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B368 Business Issues and Ethics


B368 Business Issues and Ethics Group 3 & 8 Tutorial 4 C.S. Lai Dec. 2009 Welcome! today s agenda Review of last tutorial 20 mins. Unit 5 Ethical Issues ... – PowerPoint PPT presentation

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Title: B368 Business Issues and Ethics

B368 Business Issues and Ethics
  • Group 3 8
  • Tutorial 4
  • C.S. Lai
  • Dec. 2009

Welcome! todays agenda
  • Review of last tutorial 20 mins.
  • Unit 5 Ethical Issues with
  • Consumers 60 mins.
  • Break 10 mins.
  • Suppliers and Competitors 60 mins
  • TMAs 15 mins.
  • QA, Your Suggestions 15 mins.

Summary shareholder and business ethics
  • Principal-agent relationship between managers and
  • Divergent interests and unequal distribution of
    information institutionalises some fundamental
    ethical conflicts in governance
  • Shareholders have considerable opportunities to
    use their power over supply to influence
    corporations to behave more ethically
  • Shareholders can play a role in driving
    corporations towards enhanced sustainability by
    their investment decisions at the stock market

Summary - Employees and business ethics
  • Discussed the specific stake that employees hold
    in their organisations
  • Discovered how deep the involvement of
    corporations with employees rights can be
  • Corporate responsibility for protection and
    facilitation of these rights is particularly
    complex and contestable when their operations
    become more globalised
  • Employees long been regarded as extremely
    important stakeholder in European business

Consumers and Business Ethics
  • Discuss the specific stake that consumers have in
    corporate activity
  • Outline the ethical issues and problems faced in
    business-consumer relations
  • Examine issues in context of globalization
  • Arguments for more responsible marketing
  • Develop notion of corporate citizenship in
    relation to consumers
  • Examine the challenges posed by sustainable

Consumers as stakeholders
  • Commonplace argument that businesses are best
    served by treating their customers well
  • So why continued ethical abuses of consumers and
    poor reputation of marketing and sales
  • Examples of firms accused of treating customers
    in a questionable manner
  • Multinational drug companies
  • Fast food and soft drink companies
  • Banks and credit card companies
  • Mobile phone companies
  • Technology companies
  • Schools

  • Being a consumer, can you think of any firms that
    are treating you unfairly? Please share with us
    some examples, and why you think you were treated

Consumers as stakeholders
  • Consumer rights rest upon the assumption that
    consumer dignity should be respected, and that
    producers have a duty to treat consumers as ends
    in themselves, and not only as means to the ends
    of the producer. Thus, consumer rights are
    inalienable entitlements to fair treatment when
    entering into exchanges with other parties
  • Normative conception of the stake held by
    consumers in order to determine what constitutes
    (un)ethical behaviour towards them
  • Debate over what constitutes fair treatment
  • In the past, consumer rights based on caveat

Ethical issues and the consumer
Ethical issues, marketing and the consumer
Activity please provide an example for each of
the following category
Ethical issues in marketing management product
  • At the most basic level, consumers have a right
    to products and services which are safe,
    efficacious, and fit for the purpose for which
    they are intended
  • Manufacturers ought to exercise due care in
    establishing that all reasonable steps are taken
    to ensure that their products are free from
    defects and safe to use (Boatright 2000290)
  • Consumers right to a safe product is not an
    unlimited right
  • Safety also a function of the consumer and their
    actions and precautions

Ethical issues in marketing management
marketing communications
  • Criticisms of advertising broken down into two
  • Individual
  • Concerned with misleading or deceptive practices
    that seek to create false beliefs about specific
    products or companies in the individuals
    consumers mind
  • Social
  • Concerned with the aggregate social and cultural
    impacts, such as promoting materialism

Ethical issues in marketing management
marketing communications
  • Misleading and deceptive practices
  • Marketing communications aimed to
  • Inform consumers about goods and services
  • Persuade consumers to purchase
  • Deception occurs when a marketing communication
    either creates, or takes advantage of, a false
    belief that substantially interferes with the
    ability of people to make rational consumer

Ethical issues in marketing management
marketing communications
  • Social and cultural impact on society
  • Objections that marketing communications
  • Are intrusive and unavoidable
  • Create artificial wants
  • Reinforce consumerism and materialism
  • Create insecurity and perpetual dissatisfaction
  • Perpetuate social stereotypes

