Social and other opportunities and constraints

Content• Social responsibilities:

– Employees– Customers– Other stakeholders

• Business ethics• Technological change• Environmental pressures and opportunities• Political change• Pressure group activity• Social auditing

Social responsibilities

• Business should operate as good citizens who have duties towards their stakeholders

• Stakeholders are all individuals or groups that have a direct interest in an organisations performance

• These include employees, shareholders, the local community and the government

StakeholdersBusinesses have the following responsibilities to different

stakeholders: • Shareholders – to generate profits

and pay healthy dividends• Customers – to provide good quality products

at reasonable prices, to look after interests of customers• Employees – to ensure health and safety at work, to provide job

security and to pay them fairly, to provide training to develop employees skills

• Suppliers – to pay them on time and to pay a fair price for their goods, to place regular orders and offer long term contracts

Stakeholders• Local Community – to provide employment, to provide safe working

environment, to minimise pollution and negative externalities, to use local suppliers where possible

• Government – to ensure that no laws are broken, to pay taxes• Environment – to keep levels of pollution to a minimum, to try and

ensure that the environment is protected

Why should firms accept their social responsibilities

• Although some argue that by meeting social responsibilities profits are reduced in fact the converse is true if businesses accept their social responsibilities they are able to increase profit levels

• They allow a business to increase its profile• Costs can be reduced • It can work as a USP differentiating the businesses

product

Business Ethics

• Ethics are the shared attitudes and principles held by a businesses employees

• Moral code – what is ‘right’ and what is ‘wrong’?• They are highly subjective in nature• An ethical code of practice states how businesses

believe its workers should respond to situations which challenge business values

Business Ethics

There are conflicts that arise regarding ethics, these mainly stem from conflicting stakeholder requirements, e.g. :

• Profits (shareholders) vs. higher wages (employees)

• Production (shareholders) versus pollution (local community, environmental)

How to create an ethical culture

• There are a number of steps which allow a business to create an ethical culture:– Find a champion– Discover ethical issues– Benchmark– Test the idea– Develop a code of conduct– Make it work

Technological Change

• Not only has technology helped to improve the performance of a business, it has also led to new products

• New technologies such as the internet and mobile technologies have changed the business environment

• CAM and CAD have changed how products are designed and manufactured

Benefits of Technological Change

• New methods of production• Lower Costs• Higher profit margins• Higher productivity• Easier expansion/ diversification into new markets• Automation• New skills• Flexibility

Problems with Technological Change

• Shorter product life cycles• Higher R&D costs• Monopolies and Barriers to Entry• Mergers and takeovers of smaller firms• Teething problems• Unemployment – incapacity to do the job, job

insecurity

Environmental Threats and Opportunities

• Businesses can have a negative impact on the environment

• Environmental audits assess the impact of a business on its environment

• Businesses create many external costs that affect the environment e.g. pollution

Environment

• External costs created by businesses can impact the environment in the following ways:

• Urban blight – excessive development and inappropriate developments mean the environment is visually less attractive, loss of farmland

• Production and disposal of waste – this could include an increase in litter and rubbish from packaging

• Use of energy • Pollution:

– Noise – from cars, lorries, factories etc – Air – emissions from cars and delivery vehicles– Land– Sea– Water

Methods of Controlling Environmental Impact

• The Environmental Protection Act, 1991 and the Environment Act, 1995 are designed to protect the environment

• Businesses can also help reduce harm to the environment by:– Redesigning products to use less materials and making

them biodegradable / recyclable– Sourcing resources from sustainable supplies– Finding ways to reduce pollution

External Benefits• As well as external costs businesses can create external

benefits • External benefits are advantages a business brings to the

local community when it locates its business in a particular area. These benefits will be positive for the local community.

• Examples:• Employment• Quality of life• Providing a service• Regeneration of land

Political Change

• A change in political leadership can impact UK businesses

• UK Law : Competition Policy, Consumer Protection• EU Law• Enlargement of the EU• Political stance – trading/ trade blocks/ Embargos

Pressure Groups

• A group seeking to influence government policy or business activity to secure the interests of their members and supporters.

Pressure Groups

• Environmental, Consumer, Welfare (animals), industries (TUs)

• Lobbying- where a pressure group campaigns through leaflets, petitions etc in order to raise public awareness or change the law

Types of Pressure Group

• Single Cause - Focus on a particular issue:• Multi Cause - Focus attention on a wider range of issues often under a generalised heading • Protective – Seek to protect interest of members• Promotional - Seek to promote issues of interest to its members and supporters in relation to the

particular topic

Types of Action

• Direct Action: Direct action can include:

•Lobbying•Protest•Boycotts•Civil disobedience – e.g. causing obstruction – sit ins, lie downs, making noises, etc•Terrorism – intimidation of workers or owners/management of a business, for example •Violence – bombings, shootings, threats, attacks•Criminal damage – damage to property, releasing animals into the wild – Animal Liberation Front

Indirect• Publicity • Leaflets/adverts• Petitions• Providing research

Effects

• Successful campaigns can lead to legal and ethical changes in business practice e.g.– The increasing practice of environmental audits by

businesses– The movement to the use of synthetic fur in the fashion

industry– The compulsory use of seat belts– The decrease in the use of CFCs

Response of Business

Business might:• Accept the arguments and change its practice• Present its own arguments on the issue• Take legal redress• Seek to publicise its image and what it is doing to

counter the damage pressure groups could cause

Criticisms

• Pressure Groups can be criticised if:– They appear too powerful– They are powerful enough to represent minority interests

at the expense of the majority– They focus on their own agenda at the expense of wider

issues– They take direct action that breaks the law

Social Auditing

• Where a business assesses its social impacts and ethical behaviour in relation to its and the stakeholders aims

• E.g. recyclable packaging, avoiding the use of child labour and sweat shops, free trade products, brown field sites

Summary• Social responsibilities are stakeholder views that a business can operate towards• Stakeholders are anyone who has an interest in the business• By trying to meet the views of different stakeholders businesses are operating in a more socially

responsible manner• Business ethics are the shared attitudes and principals shared by a business• Businesses need to ensure that they try and behave in an ethical way as this has a positive impact on

society and their employees• Technological change impacts the way businesses operate • Businesses create external costs due to their operation a lot of these costs are environmental e.g.

increased pollution• By decreasing the environmental impact of their business a firm is able to decrease their external costs

and improve their image • Political change can influence business operation through the creation of new laws or regulations • Pressure groups aim to change business behaviour through direct and indirect actions• Social auditing looks at the businesses social behaviour and impacts