Business Ethics: Primark and Anglo American - Case Study Example

? Business Ethics and Corporate Social Responsibility Introduction Organizations are considered as part of the society and are treated as artificial persons with a defined roles and responsibilities. Though organizations have the objective of earning profits and increasing the value for their shareholders, however since they are part of the society, they are therefore also required to work ethically. Organizations, therefore, have to perform under certain control and constrains, and their actions shall not result in general damage to the society as a whole. Society, therefore, expects that all the citizens including organizations must work in a manner which is mutually beneficial for all the stakeholders. Further, society as a whole expects that the behavior of all the citizens should be such that society advances on its own rather than regress due to actions and behaviors. During the recent times, high profiled failures of large organizations, unethical behavior being associated with the senior executives of the firms as well as fraudulent business, and accounting practices have highlighted the need for emphasizing more business ethics. The current financial crisis has also highlighted the vulnerabilities of the financial sector of the world and how senior executives used the money given for bailout purposes as their own bonuses. The hue and cry by the public, therefore, has been mostly directed towards the unethical behavior of organizations towards different stakeholders. This paper will discuss ethical behavior of two organizations, i.e. Primark and Anglo American, and will explore costs and benefits involved as well as discussing one component from Svennson & Woods’ model. What is Ethical Business Behavior Every business has a responsibility towards the society, and ethical behavior outlines the rules and regulations which actually govern the ethical behavior of the firms. It also deals with doing the right thing and requires the involvement of different stakeholders in this. Ethical business behavior comes under the applied or corporate ethics and examines the moral questions which arise as a result of the actions of businesses operating in the society. Ethical business behavior applies to individuals as well as organizations and covers all the aspects of the organization (Shaw, 2010). It is also important to understand that society expects from the businesses and as such, businesses have to correspond to the basic rules of the society. This, therefore, requires that firms should not engage any such behavior which can effectively go against the values and norms of the society. Some of the critical areas where firms often face critical choices in terms of ethical business behavior include finance, accounting, supply chain management, human resource management, and marketing. These are the areas where firm often engage into behavior which may not be entirely considered as ethical in nature. There have been incidents where firms have engaged into actions which were not considered as ethical. Incidences such as falsification of information presented in financial accounts, insufficient and inadequate working conditions for the workers, unjustified bonuses and high compensation levels of senior executives, etc., are some of the issues which have come under heavy screener of unethical business practices (Dowling, Festing, & Engle, 2008). How Primark Applies Ethics One of the key concerns for Primark is to source ethically because it has to deal with variety of third party sources. Considering the overall nature of business of the firm, Primark has to procure its merchandize from different suppliers scattered all over the world. Ethical issues, particularly with regard to the supply chain of the firm, arise due to adverse labor situation in suppliers’ countries. Although Primark is committed to provide excellent value to its customers, it is clear on the issue of not delivering such value on the expense of those who actually produce for the firm. As such, Primark attempts to balance value for customers as well as for those who make the firm’s products. It is also important to note that overall approach of Primark is based on stakeholders, and the firm makes efforts to actually balance the interests of its employees, community as well as its shareholders. For community, Primark has given much importance to respect human rights as well as ensuring adequate and acceptable working conditions at the factories of suppliers. This ensures that Primark actually works in a manner which is most humanistic and ethical in nature. Basing its code of conduct according to ILO as well as keeping costs low by having lower margins clearly suggests how the firm can actually attempt to maintain a balance between the interests of various stakeholders groups involved in the overall business of the firm across different regions of the globe. How Anglo-American Applies Ethics One of the key aspects of ethical application of principles at Anglo-American is its active involvement at the community level. Firm has been able to dominate the policy making process and considered ethical conduct of its business as the good citizenship. It has actively taken part in various initiatives including EITI, The United Nations Global Impact & GRI. These initiatives are considered as few of the strongest efforts taken on the global level to introduce ethical business practices. Anglo American, therefore, do consider profit as one of its objectives; however, it is clearly stated in the code of conduct of the organization that profits will not be earned at the expense of social and ethical considerations. It has also been able to introduce code for the security of the employees in the companies and especially during the working hours in industries like mining. Besides, this code also sets out the practices to ensure the