production ethics

Production EthicsProduction Ethics

Elias George. KElias George. K

MBA (FT) 2MBA (FT) 2ndnd Yr Yr

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Business EthicsBusiness Ethics

Business Ethics is Applied Ethics.Business Ethics is Applied Ethics. It is the APPLICATION of our understanding It is the APPLICATION of our understanding

of what is GOOD and RIGHT to that of what is GOOD and RIGHT to that assortment of Institutions, Technologies, assortment of Institutions, Technologies, Transactions, Activities and Pursuits that we Transactions, Activities and Pursuits that we call BUSINESS.call BUSINESS.

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PRODUCTION ETHICS or Production PRODUCTION ETHICS or Production Business Ethics is an area of business Business Ethics is an area of business ethics dealing with the duties of a company ethics dealing with the duties of a company to ensure that its PRODUCTS AND to ensure that its PRODUCTS AND PRODUCTION PROCESSES DO NOT PRODUCTION PROCESSES DO NOT CAUSE HARM. CAUSE HARM.

BUT………there is usually a degree of BUT………there is usually a degree of danger in any product or production process danger in any product or production process and it is difficult to define a degree of and it is difficult to define a degree of permissibility.permissibility.

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Let us briefly consider how one company, Merck Let us briefly consider how one company, Merck and Company once dealt with the issue of “River and Company once dealt with the issue of “River Blindness”.Blindness”.

River blindness in tropical Africa (about 85 million at River blindness in tropical Africa (about 85 million at risk)risk)

Bite of the black flyBite of the black fly Dr William Campbell of Merck finds evidence of a Dr William Campbell of Merck finds evidence of a

cure based on Ivermectin in 1979cure based on Ivermectin in 1979 Pleads with WHO, US Govt, affected Govts – none Pleads with WHO, US Govt, affected Govts – none

respondsresponds Company teams up with many voluntary orgs and Company teams up with many voluntary orgs and

gives the drug free.gives the drug free.

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Over 20 million people received Mectizan Over 20 million people received Mectizan free in 2004free in 2004

Company official – the only ethical choice Company official – the only ethical choice was to make it – long term advantagewas to make it – long term advantage

Japanese example – Merck had brought Japanese example – Merck had brought streptomycin to Japan after World war 2 to streptomycin to Japan after World war 2 to eliminate tuberculosis – made losseliminate tuberculosis – made loss

Merck is the largest US pharmaceutical Merck is the largest US pharmaceutical company in Japancompany in Japan

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Businesses are often said to be run for the Businesses are often said to be run for the benefit of their owners, i.e. their benefit of their owners, i.e. their “shareholders”“shareholders”. .

However, other However, other “stakeholders”“stakeholders” are also an are also an important part of business decision making. important part of business decision making.

As such, businesses should act in a As such, businesses should act in a responsible and ethical mannerresponsible and ethical manner and and consider the possible effects of any consider the possible effects of any decisions they make. decisions they make.

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The Stakeholders The Stakeholders

Customers

Owners

Employees

Government

*Environment

Future

Generations

Communities

Suppliers

Stakeholders

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StakeholdersStakeholders

Responsibilities to stakeholder groups:Responsibilities to stakeholder groups: ShareholdersShareholders – Generate profits – Generate profits

and pay dividendsand pay dividends CustomersCustomers – provide good quality products – provide good quality products

at reasonable prices. Safety, honesty, decency and at reasonable prices. Safety, honesty, decency and truthfulnesstruthfulnesseg: A-class failing the elk testeg: A-class failing the elk test

EmployeesEmployees – health and safety at work, security, fair pay, – health and safety at work, security, fair pay, equal opportunitiesequal opportunities

SuppliersSuppliers – pay on time, pay fair rates – pay on time, pay fair rates for the work done, provide element of securityfor the work done, provide element of security

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Local CommunityLocal Community – provide employment, safe working – provide employment, safe working environment, minimise pollution and negative externalities environment, minimise pollution and negative externalities – provide external benefits?– provide external benefits?

GovernmentGovernment – abide by the law, pay taxes, abide by – abide by the law, pay taxes, abide by regulationsregulations

ManagementManagement – their aims versus those – their aims versus those of the organisation as a wholeof the organisation as a whole

EnvironmentEnvironment – limit pollution, congestion, environmental – limit pollution, congestion, environmental degradation, development, etc.degradation, development, etc.

