Ethical, Legal and environmental factors Flashcards
(21 cards)
What is an ethical business?
An ethical business is one that considers the needs of all stakeholders when making business decisions. An ethical business, when setting objectives and considering strategy, takes into consideration its social responsibilities. Ethical businesses consider the moral rights and wrongs of any strategic decisions that are made.
What stakeholders are affected by ethics?
- Employees - should be treated as the most valuable asset with fair pair and good working conditions
- Suppliers - not putting pressure on their CF, comlying with contract, paying on time and opting into fair trade schemes
- Customers - they want quality products at a fair price
Other than stakeholders, what other issues are linked to business ethics?
2
- Environmental ethics: pressure groups such as Greenpeace or Friends of the Earth have been able to effectively change the course of action of numerous enterprises. Smaller pressure groups acting on a local issue have also taken on large business organisations with varying degrees of success.
- Animal welfare: PETA (People for for Ethical Treatment of Animals) has ensured that the argument has progressed well beyond fur skin coats, covering treatment of other animals used in the clothing supply chain.
Define corporate social responsibility (CSR)
This is the concept that businesses have a responsibility that goes beyond making profits for their shareholders. Businesses need to monitor and take responsibility for the impact they have on both social welfare and the environment. Some large organisations now audit relevant activities and make a corporate responsibility report available to the public.
2 Drawbacks of being ethical
- Costs are likely to rise. For example, paying a ‘living wage’, as opposed to complying with the minimum wage legislation, will increase labour costs. Building improved canteen facilities or providing sports facilities for employees would prove to be very costly.
- Revenues are likely to fall. For example, a toy retailer that refuses to target children with blanket advertising prior to Christmas will no doubt lose sales to their competitors. A construction company that declines to offer a bribe to a Third World government official when tendering for a contract may well not be considered for that project.
2 Benefits of being ethical
- Some customers are attracted to those businesses that adopt an ethical approach. Restaurants and coffee shops that source their ingredients from ethical suppliers appeal to a growing number of customers. Using ‘ethics’ at the heart of their marketing campaigns can boost sales in certain instances. The growth of the Fair Trade movement is evidence of such a trend.
- Acting ethically can improve public relations (PR) and have a positive impact on the image that a business portrays. No business wants to have its name splashed all over the newspapers for mistreating its employees or using low quality ingredients that may be harmful to consumers. Checking supply chains carefully is not only ethical, but can also prevent significant loss of revenue and reputation.
What is company law?
Legal factors
This regulates how private and public limited companies operate. It includes how limited companies are formed, the information that must be publicly available, the format of financial accounts and the type of shareholders permitted.
Employment legislation: There are a number of different laws that regulate the relationship between the employer and employee, what are they?
Legal factors
- Health and safety legislation
- Employment rights
- Anti-discrimination legislation: protects them form - age discriminatin, racial or belief based descrimination, sex discrimination and sexual orientation discrimination
Consumer protection laws; what are they?
Legal factors
There are laws designed to protect the consumer from unscrupulous firms. It covers such areas as:
* safety of goods
* labelling
* the right to return goods
* the right to money back
* protection against untruthful claims about the product or service.
Competition laws
Legal factors
This regulates the way in which businesses compete. Examples of
this include:
- control of the merger of businesses because of the danger of monopoly
power
- restrictions on one business undercutting others
- investigation of businesses who are believed to have too much control of the market
- making cartels and price fixing illegal
The CMA (Competition and marketing authority often regulate existing monoplies atc)
What is inetllectual property law
Legal factors
Intellectual property Law covers the legal rights of individual and companies in regard to designs, inventions and artistic works. Such as Trade mark legislations
What are data protection laws and what do they protect?
Legal factors
Data protection is concerned with how personal data gathered by organisations is used and kept secure. Businesses are required to have a Data Protection Officer whose role is to ensure that the requirements of the Data Protection Act are met. Data gathered from customers or clients must be:
* used fairly and lawfully
* used for limited, specifically stated purposes
* used in a way that is adequate, relevant and not excessive
* accurate
* kept for no longer than is absolutely necessary
* handled according to people’s data protection rights
* kept safe and secure
Businesses who fail to protect data can be subject to large fines. Instances of companies failing to protect customers’ data online are very much on the increase and it is an issue that businesses are urgently attempting to address.
Three drawbacks/implications of complying with legal factors
- Drawbacks of haing to comply with consumer protection laws
- Drawbakcs of complying with employee legislation laws/minimum wage
- Drawbacks of having to comply with company law
- Making the necessary improvements or adjustments to products in order to comply with consumer legislation can increase costs considerably. Quality control systems are expensive to implement but will benefit a business in the long run. Larger businesses have set up customer complaints departments to deal with increasingly aware customers who can be dealt with before they turn to the legal system with their concerns.
