Methods, costs and benefits of ethical business
Many owners believe that acting ethically increases costs and 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
Business activities that meet the requirements of the law, but which 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.
Costs and benefits of ethical business
| Benefits | Costs |
| Improved business reputation -can attract customers who value ethical practices. | Costs to source fair trade or sustainable materials tend to be more expensive - can increase production costs. |
| Increased customer loyalty - with customers who are more likely to support a business that matches their values. | Paying fair wages and providing good working conditions increases labour costs. |
| Can lead to long-term savings - eg through energy efficiency or reduced waste. | Implementing environmentally friendly practices (e.g. eco-packaging or renewable energy) requires large upfront investment. |
| Avoid legal issues - by ensuring the business complies with laws therefore avoiding negative press and fines. | Issues with supply chain management - ethical sourcing may limit the number of suppliers available for the business to use. |
| Attracts/retains employees - people tend to prefer to work for companies with positive ethical standards. |
| Benefits | Improved business reputation -can attract customers who value ethical practices. |
|---|---|
| Costs | Costs to source fair trade or sustainable materials tend to be more expensive - can increase production costs. |
| Benefits | Increased customer loyalty - with customers who are more likely to support a business that matches their values. |
|---|---|
| Costs | Paying fair wages and providing good working conditions increases labour costs. |
| Benefits | Can lead to long-term savings - eg through energy efficiency or reduced waste. |
|---|---|
| Costs | Implementing environmentally friendly practices (e.g. eco-packaging or renewable energy) requires large upfront investment. |
| Benefits | Avoid legal issues - by ensuring the business complies with laws therefore avoiding negative press and fines. |
|---|---|
| Costs | Issues with supply chain management - ethical sourcing may limit the number of suppliers available for the business to use. |
| Benefits | Attracts/retains employees - people tend to prefer to work for companies with positive ethical standards. |
|---|---|
| Costs |
