Ethics & Business

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Ethical Considerations for Businesses

Businesses that operate ethically operate in ways that are both fair and honest. They carefully consider what impact their business has on their stakeholders, the nearby community and the environment. Some examples of ethical considerations are:

Labour in developing countries

In some developing countries, like China, it is legal for employees to work very long hours for very low pay.
- Foxconn is a company that manufactures Apple’s phones in China. It had partnerships with universities that forced students to do internships at their factories.
Factories that offer very low pay for lots of hours are often called sweatshops. Nike has been accused of using sweatshops to make sports shoes in Vietnam and China.

Product development

It may help companies to develop and test their new products using animals.
Product testing is often important in the pharmaceutical industry for developing new drugs.
Many people often have an issue with testing drugs on animals on the grounds of cruelty to animals.

Employee welfare

Companies that act ethically will treat their employees fairly, giving them a fair wage, reasonable hours, holidays and a pleasant working environment.

Buying Fairtrade products

Businesses have the choice over whether to buy ethically sourced materials for a fair price (Fairtrade products).
These can often be more expensive but it means that a farmer in a developing country is more likely to be paid fairly.
UK supermarkets and companies like Cadbury are keen to buy Fairtrade products because this reflects consumer trends.

Trade-off between ethics and profits

Acting in an ethical way can increase a business’ cost. If revenues are flat and costs rise, then this will have a negative impact on a business’ profit.
- For example, having factories in developing countries (where employees work for long hours and low pay) means that a business can produce their product at a lower average unit cost, increasing the profit on each unit sold if each unit sells for the same price.

Benefits of Being Ethical

There are benefits to a business operating in an ethical way:

Marketing

Consumers are increasingly making buying decisions based on whether a company is ethical or not. A company acting in an ethical way can often advertise based on this and this helps to develop a positive public image and increase sales.
- Green and Blacks use Fairtrade cocoa beans to manufacture their chocolate.
- The Body Shop (a cosmetics shop) won a lot of customers’ business by advertising their ethically sourced and exotic ingredients.

Employee motivation and culture

If employees are treated in a fair and honest way, then they are more likely to want to maximise their efforts for the business. This can increase the productivity of workers.
- John Lewis staff are called “partners” and they are widely viewed as the best treated staff in the UK retail industry. John Lewis is often ranked in the The Times' Top 100 companies to work for.

Stakeholders

Other stakeholders are affected if a company acts in an ethical way and this is beneficial for the business.
For example, treating customers in a fair and honest way (offering a fair price and good returns policy etc.) makes the customer more likely to buy from the company again.
Also, some shareholders will be more likely to invest in an ethical company because it gives them a moral purpose.