Businesses face conflict between profits and ethics because following the ethical behavior to achieve ethical objectives increases expenses, and greater costs mean lower profits for the business.
For example, paying higher wages to production workers, providing better working environment, reducing pollution levels by purchasing the newest technology, etc.
For some businesses, not following ethical policies may bring unwelcome publicity. Even though businesses can increase short-term profits by behaving unethically, the unethical behaviors are not good for the reputation in the long-term. And without decent reputation, profitability is most likely to decrease threatening the survival of the business.
How businesses respond to ethical issues vs. profit maximization?
Decision-making is not easy when managers face an ethical issue because they need to consider the interests of the various stakeholders who have conflicting interests. Both the advantages and disadvantages of ethical behavior need to be considered. Advantages of ethical behavior include:
- Good reputation. Improved corporate image can help with attracting new investors and encouraging the current ones to invest more money into the business propelling business growth. Businesses can use this to improve their brand awareness and recognition.
- Easier to attract and retain workers. Working for an ethical business can be a source of motivation helping to attract and retain good quality staff. Companies such as Google and Bloomberg have very loyal and dedicated workforce due to lots of on-site benefits such as comfortable working environment with free food at full service pantries in all offices, gym access and comprehensive healthcare coverage, parental leaves, consumer discounts, free laundry and childcare services.
- Source of motivation. Can be a motivating factor for existing employees which will help with retaining them.
- Easier to attract and retain customers. Customers these days are increasingly concerned about environmental protection and ethical business behavior therefore to attract new customers and retain existing ones, businesses need to consider the impact of their business operations on the society and natural environment.
- Increased customer satisfaction. Increasingly aware customers will be pleased when offered eco-friendly products that have been made fairly.
- Good Public Relations (PR). Socially responsible businesses will use their ethical stance to generate good publicity and Public Relations (PR).
Choosing to be ethical and socially responsible can bring benefits, but there are also compliance costs involved with such decisions. Disadvantages of following ethical behaviors include:
- Higher costs. Using recycled materials may mean higher production costs, comparing with using raw materials with the lowest price.
- Lower profits. Improving working conditions and not hiring cheap child labor will lead to lower profits.
- Compliance costs. The costs of being ethical may involve not choosing the cheapest supplier who is perceived by customers and other stakeholders to be an unethical business, therefore time and money need to be spent on sourcing socially responsible suppliers.
How to solve the conflict between ethics and profit?
Overall, it is important to find the right balance between ethics and profit because the business has long-term interests of acting ethically.
One idea is that mangers can increase profits by locating the business in countries where environmental protection laws are less strict, or reduce labor costs by paying only the minimum wages for a period of time.
Another idea is to outsources some of the business functions such as accounting, promotion or manufacturing operations to less-developed countries such as India or Bangladesh where minimum wages are lower than in the U.S or the UK.
Although there is a cost involved initially in acting ethically, it pays off over time, and the society as a whole is likely to benefit too.
