Responsibility to stakeholdersA2 Economics and Business

Unit 3

By Mrs Hilton for revisionstation

Examiner favourite subject which comes up

often!

Lesson Objectives

• To be able to discuss the ethical decisions a business may have to make before trading internationally

• To be able to determine a possible conflict with business objectives and ethical behaviour to stakeholders

• To be able to answer past paper questions based on the topic area

Starter

• Do you care where your face cream comes from and if the producer has been paid a fair wage?

Stakeholder groups

• These stakeholder groups all have an interest in the business

• They all have objectives and often these can conflict with the objectives of other stakeholders, the shareholders or the business owners

• E.g. employees, managers, suppliers, competitors, pressure groups, government, shareholders, local community, consumers

• Interactive graphic: http://www.gregglee.biz/ftp/student/BusinessOrg/page_54.htm

Shareholder objectives vs ethical objectives

Shareholder objectives• High profits• High dividends• Growth• A say in the business• A positive corporate image

Ethical corporate objectives• Low emissions• Safe waste disposal• Paying fair wage rates to

employees in other countries

• Sourcing sustainable raw materials

Business Ethics

Moral principals that govern how a company does business. A moral principal is one that knows right from wrong.• Video on exploited workers in

UK• Exploited workers in UK on

£3.50 an hour• Illegal workers

Ethical issues – business in India• Video on Indian factory disaster

• Bangladeshi workers paying the price for cheap clothes in the UK• Cost cutting• Safety abuses• Too much expansion• Sub contracting out to slums

Ethical issues – child labour to produce cheap goods

• http://www.bbc.co.uk/news/world-asia-20431529

• Do you have a job?• Do you have to give your money to your family?

• http://www.bbc.co.uk/news/world-africa-15930981

• Should they miss school?

Ethical business

• http://www.bbc.co.uk/news/uk-16235275

• Nestle again – promoting junk food on internet

• http://www.youtube.com/watch?v=PRk_m-PJ7_Q

• Nestle – protest against deforestation

Ethical business behaviour

• Includes working towards the ending of child labour, forced labour, and sweatshops, and looking at health and safety, labour conditions and labour rights.

• The branch of ethics that examines questions of moral right and wrong arising in the context of business practice or theory

Bitesize ethical behaviour video 5 mins

Ethical business behaviour

Primark childLabour – Panoramaclip

ETHICAL TRADE• Ethical trade means that

retailers, brands and their suppliers take responsibility for improving the working conditions of the people who make the products they sell.

• Most of these workers are employed by supplier companies around the world, many of them based in poor countries where laws designed to protect workers' rights are inadequate or not enforced. Ethical Trade Initiative

Corporate social responsibility

• A simple rush for short-run profits is often both damaging in the long run and ethically wrong.

• CSR is a way of recognising that a company has a variety of stakeholders, each of whom have different objectives.

• CSR obliges businesses to consider more than just profit, to take account of the interests of workers, suppliers, customers and the wider community as well as stakeholders

• They are generally expected to respect the environment, to treat people fairly and to give something back to the local community

• Some businesses treat CSR as a public relations exercise, giving more priority to looking good than to doing well.

Stakeholders: Pressure groups

• A group that tries to influence either business or government• Stakeholders can influence the business.• Pressure groups are organisations set up to try to influence

what we think about the business and its environment.• A pressure group can challenge and even change the

behaviour of a business by:– writing letters to MPs– contacting the press– organising marches– running campaigns

• War on Want Pressure group website

McLibel• Video (over 1 hour but great)• MNEs have large resources of funds to fight against

pressure groups – see this case• McDonald's Corporation v Steel & Morris [1997] EWHC

QB 366, known as "the McLibel case" was an English lawsuit for libel filed by McDonald's Corporation against environmental activists Helen Steel and David Morris (often referred to as "The McLibel Two") over a pamphlet critical of the company. Each of two hearings in English courts found some of the leaflet's contested claims to be libellous and others to be true. The partial nature of the victory, the David-and-Goliath nature of the case, and the drawn-out litigation embarrassed McDonald's.

• The original case lasted ten years, making it the longest-running case in English history

Sample question 1

[9]

Answer question 1

Sample question 2

[9]

Answer question 2

Sample question 3

[8]

Answer question 3Knowledge 1, Application 1, Analysis 2 per stakeholder group

Knowledge: 1 mark is available for identifying a stakeholder group, e.g. employees, suppliers, competitors, pressure groups, government, shareholders, local community/environment, consumersApplication: 1 mark is available for contextual answers e.g.project will require local workers and suppliers in Patagonia/Chile,flooding of pristine wilderness area in PatagoniaAnalysis: up to 2 marks are available for identifying anddeveloping the consequences e.g. suppliers gain contracts increasing turnover and profitability, long term benefits for businesses from cheaper power supplies. Environmental damage may impact on tourism to area and reduce local incomes

General – if only one stakeholder group, cap at 4 marks

Sample question 4

• [6]

Answer question 4

• Knowledge (2), Application (2), Analysis (2)• Knowledge: up to 2 marks are available for understanding

the meaning of ethical behaviour and profitability.• Application: up to 2 marks are available for contextual

answers such as relating the nature of a company’s trading activities to some degree of externalities (evidence in stimulus material).

• Analysis: up to 2 marks are for developing the nature of the conflict, e.g. attempting to correct the effects of the externalities may increase costs and have adverse effects upon profitability and competitiveness

Sample question 5

• [9]

How marks are awarded for Q5 [9]

Level Mark awarded

1 1-2 Knowledge

2 3-4 Application

3 5-6 Analysis

4 7-9 Evaluation

Answer question 5• e.g. define a pressure group/multinational/identify a control e.g.

consumer boycott • e.g. legal challenge to the dam in Chile or another example (such as

the McLibel case) to show a connection between a pressure group and a multinational

• e.g. organising a campaign to turn public opinion and how this may affect sales and thus alter behaviour of the multinational, use of protests/courts and legal challenges to halt the project e.g. protests may have little effect on sales (Primark), powerful multinationals like Coca-Cola can finance legal challenges to overturn rulings, governments may ignore pressure groups because of economic benefits

Revision Video