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Ethics and its influence business objectives and activities

business ethics

Business ethics are, the moral principles that underpin business behaviour. Whether actions carried out by organisations and their employees are morally acceptable must, however, be judged in the context of the society and the times in which they operate.

An ethical business is one which applies a set of moral principles to all interactions with stakeholders, such as its treatment of employees, customers, suppliers and shareholders. Being ethical means a business goes beyond merely complying with laws and regulations, but makes choices about what it is prepared to do, and what it will not. Therefore, an ethical business strategy may exclude behaviour, which is legal, but conflicts with the businesses ethical policy.

Setting ethical objectives is the process by which organisations apply ethical values to their targets and the actions by which they will achieve them. These ethical values should cover all the actions of the organisation from tactical to strategic.

Businesses may be faced with some of the following issues, which have ethical dimensions:

  • Should we produce in a low-cost developing economy?
  • Should we promote products that might damage health?
  • Should we seek to undermine our competitors?
  • Should we pay minimum wage rates to our employees?
  • Should we employ migrant labour to cut costs?
  • Should we transfer our production units to countries with less strict health and safety laws?
  • Should we test our products on animals?

Benefits of adopting an ethical approach

  • Improved motivation among employees - feel good factor - many employees will be more committed if they can see an ethical approach adopted by the company
  • Reduced labour turnover - improved motivation is also likely to result in improvements in the recruitment and retention of staff ,who will be more loyal to an ethical company
  • Improved customer perception - consumers will often react positively to a more ethical approach and this may be used  as a unique selling point for the business. It also helps provide the brand with a more positive association, which should enhance brand values.

Problems in adopting an ethical approach

  • Higher costs - using ethically sourced raw materials, or producing in a way that is more ethical, is likely to raise costs. If the company is able to use the ethical considerations to develop the brand, then this may not be a problem, but if they are in a highly price competitive market then it may be more of an issue.
  • Problems with suppliers - suppliers may not hold the same ethical views as the firm and this may lead to possible conflicts. It may also make sourcing supplies more problematical.
  • Lower profit - if the higher costs cannot be passed on to the consumer, then this is likely to lead to lower profitability for the firm.
  • Stakeholder conflict - not all stakeholders will be keen on an ethical approach if it compromises their objectives. For example, some investors may withdraw if they feel that the ethical stance of the company is affecting its long-term viability or profitability.

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