P1 – Explain the ethical issues a business needs to consider in its operational activities.
Definition Of Business Ethics
Ethics are to do with what is right and what is wrong. Ethics plays an increasingly important role in business. A business is part of society and just as society requires a certain standard of behaviour from individuals; it also expects businesses to abide similar standards. Business ethics is therefore the application of ethical values to business behaviour. It applies to all aspects of business conduct from boardroom strategies and how companies treat their suppliers to sales techniques and accounting practices. Ethics goes beyond the legal requirements for a company and is therefore a matter of choice. Business ethics applies to the conduct both individuals and to the organisation. It is about how a company does its business and how its activities affect all of its stakeholders. Ethical behaviour within a particular business is different from an ethical business. An ethical business sets out from the beginning to work ethically and ethics from a part of its strategic aims.
What Is Business Ethics?
Business ethics is an organisation which works to achieve corporate aims. The aims are dictated by the kind of organisation itself. A public service organisation, for instance, must deliver government services such as social services. A private business seeks profit for the benefits of its owners. Business managers in these organisations are paid to make decisions that will help the business to achieve its aims and objectives. These decisions can be related to staff, financial investment, marketing strategy, products or location. Issues connected to ethics in business arise because some businesses make poor operational or strategic decisions. These decisions can hurt local people, the staff and the customers. Other businesses make mistakes, sometimes, individuals within businesses act incompetently. Operational activities refer to anything a business does in order to achieve its aims. Marks & Spencer, Asda, Tesco and Sainsbury each have retail
outlets all over the UK. This is an aspect of these businesses: operating in order to sell. Their operational activities including buying, storing delivering and advertising, Ethical Activities
An ethical business has a board agenda and focuses on making a positive contribution to the community. An ethical bank such as Co- operative Bank, states that it seeks to make the world a better place by taking a different approach to banking. In the case of this type of business, ethics becomes at lease as high a priority as profitability.
Ethical trading and activities is increasingly recognised as an important aspect of business strategy. This applies especially to high profile companies e.g. Tesco and Asda because good business ethics can generate a favourable public image. By contrast, failure to act responsibly can result in bad publicity, which can be extremely damaging to a business. Ethical Trading is essentially directed at employees to ensure that their working and living conditions are safe and decent. Ethical Trading is now an important issue, because there is convincing evidence that substantial abuse does occur. For example, there can be: Very poor working/living conditions
Failure to pay National minimum wage
Failure to comply with Health & Safety legislation
Extremely long hours
Unlawful deductions from wages
In the UK the driving force is the Ethical Trading Initiative (ETI) which is an alliance of companies and trade unions working together to identify and promote Ethical trading. It has two main aims which are: To encourage companies to implement codes of conduct embodying agreed labour standards on human rights in the workplace To develop and encourage the use of best practice, monitoring and independent verification methods. http://www.franklyscarletdesigns.com/scarlet_blog/about/ Primark
Primark is an Irish clothing retailer, operating in Austria, Belgium and Germany, Portugal, Spain, Netherlands and the UK. Primark first opened in June 1969 in Dublin. Primark sells clothes at the budget end of the market.