- Compliance with employment legislation can be very costly indeed and human resource departments are constantly having to deal with increasing amounts of legislation in relation to recruitment, employee well-being and training. Minimum Wage legislation has an impact upon some businesses, although it must be remembered that the majority of businesses pay over that level already. Many businesses complain that the amount of employment legislation introduced in recent times has made their operations inflexible and does not allow them to adapt to changing market circumstances.
- If company law creates a more competitive business environment, this will mean more opportunities for those businesses struggling to overcome barriers to entry set up by the dominant players in the market. Some would argue that too much legislation slows down the progress of many business ventures and prevents mergers and takeovers that would prove very lucrative for their shareholders.
Three benefits of complying with legal factors
- Benefit of complying with employment legislation
- Benefit of complying with health and safety laws
- Another benefit of complying with H&S Laws
- Nonetheless, employment legislation which prevents unethical businesses from paying very low wages in order to reduce costs does make it a much fairer market in which to compete. Complying with such legislation and improving employee welfare is likely to improve motivation, thus reducing absenteeism, improving productivity and retaining staff.
- a good health and safety record will benefit businesses and improve their image in the eyes of their customers. Employees will want to work in an environment which puts their safety first, especially where the tasks are potentially dangerous. Employee loyalty will be enhanced and motivation will improve. It is likely that workers operating in a safe and secure environment will prove to be more productive.
- Can mean they avoid bad publicity and heavy fines for not complying with H&S Laws
What can affect the businesses activities i.e. limit their environmental impact.
Environmental factors
The government and pressure groups (whether local or global) have a strong influence on business activity and, to some extent, they are able to limit its wider environmental impact. As well as these external influences, many businesses now undertake the control of their environmental impact without the need for external pressure. Some produce and publish their own environmental audits, which measure their impact on the environment and set out plans for improvement.
The role of the government: Environmental factors
The UK Government has signed up to a range of EU limits and controls designed to restrict the negative impact of business activity. A range of green taxes has been designed, not so much to punish businesses, but to encourage them to improve environmental practices. These are often referred to as green taxes. Examples of such taxes include:
- The Climate Change Levy – this is a tax on energy use by non-domestic users. The tax is designed to provide an incentive to reduce energy consumption.
- The Landfill Tax – this was the UKs first environmental tax (1996), and is a charge on waste going to landfills. Landfill sites in the UK are almost full. Trying to open new ones would meet with fierce opposition.
What is the environmental agency?
Environmental factors
The Environment Agency is the government body that monitors and controls pollution. It was set up in 1995 (Environment Act)and it has had a significant role in helping to reduce emissions into the air, cleaning up our rivers and generally ensuring that UK businesses comply with the numerous pieces of legislation introduced by the EU and UK Government.
the role of the government
The role of pressure groups A01
Environmental factors
Pressure groups are organisations formed with the objective of influencing government or business policy at local, national or international level. The WWF (World Wildlife Fund) is a well-established example of a pressure group that has helped change attitudes towards environmental issues across the globe. Its aim is to protect endangered wildlife and environments, tackle climate change and promote the sustainable use of resources. This type of pressure group has a wide range of activities and their roles can evolve over time.
How do pressure groups fight their case?
4 ways
Environmental factors
- Lobbying is now accepted as a one of the most effective ways for pressure groups achieving their set objectives. Lobbying involves meeting with, and discussing issues and concerns with decision makers such as government ministers MPs and senior management in large companies.
- Direct action against businesses is becoming more popular. There have been several examples in recent years of businesses being forced to make policy reversals as a result of pressure group action.
- To gain as much publicity as possible – the gaining of positive media attention is all-important. The interest of the media often raises public awareness of the issues and can bring the public onto the pressure group’s side.
- Legal action is another alternative – pressure groups often fight their case through the courts, questioning the legality of proposed actions.
Environmental awareness can bring a number of advantages other than reduced business costs and avoiding legal penalties. What do these include?
- Improved business and brand reputation – environmental friendliness can be a highly effective marketing tool
- Recruitment of employees who commit themselves to ethical company objectives
- Greater customer loyalty from growing number of ethical consumers
Implications of working with environmental groups
3
- Working with environmental groups, and learning about the supply chain impact of activities, improves efficiency and helps achieve long term sustainability, not just for the business but also for the wider environment. - - - For businesses, environmental issues used to be seen as a threat, a limit on behaviour and an increase to costs; however, today they are seen somewhat differently.
- Environmental factors consistently give rise to a key message – action upon the environmental impact of a business’s activity presents an opportunity to reduce costs and develop a competitive edge.
- On the other hand, failure to act could spell financial, as well as an environmental, disaster