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1) Air Pollution:1) Air Pollution: Sources:Sources: factories, machines or vehicles factories, machines or vehicles

emitting poisonous gases into atmosphere.emitting poisonous gases into atmosphere. Impacts:Impacts: a) Acid rain, destroying thousands a) Acid rain, destroying thousands

of forest.of forest. b) CFCs. The use by some firms of CFCs in b) CFCs. The use by some firms of CFCs in

refrigerators has contributed to the break refrigerators has contributed to the break down of the ozone.down of the ozone.

c) Global Warmingc) Global Warming

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2) Water Pollution:2) Water Pollution: Sources:Sources: Industries like brewing and Industries like brewing and

chemical manufacturing dump waste to the chemical manufacturing dump waste to the nearby water source.nearby water source.

ImpactsImpacts:: a) Polluting our drinking water.a) Polluting our drinking water. b) Polluting the sea which b) Polluting the sea which

threatens thousands of life in the ocean.threatens thousands of life in the ocean.

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3) Congestion and Noise:3) Congestion and Noise: Sources: Sources: Businesses’ logistics activitiesBusinesses’ logistics activities Impacts:Impacts: a) Traffic congestion. a) Traffic congestion.

4) Destruction of the environment:4) Destruction of the environment: Sources:Sources: Buildings in rural areas Buildings in rural areas Impacts:Impacts: a) Deprive villagers and visitors of previously a) Deprive villagers and visitors of previously

unspoilt countryside.unspoilt countryside.c) Increase noise and congestion levels in village.c) Increase noise and congestion levels in village.

5) Waste Disposal5) Waste Disposal

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Markets and Consumer Markets and Consumer Protection (1)Protection (1)

Consumer safety is seen as a good that is most efficiently Consumer safety is seen as a good that is most efficiently provided through the mechanism of free market whereby provided through the mechanism of free market whereby sellers must respond to consumer demands.sellers must respond to consumer demands.

If consumers want products to be safer - must be willing to If consumers want products to be safer - must be willing to pay more for safer products and shows preference for pay more for safer products and shows preference for manufacturers of safe products.manufacturers of safe products.

Producers must build more safety into their products or Producers must build more safety into their products or they risk losing customers to competitors.they risk losing customers to competitors.– Market ensures that producers respond adequately to consumer’s Market ensures that producers respond adequately to consumer’s

desires for safetydesires for safety

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If consumers:If consumers:– do not place a high value on safetydo not place a high value on safety– unwilling to pay for safety orunwilling to pay for safety or– has no preference for safer productshas no preference for safer products

then it is wrong to push increased levels of safety down their then it is wrong to push increased levels of safety down their throat through government regulations.throat through government regulations.

Such government interference distorts markets, making them unjust, Such government interference distorts markets, making them unjust, disrespectful of rights and inefficient.disrespectful of rights and inefficient.

Only consumers can say what value they place on safety and they Only consumers can say what value they place on safety and they should be allowed to register their preferences through free choices in should be allowed to register their preferences through free choices in markets and not to be coerced by businesses or governments into markets and not to be coerced by businesses or governments into paying for safety levels they may not want.paying for safety levels they may not want.

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The critics of this market approach respond that the benefits The critics of this market approach respond that the benefits of free markets are obtained with certainty only when of free markets are obtained with certainty only when markets have the seven characteristics that define them:-markets have the seven characteristics that define them:-a) there are numerous sellers and buyersa) there are numerous sellers and buyersb) everyone can freely enter and exit the marketb) everyone can freely enter and exit the marketc) everyone has full and perfect informationc) everyone has full and perfect informationd) all goods in the market are exactly similard) all goods in the market are exactly similare) there is no external costse) there is no external costsf) all buyers and sellers are rational utility maximizers f) all buyers and sellers are rational utility maximizers g) the market is unregulatedg) the market is unregulated

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These characteristics are absent in consumer markets, These characteristics are absent in consumer markets, focusing especially on characteristics (c) and (f).focusing especially on characteristics (c) and (f).

Markets are efficient only if participants have full and Markets are efficient only if participants have full and perfect information about the goods they are buying.perfect information about the goods they are buying.

