What You Need to Learn
- Understand what is meant by ethics and business ethics
- Explain the societal impact of ethical and unethical business behaviour
- Describe the role of pressure groups in holding businesses to account
- Understand how business ethics can affect revenue and profits
- Evaluate the costs and benefits of ethical business practices
6.1 What We Mean by 'Ethics'
Ethics is about judging whether actions are good or bad, right or wrong, acceptable or unacceptable. The core principle behind ethics is simple: "do no harm".
When we apply ethics to business, we call it business ethics - the moral principles that guide how a company behaves. This includes how it treats employees, customers, the environment, and the wider community.
High-Profile Cases of Unethical Business Behaviour
Ethical concerns have become major topics of public debate. The following high-profile cases show what can happen when businesses act unethically:
| Case | What Happened | Impact |
|---|---|---|
| BP Oil Disaster (2010) | An explosion on the Deepwater Horizon oil rig in the Gulf of Mexico caused the largest marine oil spill in history. | 11 workers killed and 4.9 million barrels of oil spilled into the ocean, devastating marine wildlife and coastal communities. |
| Sweatshop Factories (2007) | An investigation revealed that workers producing clothes for major UK retailers including Primark, Tesco, and others were being paid as little as 13p per hour. | Workers endured appalling conditions with extremely low pay. This sparked public outrage and calls for retailers to take responsibility for their supply chains. |
| Volkswagen Emissions Scandal (2015) | Volkswagen installed software in 11 million diesel vehicles worldwide that cheated emissions tests, making cars appear far cleaner than they actually were. | Massive environmental damage, billions in fines, and severe reputational harm. VW's share price dropped dramatically. |
Card Sort: Ethical or Unethical?
Sort these business actions into the correct category:
6.2 The Societal Impact of Ethical and Unethical Behaviour
Business decisions have far-reaching consequences for society. This section examines the key areas where businesses can have a positive or negative impact.
6.2.1 Employees' Pay and Conditions
The treatment of workers has been a major ethical issue throughout history.
During the Industrial Revolution, working conditions were extremely poor. Victorian-era child labour was widespread - in 1821, nearly half of the workforce were children and teenagers. Children worked long hours in dangerous factories, mines, and chimneys for very little pay.
Over time, laws were introduced to protect workers:
| Legislation | What It Does |
|---|---|
| Health and Safety at Work Act 1974 | Requires employers to ensure the health, safety, and welfare of their employees as far as is reasonably practicable. Employers must carry out risk assessments and provide safe working environments. |
| National Minimum Wage Act 1998 | Sets a legal minimum hourly rate of pay that all employers must follow. This prevents the exploitation of workers by ensuring a basic standard of pay. The rate varies by age and is reviewed each year. |
6.2.2 Discrimination
Discrimination means treating someone unfairly because of a personal characteristic. The Equality Act 2010 protects people from discrimination based on the following protected characteristics:
- Age
- Disability
- Gender reassignment
- Marriage and civil partnership
- Pregnancy and maternity
- Race
- Religion or belief
- Sex
- Sexual orientation
6.2.3 Trading Fairly
Trading fairly means paying fair prices to suppliers and ensuring that all businesses in the supply chain behave ethically. This is especially important for multinational companies that source products from developing countries.
Fairtrade
The Fairtrade Foundation is an organisation that certifies products meeting strict ethical standards. Products carrying the Fairtrade logo guarantee that:
- Fair prices are paid to producers in developing countries
- Businesses help development in local communities
- Production causes no environmental damage
- Communities are helped to become sustainable and self-sufficient
6.2.4 Transparency in Sales
Transparency means providing customers with full, clear information so they can make informed decisions. Businesses should not hide important details or use misleading language.
Case Study: PPI Mis-Selling
Payment Protection Insurance (PPI) was sold alongside loans, credit cards, and mortgages by banks and financial institutions. However, millions of customers were mis-sold PPI - they were not told the full terms, did not need the product, or were not even aware it had been added to their agreement.
This became the UK's biggest ever financial scandal, with banks paying out over £38 billion in compensation. It demonstrated the devastating consequences of a lack of transparency in sales.
6.2.5 Diet and Health
Businesses in the food and drink industry have been criticised for the impact their products have on public health. Fast food companies in particular face criticism for promoting unhealthy diets.
The cost of treating diet-related illnesses such as obesity, type 2 diabetes, and heart disease places enormous pressure on the NHS. Critics argue that food and drink companies have an ethical responsibility to reduce sugar, salt, and fat in their products and to market them responsibly.
6.2.6 Environmental Damage and Sustainability
Many business activities contribute to environmental damage, particularly through CO2 emissions from burning fossil fuels (coal, oil, and gas). This contributes to global warming, which has serious consequences:
- Melting icecaps at the North and South Poles
- Rising sea levels, threatening low-lying areas and island nations
- Climate change - more extreme weather events, droughts, and flooding
Sustainability means meeting the needs of the present without compromising the ability of future generations to meet their own needs. Ethical businesses are increasingly switching from fossil fuels to renewable energy sources such as wind, solar, and hydroelectric power.
