3-4-4-business-ethics

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Understanding business ethics

Ethics relates to the rights or wrongs of making a strategic decision that are beyond legal requirements and in accordance with a business’s corporate responsibility principles
Some ethical businesses adopt an ethical code of practice, which informs decision-making and may set out how they:
- Behave responsibly with regard to the environment (e.g. using recycled materials in packaging)
- Avoid negative impacts on animals (e.g. animal testing)
- Adopt fair working practices (e.g. paying a real living wage)
- Implement robust and equitable supply chains (e.g. using sustainably sourced raw materials in production)
- Take steps to 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. having strict verification procedures in place prior to cosmetic surgery procedures being carried out)
- Cease trading with questionable suppliers or customers (e.g. cancelling a supply contract with a supplier that uses child labour)

Businesses will embed their ethical code of practice into every aspect of their operations, and ethical priorities will feature heavily in:
- Recruitment documentation and HR procedures
- Induction and training programmes
- Performance management cycles and rewards systems
- Promotional literature and other communications

An extract from Intel’s ethical code of conduct

(Source: Intel) (opens in a new tab)

Businesses that choose to adopt ethical principles usually attract long-term loyalty from employees and customers and may find that their approach provides a useful competitive advantage
Taking an ethical approach costs more and may reduce the overall level of profits if the business is not able to raise its prices to compensate

Salaries, wages and other forms of financial reward (e.g. performance-related bonuses) play an important role in:
- Rewarding and motivating existing staff
- Attracting new employees
- Maximising productivity levels

The “gender pay gap”	Minimum wages	Executive bonuses
In the UK, the gender pay gap stands at around 10%, which means, on average, women earn 10% less than men per hour, despite the 50-year-old Equal Pay legislation Unilever and Evans Cycles have taken steps to successfully eliminate the gender pay gap, though easyJet and fashion retailer Phase Eight have gender pay gaps of more than 50%	Many businesses pay workers the legally required minimum wage To supplement their earnings, many low-paid workers are entitled to benefits such as tax credits, which are a significant cost to the economy: In 2015, more than £1bn in benefits was paid to workers of the four largest UK supermarket chains, leading to accusations that the government subsidises the profits of big businesses	In 2022, the pay of the CEOs of FTSE 100 companies jumped by an average of 25%, largely as a result of record bonus payments At the same time, many businesses were restricting pay increases for employees to help them cope with increasing levels of inflation

Corporate social responsibility (CSR) involves conducting business activity in an ethical way and balancing the interests of shareholders with those of the wider community

Socially responsible activity	Example
Sustainable sourcing of raw materials and components	High street retailer H&M has a goal of using only recycled or sustainably sourced materials by 2030 It also publishes a list of the majority of their suppliers’ information, which is updated regularly, allowing stakeholders to verify and hold the company responsible for their suppliers’ conduct
Responsible marketing	Marks & Spencer ensures that it never actively directs any marketing communications to children under the age of 12 and does not directly advertise any products high in fat, sugar or salt to children under the age of eighteen
Protecting the environment	Café chain Prêt à Manger offers discounts to customers who bring their own coffee cups, reducing the number of single-use plastic containers it dispenses
Responsible customer service	John Lewis’s famous “Never Knowingly Undersold” slogan refers to the company’s commitment to checking competitor prices regularly to ensure that the price its customers pay is the lowest available in the local area at that time

It is now common practice for large companies to publish annual corporate responsibility reports
- These provide an audit of the steps being taken to meet their commitments to a range of stakeholders, alongside annual financial reports
Extra costs are involved in operating in a socially responsible way, and these costs are likely to be passed on to consumers

When assessing the value of an ethical approach to CSR, make sure you include an assessment of the disadvantages as well:

It increases business costs, as making the right decision is usually considered above less expensive yet questionable options
Ethical businesses face high levels of media scrutiny and are likely to receive particularly damaging criticism if they fall short
As much as leaders express a commitment to “doing the right thing”, their ethical principles are very likely to be watered down or dismissed in favour of making as much profit as possible