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Profit through Ethics

September 12, 2013 Leave a comment Go to comments

No business, however great or strong or wealthy it may be at present, can exist on unethical means, or in total disregards to its social concern, for very long. Resorting to unethical behaviour or disregarding social welfare is like calling for its own doom. Thus business needs, in its own interest, to remain ethical and socially responsible. As V.B. Dys in “The Social Relevance of Business ” had stated

“As a Statement of purpose, maximising of profit is not only unsatisfying, it is not even accurate. A more realistic statement has to be more complicated. The corporation is a creation of society whose purpose is the production and distribution of needed if the whole is to be accurate: you cannot drop one element without doing violence to facts.”

Business needs to remain ethical for its own good. Unethical actions and decisions may yield results only in the very short run. For the long existence and sustained profitability of the firm, business is required to conduct itself ethically and to run activities on ethical lines. Doing so would lay a strong foundation for the business for continued and sustained existence. All over the world, again and again, it has been demonstrated that it is only ethical organisations that have continued to survive and grow, whereas unethical ones have shown results only as flash in the pan, quickly growing and even more quickly dying and forgotten.

Business needs to function as responsible corporate citizens of the country. It is that organ of the society that creates wealth for the country. Hence, business can play a very significant role in the modernisation and development of the country, if it chooses to do so. But this will first require it to come out from its narrow mentality and even narrower goals and motives. However behavioural economists have found that many businesspeople don’t behave in this type of profit-maximising manner in times of crisis – e.g a water shortage means businesses could charge more. If they do, consumers remember and retaliate down the road.

Ethical Consumers

As consumers start to develop a preference for ethical brands, e.g.. Fair Trade Coffee, create a market for such coffee. Firms are therefore pressured to shift toward supplying what consumers want. This is even the case if the firm’s management don’t care how or where the coffee is sourced. Changing consumer preferences force firms to change their ways. Even at higher prices consumers are often willing to pay a premium for ‘ethical’ products or the products of socially responsible firms. Being more expensive doesn’t necessarily mean the company will go out of business if consumers have a preference for ethical products. Higher-priced ethical firms remain highly successful under these circumstances. Instead of being protected by tariffs or subsidies, they’re protected by the preference of consumers. Below is graph that I got from Stephen Hickson who presented at the NZCETA conference this year. Notice the changes in the Fair Trade price of coffee especially from 2011. Commodity prices can fluctuate wildly, and isolated, poor growers are often unable to take advantage of the sophisticated financial instruments employed by buyers to lower risk and volatility. The Fair Trade floor price gives farmers market information, financial stability, and access to credit. But as Stephen Hickson pointed out:

But that of course is not what people think… most people think when they buy FT coffee it is about the extra they pay going to the farmer (in fact not paying any extra would seem odd to some).

Fair Trade Coffee Price

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