The company sources cheaply, using simple designs and fabrics in the most popular sizes and the company buys stock in bulks. Ethical trading is a key part to Primark. Primark have expanded their ethical trade team significantly on the ground in the countries Primark source from the UK to provide support to their suppliers and they buying teams, ensuring that ethical trading is integrated in their supply chains. http://www.primark-ethicaltrading.co.uk/newsfaq/faqs
Values Of Businesses
In business a value is a measure of what something is worth. Schools and colleges have a monetary value. Personnel values are not written down because they are a state of mind. Parents and careers might try to ensure children are bought up with good personal values. Personal values affect the way people behave, both at work and in their private life. Primark values:
Primark is a subsidiary company within Associated British Foods (ABF), and as part of the ABF family we share its core values: taking care of our people, being good neighbours, and fostering ethical business relationship. We also share the group’s overriding principles in relation to human rights, employment conditions, business practices and engagement with suppliers and stakeholders. As an international business with a global supply chain and a growing retail base, we believe that business has a responsibility to act and trade ethically, and that by doing so, it can be a force for good. Primark directly contributes to the employment of more than 700,000 workers across three continents and ensuring that their rights are respected is important to Primark’ growth. http://www.primark-ethicaltrading.co.uk/our-values
Professional ethics can lead to dilemmas in the workplace. An example of this would be the professional duty to whistleblow which conflicts with a sense of loyalty to a company. Professionals are governed by the rules of conduct laid down by their professional institutes. Failing to comply with these can result in professionals losing the right to practice. Professional ethics relates to how people behave in relation to their chosen careers. Doctors,
Lawyers, accountants, engineers and other professionals are expected to behave in certain ways or follow specific codes of conduct. This helps to guard against their action bringing their profession into disrepute. Individual ethical behaviour
Once a business grows beyond a particular individual it becomes a corporation with a legal personality all of its own. However, all corporations consist of individual personalities. No matter what ethical principles a corporation might claim to possess, if individuals within a business take unethical decisions, these may have negative effects. Corporate governance
The governance of a medium to large business is important. . There re are rules about shareholders rights. The specific means by which individual businesses consult and control the various decision makers within the corporation are crucial. When a business corporation is bought into existence someone will have to make decisions. A limited company consists of board directors who are responsible for overarching strategies direction
Corporate social responsibility
Corporate social responsibility to the extent that a business considers what it does in relation to the wider world. All businesses are expected to think about what they do. The UK government encourages CSR; an example of this is in the following passage from the government’s gateway web ‘the government sees CSR as the business contribution to our sustainable development goals. Essentially, it is about how a business takes account of its economic, social and environmental impacts in the way it operates’
There are many examples of environmental issues and can relate them to many businesses, one of them is Ryanair, It has many environmental problems and therefore an ethical issue. The emissions coming from the aircraft that are believed to have a bad effect on the earth’ atmosphere is leading to global warming, which affects everyone. It is now widely felt that most of the global warming that has taken place over the last 50 years has been caused by human activity. The emission of carbon dioxide into the earth’s
atmosphere, these are cause by petrol engines, oil burning and coal burning among other industrial activities. Some facts regarding global warming include the following:
Seven of the warmest years in the 20th century were in the 1990’s. since the start of the 20th century, the earths average surface temperature has increased by 0.6C The 20th century saw temperature increases greater than in the previous 400 – 600 years. Some effect of global warming includes:
The arctic ice pack has lost approximately 40 per cent of its thickness in the last 40 years. Mountain glaciers all over the world are melting all over the world are melting Plants and animals are changing their range of behaviours in response to climate change. Global see levels have risen three times faster over the last 100 years than over the previous 3,000 years. Sustainability
While there is no universal agreement on this, the evidence is strong that our planet cannot sustain for too long increasing levels of industrial development – particularly development that uses carbon dioxide which then produces technology. This is a sustainability question and is something that affects all of us.
Human rights revolve around some very important questions, many having to do with discrimination. E.g. it is illegal in the UK to treat people differently on the grounds of race, gender, religion, sexual orientation or disability. These are basic human rights. Other human rights are also built into the legal system. We are entitled to a contract of employment, to work part time, to be able to join a union and to have a hearing against wrongful dismissal. Corruption
Corruption arises in many forms and can be a major public concern. A person or a business corporation is corrupt if they use influence or unfair means to gain business or personal advantage. Local councils may employ a lot of building companies to carry our construction work in their areas e.g. to
build roads, bridges and houses. An example of corporation is if the one of the officers or councillors are related to a builder and that builder was given the job. These are examples of serious corruption.
