Strengths and Limitations of Ethical and Socially Responsible Business Practices

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What are the Strengths, limitations and challenges of ethical and socially responsible business practice?

Introduction

In the following essay I will discuss some of the benefits, drawbacks and challenges that are associated with socially responsible and ethical business practises. This paper will focus on few case studies to present the influence of Corporate Social Responsibility (CSR) on business also used to support arguments.

Ethical and responsible business

Business ethic was defined by Crane and Matten (2006) as “ the study of business situation situations, activities and decisions where issues of rights and wrongs are addressed”  (Crane and Matten, 2006, p.5). Organisations with ethically or socially responsible business are those that aim at attaining their organisational goals and at the same time morally and ethically serving the interests of all stakeholders involved in their business. Ethical business includes corporate social responsibility (CSR) and good business practices in general. Thus, social responsible and ethical business practices goes beyond of the Friedman (1970) view of the responsibility of business in which the key aim of any business is to maximise its profit. In general way the businesses are expected to act in an ethical and socially responsible manner. However, as a history shows many businesses have been exposed for unethical business practices, which in many cases lead to financial or environmental disasters. Some of the worldwide known organisations ruined theirs brand name or even bankrupted due to unethical business practice used in their operations as for example: Lehman Brothers, Enron (taxes), Volkswagen (emission scandal), FIFA (corruption scandal) among others. The decision to behave ethically is a moral one and organisation’s employees should reject the way to do an unethical business even if that would lead to the higher profit.  Ethical and responsible business together with corporate social responsibilities can bring benefits to a business and also to all stakeholders.

Discussion

Strengths of Ethical and Socially Responsible Business Practices

Ethical and responsible business or (CSR) can be seen as sources of extra pressure or costs, but on the other hand can be also seen as opportunity to fundamentally increase or strengthen organisation’s business and at the same time contribute to society. Many clients, employees and other stakeholders place increasing importance on ethical and responsible business and CSR.  Some of the benefits that ethical business can bring to a business are as follow: build a strong brand name, attract new customers or new employees, reduce labour turnover, attract new investors and suppliers. All these factors mentioned above can create competitive advantage for an organisation in the marketplace. According to Carroll (1991), corporates have responsibilities that are analogues to those of the members of the moral community, and these responsibilities fall into four groups. These four kinds of social responsibilities constitute total CSR. They are follow: Economic, Legal, Ethical and Philanthropic responsibility. Each factor is very important and there are lively relationships between all and when understanding the meaning it reflected to corporation( Carroll, 1991). Some companies may achieve great effort with unique and tight CSR behaviour/ initiatives but some are facing a huge damage to their profit and to brand image due to anti social responsible behaviour. This means that sticking to the ethical business practices not only benefit corporations but also individuals and communities that connect directly or indirectly with company. One of the World’s first ethical businesses recognised internationally was a company The Body Shop. Body Shop’s goal is “to be best, most breathlessly exciting brand and to be the World’s most ethical and truly sustainable global business” ( D.A Roddick, Values Book 2014/2015). The Body Shop is cosmetic brand and manufacturer who prohibited testing on animals and contain fairly traded natural ingredients. The Body Shop has more than 3000 stores in 60 countries. Their mission is to creatively addresses the financial and human needs of their stakeholders employees, customers, suppliers and stakeholders. The Body Shop dedicate their business to the pursuit of social and environmental change through their trading principles which reflects their core values: support community trade, defend human rights, against animal testing, active self-esteem and protect our planet. With the numerous traits and just a few behavioural point of view were highlighted of The Body Shop being Corporate Social Responsible. Their business model has positive impact on the stakeholders and stockholders. Customers highly value The Body Shops eco-friendly products, charity work etc. However, The Body Shop’s ethical and CSR business came under suspicion following the controversial L’Oreal takeover. The reader can see the deal as unethical because “green” The Body Shop was sold to their most criticized opponent, L’Oreal, ehich is known for its use of animals in product testing. Thus, the takeover may be seen as act, which is not corresponded with the Body Shop CSR policy and is not standing by its principles.

Limitations of Ethical Business Practises

Even business ethics offer companies a competitive advantage, there are also limitations that it may have on them, especially in the current business environment. As culture and technology changes, new ethical issues are always arising, such as ethics within distributing content online. Lindgreen and Swaen (2010) believes that CSR policies are meant to make sure that the organizations recognise and deliver their responsibilities to all stakeholders, which include the community, suppliers and consumers. Pride et al.(2009) argues that ethical business practices minimize the opportunities for business to increase their profits. How can a business defend costs on activities that offer no returns for business? Unethical practises will cause a bad reputation which in effect will result in falling stock prices. Foxconn, Apple’s top manufacturer, has improve safety conditions and cut working hours in  an effort to resolve violations at it is plants that triggered a global scandal for the Iphone and Ipad maker. The Fair Labor Association reported Foxconn’s significant progress such as better maintenance of safety equipment and introducing more breaks. Employees wages were doubled after protests from worker groups. The Guardian ( 2012).