Ethical issues in marketing management - pricing
  • Pricing issues are central to the notion of a
    fair exchange between the two parties, and the
    right to a fair price - key rights of consumers
    as stakeholders
  • 4 types of pricing practices where ethical
    problems may arise
  • Excessive pricing
  • Price fixing
  • Predatory pricing
  • Deceptive pricing

Ethical issues in marketing management -
  • Concerned with relations between manufacturers
    and firms, and firms and market
  • Primary concern is product supply chain

Ethical issues in marketing strategy vulnerable
  • Criticisms when there is a perceived violation of
    the consumers right to be treated fairly (duty of
  • Targeting vulnerable consumers
  • Consumers may be vulnerable because
  • Lack sufficient education or information
  • Easily confused or manipulated due to old age
  • Are in exceptional physical or emotional need
  • Lack the necessary income
  • Too young
  • Perceived harmfulness of the product

Ethical issues in marketing strategy customer
  • Takes variety of forms
  • Access exclusion
  • Condition exclusion
  • Price exclusion
  • Marketing exclusion
  • Self-exclusion

Ethical issues in market research
  • Main issue is possible threats posed to the
    consumers right to privacy
  • Recent areas of concern
  • Personal information available online
  • Use of genetic testing results by insurance
  • Predict likelihood of an individuals genetic
    predisposition to certain conditions and
  • genetic discrimination ?

  • Ethical Dilemma 8 A fitting approach to shoe

Globalisation and consumers
  • The ethical challenges of the global marketplace

The ethical challenges of the global marketplace
  • Reproduction of consumerism and dissatisfaction
  • Bottom of the pyramid concept
  • Dislocation of production and consumption
  • Cultural homogenisation
  • New forms of resistance

Consumers and corporate citizenship
  • Consumer sovereignty and the politics of

Consumer sovereignty
  • Concept suggests under perfect competition,
    consumers drive market
  • Two ethical limitations based on fairness
  • Consumer sovereignty (Smith 1995)
  • Idea that the customer is king
  • Consumer capability
  • Information
  • Choice
  • How is consumer sovereignty to be assessed?
    Consumer sovereignty test

Consumer sovereignty test
Dimension Definition Sample criteria for establishing adequacy
Consumer capability Freedom from limitations in rational decision making Vulnerability factors, e.g. age, education, health
Information Availability and quality of relevant data Quantity, comparability and complexity of information degree of bias or deception
Choice Opportunity for switching Number of competitors and level of competition switching costs
Source Derived from Smith (1995)
Ethical consumption
  • Ethical consumption is the conscious and
    deliberate decision to make certain consumption
    choices due to personal moral beliefs and values
  • Europe-wide survey on consumer attitudes
  • 70 consumers said companys commitment to social
    responsibility was important when buying a
    product or service
  • Consumer activism on increase positive
  • Downside of ethical consumption
  • Motives of corporations will be primarily
    economic rather than moral
  • Consumers may decide they no longer want to or
    can afford to pay extra for these ethical
  • If purchases are votes then rich get more power
    than poor

Sustainable consumption
What is sustainable consumption?
  • Sustainable consumption is the use of goods and
    services that respond to basic needs and bring a
    better quality of life, while minimising the use
    of natural resources, toxic materials and
    emissions of waste and pollutants over the
    life-cycle, so as not to jeopardise the needs of
    future generations (OECD, 2002)

Changing social ethics and consumption
Ethic Imposes limits to Promotes
Protestant ethic Consumption Investment in productive capacity
Consumerism ethic Saving Instant gratification and consumption
Environmental ethic Consumption Alternative meanings of growth and investment in the environment
Source derived from Buchholz (1998)
Steps towards sustainable consumption
  • Producing environmentally responsible products
  • Product recapture
  • Service replacements for products
  • Product sharing
  • Reducing demand

Product recapture From a linear to a circular
flow of resources
(a) Linear flow of resources
(b) Circular flow of resources
Product recapture
  • The specific stake held by consumers and outlined
    some of the main rights of consumers
  • Rights to safe products
  • Honest and truthful communications
  • Fair prices
  • Fair treatment
  • Privacy
  • Rise of ethical consumption
  • The challenges of sustainability
  • In the consumer society that we currently live
    in, it appears that consumers might be expected
    to shoulder increased responsibilities as well as
    being afforded certain rights

