Business organisation and environment

Table of Contents

1. Topic pack - introduction
2. 1.1 Nature of business activity - notes
3. 1.1 Nature of business activity - questions
4. 1.2 Types of organisation - notes
5. 1.2 Types of organisation - questions
6. 1.3 Organisational objectives - notes
   1. Nature, role and importance of objectives
   2. Changing objectives
   3. Statements - mission and vision
   4. Short versus long-term objectives
   5. Short versus long-term objectives - a further explanation
   6. Management by objectives
   7. Ethical objectives
   8. Corporate social responsibility
7. 1.3 Organisational objectives - questions
8. 1.4 Stakeholders - notes
9. 1.4 Stakeholders - questions
10. 1.5 External environment - notes
11. 1.5 External environment - questions
12. 1.5 External environment - simulations and activities
13. 1.6 Organisational planning tools - notes
14. 1.6 Growth and evolution - notes
15. 1.7 Growth and evolution - questions
16. 1.7 Growth and evolution - simulations and activities
17. 1.6 Change (HL only) - notes
18. 1.9 Globalisation - notes
19. 1.9 Globalisation - questions
20. Print View

Ethical objectives

Ethics are the moral principles and values that underpin human behaviour. Morals are concerned with what is 'right' or 'wrong'. Business ethics are, therefore, 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?

For more on the values and ethics of Texas Instruments and to read about its 'quick ethics test select the following links:

• Texas Instruments
• TI quick ethic test

As with any business decision, much will rest on whether it is cost-effective to adopt an ethical stance. Some firms, for example Body Shop, made an ethical stance part of their unique selling point and some investment funds are now doing the same. However, the majority of large corporations now claim to have high ethical standards and have a range of policies on their websites that support their claims and so it is now harder to use ethics as a USP. Whether these policies are actually put into practice is often debatable.

Follow the links below to read the ethical polices of the following organisations:

• Walt Disney
• Levis
• Tata
• McDonalds

To be effective in applying ethical standards a business needs to:

1. Look carefully at the attitudes, values and standards of individual employees and if these fit with corporate expectations.
2. Make certain that a corporate culture exists, is known by all employees and is evenly applied by all responsible for decisions relevant to the code of ethics.

If this approach is not followed the company runs the risk of having clashes between its values and their application. Delegation will be jeopardised by inconsistency and problems will arise.

If the company does adopt an ethical approach, it may have a number of benefits including:

• Improved motivation among employees - 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 it is by many FairTrade companies) as a unique selling point for the business. It also helps provide the brand with a more positive association, which should enhance brand value.

A growing number of investors do not want to invest in companies which pollute or damage the environment, deal in the arms trade, or support oppressive regimes. Many also don't want to support tobacco companies or those that profit from gambling, pornography or the production of alcohol. More recently people have begun to express concern about general business ethics and how companies conduct their day-to-day business practices. These are no longer minority interests.

As a consequence there are a growing number of companies that specialise in ethical investments. They promise to examine the ethical credentials before they invest their clients' funds. One such firm is F&C, which lays out its investment criteria in its guide to ethical investing.

However, an ethical approach to business operations may have a number of potential problems. These may include:

• 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.

Remember that ethics may be a subjective concept, varying from country to country and culture to culture and, of course, from individual to individual. Even within a single firm there will be a huge range of opinions about what is right and what is wrong. The only difference though between a business and everyday life, is that employees should know a little about the firms values before they join, and to some extent are signing up to these.

Ethics also covers different areas than that covered by the law. It is possible for a business to act legally, but in a manner that many would consider unethical. Selling cigarettes or weapons, for instance, fits into this category.