UNIT INTRODUCTION Most businesses today are concerned about the impact of their activities on the business environment. Ethical concerns and greater consumer awareness have resulted in many businesses promoting their social values to ensure competitive advantage. Business ethics embraces corporate social responsibility and ethics relating to accounting practices, marketing, human resource management, and production. In this unit learners will examine the theoretical roots to the background and growth of business ethics. They will look at the different types of ethical issues a business needs to consider and how the development of ethical values impacts on business behaviour. It is important for learners to appreciate how taking an ethical stance affects businesses both internally and externally, including the effects on stakeholders. Learners will explore the social implications of business ethics for a wide range of business activities that affect the organisation itself and the external environment. This will include the ethical stance behind topical issues such as whistle blowing, employment practices, advertising to children, environmental awareness and using new technologies such as genetic modification of food. Learners will also examine how an individual's ethical stance impacts on the moral relationship between employer and employee, as well as considering the contractual responsibilities of both parties. This unit will give learners the opportunity to research how a business responds to ethical concerns and assess the extent to which its activities affect its behaviour, whilst ensuring business objectives are met. CASE STUDY- USE THE FOLLOWING CASE STUDY TO ANSWER TASK 1, 2 & 3 Rapid changes in media, transport and communications technology have made the world economy more interconnected now than in any previous period of history. Nowhere is this more evident than in the world of textile manufacture and clothing distribution. Consumers want fashionable clothes at affordable prices. Much of high street fashion is produced in various countries across the world. Businesses source clothes from countries like India, China, Bangladesh and Turkey because of lower material and labour costs in these countries. In order to meet consumer demand, Primark works with manufacturers around the world. Primark is part of Associated British Foods (ABF), a diversified international food, ingredients and retail group. Primark has almost 200 stores across Ireland, the UK, Spain, Netherlands, Germany, Belgium and Portugal. Primark's annual turnover accounts for a significant proportion of ABF's revenues and profit. Primark's target customer is fashion-conscious and wants value for money. Primark can offer value for money by: • sourcing products efficiently • making clothes with simpler designs • using local fabrics and trims • focusing on the most popular sizes • buying in volume • not spending heavily on advertising. Primark's business growth comes from meeting these customer needs whilst continuing to expand stores and move into new markets. This case study shows how Primark sources the clothes it sells in its shops in an ethical and fair way, often at added cost to itself. Business has a responsibility to society. Business ethics are rules of conduct and principles and patterns of behaviour in business dealings that involve 'doing the right thing'. Part of this responsibility is to look after the wider community involved in the business process, including employees, across the globe. Primark works with many third party suppliers and has a key concern to source ethically. Primark is very clear about where it stands on business ethics. 'As an international brand with a global supply chain we have a responsibility to act ethically. We embrace this responsibility as an opportunity to be a great force for good. Primark is committed to providing the best possible value for our customers, but not at the expense of the people who make our products.' In other words, this means making sure that, throughout the supply chain, Primark's goods are manufactured under good conditions and the employees in those factories are treated well. Primark shares its values with its parent ABF. These values shape Primark's relationships with its stakeholders. Stakeholders are individuals and groups who have an interest in or are affected by a business. They may be internal, such as shareholders or employees, or external, such as government or the community. Important business principles for Primark include respecting human rights and setting guidelines for appropriate conditions of employment in its suppliers' factories. Primark has over 600 major suppliers in 16 countries. These companies provide employment for over 700,000 workers in three continents. Primark is committed to making sure that its partners, both factories and suppliers, also act responsibly towards their employees. Typically, textiles are manufactured in low-wage/high manual skill economies such as are found mostly in the developing world. Factories in countries such as India or China may supply a range of retailers and brands, producing goods according to each individual retailer's specifications. In these circumstances, the factory sets the same wage rate to employees, regardless of which retailer the goods