security of the country in countries which are volatile in nature and politically destabilized. Anglo American also engages all the stakeholders in the overall process of stakeholders’ management. This stakeholder’s management includes better understanding of all the stakeholders involved and better engages them in order to protect their interests. It has also developed what is called Socio-Economic Assessment Tool Box, which allows managers to actually measure the impact of activities on the communities involved, especially in areas where mining activities are taking place. This tool box is used to measure the impact of activities on community. Costs and Benefits of Performing Ethically One of the most important and critical benefits which firms enjoy as a result of acting ethically is the development of reputation. Organizations gain reputation and credibility in the communities in which they operate and, consequently, develop a dedicated and long-term base of customers who can ethically align themselves with the organization. Increasingly, customers are becoming more concerned about how organizations perform ethically, whether their activities actually contribute to the conservation of environment or not. Consumers, therefore, take into account different variables before actually making a purchase decision. Organizations operating ethically can reap the benefit of a dedicated customer base if they act ethically. One of the major costs of performing ethically is compliance cost as firm has to spend on developing the infrastructure, procedures, systems and activities to initiate ethical activities. They also incur expenses which may not be directly related with the generation of revenue and hence may not technically contribute towards the improvements in the value for shareholders of the firm. However, these activities often create more value for the firm and, in the long run, for the shareholders of the firm. In case of Anglo-American and Primark, both firms have to ensure their activities do not result in damage to the environment. Since Anglo-American is involved in the mining industry with significant impacts on the environment, it has to, therefore, incur extra costs to ensure that environmental damage is contained and firm’s activities do not contribute much towards the damage of environment. Extra costs such as working with partners, hiring staff related with monitoring ethical activities of the firm, training and development of suppliers and buyers on ethical issues, ethical inspections as well as managing and paying for external audit are some of the costs which firm has to incur additionally. It is, however, important to understand that these costs are considered as short term in nature, and benefits are long term for the firms acting ethically. Organizations looking to improve their ethical business behavior by incurring costs often reap long-term benefits, which often translate into more value creation for the shareholders of the firm. External Stakeholder Relationship The overall nature of Anglo-American’s business model clearly suggests that it has to coordinate and cooperate with the communities. Since mining industry heavily relies on government, its overall stakeholders management relies on managing different components. There are six key stakeholders groups identified in the case study for Anglo American, including shareholders, government, suppliers, communities, customers and employees. Profit earned by the shareholders, however, takes into consideration the interests and benefits of other stakeholders also. External stakeholders may be far from engaging themselves into day to day activities of the firm; however, their opinion matters most. External stakeholders, therefore, are considered as beneficial for generating required level of external support and reputation for the company. External stakeholders can also create goodwill and word of mouth for the firm and hence can help a firm to establish a dedicated base of customers (Child, 2005). Thus, the approach taken by Anglo American is relatively correlated in nature with all stakeholders related with each other. This creates more value for the shareholders as each stakeholder is driven towards securing the interests of other stakeholders. This relationship, however, requires careful management of the relationships as mismanaging stakeholders can also result into reputational disaster for the firm. It is also important to understand that long-term investors such as pension funds consider those firms as favorable that take into consideration the ethical and social needs of the society also. A positive external stakeholder’s management, therefore, would certainly result in better stock market performance also. Further, better external stakeholder relationship management also result in job creation and improvement in the economy if the firm is more responsive to the overall needs of the society in which they operate. Conclusion Business Ethics play an important role in establishing the roles and responsibilities of the organization in society. Since society expects from the businesses to act ethically, it is critically important for the firms to actually respond to such expectations with positive attitude and conduct within the society. This case study discussed about two organizations, Primark and Anglo-American, and explained as to how ethical business behavior can result in benefits for the firms. It also discussed how each company has actually developed the systems and procedures to act ethically and analyzed how they manage their external stakeholders. References Shaw, W. H. (2010). Business Ethics: A Textbook with Cases. New York: Cengage Learning. Dowling, P. J., Festing, M., & Engle, A. D. (2008). International human resource management.  Boston and London: McGraw-Hill/Irvin. Child, J. (2005). Organization: contemporary principles and practice. Oxford: Blackwell. Read More