Challenges of Ethical and Socially Responsible Business Practises

Ferrell (2011) agree one of the most core challenge in implementation of social responsibilities in business practices is large number of stakeholders. This is why some corporations are not prepared to act ethical and social responsible, either directly or indirectly. There are examples of situations where companies have suppliers for long time. These suppliers had been supporting business for certain period which it  has created a relationship over the time. If the company later realizes that the supplier breach of numerous health and safety regulations, exceeding working hours to get ready supplied raw materials it might be a challenging assignment for company to immediately cut off such a supplier. Apple (2018) has announced founded a higher number of serious violations of its labour and environmental policies for suppliers, such a falsifying work hours data. Apple has been running annual audit of conditions of workers making Iphone and other products for 12 years. For the first time company’s latest annual supplier responsibility report includes 197 suppliers audited. Apple runs one of the largest manufacturing chain in the world. Report 2018 showed very low performers 14% less than in 2014. Over 7000 foreign contract workers recruited from Philippines were forced to pay excessive fees for a job, a practical Apple banned in 2015. Employees were charged a total of $1 million to work for supplier. Apple said it strained the supplier to repay the money back to employees. Apple found 44 cases of core violations of it is labour rules in 2018, double the previous year.  Company said it uncovered 38 cases of falsification of working hours data. Increased number of serious violations of labor and environmental policies was driven by the fact that it brought on a high number of new suppliers in 2018 and started tracking working hours data of 1.3 million supplier employees, that is 30% compere with previous year.( Apple 2018).     Apple also applied a new rules on student labor after company discovered in China’s supplier Foxconn employeed students who worked more than 12 hours per day. Foxconn is one of the major supplier of Apple’s product in China, where the company practices where bring into the spotlight when workers started committing suicide 2010, 18 workers throw themselves from the tops of company’s building. A report from the Fair Labour association recently explains the toiling and the exhaustion caused by 14 hours shifts, workers prohibited from talking or interacting with co-workers and the pressure of just-time production in order to meet with the high demand (Eyck, 2010). The workers worked over 280 hours per month, compliance with Apple’s 60- hour work week. The reputation of the Apple has been drastically bruised due to it is suppliers. Steve Jobs was put a lot of pressure due to this as the public demanded an answer. Jobs responded to this by the information of detailed supplier code of conduct. It covered expectations in these areas: management system, labour and human rights, double impact on the environment, ethics, health and safety. ( Hyatt, 2012) According to Korten (1995), has argued in today’s fast-paced and profit-minded economy system long-term-oriented, socially responsible companies often face challenges. He believes the economic system focuses in the value of company’s stock and reward costs to other parties are rewarded. However, socially responsible organizations are often considered inefficient and wasteful. Consequently, the stock price of such firms suffers and they may be labelled as “in trouble”.

Conclusion

Ethical and socially responsible business practices are important not only in business but in all aspects of life, which include product design, preparation of financial statements and recruitment of staff. As it has been discussed in this essay, commitment to principles of business ethics may be beneficial to the customers, employees, companies and stakeholders that are mannered directly or indirectly by the organisation. It also has been mentioned that commitment to ethical and socially responsible business principles may be disadvantageous to the company. However, organisational disadvantages that may be caused by this are argued to be advantages to the society. From the study it was discovered that the biggest challenge in today’s fast-paced and profit-minded economy system to implement CSR in business practices was a large number of stakeholders. In reader opinion organization should apply CSR policy within their organizations because this at might improve their business in many aspects. CSR should be view it as the way to do business and should not be used just as the marketing tools. Companies and individuals are being held more and more responsible for their engagements, as demands grow for higher principles of corporate social responsibility. Business will be obstructed by challenges and limitations but will require a lot of patience, encouragement and money to gain the benefits from their ethical and socially responsible practices.

References

  • Apple Supplier Responsibility, Progress Report 2018, Viewed 10th of November 2018, https://www.apple.com/euro/supplier-responsibility/h/generic/pdf/Apple_SR_2018_Progress_Report.pdf
  • Carroll, A.B. ( 1991, July/August) The Pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons, pp34, 39-48.
  • Crane, A. and Matten D. (2006, December) Business Ethics: Managing Corporate Citizenship and Sustainability in the Age of Globalization, pp5.
  • Ferrell, O.C., Fraedrich, ‎J. & Ferrell, L‎., 2011. Business Ethics: Ethical Decision Making and Cases. Mason: Cengage Learning.
  • Friedman M. (1970): The Social Responsibility of Business is to increase its profits; New York Times 13 September.
  • Hopkins, M. (2012). Corporate Social Responsibility and International Development.
  • Korten C. David (1995) When Corporations Rule the World ( Second Edition)
  • Lindgreen, A & Swaen, V., (2010). Corporate Social Responsibility. International Journal of Management Reviews, 12(1), pp.1-7

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