External Influences: Ethical factors — OCR A-Level Business

Ethical factors in business refer to the moral principles and standards that guide decision-making and behaviour within an organisation. For OCR A-Level Business, this topic explores how businesses balance profit-driven objectives with their responsibilities to stakeholders, including employees, customers, suppliers, the community, and the environment. Ethical considerations often involve dilemmas where the 'right' course of action may conflict with short-term financial gains, such as choosing fair trade suppliers despite higher costs or refusing to use child labour even if it reduces production expenses.

Understanding ethical factors is crucial because they directly impact a business's reputation, customer loyalty, and long-term sustainability. In today's socially conscious market, consumers increasingly favour brands that demonstrate ethical behaviour, such as Patagonia's commitment to environmental sustainability or The Body Shop's stance against animal testing. Conversely, unethical practices—like the Volkswagen emissions scandal—can lead to legal penalties, loss of trust, and significant financial damage. This topic also links to corporate social responsibility (CSR), stakeholder theory, and the trade-off between ethics and profitability, which are key themes in the OCR specification.

Ethical factors are not just theoretical; they have practical implications for business strategy. For example, a business might adopt an ethical sourcing policy to differentiate itself from competitors, or implement a whistleblowing policy to encourage transparency. In exams, you may be asked to evaluate the extent to which ethical behaviour can improve competitiveness or to discuss the conflicts between ethical obligations and shareholder interests. Mastering this topic will help you critically assess real-world business decisions and understand the broader impact of commerce on society.

• →Ethical vs. legal behaviour: Not all legal actions are ethical (e.g., paying low wages in a country with no minimum wage), and not all ethical actions are legally required (e.g., donating to charity).
• →Stakeholder impact: Ethical decisions affect various groups—employees (fair wages, safe conditions), customers (honest advertising, product safety), suppliers (fair trade), community (pollution), and shareholders (transparency).
• →Trade-off between ethics and profit: Ethical behaviour often involves higher costs (e.g., using sustainable materials) but can lead to long-term benefits like brand loyalty and reduced risk of scandals.
• →Corporate Social Responsibility (CSR): A framework where businesses voluntarily integrate social and environmental concerns into their operations, going beyond legal requirements.
• →Ethical codes and policies: Formal documents outlining expected behaviours, such as anti-bribery policies, environmental sustainability goals, and diversity and inclusion commitments.

• Identification of key business functions: marketing, production, operations management, accounting and finance, customer service, sales, and support services.
• Evaluation of the impact and importance of these functions to various stakeholder groups.
• Understanding how these functions interact within a business context.

• 💡Use real-world business examples to illustrate how different functions work together.
• 💡Always consider the impact on stakeholders when evaluating the importance of a business function.
• 💡Be prepared to apply knowledge of these functions to the specific business context provided in the Resource Booklet.
• 💡Use real-world examples to illustrate ethical dilemmas and outcomes. For instance, refer to the Rana Plaza collapse (fashion industry) to discuss supply chain ethics, or Starbucks' ethical sourcing to show positive impact. This demonstrates application and evaluation.
• 💡When evaluating, consider both short-term and long-term perspectives. For example, a cost-cutting measure that uses unethical labour may boost profits now but lead to boycotts and legal costs later. Weighing these trade-offs shows higher-level thinking.
• 💡Link ethical factors to other topics like marketing (ethical advertising), operations (sustainable production), and finance (impact on share price). This shows a holistic understanding of business functions.

• Treating business functions as isolated silos rather than integrated components.
• Failing to link the functions to specific stakeholder impacts.
• Providing generic descriptions without evaluating the importance of the function to a specific business scenario.
• Misconception: Ethical businesses always make less profit. Correction: While ethical practices can increase costs, they can also boost profits through premium pricing, customer loyalty, and operational efficiencies (e.g., reducing waste). For example, Unilever's sustainable living brands grew 69% faster than the rest of the business.
• Misconception: Ethics is the same as corporate social responsibility (CSR). Correction: Ethics are the moral principles guiding decisions, while CSR is the practical implementation of those principles. A business can have ethical values but fail to execute CSR effectively.
• Misconception: Only large businesses need to worry about ethics. Correction: Small businesses also face ethical dilemmas, such as sourcing from local suppliers or treating employees fairly. Unethical behaviour can damage reputation regardless of size, and social media amplifies scrutiny for all businesses.