0264 · 6.4.1Ethical issues

Ethics and stakeholder interests

0:00A clothing shop finds a supplier offering unusually cheap shirts. The price looks attractive, but the workshop uses children for dangerous tasks. Choosing where to buy now involves more than comparing prices. By the end of this video, you will understand how ethical issues affect business decisions and why responsible choices create benefits and costs. A stakeholder is any person or group with a direct interest in the activities and performance of a business.

0:25Suppliers are businesses that provide goods or services to another organisation. Employees, customers, suppliers and owners can all be affected by a business’s choices. A retailer’s decisions can therefore affect conditions in a workshop far beyond its own premises. An ethical decision is a decision based on moral beliefs about what is right, not only on what makes the most profit. Ethical issues arise when business choices raise concerns about acceptable treatment of people or the environment.

0:52Revenue is the income a business receives from selling goods or services, while profit is total revenue minus total costs. Ethics therefore adds another consideration to commercial decisions: how the outcome affects others. Legal requirements establish rules businesses must obey, while moral beliefs can encourage higher standards. For example, an employer might voluntarily pay above the minimum wage required by law. Different stakeholders can also disagree about what counts as fair treatment.

1:21The main examples are child labour, fair wages, fair prices to suppliers, suppliers’ environmental practices and honest marketing. Each involves a decision whose effects extend beyond the immediate buyer and seller. A lower purchase price might depend on harmful working conditions. Understanding ethics means tracing how a business obtains its savings and who experiences the consequences.

Examples of ethical issues

1:44Child labour involves work that harms children’s development or interferes with their education. Tarnside Interiors sells handmade rugs and discovers that a supplier uses children on dangerous machinery. The children’s safety and schooling become ethical concerns for the retailer. Responsible purchasing requires attention to the conditions behind its products, even when another organisation directly controls the workshop. Fair wages are pay considered reasonable for the work performed and employees’ circumstances.

2:13Quayside Lodge provides overnight accommodation and reviews the earnings of its cleaners. Managers consider the cleaners’ responsibilities, hours and the cost of essential needs. Paying above the legal minimum can demonstrate concern for employees’ welfare, although views about a fair amount can differ. Paying fair prices to suppliers means giving them payments that are reasonable for what they provide and the costs they face. Brookfield Kitchen serves lunches and buys vegetables from a small farm.

2:38Demanding a very low price could leave the grower unable to cover essential costs. Agreeing a reasonable payment helps that supplier continue operating and supports a dependable source of ingredients. Elmstead Furnishings makes tables and buys timber from an outside supplier. Managers discover that the supplier’s harvesting methods damage habitats. The ethical issue is whether to keep using a supplier that damages the environment. The business can switch to a supplier with evidence of responsible practices, so its purchasing decisions support less harmful methods.

3:09Honest marketing provides truthful information about products and their benefits. Kingsmere Repairs services household appliances and advertises the expected results of its work. Clear, accurate claims help customers decide whether the service meets their needs. Descriptions of environmental practices must be accurate too, because customers may choose a business for those promises.

Responding to ethical problems

3:29Businesses can respond through a code of conduct, supplier checks, fair-trade purchasing, wages above the legal minimum and ending unethical contracts. These responses turn moral beliefs into practical decisions. A business needs to identify the problem before selecting a suitable action. The response should address the people or practices involved in that particular issue. A code of conduct is a written set of standards for acceptable behaviour within a business and its dealings with others.

3:55It can establish expectations about wages, child labour and truthful claims. Managers explain these standards to employees and suppliers. Clear expectations help purchasing decisions remain consistent when a cheaper offer conflicts with the organisation’s principles. Checking suppliers’ practices involves gathering evidence about how they operate. A buyer might inspect premises, examine records and speak to employees about conditions. These checks help reveal whether promised standards are followed. Regular reviews matter because a supplier’s methods can change after the original contract is agreed.

4:28Fair trade aims to give producers a reasonable price and acceptable trading conditions. Buying from fair-trade suppliers gives businesses a practical way to support those aims. Paying above the minimum wage can also improve employees’ financial security, which helps the business keep them. Where a supplier refuses to correct harmful practices, ending its contract allows the buyer to stop supporting that behaviour. The sequence matters: establish standards, investigate concerns, require improvements and check the results.

