Speaker 1: Hi everyone. In this latest topic briefing, I want to introduce and take a brief look at the important A-level business topic of business ethics. Let's start by thinking about what do we mean by this term ethics. Ethics are essentially guidelines about what is good behavior. They're all about people's morals, organizational morals, and therefore ethical behavior is about the behavior that is morally right. Now, you might look at that statement there and say, well, who decides what's right and what's wrong? Surely that's an opinion, that's a subjective judgment. And of course, you're quite right. That's the point about ethics, that all of us as individuals have a different moral compass. We have a different view as to what is good, what is evil, what's right and what's wrong. And of course, you can imagine it even within an organization, within an industry, there are going to be variations in those perceptions. So business ethics, important point to remember and perhaps to develop in your relevant lines of analysis. It's a highly subjective concept. Another important point to consider is that there is a significant difference between ethics and the law. Ethics is very clearly about what is right and what is wrong. And that's to a large extent, or almost wholly subjective. Whereas behaving lawfully is quite clearly about what is lawful within the law and what is unlawful outside of the law. Now, the reason why that's an important distinction or comparison to make is that as you look at business examples, you'll often come across situations where the business appears to be acting lawfully. But you might argue, depending on your moral compass, that they are acting unethically. So take a couple of examples. The one on the left there, the issue of payday loans companies. These are financial services businesses that are now increasingly regulated, but some of them unregulated, providing short term loans called payday loans, because the people who take the loans out are waiting for the next time they get paid. But they have cash requirements to spend. Typically, these loans are at very high effective rates of interest in thousands of percent. Now, you might argue that that is an unethical thing to do. But until recently, it was almost entirely legal. Industry has since been regulated. What about the one on the right hand side there? Importantly, tax avoidance, ensuring that you don't pay taxes that you don't have to pay, is entirely legal. Tax law is very clear. It's very complex, but it's very clear. And multinationals like Google and Starbucks and Amazon and all sorts of others have, over the last few months and years, been criticized for their very complex tax planning arrangements that enable them to minimize the amount of tax that they pay. The important point, tax avoidance is legal. You might argue, depending on your moral code, your moral compass, as to whether or not you believe that they are acting ethically in that situation. And of course, the important thing to remember is that within any industry, within any firm, there will be a variety of different approaches to morals. Noel Coward famously said, I guess, referring to the possible lack of morals within certain industries, the higher the buildings, the lower the morals. And I suspect there's something in that. There are two main ways in which business ethics get challenged as you undertake business. And they arise from the behavior of individuals. For example, that could be specific individuals in a particular role where acting unethically has a potentially damaging effect. It could be individual management, for example, the CEO. But also ethics are to a large extent determined by the organizational culture of a firm or organization. And one quite nice bit of theory here, which you could perhaps build into your lines of analysis, is that there is a sort of a spectrum of approaches to ethics within an organization. On the one hand, at one end of the spectrum, you have the business that just couldn't give a monkey's about ethics, that they are in business to win at all costs and absolutely everything is acceptable, including breaking the law, but certainly acting in a way that you and I might feel is unethical. The so-called amoral business, a business without morals. Right at the other end of the spectrum, or the scale, is the truly ethical business, a business that seeks to simply exist in order to act ethically. Everything it does, everything it says, the way it treats its employees, its customers and its other stakeholders is based around the very best practices of ethical behavior. And somewhere in between, a whole bunch of other organizations, probably the vast majority of businesses, that on the one hand maybe just want to stay within the law and they'll touch on ethics, but they won't be too concerned about it. Whereas there'll be these other responsive businesses that, by and large, accept that behaving ethically is the right thing to do. It's an important part of doing business. It's not the core of their business, but they would consider that actually there is some advantage, some commercial benefit from being an ethical business. That's quite a nice way of just categorizing the different theoretical approaches to ethics within the business. It's a nice example of a theoretical model that you could build into a line of analysis to help compare and contrast the different approaches to ethics within businesses. Another important thing to remember as we're thinking about theory here, is that ethics is very closely linked with the concept of CSR, or Corporate Social Responsibility. They're