG—Environmental, Social, and Governance).
• Avoiding Bad Publicity: Being ethical reduces the risk of expensive boycotts or protests from pressure groups.
Disadvantages (The "Cons")
• Higher Costs: Buying Fairtrade materials or paying higher wages costs more money. This might lead to lower profits in the short term.
• Higher Prices for Customers: If costs go up, the business might have to raise prices, which could make them less competitive compared to "unethical" rivals.
• Conflict of Objectives: Shareholders usually want maximum profit, but ethical behavior might reduce profit. This creates a conflict of interest.
Memory Aid: The "PR" Trick
To remember why ethics matter, think of PR: Profits might fall in the short term, but Reputation grows in the long term!
5. Common Mistakes to Avoid
• Mistake 1: Thinking ethics and law are the same. Remember, something can be legal but unethical (e.g., a company paying very low wages in a country with no minimum wage laws).
• Mistake 2: Assuming all customers care about ethics. While many do, some customers only care about the lowest price, regardless of how the product was made.
• Mistake 3: Forgetting that ethics applies to all stakeholders—not just customers, but also employees, suppliers, and the local community.
Quick Section Summary
Ethics is about the "moral" choices a business makes. While it can be expensive to be ethical because of higher sourcing and labour costs, the long-term benefits include a better brand image, more loyal customers, and easier recruitment. Businesses can improve their profile through CSR, codes of practice, and transparency. Always balance your exam answers by mentioning that while ethics is good for reputation, it can hurt the bottom line (profit).