Suppliers, Competitors and Business Ethics
  • Show how other businesses suppliers and
    competitors exist in mutual interdependence
    with a given organisation
  • Describe the ethical issues and problems that
    arise in an organisations dealings with its
    suppliers and competitors
  • Outline how globalisation reframes these problems
  • Discuss whether corporations should assume some
    degree of responsibility for the ethics of their
  • Assess the arguments suggesting that attention to
    business interrelationships and the network
    economy may contribute to more sustainable
    business models

Suppliers and competitors as stakeholders
Suppliers as stakeholders
  • A stakeholder of a corporation is an individual
    or a group that either is harmed by or benefits
    from the corporation or whose rights can be
    violated, or have to be respected, by the
    corporation (Evan and Freeman 1993)
  • Organisations and their suppliers can be seen as
    mutually dependent

Competitors as stakeholders
  • Forgotten stakeholders? (Spence et al. 2001)
  • Legal rights
  • Moral claims
  • To sum up, businesses should not be seen as
    isolated islands of economic activity, but as
    actors operating within a web of other
    businesses, bound by mutual interests and
    interlinked flows of resources and rewards.
  • Industrial network

Supplier relationship as part of an industrial
Ethical issues and suppliers
  • Ethical Dilemma 9 A beautiful Deal

Ethical issues
  • Misuse of power
  • The question of loyalty
  • Preferential treatment
  • Conflicts of interest
  • A conflict of interest occurs when a persons or
    organisations obligation to act in the interests
    of another is interfered with by a competing
    interest that may obstruct the fulfilment of that

Ethical issues (2)
  • Gifts, bribes and hospitality
  • Consider the intention of the gift giver
  • Look at the impact on the receiver
  • Focus on the perception of other parties
  • Many large organisations have a formal purchasing
    code of ethics
  • Guidelines provided by professional bodies such
    as the International Chartered Institute of
    Purchasing and Supply

Ethics of negotiation
  • Ethics and negotiation oil and water?
  • Reitz et al. (1998) list ten popular negotiating
  • Lies
  • Puffery
  • Deception
  • Weakening the opponent
  • Strengthening ones own position
  • Non-disclosure
  • Information exploitation
  • Change of mind
  • Distraction
  • Maximisation

Ethics of negotiation (2)
  • According to Reitz et al. (1998) a more ethical
    approach to negotiating should steer clear of
    these tactics.
  • Because
  • Right thing to do
  • Such practices incur costs for the negotiator
  • Rigid negotiating
  • Damaged relationships
  • Sullied reputation
  • Lost opportunities

Ethical issues and competitors
Problems of overly aggressive competition
  • Intelligence gathering and industrial espionage
    create ethical questions when
  • Questionable tactics
  • Private or confidential information
  • Purpose for which information gathered against
    public interest
  • Dirty tricks
  • Negative advertising
  • Stealing customers
  • Predatory pricing
  • Sabotage
  • Anti-competitive behaviour

Problems of insufficient competition
  • Collusion and cartels
  • Select groups of competitors band together in a
    cartel or trading group to fix prices and other
    trading arrangements for their own mutual benefit
  • Abuse of dominant position
  • E.g. Microsoft

Globalisation, suppliers, and competitors
The ethical challenges of global business networks
  • Reshaping of ethical consideration with suppliers
    and competitors brings up
  • Different ways of doing business
  • Impacts on indigenous businesses
  • Differing labour and environmental standards
  • Extended chain of responsibility