not quite the same thing, but the links are very close. So, by and large, a firm that considers itself to be socially responsible, in other words, taking into account the needs of its wider stakeholder group, not just shareholders, by and large, that firm would also want to consider itself as being an ethical business. Because the assumption is that most stakeholders would expect the firm to behave ethically. And similarly, an ethical firm would expect, as part of its broader responsibilities, to be looking after its responsibilities to social stakeholders. But there is a distinction, the two are very close together, but there is a distinction. CSR, Social Responsibility, is all about stakeholder responsibility. Ethics, as we said right at the start of this short briefing, is all about moral behaviour. But we have to accept, and it's right to accept, that the two are very closely linked. And as a result, you often find, increasingly, for businesses and organisations that want to make public statements about their ethical position, about their approach to CSR, and indeed, to try and state how those should be addressed within the organisational culture, you'll often see ethical codes of practice, both within an organisation and publicly communicated to outside stakeholders. So look out for some examples of those as you start to look into CSR. Look out for the examples of ethical practice as part of CSR. Now, we're not going to go into lots and lots of detail about ethics, but I think it is worth just highlighting some common areas where ethics are challenged or tested in business. I've listed four or five of them there on the screen, and we'll just have a look at a couple of examples. These aren't the only areas where ethics are tested, because as we've said previously, ethics, the moral behaviour of individuals within an organisation, is done both at the individual level, as well as at the organisational level. And therefore, it can affect all parts of the operation of an organisation. But let's take a look at a couple of these, just to illustrate the point as to where ethics typically get challenged and raised. For example, what's your view on this? Cold calling. You're at home at night, on your mobile, and it rings, and it says, no caller ID, and you answer it, and it's one of those double glazing firms. Or perhaps more likely that you find out you've neglected to submit yet another claim for payment protection insurance. You're being cold called. Someone's got your number. They're looking for you to sign up, start to generate some revenue for the business making the call. Do you consider that to be ethical marketing behaviour? Now, by and large, most consumers would find those kind of calls pretty unwelcome. Even if they're registered with the telephone preference service, they still seem to come through. But what about the sales director who needs to get a thousand calls completed, and 10 customers signed up each day? Would he or she consider those calls to be unethical? It's a judgment call, isn't it? What about the whole issue of ethics and the increasingly integrated nature of the supply chain? The way in which a business communicates and contracts and manages its suppliers. I've seen lots of examples, haven't we, over recent years of where supplier situations, factory conditions, sweatshops, disasters at factories overseas, issues around health and safety and environment have come to the fore. And you might argue that actually the company that has been using those suppliers has been less than ethical in terms of the way it has organised its relationship with those suppliers. Perhaps it's been found out by not paying any kind of normal minimum wage or not complying with local health and safety legislation. So the complexity of supply chains often brings up all kinds of ethical issues. I'm thinking a bit closer to home, the issue at the moment around the supermarkets and whether they have perhaps abused their greater buying power with key suppliers. Is that a question of unethical behaviour? It's probably not illegal, but is it unethical? Look out too for increasing activism amongst the stakeholders affected by unethical behaviour. Look out, I'm just going to highlight a couple here. One is the role of pressure groups in particular through the use of social media, but also the potential commercial damage that can arise if a firm is found or is perceived to be acting in an unethical way. The pressure groups are quite interesting. Lots of examples over the years. The one on the screen there, the fairly famous, very famous Greenpeace campaign that targeted Nestlé's use of supplying palm oil from plantations that had been grown by effectively destroying the habitat of orangutans. It was a hugely successful pressure group campaign that eventually forced Nestlé to change its supply arrangements. And think also too about the increasing use of consumer action, consumer activism. In many ways, this is a manifestation of the way in which stakeholders can actually fight back against what they perceive to be unethical behaviour. For example, the tax avoidance issue. It's thought that one of the reasons why Starbucks agreed to pay, I think it was £10 million of corporation tax initially, was as a result of the backlash from consumers fuelled by their ability to collaborate and communicate with each other using social media. They started boycotting Starbucks stores and who knows what the real reason was why Starbucks climbed down and offered to make the corporation tax payments. But it appears that the consumer boycott had an effect. And what they were saying, what