are for. At least 95% of the factories supplying Primark also produce for other high street retailers. Primark works to ensure ethical sourcing in a number of ways. It has an Ethical Trade Director, whose role is to make sure Primark goods are sourced ethically and who leads a team of ethical managers and executives based in the key sourcing countries. Primark is a member of the Ethical Trading Initiative (ETI -www.ethicaltrade.org). The ETI is an international alliance of companies, trade unions and nongovernmental organisations (NGOs) working in partnership to improve the lives of workers across the globe. Primark is able to offer value and low prices because its business model is based on high sales volumes and lower retail margins with minimal advertising. The company keeps costs down by buying large quantities of items and enjoying the economies of scale resulting from buying in bulk. In addition, retail prices are kept low through lean production and efficient operational practices. For example, using off-season factory time for production means that the costs are lower than at peak time. This is good for Primark, but it also means factory employees get work and pay when they might not otherwise have been needed. Therefore, its practices are both efficient and ethical at the same time. A company needs to be constantly alert to the challenges of operating ethically. It needs to develop ethical practices and principles that are supported and adopted throughout the business and to work in partnership with the many industry and international bodies seeking to secure ethical practices and protect the rights of employees. Primark bases its Code of Conduct on the International Labour Organization's (ILO) Code. The ILO is an agency of the United Nations. It brings together representatives of governments, employers and workers to shape policies and programmes. This unique arrangement enables the ILO to incorporate 'real world' knowledge about employment and work. The ILO code describes a set of standards for international labour. These promote opportunities for women and men to work in freedom, equity, security and dignity. Primark's Code of Conduct is translated into 26 languages, all published on its website, to ensure clear communication on standards. The Code of Conduct sets out the company's policy and is part of its legal terms and conditions. See the full Code and additional detailed information on the 11 points of the code at www.primark.co.uk/Ethical/Values/Code_of_Conduct The code states that within its supply chain: 1. Employment is freely chosen 2. Freedom of association and the right to collective bargaining are respected 3. Working conditions are safe and hygienic 4. Environmental requirements - Primark shares its commitment with suppliers 5. Child labour shall not be used 6. Living wages are paid 7. Working hours are not excessive 8. No discrimination is practised 9. Regular employment is provided 10. No harsh or inhumane treatment is allowed 11 Legal requirements - Primark is committed to compliance of all countries' laws. Primark works closely with the suppliers and factories that produce its goods. It provides training for suppliers, factories and its own buyers so that they understand ethical issues. For example, it offers guidance on issues such as child labour and home working in Asia, as well as immigration and right to work issues in the UK. The role of Primark buyers is important in helping to support ethical business practices. When selecting new suppliers and factories, Primark requires them to go through a selection process. This enables Primark to establish if working conditions are appropriate or if improvements are necessary before the supplier can be approved. All Primark suppliers are also subject to thorough independent audits and follow-up visits to make sure that the supplier is maintaining ethical practices. This involves an audit of labour standards. An auditor is someone that checks factories to ensure that Primark's code of conduct is being implemented within the factory. This includes, for example, checking that the factory has the appropriate fire safety equipment and that staff have been trained how to use it, to ensuring that all employees receive the wages and benefits they are entitled to. Primark seeks to work collaboratively with its suppliers when auditors identify issues of non-compliance against the code of conduct. Often factories need support and training to implement changes to their factories that are permanent and effective. As with most businesses, Primark's main objective is to be a profitable and sustainable business. Consequently, it is always seeking opportunities for profitable growth to ensure these primary objectives are achieved year-on-year. At the same time, Primark is committed to acting as a responsible corporate citizen. The term Corporate Social Responsibility (CSR) describes this approach. When a company operates in a responsible way, for example, through conducting ethical audits and working in collaboration with its suppliers to address issues, it helps to: • build confidence in the brand. The reputation of the business grows; stakeholders are pleased to be associated with it. • reduce risk to the business, for example, from poor publicity about ethical issues. Good business