6.2.7 Impact on Local Areas
When large businesses such as new supermarkets open in local areas, they can have both positive and negative effects:
| Positive Effects | Negative Effects |
|---|---|
| Create jobs for local people | Local shops may be forced to close as they cannot compete on price |
| Provide greater choice and lower prices for consumers | Increased traffic and congestion in the area |
| Investment in local infrastructure | Waste materials and packaging increase environmental harm |
| Boost the local economy | Profits leave the community and go to shareholders elsewhere |
6.2.8 Corporate Tax Avoidance
Corporate tax avoidance is the practice of using legal loopholes to reduce the amount of tax a company pays. While technically legal, many people consider it unethical because these companies use public services (roads, police, NHS) but contribute very little towards them.
Table 6.1: High-Profile Tax Avoidance Cases
| Company | UK Sales/Revenue | UK Tax Paid | Year |
|---|---|---|---|
| Starbucks | £400 million | £0 (no tax paid) | 2013 |
| £395 million | £6 million | 2011 | |
| Amazon | £3.35 billion | £1.8 million | 2011 |
These multinational companies made enormous revenues in the UK but paid very little or no corporation tax. They did this by moving profits to countries with lower tax rates. In contrast, many smaller UK companies pay their full share of tax, putting them at a competitive disadvantage.
Companies That DO Pay Their Fair Share
| Company | Approach to Tax |
|---|---|
| John Lewis Partnership | Pays full UK corporation tax and is transparent about its tax affairs |
| Marks & Spencer | Publishes a detailed tax report and pays tax where profits are earned |
| Local independent businesses | Small businesses typically pay their full tax obligations without complex avoidance schemes |
6.2.9 Pressure Groups
A pressure group is an organisation that campaigns to influence public opinion and government policy on a particular issue. They hold businesses to account and raise awareness of unethical behaviour.
| Pressure Group | What They Campaign For |
|---|---|
| Greenpeace | Environmental protection - campaigns against pollution, deforestation, overfishing, and climate change |
| Friends of the Earth | Environmental justice - campaigns on climate change, biodiversity, and holding polluters to account |
| Fairtrade Foundation | Fair prices and conditions for producers in developing countries through the Fairtrade certification scheme |
| Sustain | Better food and farming - campaigns for healthy, sustainable, and fair food systems |
| Oxfam | Fighting poverty and inequality worldwide - campaigns against tax avoidance and unfair trade practices |
| Corporate Watch | Investigates and exposes the social and environmental impact of large corporations |
Match the Pressure Group to Its Description
6.3 How Business Ethics Affects Revenue and Profits
6.3.1 Cost Implications
Behaving ethically often costs businesses more money. Ethical sourcing, fair wages, and environmentally friendly processes all increase costs. This means ethical businesses may have to charge higher prices, which can reduce sales volume.
Example: Fairtrade Bananas vs Regular Bananas
| Regular Bananas | Fairtrade Bananas | |
|---|---|---|
| Selling price per bunch | £1.00 | £1.50 |
| Cost per bunch | £0.50 | £1.00 |
| Profit per bunch | £0.50 | £0.50 |
| Number sold per week | 500 | 300 |
| Total weekly profit | £250 | £150 |
This example shows that while the profit per bunch is the same, the higher price of Fairtrade bananas means fewer are sold, resulting in £100 less profit per week. This is the financial cost of ethical behaviour that businesses must weigh up.
6.3.2 Ethics, Reputation and the Media
A business's reputation is one of its most valuable assets. Ethical behaviour can enhance reputation, while unethical behaviour can destroy it.
| Positive Effects of Ethical Behaviour | Negative Effects of Unethical Behaviour |
|---|---|
| Consumers are willing to pay more for ethically produced goods | Scandals lead to reputational damage that can take years to recover from |
| Positive media coverage and word-of-mouth builds customer loyalty | Negative media coverage can lead to boycotts and loss of customers |
| Attracts ethical investors and quality employees | Loss of investor confidence causes share prices to fall |
| Builds a strong brand identity based on trust | Heavy fines and legal costs (VW paid over £25 billion in fines) |
True or False: Business Ethics
Flip Cards: Key Terms
Practice Quiz
Summary
| Topic | Key Points |
|---|---|
| Ethics | Judging whether actions are good/bad, right/wrong, acceptable/unacceptable. Core principle: "do no harm" |
| High-profile cases | BP oil spill (2010), sweatshop factories (2007, 13p/hour), Volkswagen emissions scandal (2015) |
| Workers' rights | Health and Safety at Work Act 1974, National Minimum Wage Act 1998 |
| Discrimination | Equality Act 2010 - nine protected characteristics |
| Fairtrade | Fair prices, help development, no environmental damage, sustainable communities |
| Tax avoidance | Starbucks (£400m, £0 tax), Google (£395m, £6m tax), Amazon (£3.35bn, £1.8m tax) |
| Pressure groups | Greenpeace, Friends of the Earth, Fairtrade Foundation, Sustain, Oxfam, Corporate Watch |
| Ethics and profit | Ethical behaviour costs more short-term but builds reputation and loyalty long-term |
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