those who were involved in the boycott were saying was tax avoidance. It's unethical. It might be legal, but it's not the right thing to do. So we know, I guess we intuitively feel that actually a business that acts ethically is perhaps more likely to succeed than one that doesn't. It's fairly easy to build a line of analysis that says that an ethical business, particularly if it can communicate that approach, if it's genuine and it can communicate that approach to customers, that may result in improved brand and business awareness. It's probably going to be an organisation that employees want to work for. By and large people want to work for businesses that they feel match their moral compass. We're seeing the rise of ethical investments, more finance is being made available to businesses that can demonstrate an ethical track record. So there's three or four ways in which you can build a case for saying there's a business benefit from acting ethically. And similarly, you could also identify the costs, the potential damage to business from being found to be acting unethically. If you want to see some examples of businesses that are perceived to be the most ethical, there are a whole bunch of different surveys that come out each year. I'm never quite sure how they're scored, how they're evaluated, and whether or not there's any payment involved in those appearing in the lists. I guess by definition any payment would be an act of unethical behaviour, but maybe I'm just being a little bit paranoid about that. But take a look, that link there, etosphere.com is an excellent site. Each year they produce a list of what they believe to be the world's most ethical companies. Remember on our spectrum these will be right on the right hand side, companies for whom ethics is the essence of their business activity. But similarly, look out and make sure you've got three or four examples of where a business has suffered, in particular has suffered cost as a result of being found to have acted unethically. And I think perhaps the best example that we have of this at the moment is the spiralling cost of the damages and claims made by consumers for having been missold payment protection insurance, the so-called PPI scandal. And we're talking about tens of billions of pounds of costs for UK financial institutions, just about all of them. Several years ago had a product called payment protection insurance that they sold very aggressively to consumers who simply didn't need it. And the key issue was that having been found out, they're now facing the backlash from that, from that very unethical behaviour, in my view, very unethical behaviour. Also look out for, I think, perhaps the most topical example, in particular following the recent introduction of the diverted profits tax by George Osborne, look out for tax avoidance. I think that's a classic, if only because it helps make the point that there's a significant difference between acting legally, tax avoidance is legal, but acting unethically. Is it more important for these multinationals to do things right? And in other words, act ethically rather than just doing the right thing. Now, there are a whole bunch of different ways in which ethics could be examined. And in particular, if you're taking an essay question on this, you could get a specific question on ethics. Don't forget that ethics also very closely links with CSR. And of course, ethics is always going to be one of those factors that you might bring into a line of analysis in an alternative question. I've just listed out three or four possible essay questions that you might want to have a think about there. They'll ask a little bit of a different thing, but they're based around the same concepts, quite like the bottom one, which almost invites you to consider that spectrum of approach and whether there is an implied conflict between acting ethically and acting in a way that maximises profit. The ethical business would say no, actually, the two are entirely consistent. The business, the amoral business would say, of course, it is a massive, massive contradiction. Ethics, you know, it's nice to have, but if I need to make money, I'll make money in whatever way I can. The third one down there, do big businesses tend to act in less ethical ways than smaller businesses? Is there a contrast there that you can make? And also, what about the second one down? Maybe that's the last one to think about there. Should you allow a business to act unethically if actually it gives customers exactly what they want? So I'm thinking there about, for example, fast fashion retailers. Fast fashion retailers give us exactly what we want, the clothes we want, the styles we want at the price we demand, which is typically very low. Now, in doing so, it's argued that they're perhaps acting unethically in terms of their supply chain. But does that matter, provided that you and I, as consumers, get exactly what we want, which is great products at very low prices that you can buy straight away? Should we really be too concerned about the ethics of the supply chain? Some interesting questions for you to consider. I'm more than happy to continue the conversation around business ethics. If you want to get in touch, follow me on at TutorToYou on Twitter, or follow myself and Graham and Rachel and Jamie and all the rest of the team on the at TutorToYou business handle. And of course, if you're studying for BuzzFaw, then please also use the hashtag BuzzFaw as a way of getting in touch. This has been a short introductory briefing on the core business topic of business ethics. I hope you found it useful.