Business Ethics 1: Defining ethics and business ethics Influences and approaches to business ethics Business ethics and Corporate Social Responsibility [CSR]

Lesson Objectives Define business ethics Identify the difference between business ethics and the law Be aware of influences on business ethics Recognise the importance of Business Ethics Classify relationships between ethics and organisation Explore approaches to business ethics Know the links and difference between ethics and Corporate Social Responsibility Distinguish ethical business practice through the supply chain Review growing pressures for business to act ethically Examine benefits and potential drawbacks of ethical business

What are Ethics? Moral guidelines which govern good behaviour.

What is behaving Ethically? Ethical behaviour is doing what is morally right.

Business ethics Business ethics are moral principles that guide the way a business behaves. The same principles that determine an individual’s actions also apply to business. it involves making decisions that align with that sense of right and wrong, as well as with the law.

Business ethics The value of what should be done and what should not be done from the business point of view. Business ethics involves adhering to legal, regulatory, professional and company standards, keeping promises and commitments and abiding by general principles like fairness, truth, honesty and respect.

Nature of business ethics Complex No common consensus Subjective Frameworks for ethical decision making differ from people to people and organisation to organisation Dynamic - Dynamic nature of business decision-making Interdependent Ethical decision- making is dependent on many factors and one decision affects others

We all have a moral compass! All of us have a different moral compass. We have different values and beliefs about what is right and what is wrong, what is good and bad etc. As you can imagine – even within organisations and even whole industries there will be variations between those perceptions. Business ethics is a highly subjective concept!

Significant difference between ethics and the law ETHICS About what is right and what is wrong LAW About what is lawful and what is unlawful Depending on your moral compass you may come across various examples where you feel a business is acting lawfully but not ethically!

So a business may act lawfully but (depending on your moral compass) unethically Payday loan companies Financial services business which are now increasingly regulated following numerous scandals but many are still unregulated. Called pay day loans companies because they provide short- term loans at extortionate rates to some of the most desperate and vulnerable people of society. – many of whom have not other access to access emergency or other finance. Watch the video and read the case study about the Church of England being discovered to have invested in payday loan company Wonga. It was legal – but was it unethical?

Lawful but unethical? Tax Avoidance Ensuring that you don’t pay taxes you don’t have to pay is entirely legal! Tax law is very complex but clear. Multinationals like Google, Starbucks, Amazon and many others are becoming increasingly criticised for their complex tax planning arrangements to minimise the amount of tax they pay. Watch the video and read the case study on Starbucks government investigation into their financial accountancy practices. MP Margaret Hodge was quoted as saying “we are not accusing you of being illegal, we are accusing you of being immoral”. Unethical?

Business ethics vary enormously “The higher the buildings the lower the morals”. Noel Coward Remember within any industry, within any organisation, there will be a variety of different approaches to morals.

Perceptions surrounding business ethics Rules, standards or Codes governing an individual or organisation Morality, Virtues Values Clarity of Right or Wrong Honesty. Integrity Character, Conscience Situational, Sequential Being True to Oneself Stakeholder Approach

Two key influences on business ethics INDIVIDUALSCULTURE The behaviour of specific individuals acting unethically has a damaging effect through to individual management like a particular CEO Ethics are to a large extent determined by the organisational culture of the organisation.

Sources of ethical norms Many factors shape what individuals believe or feel is normal/acceptable Individual conscience Opposites Country/ region ProfessionIndustry Society at large Employer Religious beliefs Fellow workers FriendsFamily

Approaches to business ethics Amoral Business –seeks to win at all costs - Anything is acceptable, even breaking the law Legalistic business - Will obey the law but no more than that Responsive business - Accepts that being ethical can pay off Ethical business - Being ethical is at the core of the business This is a useful theoretical model in comparing and contrasting levels of ethical business practice within organisations. Can you identify examples for each of the above with businesses operating within the UK?

Business ethics and CSR Clearly an overlap between CSR and business ethics A socially responsible firm should be an ethical firm An ethical firm should be socially responsible However there is a distinction: - CSR is about responsibility to all stakeholders not just shareholders - Ethics is about morally correct behaviour As a result you will often see ethical codes of practice as part of CSR whereby companies seeking to show their corporate social responsibility will publish their ethical codes of practice to show how they achieve these objectives. Look out for ethical practices used as part of CSR.