practice involves being sustainable over the long term. A business is sustainable when it is able to make profits for shareholders, offer good employment opportunities for its staff, pay taxes to the governments of countries in which it operates, and at the same time give consumers what they want (e.g. products that represent good value for money at affordable prices). A business that makes a profit is able to make an important contribution to society and to look after all of its stakeholders. Operating in an ethical way may incur additional costs to a business when compared with other retailers and companies who may not do business in the same way. For example, Primark bears the cost of carrying out all audits. Then there are its costs associated with working with ethical partners. An example of this is Primark's partnership with Nari Uddug Kendra (NUK). This is an organisation supporting women's rights and health in Bangladesh. See more information and read an interview with NUK at www.primark.co.uk/Ethical/External_Partnerships and check Primark's website before attempting the tasks. TASK 1 Answer the following questions using the case study: 1.1. Explain the background and development of theoretical ethical approaches 1.2. Compare and contrast absolute and relative ethics 1.3. Explain the ethical issues which can affect the operational activities of a business. This provides evidence for: AC 1.1., 1.2., 1.3 HINTS Ethical perspectives: deontological and teleological ethical theory; developments from these early approaches eg utilitarianism and other consequential approaches; early contributions of Kant and Mill; absolute and relative ethics; Institute of Business Ethics Operational activities: definitions of business ethics; ethical activities; values of businesses; professional ethics Ethical issues: corporate governance; corporate social responsibility; environment; sustainability; human rights; corruption; trading fairly; legal and regulatory compliance; business practices; working conditions; individual ethical responsibilities. TASK 2 Answer the following questions using the case study: 2.1. Explain how business objectives are affected by ethical considerations. 2.1. Evaluate the implications for a business and its stakeholders to operate ethically This provides evidence for: AC 2.1, 2.2 HINTS Objectives: corporate governance; corporate social responsibility; environment; sustainability; human rights; corruption; trading fairly; legal and regulatory compliance; business practices; communicating ethical code Stakeholders: stakeholders (owners, employees, customers, suppliers, competitors, citizens); conflicts of interest between stakeholder groups eg shareholders versus environmentalists Implications: adapting business behaviour; responding to ethical pressures; implementing ethical practices; influence of stakeholders and pressure groups; impact on competitiveness; reputation; public image; ethical trade; value-added; complying with relevant legislation and codes of practice eg UK law, EU law; UN Declaration on Human Rights; UN Global Compact; economic activity eg location TASK 3 Answer the following questions using the case study: 3.1. Assess the role of the company acting as moral agent 3.2. Analyse the development of mechanisms for achieving employee involvement and empowerment. This provides evidence for: AC 3.1, 3.2 HINTS Working relationships: contractual responsibilities; moral obligations in employer/employee relationships; whistle blowing; the psychological contract; good practice in equal opportunities employment; organisational integrity; working conditions; individual ethical responsibilities; individual ethical behaviour. TASK 4 SCENARIO: You are ethical investment consultants who advise clients on what type of ethical businesses to invest their money in. One of your clients is thinking of setting up a business that produces and sells ethical clothing for high street shoppers. Primark will be one of their main competitors and your client has heard that they have recently begun to change some of their business practices in the face of public criticism. In an effort to get a better understanding of their competitor's activities, ethical issues, operations, ethical codes, your client has asked you to investigate Primark's business activities and report back to them. You were asked to prepare a report addressing the following: 4.1. Research a current ethical issue affecting Primark. 4.2. Report on how Primark could improve the ethics of their operations whilst meeting objectives and ensuring good employer/employee relationships. 4.3. Design a suitable ethical code for your client. This provides evidence for: AC 4.1, 4.2, 4.3. HINTS Issues: corporate social responsibility; globalisation; cultural imperialism; ecology; environment; fair trade; corruption; animal testing; child labour; carbon footprint; sources of timber; outsourcing; personal attitudes; whistle blowing; contribution of business to the community; ethics in sales and marketing eg spamming, shills, product placement, green washing; ethics in intellectual property eg software piracy, counterfeiting, peer-to-peer file sharing Implications: global eg environment; corporate eg legal and regulatory compliance, policies and practices; individual (employee, consumer)