Fair trade is where a business is carried on in an open manner, it also when competition takes place on grounds that are equal for all parties. Furthermore, fair trade is where consumers can feel secure that the goods and services they are buying are going to be of satisfactory quality. Legal and regulatory compliance
Regulatory compliance describes the goal that corporations or public agencies aspire to achieve in their efforts to ensure that personnel are aware of and take steps to comply with relevant laws and regulations. Due to the increasing number of regulations and need for operational transparency. Also, there are several areas of law that businesses must follow. These are designed to protect a business’s consumers, its employees and others in the wider environment. Consumer Law
When a consumer makes a decision to buy something there is an elements of trust involved. An unethical trader could give a false description of something or overcharge for a product. Businesses are therefore subject to the law. It is illegal to give a false description or to mislead consumers. This body of law is known as consumer protection law. Consumers have rights and businesses must respect these. The well-known acts of parliament in this area are: The trade description act 1968
The sale of good act 1979
The consumer protection act 1987
These acts give ministers the right to make future regulations that further control what businesses can do. Business practices
the law covers the main ethical issues that can affect many hey stakeholders in a business, including consumers, staff and the neighbourhood, but there is still a potential for actual business practice to fall short of legal requirements. If this was not the case, there would be no need for
regulations. Businesses exist to achieve their aims and objectives. Every business manager has a degree of pressure to meet targets. Managers themselves are employees and have senior management as well as shareholders to consider. These pressures can sometimes result in neglect or malpractice. A business manager may neglect to comply fully with health and safety regulations, because to do so would cause delay. An accident caused as a result of this will have serious consequences for the business. Working Conditions
When people start working for a business organisation, they are entitled to a set of minimum working conditions, which are not just about wages and salaries. They also cover aspects of work such as hours, holiday’s entitlement, privacy, harassment and discrimination. It is up to employers to create working conditions that are fair. Trade unions have the traditional role of defending worker’s rights against bad employers.
Individual Ethical Responsibilities
Individual as well as businesses have ethical responsibilities. Individual ethics determine THE basic values and standards of behaviour. Management is responsible for staff working in a business. The human resources function tries to employ the right people who will carry out their job roles well. It is up to the HR specialist, as well as line managers across a business, to make sure that staffs follow ethical guidelines of a firm. However, it is up to individuals to follow their own ethical principles at all times. Examples of poor ethical trading in Primark.
One of Primark’s UK suppliers was found to be employing illegal workers and paying staff less than the minimum wage. Primark clothes were being made in India by factories using child labour, they sacked three suppliers in Tirupur that had subcontracted the work to the factories using children after the news came in June last year. Terms and conditions have not been improved in Bangladesh factories supplying Primark for two years. The first report had disparaged the same factories in Bangladesh for having precarious working conditions and ridiculous play. A member of the ethical trading initiative with a supplier charter, Primark appeared to tick all the boxes
on preventing poor practice. http://www.drapersonline.com/comment/primark-pays-price-for-ethical-blunder/1675975.article Businesses including Primark will need to deal with ethical issues as it will give them bad publicity therefore give Primark a bad name and also they will lose customers. Also if they are losing customers they will be losing profit as not many customers are coming into Primark.
