The managers of a public limited company believe that it is important for the business to behave ethically. To what extent do you think that an ethical approach is now essential to business decision making for managers in public limited companies? [ 25 marks ]
An ethical approach to business decision making can be argued as essential due to the vast social changes that have occurred over the past decade whereby society is ever more aware and critical of business activity. The extent to which ethical behaviour is essential, however, can be challenged by various concepts like Carroll’s CSR pyramid.
Carroll’s CSR pyramid highlights the fact that the foundation of all business activity is economic. For many, the reason why businesses exist is to profit from its operations, and in order to act ethically a business must first have the financial means to do so. Nevertheless, many public limited companies avoid their ethical responsibilities or at least do not cater to them as they are not aligned within their best interest. A financially driven corporation exists purely to maximise its profits, as can be explained by the exploitation of foreign labour by many public limited companies within the fashion industry, like Primark. By adhering to its ethical responsibilities that which it is not obliged to do, a business’s resources are restrained and its potential for innovation is stifled. By limiting innovation due to the ethical considerations of its actions, the potential for success is limited too. In certain markets, particularly those which are price inelastic, consumers will continue to purchase goods from businesses despite unethical practices. For instance, global fast-food retailer McDonald’s is known for its unethical manner in producing its food, yet most customers continue to purchase the goods because the alternatives are not necessarily any better. This highlights that an ethical approach does not determine the success of a company and is therefore not essential towards decision making, particularly in markets where customers will buy products regardless of business activity.
In contrast, an ethical approach can be deemed as essential in the long term and can help to discourage short-termism. Business activity and society are interdependent, and so acting in a sustainable manner to help society will allow a business to reap the success from this kind of approach at a later date. For example, Ben & Jerry’s have developed a healthy brand image as they continue to donate 7.5% of pre-tax profits to different charitable institutions. This kind of forward-thinking will in the long run, improve society’s ills. As a result, a public limited company can improve its reputation by adopting an ethical approach to decision making. In the long-term, acting ethically may yield a public limited company greater profit than a financially driven public limited company. This can please shareholders through greater dividend payments. However, an ethical approach is not always capable of satisfying all stakeholders. While ethically oriented shareholders may welcome an ethical approach, those financially driven may be angered by this change in business activity. Taking this into consideration, an ethical approach is once again not essential towards the success of neither a business nor its decision making.
Overall, I do not believe that an ethical approach to decision making is essential. While acting ethically can prepare a business more readily for a long-term means of success through sustainability, it is not essential for a business to act ethically in order to succeed. By acting ethically, a public limited company will have the attention of its stakeholders divided between those who financially benefit and those that want an improved society.