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Theories on Ethical Duties Theories on Ethical Duties of Manufacturersof Manufacturers

Th eories on E th ica l D u ties o f M an u fac tu rers

C on ten t V iew- p laces g rea ter resp on s ib ility on th e con su m er

"D u e C ase" V iew-p laces g rea ter resp on s ib ility on

th e m an u fac tu rer

S oc ia l C os ts V iew-p laces g rea ter resp on s ib ility on

th e m an u fac tu rer

3 Th eories

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Contract View of Business Firm’s Contract View of Business Firm’s Duties to ConsumersDuties to Consumers

The view that the relationship between a business The view that the relationship between a business firm and its consumers is essentially a contractual firm and its consumers is essentially a contractual relationship and the firm’s moral duties to the relationship and the firm’s moral duties to the customer are those created by this contractual customer are those created by this contractual relationship.relationship.

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Moral Duties to Consumers Moral Duties to Consumers Under Contractual Theory (1)Under Contractual Theory (1)

Complying with the terms of the sales contract and Complying with the terms of the sales contract and secondary duties (Duty to comply).secondary duties (Duty to comply).

Disclosing the nature of the product (Duty of Disclosing the nature of the product (Duty of Disclosure).Disclosure).

Avoiding misrepresentation and (Duty Not to Avoiding misrepresentation and (Duty Not to Misrepresent).Misrepresent).

Avoiding the use of duress and undue influence Avoiding the use of duress and undue influence (Duty not to Coerce).(Duty not to Coerce).

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(1) Duty To Comply(1) Duty To Comply– The next basic moral duty that a business firm The next basic moral duty that a business firm

owns its customers (under contract view) is the owns its customers (under contract view) is the duty to provide consumers with a product that duty to provide consumers with a product that lives up to those claims that the firms expressly lives up to those claims that the firms expressly made about the product which led the made about the product which led the customers to enter the contract freely.customers to enter the contract freely.

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(1) Duty to comply(1) Duty to comply– Eg. Winthrop Laboratories - marketed a painkiller that it Eg. Winthrop Laboratories - marketed a painkiller that it

advertised as nonaddictive. A patient using the advertised as nonaddictive. A patient using the painkiller became addicted to it and died of overdose.painkiller became addicted to it and died of overdose.

– Court found Winthrop liable for the patient’s death Court found Winthrop liable for the patient’s death because although it had expressly stated that the drug because although it had expressly stated that the drug as non addictive Winthrop Labs. had failed to live up to as non addictive Winthrop Labs. had failed to live up to its duty to comply with this express contractual claimits duty to comply with this express contractual claim Carlill Vs Carbolic Smoke BallCarlill Vs Carbolic Smoke Ball

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(1) DUTY TO COMPLY(1) DUTY TO COMPLY– The express or implied claims that a seller might make The express or implied claims that a seller might make

about the qualities possessed by the product range over about the qualities possessed by the product range over a variety of areas are affected by a number of factors.a variety of areas are affected by a number of factors.

– The definition of product quality used here is : the The definition of product quality used here is : the degree to which product performances meet degree to which product performances meet predetermined expectation with respect to :-predetermined expectation with respect to :-

– a) reliabilitya) reliability– b) service lifeb) service life– c) maintainabilityc) maintainability– d) safetyd) safety

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(a) Reliability(a) Reliability– The probability that at product will function as The probability that at product will function as

the consumer is led to expect that it will the consumer is led to expect that it will function.function.

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(b) Service Life(b) Service Life– The period of time during which the product will The period of time during which the product will

function as effectively as the consumer is lead function as effectively as the consumer is lead to expect it to function;to expect it to function; Eg. wear and tearEg. wear and tear

– obsolescence (technological changes)obsolescence (technological changes)

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(c) Maintainability(c) Maintainability– The ease with which the product can be The ease with which the product can be

repaired and kept in operating condition;repaired and kept in operating condition; Eg. warrantyEg. warranty

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(d) Product Safety(d) Product Safety– The degree of risk associated with using a The degree of risk associated with using a

product.product.