M1 – Assess how a selected business could improve the ethics of their operations. Primark can deal with the issues that they are facing in many ways some of them are: Review of suppliers – if Primark get good reviews of suppliers they can put it on their website to show everyone that they are getting good reviews. Therefore it will try and clear the bad publicity that they have been getting form the public. Go out to do stop checks – Primark can go out and do stop checks e.g. Primark can employee someone that goes to Bangladesh and see the working conditions if they are good or if they are bad then report back so then they can improve, and also see if they the staff are getting accurate wage. Also in Bangladesh where women represent 80% of the workforce in garment manufacturing, these jobs (Primark jobs in factories) create important opportunities for poverty alleviation and women’s empowerment. However, women in developing countries offer suffer from anaemia and poor hygiene. In Bangladesh, Primark have partnered with BSR and the award foundation on the health enables returns (HER) project to provide health care education for women. The benefit of this programme includes increased women’s health awareness and knowledge of where to access services when they need them such as visiting local hospitals and clinics. There is also a high empowerment impact, women are seen as leaders in their community; and within the factory, and overall communication improves. It is important that business trade ethically, because if they are not trading ethically they can face many problems. Trading unethically can mean that businesses such as Primark will face bad publicity and therefore if they have bad publicity not many customers will enter their store. Trading unethically can also mean that customers, whether end users or supply links, could pressure the business. However, trading ethically can show that the business is strong and offers the company to stand out in markets. Also trading ethically can mean that the staff working for the business would be
more professional than other staff as they know that the business trades ethically. Also a business that proves to trade ethically will have a reputation of a very considerate and respecting business. I personally think that Primark are responsible for ensuring ethical trading. Primark say that they do trade ethically, however if you go behind the company you will find out that they are not ethical as a Panorama video shows this. Primark sell their products at cheap prices this is because Primark get them at cheap prices, the reason for this is because the use of child labour and the wages Primark suppliers are paying the workers. Also Primark should not leave workers unsatisfied. Child labour should not be used weather the products are cheap or expensive. It also against the human right to offer 80p a day as a wage for a child. Primark should also raise this matter with their suppliers, although Primark buy the products from their suppliers, they should still discuss the conditions and wage of the workers. I have never shopped at Primark and wouldn’t as they trade unethically. Many other people may feel the same way because of Primark trading unethically. This will also mean that Primark will be losing more customers which may lead Primark to close. If Primark start to trade ethically they would face many changes in a good way. Some of the benefits of this will be that they will have a good reputation and publicity and a good view in the press, this would also mean that they would get more customers shopping from their stores again because of all the good publicity. From this, the profits and prices of the business will increase therefore the shares will go high and shareholders will be happy. The staff at Primark will also be happy as they would get at last national minimum wage. Primark have also improved their factories as the graph below shows the improvement achieved by those factories which had a rating at the end of 2008. All the factories that had a follow up audit in 2009, 44% improved their rating by a whole grade (grade 1 being the best and 3 the weakest). Nearly 60% of these factories which were grade 3 at the end of 2008 improved by at least one whole rating by the end of 2009. This demonstrates the strength of Primark’s remediation programme.
http://www.primark-ethicaltrading.co.uk/reporting_and_assurance/performance_data Primark have improved their training by:
Developing a range of guidance of tools for suppliers and factory managers, focusing on code of conduct implementation, providing practical solutions for addressing common issues. Delivering six days of ethical trade training to all its buyers. All new buyers were required to undergo ethical trade trading as part of their induction programme. Hosting two full day ethical trade workshops in the UK, attended by all UK suppliers who participated in session ranging from health and safety to employment law. Primark held two specialist health and safety full day workshops for Chinese suppliers. Primark have also improved their system of monitoring and remediation, they have done this by: Increasing the support given to its suppliers via the auditing process. Setting up an online supplier and factory management system to help keep track of the progress and improvements made at each individual factory that Primark have. Increasing the size of the ethics team from 5 to 12, allowing it to further Primark’s direct engagement with suppliers and factories. Setting up a reporting system for their buyers, enabling them to have access to the most up to date and in depth information on the conditions in the factories from which they source. http://www.primark-ethicaltrading.co.uk/reporting_and_assurance/performance_data In today’s society it is important to trade ethically as if businesses do not there are many obstacles they will have to face. One of them is bad publicity, if a business has bad publicity they will lose customers as it has a bad name, therefore they will lose profit and the shares go down. The business will also have pressure from the public and also its competitors. If Primark failed to change the way they operate they would: Lose customers
Have bad press
Primark would have a bad reputation
Business will be falling in sales
Business will also be falling in prices
Have unhappy shareholders
This would ultimately mean that Primark will be given a bad name, therefore losing customers and if Primark are losing customers it will mean that they are losing profit. Overall I think that ethical issues are important to all businesses as if businesses do not trade ethically the business might be facing many consequences such as bad publicity, losing customers, all this