Different ways of doing business
Country Score
Sweden 8.4
Switzerland 8.4
Netherlands 7.8
Belgium 7.8
United Kingdom 6.9
Germany 6.3
Spain 5.8
France 5.5
USA 5.3
Japan 5.3
Italy 4.1
People's Republic of China 3.5
Russia 3.2
Bribe paying for multinational companies
according to country of origin. Notes scores
based on 0 to 10, where a perfect score,
indicating zero perceived propensity to pay
bribes, is 10. Thus, those countries with a
lower score have a higher perceived propensity to
bribe Source figures extracted from 2002 Bribe
Payers Index at www.transparency.org
Different ways of doing business (2)
Business Sector Score
Public works/construction 1.3
Arms and defence 1.9
Oil and gas 2.7
Telecommunications 3.7
Pharmaceuticals/medical care 4.3
Heavy manufacturing 4.5
Banking and finance 4.7
Information Technology 5.1
Light manufacturing 5.9
Agriculture 5.9
Bribe paying for multinational companies
according to sector Notes scores based on 0 to
10, where 0 represents very high perceived levels
of corruption, and 10 represents extremely low
perceived levels of corruption Source figures
extracted from 2002 Bribe Payers Index at
Impacts on indigenous businesses
  • Size, power and political influence of MNCs often
    means that they enjoy considerable cost and other
    advantages compared to local competitors
  • Exposure to the competition of a major
    multinational can severely threaten the business
    of indigenous competitors (Klein, 2000)

Differing labour and environmental standards
  • Western firms increasingly sourced through global
    supply chains
  • Race to the bottom occasioned by demand by MNCs
    for lower-cost production in developing countries
  • Ethical problem lower costs often accompanied
    by sweatshop conditions
  • poorer labour conditions
  • less environmental protection
  • lower attention to health and safety

Extended chain of responsibility
  • Shifts towards global supply and competition mean
    that individual firms appear to be faced with
    prospect of an extended chain of responsibility
  • No longer acceptable to argue that the ethics of
    a firms suppliers or a firms impact on its
    competitors was simply not any of its business
    (see Emmelhainz and Adams 1999)

The corporate citizen in the business community
  • Ethical sourcing and fair trade

Ethical sourcing
  • Ethical sourcing is the inclusion of explicit
    social, ethical, and/or environmental criteria
    into supply chain management policies, procedures
    and programme
  • Ethical sourcing as intra-business regulation
  • The pressure exerted by powerful corporate
    customers to comply with ethical sourcing
    guidelines and criteria does constitute strong
    and indeed often very effective regulation of
    supply chain members (Cashore, 2002)

Strategies of intra-business regulation
  • Disengagement
  • Setting of clear standards for suppliers and a
    means for assessing compliance with those
  • Failure to meet standards in short- medium term
    will result in disengagement by the company
  • Engagement
  • Rely on longer-term aims together with
    incremental targets in order to foster a
    step-by-step approach to improving standards.
  • Firm likely to work with their suppliers to
    achieve improvements

Fair trade
  • Ethical sourcing as means of protecting or
    rewarding certain suppliers that are seen to be
    socially beneficial in some way
  • Fair trade is a system aimed at offering the
    most disadvantaged producers in developing
    countries the opportunity to move out of poverty
    through creating market access under beneficial
    rather than exploitative terms. The objective is
    to empower producers to develop their own
    business and wider communities through
    international trade
  • Aim of fair trade movement
  • Foster the protection and empowerment of growers
  • Encourage community development by guaranteeing
    minimum prices and conditions
  • Value of fair trade market in UK - 200m compared
    with 4m in 1994

Comparison of Fairtrade NYE Prices for Cocoa
Sustainability and business relationships
  • Towards industrial ecosystems?

From supply chains to supply loops
  • Product recapture i.e. bringing waste
    products back into the supply chain as resources
  • More sustainable consumption
  • Not only waste reducing but eliminating the very
    concept of waste? (Lovins et al. 1999)
  • EU End of Life Vehicle Directive 2000
  • Make car makers responsible for the disposal of
    all end of life vehicles they produce
  • Integrating considerations about recovery and
    recycling into the design stage of cars can
    reduce burden of legislation
  • Come into force and effect 2007

Industrial ecosystems Kalundborg industrial
Fly ash limestone gunk
Low-grade cement
Fly ash
Used steam
Surplus heat
High sulphur gas
Waste as fertilizer
Steam for heat
Wastewater for cooling
Used steam
Heavy oil
  • Discussed the stake held by other companies in a
  • Argument that there were issues of an ethical
    nature that went well beyond the legal protection
    of fair competition
  • Globalisation substantially increased scope of
    these problems suggesting expanded
    responsibilities for corporations over their
  • Business relationship also increasingly seen as
    one of main levers for effecting greater
    attention to social and environmental problems

  • TMA 2 due on Jan 8, 2010.
  • Next meeting - Jan. 16, 2010 _at_ OUHK

Enjoy the course and Good Luck See you next
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