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(2) THE DUTY OF DISCLOSURE(2) THE DUTY OF DISCLOSURE– An agreement is not binding unless both parties to the An agreement is not binding unless both parties to the

agreement knows what they are doing and freely agreement knows what they are doing and freely choose to do it.choose to do it.

– The seller who intends to enter to contract with a The seller who intends to enter to contract with a customer has a duty to disclose exactly what the customer has a duty to disclose exactly what the customer is buying and what the terms of the sale are.customer is buying and what the terms of the sale are.

– The seller has a duty to inform the buyer of any The seller has a duty to inform the buyer of any characteristics of the product that could affect the characteristics of the product that could affect the customer’s decision to purchase the product.customer’s decision to purchase the product.

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For Example:-For Example:-– if the product the consumer is buying if the product the consumer is buying

possesses a defect that poses a risk to the possesses a defect that poses a risk to the user’s health or safety, the consumer user’s health or safety, the consumer should be so informed.should be so informed.

Seller’s should also disclose a product’s Seller’s should also disclose a product’s components or ingredients, its performance components or ingredients, its performance characteristics, cost of operation, product ratings characteristics, cost of operation, product ratings and any other applicable standards.and any other applicable standards.

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(3) THE DUTY NOT TO MISREPRESENT(3) THE DUTY NOT TO MISREPRESENT– Misrepresentation renders freedom of choice Misrepresentation renders freedom of choice

impossibleimpossible– Misrepresentation is coerciveMisrepresentation is coercive– A person who intentionally misled, acts as the A person who intentionally misled, acts as the

deceiver wants the person to act and not as the deceiver wants the person to act and not as the person would freely have chosen to act if the person would freely have chosen to act if the person had known the truth.person had known the truth.

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Moral Duties to Consumers Moral Duties to Consumers Under Contractual Theory (12)Under Contractual Theory (12)– Free choice is an essential ingredient of a Free choice is an essential ingredient of a

binding contract - intentionally misrepresenting binding contract - intentionally misrepresenting the nature of a commodity is wrong.the nature of a commodity is wrong.

– The deception may be created by a verbal lie as The deception may be created by a verbal lie as when a new model is described as new or may when a new model is described as new or may be created by a gesture as when as unmarked be created by a gesture as when as unmarked used model is displayed together with several used model is displayed together with several new models.new models.

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Moral Duties to Consumers Moral Duties to Consumers Under Contractual Theory (13)Under Contractual Theory (13)– Varieties of MisrepresentationVarieties of Misrepresentation

computer software or hardware manufacturer may computer software or hardware manufacturer may market a product it knows contains “bugs” without market a product it knows contains “bugs” without informing the buyers of that fact.informing the buyers of that fact.

Manufacturer may give a product a name that the Manufacturer may give a product a name that the manufacturer knows will confuse with the brand manufacturer knows will confuse with the brand name of a higher-quality competing product name of a higher-quality competing product (Microsoft).(Microsoft).

A producer may solicit paid “testimonials” from A producer may solicit paid “testimonials” from professionals who have never really used the professionals who have never really used the product. Eg. Slimming products, herbal products.product. Eg. Slimming products, herbal products.

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(4) DUTY NOT TO COERCE(4) DUTY NOT TO COERCE– People act irrationally when under the influence People act irrationally when under the influence

of fear or emotional stress.of fear or emotional stress.– When a seller takes advantage of a buyer’s fear When a seller takes advantage of a buyer’s fear

or emotional stress to extract consent to an or emotional stress to extract consent to an agreement that the buyer would not make if the agreement that the buyer would not make if the buyer was thinking rationally, the seller is using buyer was thinking rationally, the seller is using duress or undue influence to coerce.duress or undue influence to coerce.

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Moral Duties to Consumers Moral Duties to Consumers Under Contractual Theory (15)Under Contractual Theory (15)– An unscrupulous funeral director may skillfully An unscrupulous funeral director may skillfully

induce guilt-ridden and grief-stricken survivors induce guilt-ridden and grief-stricken survivors to invest in funeral services they cannot afford.to invest in funeral services they cannot afford.

– Entry into a contract requires freely given Entry into a contract requires freely given consent, therefore the seller has a duty to consent, therefore the seller has a duty to refrain from exploiting emotional states that refrain from exploiting emotional states that induce buyers to act irrationally against their induce buyers to act irrationally against their best interests.best interests.

