Ethical issues arising from the nature of markets

- The 18th Century economist Adam Smith demonstrated how in a free market the self interest of
producers and consumers will produce an outcome desirable to all concerned

- But the market can also lead to inequality of income, wealth and market power:

Monopoly suppliers can exploit consumers

Monopsony buyers can exploit supply firms

World wide inequality of income can result in unethical practices such as the child labour

Ethical issues and society - examples

Involvement in the community

Honesty, truthfulness and fairness in marketing

Use of animals in product testing

Agricultural practices e.g. intensive faming

The degree of safety built into product design

Donation to good causes

The extent to which a business accepts its alleged responsibilities for mishaps, spillages and

leaks

The selling of addictive products e.g. tobacco

Involvement in the arms trade

Trading with repressive regimes

Ethical issues arising from internal and industry practices - examples

Treatment of customers - e.g. honouring the spirit as well as the letter of the law in respect to
warranties and after sales service

The number and proportion of women and ethnic minority people in senior positions
The organisation’s loyalty to employees when it is in difficult economic conditions

Employment of disabled people

Working conditions and treatment of workers

Bribes to secure contracts

Child labour in the developing world

Business practices of supply firms

Unethical practices in marketing - examples

Pricing lack of clarity in pricing

Dumping – selling at a loss to increase market share and destroy competition in order to subsequently
raise prices

Price fixing cartels

Encouraging people to claim prizes when they phoning premium rate numbers

“Bait and switch” selling - attracting customers and then subjecting them to high pressure selling
techniques to switch to an more expensive alternative

High pressure selling - especially in relation to groups such as the elderly

Counterfeit goods and brand piracy

Copying the style of packaging in an attempt to mislead consumers

Deceptive advertising

Irresponsible issue of credit cards and the irresponsible raising of credit limits

Unethical practices in market research and competitor intelligence

Unethical practices relating to products - examples

Selling goods abroad which are banned at home

Omitting to provide information on side effects

Unsafe products
Built in obsolescence

Wasteful and unnecessary packaging

Deception on size and content

Inaccurate and incomplete testing of products

Treatment of animals in product testing

Ethics and the supply chain

- It would be hypocritical to claim to be a ethical firm if it turned a blind to unethical practices by

suppliers in the supply chain. In particular:

The use of child labour and forced labour

Production in sweatshops

Violation of the basic rights of workers

Ignoring of health, safety and environmental standards

An ethical producer has to be concerned with what is practiced by all firms (upstream and downstream)
in the supply chain.

Bribery

This is a key ethical issue in business

It first needs to be stated that bribery to secure a contract (especially a contract with a public sector
body) is against the law and severe penalties can result

However, it is sometimes seem (wrongly) as a victimless crime and is often rationalised in terms of “if we
don’t offer a bribery, others will”

From a moral or ethical perspective it should be approached not in terms of “can we get away” with it
but is it right to offer a bribe to secure a contract
Institute of Business Ethics Suggestions for Good Practice

The Institute recommends that organisations issue statements of ethical practice in respect of:

Relations with customers

Relations with shareholders and other investors

Relations with employees

Relations with suppliers

Relations with the government and the local community

The environment

Relations with competitors

Issues relating to international business

Behaviour in relations to mergers and takeovers

Ethical issues concerning directors and managers

Compliance and verification

What is an Ethical code?

- This is a set of principles governing morality and acceptable behaviour

It is likely to cover:

Personal behaviour e.g. when dealing with customers and suppliers

Corporate behaviour e.g. when negotiating deals

Behaviour towards society e.g. when recruiting

Behaviour towards the environment e.g. when deciding on process

Ethical audit

- This is an audit of all the firms activities

Purpose:

To check that ethical principles are being pursued

To check the extent to which actions are consistent with the organisation’s stated ethical intentions

And to establish action plans if they are not