What is ethical behaviour?

A big business has a lot of power, which it can either use responsibly or selfishly. Many firms operate to meet the needs of owners. Ethical firms also carefully consider the implications of what they are doing and the effect it might have on the community and the environment.

Ethics is about doing the right thing. Ethical behaviour requires firms to act in ways that stakeholders consider to be both fair and honest. Managers making ethical decisions take into account:

  • Impact: who does my decision affect or harm?
  • Fairness: will my decision be considered fair by those affected?
Ethical businesses will carefully consider the implications of what they are doing and the effect it could have on the community and the environment where the product is produced

Many owners believe that acting ethically increases costs and so reduces profits. For example, a business can cut costs by hiring child labour at very low wages in developing countries. Paying below average wages lowers the firm's total costs.

Other businesses such as the Fairtrade Foundation have built an ethical brand image, believing that customers are prepared to pay more for products that consider the environment and pay a reasonable wage. Higher sales compensate for higher costs.

Profits from acting ethically are higher than firms that only consider their own narrow self-interest.

Business activities that meet the requirements of the law, but are considered unfair by stakeholders can result in bad publicity. For example, a restaurant that pays minimum wage but keeps staff tips to boost profits is not breaking the law. It does, however, run the risk of losing the goodwill of customers.