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The Due Care Theory (1)The Due Care Theory (1)

The due care theory of the manufacturer’s The due care theory of the manufacturer’s duties to consumersduties to consumers

The view that because manufacturers are in a more The view that because manufacturers are in a more advantaged position, they have a duty to take special advantaged position, they have a duty to take special care to ensure that consumers’ interests are not care to ensure that consumers’ interests are not harmed by the products that they offer them.harmed by the products that they offer them.

The doctrine of The doctrine of caveat emptor caveat emptor (buyer beware) is (buyer beware) is replaced with the doctrine of replaced with the doctrine of caveat vendorcaveat vendor (seller (seller beware)beware)

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The “due care” view hold that because consumers The “due care” view hold that because consumers must depend on the greater expertise of the must depend on the greater expertise of the manufacturer, the manufacturer not only has a manufacturer, the manufacturer not only has a duty to deliver a product that lives up to the duty to deliver a product that lives up to the express and implied claims about it, but also has a express and implied claims about it, but also has a duty to exercise due care to prevent others from duty to exercise due care to prevent others from being injured by the product even if the being injured by the product even if the manufacturer explicitly disclaims such manufacturer explicitly disclaims such responsibility and the buyer agrees to the responsibility and the buyer agrees to the disclaimer (Exemption clause -reasonableness)disclaimer (Exemption clause -reasonableness)

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Due care must enter into:Due care must enter into:– the design of the productthe design of the product– the choice of reliable materials for constructing the the choice of reliable materials for constructing the

productproduct– manufacturing processes involved in putting the product manufacturing processes involved in putting the product

togethertogether– the quality control used to test and monitor productionthe quality control used to test and monitor production– warning, labels and instructions attached to the productwarning, labels and instructions attached to the product

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According to due care view, the According to due care view, the manufacturer in virtue of a greater expertise manufacturer in virtue of a greater expertise and knowledge, has a positive duty to take and knowledge, has a positive duty to take whatever steps to ensure that when the whatever steps to ensure that when the product leaves the plant it is safe as product leaves the plant it is safe as possible and customer has right to such possible and customer has right to such assurance.assurance.

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Producer’s Responsibilities Producer’s Responsibilities According to Due Care Theory According to Due Care Theory

(1)(1) (1) DESIGN(1) DESIGN– Manufacturer should ascertain whether the design of an article Manufacturer should ascertain whether the design of an article

conceals any danger, whether it incorporates all feasible safety conceals any danger, whether it incorporates all feasible safety devices, whether it uses materials that are adequate for the devices, whether it uses materials that are adequate for the purposes the product is intended to serve.purposes the product is intended to serve.

– Manufacturer must conduct research and extensive tests to Manufacturer must conduct research and extensive tests to uncover any risks that will be involved in employing the article uncover any risks that will be involved in employing the article under various conditions of use.under various conditions of use.

– This requires testing the product under different conditions of This requires testing the product under different conditions of consumer use and selecting materials strong enough to stand up to consumer use and selecting materials strong enough to stand up to all probable usages (Taguchi Methods)all probable usages (Taguchi Methods)

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(2)(2) (2) Production(2) Production– Production manager should control the manufacturing Production manager should control the manufacturing

processes so as to eliminate any defective items, processes so as to eliminate any defective items, identify any weaknesses that become apparent during identify any weaknesses that become apparent during production.production.

– Ensure that shortcuts, substitution of weaker materials Ensure that shortcuts, substitution of weaker materials or other economizing measures are not taken during or other economizing measures are not taken during manufacture that would compromise the safety of the manufacture that would compromise the safety of the final product.final product.

– There must be adequate quality control over materials There must be adequate quality control over materials that are to be used in the manufacture of the product that are to be used in the manufacture of the product and over various stages of manufacture. (SPC, IPQC, and over various stages of manufacture. (SPC, IPQC, Ishikawa diagram)Ishikawa diagram)

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(3)(3) (3) INFORMATION(3) INFORMATION

– Manufacturer should fix labels, notices, or Manufacturer should fix labels, notices, or instructions on the product that will warn the instructions on the product that will warn the user of all dangers involved in using or misusing user of all dangers involved in using or misusing the item, and that will adequately guard the user the item, and that will adequately guard the user against harm or injury. Eg. Poison labels on against harm or injury. Eg. Poison labels on pharmaceutical products.pharmaceutical products.