Core arena’s of Social Responsibility Business’s Social Responsibilities General Public CustomersEmployees Investors, and financial community

Responsibilities to the general public Public Health Issues. What to do about inherently dangerous products such as alcohol, tobacco, vaccines, and steroids. Protecting the Environment. Using resources efficiently, minimizing pollution. Recycling. Reprocessing used materials for reuse. Developing the Quality of the Workforce. Enhancing quality of the overall workforce through education and diversity initiatives. Corporate Philanthropy. Cash contributions, donations of equipment and products, and supporting the volunteer efforts of company employees.

Responsibilities to customers The Right to Be Safe. Safe operation of products, avoiding product liability. The Right to Be Informed. Avoiding false or misleading advertising and providing effective customer service. The Right to Choose. Ability of consumers to choose the products and services they want. The Right to Be Heard. Ability of consumers to express legitimate complaints to the appropriate parties.

Responsibilities to employees Workplace Safety. Monitored by Occupational Safety and Health Administration. Quality-of-Life Issues. Balancing work and family through flexible work schedules, subsidized child care, and regulation such as the Family and Medical Leave Act of Ensuring Equal Opportunity on the Job. Providing equal opportunities to all employees without discrimination; many aspects regulated by law. Age Discrimination. Age Discrimination in Employment Act of 1968 protects workers age 40 or older. Sexual Harassment and Sexism. equal pay for equal work without regard to gender.

Responsibilities to employees Provide adequate monetary, psychological rewards as well as job security Selection of employees should be made fairly Providing educational opportunities & training to the employee at company’s expense Working conditions should be safe & pleasant

Responsibilities to Investors Investors protected by regulation by the Securities and Exchange Commission and state regulations. Resources available are used for the benefit of the owners/shareholders Stability of the enterprise Ensure that the company grows, so that the shareholder gains from increase in the market price of his shares

Boots case study Explore Boot’s website and examine the many strategies and initiatives in which they are caring for their community. Who is their community? What approach to ethics do they take?

Ethics and the supply chain A business cannot claim to be ethical if it ignores unethical practices by it’s suppliers – e.g. - Use of child labour and/or forced labour - Production in sweatshops - Violations of the basic rights of workers - ignoring health, safety and environmental standards An ethical business has to be concerned with the behaviour of all businesses that operate in the supply chain – i.e. - Suppliers - Contractors _ Distributers and sales agents

Pressures to act ethically Influence of pressure groups Pressure groups – are external stakeholders Tend to focus on activities and ethical practice of multinationals or industries with ethical issues Combination of direct and indirect action can damage the target business or industry Consumer action Consumers may take action against - businesses acting irresponsibly - Businesses they consider to be unethical (e.g. animal furs) - Businesses using practices they find unacceptable Consumer action can also be positive – supporting businesses with a strong ethical stance!

Pressure groups exerting increasing influence

Increasing consumer boycotts

Nestle’ world Boycott Visit the website and explore the ethical issues this campaign highlights about Nestle’ and how consumers are attempting to boycott their business through their unethical marketing of baby milk particularly in developing countries. Is their business practice unethical? How powerful has the boycott been? How has it damaged Nestle’?

Benefits and drawbacks of ethical behaviour BENEFITS Higher revenue – demand from positive consumer support Improved brand image and business awareness recognition Better employee motivation and recruitment New sources of finance – e.g. ethical investors POTENTIAL DRAWBACKS Higher costs – e.g. sourcing from Fairtrade suppliers rather than lowest price Higher overheads – e.g. training & communication of ethical policy A danger of building up false expectations

World’s most ethical companies’ The Ethisphere Institute is the global leader in defining and advancing the standards of ethical business practices. Their annual awards 2015 recognizes 132 companies spanning 21 countries and five continents that embrace the correlation between ethical business practices, public trust and improved company performance. analyse the results and examples of good practice – click picture below:

Costly consequences from being found to have acted unethically Lloyds bank PPI breaks through £10bn barrier news of the world phone hacking conspiracy

Reflection…. Can businesses behave unethically expect to satisfy shareholders in the long-term? Should a business be allowed to act unethically provided that it delivers what customers want? Do you agree that big businesses can no longer be relied upon to behave ethically? What is more important – profit or ethics?

Common areas where ethics are tested Business ethics are embedded both within individuals and the culture of any organisation therefore business ethics enters into every aspect of business operation and behaviour. However, there are certain issues more commonly tested and reported about than others…

Main categories of ethical judgement/ investigation