Week 5  Week 6 homework AS Level

South American Forest Corporation (SAFC)

SAFC is a public limited company. The new owners of SAFC are determined to make the
business more profitable. Serge, the new CEO, has stated that the business objective is a 15%
return on capital. 'We must increase shareholder value,' he told senior managers. Serge has
suggested a new mission statement for the business: 'Responsibly produced and sustainable
wood for future generations.'
The recent strategies adopted by the business suggest its operations are focused on profit not
responsibility or sustainability. SAFC has increased the rate of tree felling by 50% but no
additional trees have been planted. Compared to last year's sales of $45m, sales this year
increased by 15%. Annual costs, at $30m this year, only increased by 5% as some child
workers were employed in the poorest regions with forests. As the forests are in very remote
country, no pressure groups have gained access to them.
Serge is pleased with progress so far. He told his operations manager, 'Ethics only makes
sense for companies dealing with consumers. However, we sell to big furniture makers and
they don't care where the wood comes from or how it's produced.’

A:
i) Identify one benefit to a business of having a mission statement. [1 mark]

 Having a mission offers a business the advantage of providing a clear and focused
declaration of the company’s objectives and values. This serves as a guiding principle
for the organization, fostering alignment among employees and stakeholders toward a
shared purpose.

ii) Explain the term 'ethical decision’. [3 marks]

 An “ethical decision” refers to a choice made by a business or an individual that takes

into account moral and societal values, aiming to act in accordance with what is
morally right. Ethical decisions involve considering the impact of actions on various
stakeholders and prioritizing values beyond mere profit.

B:
i) Calculate SAFC's profit this year. [3 marks]

 To compute SAFC’s profit for this year, we can use the following formula:
Profit = Total sales – Total Costs

Given:
Total Sales for this year = $45 million * 1.15 (a 15% increase) = $51.75 million
Total Costs for this year = $30 million * 1.05 (a 5% increase) = $31.5 million

Thus, Profit = $51.75 million - $31.5 million = $20.25 million

ii) Explain one benefit to shareholders of increased profit. [3 marks]

 An advantage for shareholders stemming from increased profit is the potential for
enhanced value of their investments. When a company is more profitable, it can
potentially distribute higher dividends to shareholders, delivering a return on their
Week 5  Week 6 homework AS Level

investment. Additionally, increased profit can signal financial strength, attracting

more investors and potentially driving up the stock price, thus benefiting
shareholders.

C: Analyse one way in which SAFC could be described as unethical. [4 marks]

 One manner in which SAFC could be deemed unethical is through the significant
increase in tree felling by 50% without concurrent tree planting. This practice may be
characterized as unethical because it leads to deforestation and environmental harm,
demonstrating a lack of responsibility toward sustainability and future generations. It
can have adverse effects on ecosystems, wildlife, and the long-term availability of
wood resources.

D: Evaluate whether SAFC's future success depends on introducing ethical strategies in

future [12 marks]

1) Reputation and Competitive Edge: In the long run, consumers and businesses are
increasingly conscious of ethical and sustainable practices. A reputation for unethical
practices, such as deforestation without reforestation, can tarnish SAFC's brand and
diminish its competitiveness in the market.

2) Regulatory and Legal Risks: Numerous countries are enacting stricter environmental
and ethical regulations. SAFC's current practices could potentially lead to legal
consequences and penalties if they do not align with evolving standards.

3) Stakeholder Concerns: While SAFC primarily sells to larger furniture manufacturers,

stakeholders, including investors and customers, are growing more concerned about
the ethical and environmental aspects of the supply chain. Negative publicity or
stakeholder activism can significantly impact the company's operations and
profitability.

4) Long-Term Viability: Unsustainable practices, such as excessive tree felling without

reforestation, are not conducive to long-term business sustainability. Over time, the
company may deplete its resources and encounter operational challenges, which can
affect profitability.

5) Attracting Investment: Ethical and sustainable practices can attract a broader spectrum
of investors, including those who prioritize responsible investments. These investors
may be more inclined to support SAFC if it adopts ethical strategies.

In conclusion, although short-term gains in profitability may appear enticing, SAFC's

prospects for the future are contingent on its transition toward ethical and sustainable
Week 5  Week 6 homework AS Level

strategies. This transition is critical to address regulatory risks, uphold a positive reputation,
and secure its standing in a market where responsible practices are increasingly valued.
Week 5  Week 6 homework AS Level

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