The business case for business ethics

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The business case for business ethics

Business Ethics Case

Should private, profit seeking organizations behave in a socially responsible and moral way, beyond the requirement of the law, because it is the right thing to do or because it pays them to do so? Bad behavior can be bad for business ethics, resulting in a poor image. Conversely, if a company is associated with good behavior, using renewable resources, not employing child labor and providing good training and development opportunities for its staff, it should be good for sales. However, benefits of good behavior are not guaranteed. Bad corporate behavior will only diminish reputation, and good behavior boosts it, if it becomes known. There are measures of social, ethical and environmental performance, but these are mostly designed to meet the needs of the ethical investment community rather than consumers and purchasers.
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There are a number of standard measures or more properly indices available for assessing the social and environmental performance of corporations:
-FTSE4Good: calculated from a number of factors that cover three areas of o Working towards environmental sustainability
Developing positive relationships with stakeholders o Upholding and supporting universal human rights
-Dow Jones sustainability indices (DJSI): tracks the financial performance of companies that have committed to long-term sustainability.
-SERM rating agency: SERM rates companies on a scale of AAA+ to E according to how well the companies manage their environmental and socio-ethical risks. Twenty-five dimensions are used in three fields: environment, health and safety and socio-ethical.
-Ethical Investment Research Service (EIRIS): carries out research on companies world-wide and provides information for those who wish to invest ethically.
Does business ethic pay? Webley & More: there is no single and definitive measure of ethical performance, which is a problem. They chose proxy or surrogate measures that are indicative of whether a company is behaving in an ethical and environmentally protective way but not conclusive proof that they are. Measures:
1. Whether a company has a published code of ethics that has been revised within the past five years
2. Companies‘ SERM rating
3.Companies‘ ratings on Management Today‘s ‗Britain‘s most admired companies‘ survey that is carried out by Michael Brown of Nottingham Business School Companies that have 1, score better on both 2 and 3.Measuring financial performance is easier:
-Market value added (MVA): difference between what investors have put into a company over a number of years and what they would get from it if they sold it at current prices
-Economic value added (EVA): the amount by which investors‘ current income from the company is greater or less than the return they would get if they had invested the money in something else of equal risk = opportunity cost of placing money in a particular company.
-Price-earnings ratio (P/E ratio): the market value of a share in a company divided by the shareholders‘ earnings
-Return on capital employed (ROCE): a measure of the return that the capital invested in a company makes for its owners.