4:57Some problems need immediate action because people face serious harm. A business can require corrective action where improvement is possible, with clear deadlines and evidence. Its written promises become meaningful when managers enforce them through actual purchasing and employment decisions. Tidewater Clothing sells jackets through a small online shop, and its aim is to build customer trust. Managers find evidence that its supplier has been using children for dangerous tasks.

5:23Customers have already asked the retailer about conditions at the workshop. First, identify the harm: the tasks threaten children’s safety and interfere with their education. The business should stop purchases connected with that harmful practice and require corrective action. Managers then check evidence that dangerous work has ended and children’s welfare is being protected. Continued purchasing depends on verified improvement; refusal to change leads to termination of the contract. This response connects the evidence to a specific action and a way of checking the result.

5:54Customers gain more reliable information about the conditions behind their purchases. The business strengthens its credibility when its conduct matches its promises. Finding another suitable supplier can nevertheless take time and delay deliveries to buyers.

Benefits and costs of ethics

6:07An ethical business can gain a better reputation because stakeholders see evidence of responsible behaviour. Customers who care about conditions behind products may then choose it over competitors. Additional purchases increase revenue for the business. This advantage depends on customers knowing about its practices and valuing them enough to influence their choices. Fair treatment also helps a business attract and keep good employees. They gain from reasonable pay and acceptable conditions, while the employer benefits from retaining experience.

6:37Fewer departures reduce the need for recruitment and training. Higher wages nevertheless increase the business’s costs, so managers must consider the immediate expense alongside possible longer-term savings. A pressure group is an organisation of people with a common interest who try to influence the decisions of businesses and governments. Responsible conduct reduces reasons for such organisations to campaign against a business. Following relevant laws also reduces the risk of legal action over unlawful practices.

7:07Investors who value ethical behaviour may provide finance because the organisation’s actions match their priorities. Ethical suppliers can charge more because responsible practices require resources and fair payment. The purchasing business bears those higher costs. Passing the increase to customers through higher prices can cause price-sensitive buyers to choose cheaper competitors. Customers who prioritise affordability therefore create a commercial challenge, even when they approve of the business’s principles. If revenue stays unchanged while total costs rise, profit falls.

7:39This can make ethical changes especially difficult at first, before any additional customer demand develops. Supplier checks also require time, expertise and money. A long chain of businesses makes conditions harder to verify, so managers may struggle to obtain reliable evidence about every stage. Good judgement separates promises from verified practices. A code of conduct establishes expectations, and checks provide evidence about compliance. Similarly, ethical behaviour creates opportunities for stronger demand, but the outcome depends on customer priorities and prices.

8:12Legal compliance and moral judgement remain distinct considerations because voluntary standards can exceed the requirements of the law.

Exam application: fair-trade coffee

8:20In Paper One Short Answer and Data Response and Paper Two Case Study, use the stimulus material to connect choices with consequences. Explain means set out purposes or reasons, say why and how, supported with relevant evidence. An answer should show the chain from ethical action to its effect on the business. Relevant details make that explanation specific to the situation. Sandpiper Diner is a small café serving drinks, and customers regularly ask how its coffee growers are treated.

8:48Management is considering fair-trade coffee, which costs more than its current supply. An exam-style question asks you to explain one advantage and one disadvantage of that change. Select a benefit linked to these customers and a drawback linked to the purchase cost. Buying fair-trade coffee could attract customers concerned about growers’ treatment because the choice responds to their stated interest. These customers’ additional purchases would increase revenue for Sandpiper Diner.

9:14On the other hand, the more expensive coffee would raise its total costs. Unless revenue rose by at least as much, the business would make less profit. The central idea is that purchasing and employment choices affect people beyond the immediate transaction. An ethical decision is a decision based on moral beliefs about what is right, not only on what makes the most profit. Effective responses combine clear standards with evidence and action.

9:39Stronger trust and customer support must be weighed against higher costs and the difficulty of checking practices.