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(4)(4)– Instruction should be clear and simple, and Instruction should be clear and simple, and

warning of any hazards involved in using or warning of any hazards involved in using or misusing the product should be clear, simple misusing the product should be clear, simple and prominent.and prominent.

– In case of drugs, manufacturers have a duty to In case of drugs, manufacturers have a duty to warn physicians of any risks or dangerous side warn physicians of any risks or dangerous side effects that research or prolonged use have effects that research or prolonged use have revealed (Vioxx, Celebrex, Lipobay, revealed (Vioxx, Celebrex, Lipobay, Phenylpropanolamine, Thalidomide)Phenylpropanolamine, Thalidomide)

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The Social Costs View of The Social Costs View of Manufacturer’s Duties (1)Manufacturer’s Duties (1)

The view that a manufacturer should pay the The view that a manufacturer should pay the costs of any injuries sustained through any costs of any injuries sustained through any defects in the product even when the defects in the product even when the manufacturer exercised all due care in the manufacturer exercised all due care in the design and manufacture of the product and design and manufacture of the product and has taken all reasonable precautions to has taken all reasonable precautions to warn users of every foreseen danger.warn users of every foreseen danger.

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The Social Costs View of The Social Costs View of Manufacturer’s Duties (2)Manufacturer’s Duties (2)

Manufacturer has a duty to assume the risks Manufacturer has a duty to assume the risks of even those injuries that arise out of of even those injuries that arise out of defects in the product that no one could defects in the product that no one could reasonably have foreseen or eliminated.reasonably have foreseen or eliminated.

This theory is a strong version of the This theory is a strong version of the doctrine caveat vendor. Let the seller take doctrine caveat vendor. Let the seller take care.care.

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Strict Liability (Absolute Liability)Strict Liability (Absolute Liability)

A legal doctrine that holds that A legal doctrine that holds that manufacturers must bear the costs of manufacturers must bear the costs of injuries resulting from product defects injuries resulting from product defects regardless of fault.regardless of fault.

The third theory formed the basis of the The third theory formed the basis of the legal doctrine of strict liability (Eg. Rylands v legal doctrine of strict liability (Eg. Rylands v Fletcher)Fletcher)

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The Social Cost View (1)The Social Cost View (1)

Manufacturer should pay the costs of all injuries Manufacturer should pay the costs of all injuries caused by the defect in a product even if caused by the defect in a product even if exercised due care (Eg. Proton : defects in the exercised due care (Eg. Proton : defects in the steering wheel)steering wheel)

Argues that injuries are external costs that should Argues that injuries are external costs that should be internalized.be internalized.– Manufacturer bear the external costs that Manufacturer bear the external costs that

results from these injuries as well as the internal results from these injuries as well as the internal costs of design and manufacture and all costs costs of design and manufacture and all costs are internalized and added on as part of the are internalized and added on as part of the price of the product.price of the product.

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The Social Cost View (2)The Social Cost View (2)

Internalizing all costs in this way, will lead to a more Internalizing all costs in this way, will lead to a more efficient use of society’s resources:efficient use of society’s resources:– First, because the price will reflect all the costs of First, because the price will reflect all the costs of

producing and using the artifact, market forces will producing and using the artifact, market forces will ensure that the product is not over produced and ensure that the product is not over produced and resources are not wasted on it.resources are not wasted on it.

– Second, since manufactures have to pay the costs for Second, since manufactures have to pay the costs for the injuries they will be motivated to exercise greater the injuries they will be motivated to exercise greater care and reduce the number of accidents.care and reduce the number of accidents.

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Criticism of the Social Cost ViewCriticism of the Social Cost View

Unfair to manufacturers since it forces them to compensate Unfair to manufacturers since it forces them to compensate unforseeable injuries.unforseeable injuries.

Assumption that adherence to the social cost view will Assumption that adherence to the social cost view will prevent accidents is false.prevent accidents is false.– By relieving consumers of the responsibility of paying for By relieving consumers of the responsibility of paying for

their own injuries the social costs theory will encourage their own injuries the social costs theory will encourage carelessness in consumerscarelessness in consumers

Leads to successful consumer lawsuits in cases where Leads to successful consumer lawsuits in cases where

manufacturers took all due caremanufacturers took all due care..

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Production Ethics - BenefitsProduction Ethics - Benefits

• Ethical Behavior can be good for salesEthical Behavior can be good for sales • ““Ethical behavior can improve the Ethical behavior can improve the

recruitment and retention of staffrecruitment and retention of staffEg: Mark and SpencerEg: Mark and Spencer

• Ethical behavior can motivate Ethical behavior can motivate employeesemployees

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Production Ethics - DrawbacksProduction Ethics - Drawbacks

Increase in CostsIncrease in Costs Loss of profitLoss of profit Conflicts: Profit vs. EthicsConflicts: Profit vs. Ethics Huge Range of Business practiceHuge Range of Business practice

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Controlling Environmental CostControlling Environmental Cost

““Through Government regulation”…Through Government regulation”…

Setting limits on the maximum amount of pollution.Setting limits on the maximum amount of pollution. ““Through Taxation”…Through Taxation”…

The aim of taxation is to ensure that the “social The aim of taxation is to ensure that the “social cost” of any pollution caused by a firm is paid for. cost” of any pollution caused by a firm is paid for.

(E.g. A firm which produces a $5 product with (E.g. A firm which produces a $5 product with “Environmental unfriendly” packaging might be “Environmental unfriendly” packaging might be taxed $0.50 for this packaging, raising the price to taxed $0.50 for this packaging, raising the price to $ 5.50.)$ 5.50.)

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Controlling Environmental CostControlling Environmental Cost

““Through Compensation”…Through Compensation”…

Firms could be forced by law to compensate those affected by such Firms could be forced by law to compensate those affected by such negative externalities.negative externalities.

(E.g. Airport might provide grants to nearby residents, so that they can (E.g. Airport might provide grants to nearby residents, so that they can purchase double glazing and other types of insulation, which provide purchase double glazing and other types of insulation, which provide protection from aircrafts noise.)protection from aircrafts noise.)

““Pollution Permits”…Pollution Permits”…

These allow businesses a certain amount of emissions. If the business These allow businesses a certain amount of emissions. If the business reduces its pollution below a certain level, it can save the allowance and reduces its pollution below a certain level, it can save the allowance and sell it. sell it.

Other alternatives including:Other alternatives including: Education,Education, Government subsidization,Government subsidization, Consumers pressure, etc…Consumers pressure, etc…

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Encouraging Ethical BehaviourEncouraging Ethical Behaviour

Government intervention: Government intervention:

Government can intervene directly to ensure that a Government can intervene directly to ensure that a business accepts the consequences of its behavior.business accepts the consequences of its behavior.

(E.g. in Germany, all retailers and manufacturers are (E.g. in Germany, all retailers and manufacturers are required to recycle 80% of their packaging.)required to recycle 80% of their packaging.)

Self regulation: Self regulation:

Government can work with particular industries and Government can work with particular industries and business sectors to encourage the creation of regulatory business sectors to encourage the creation of regulatory bodies which help to control the activities of business. bodies which help to control the activities of business. (E.g. the Press Complaints Authority and The Advertising (E.g. the Press Complaints Authority and The Advertising Standards Authority in UK.)Standards Authority in UK.)

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Encouraging Ethical BehaviourEncouraging Ethical Behaviour

Market pressure: Market pressure: Some commentators believe that there is no need for Some commentators believe that there is no need for government to exert direct pressures on businesses to government to exert direct pressures on businesses to act responsibly because the ‘free market’ will act act responsibly because the ‘free market’ will act effectively to police less responsible businesses. The effectively to police less responsible businesses. The argument is that such businesses will be unpopular with argument is that such businesses will be unpopular with consumers, who will be less likely to purchase their consumers, who will be less likely to purchase their products. Thus consumers’ behavior will force products. Thus consumers’ behavior will force irresponsible businesses to act with greater irresponsible businesses to act with greater accountability.accountability.

Pressure group: Pressure group: Pressure group such as animal welfare pressure group Pressure group such as animal welfare pressure group can sometimes exert influence over firms.can sometimes exert influence over firms.

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THANK YOUTHANK YOU

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production ethics

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