a) Explain the implications for the business and stakeholders of a business operating ethically
b) Assess how a selected business could improve the ethics of their operations
c) Evaluate the impact of a selected business’s ethical behaviour on stakeholders and the business
This provides evidence for P2, M1 and D1.
This report will explain the implications for Tesco and its stakeholders of operating ethically. Conflicts of interest between stakeholder groups will also be looked at. Further into this report, Tesco will be assessed in relation to how it could improve the ethics of their operations and an evaluation will be carried out on the impact of Tesco’s ethical behaviour on its stakeholders and on the whole company.
Stakeholders in Tesco
Stakeholders are anyone who has an interest (or stake) in a business. Stakeholders are individuals, groups or organisations that are affected by the activity of the business. They can influence the business or they can be influenced by the business. Different businesses will have different stakeholders. A company such as Tesco will have many different stakeholders as it is such a large organisation and so many different people are a part of it. Stakeholders include;
Owners – The owners are the people who have provided the capital for the business to be set up or to be run. They may be sole-traders, partners or shareholders. Tesco is a PLC and its owners are now the largest shareholders of the company. They are interested in the profit which the company makes and this is usually paid to them in the form of a dividend. Owners also want the share price to increase as this means the company is becoming more profitable. They would also strive for the company to have good corporate governance throughout. If Tesco were to be unprofitable, the owner would not receive a good dividend or return and they may then sell their shares and this could mean the price per share would fall significantly on the stock exchange resulting in Tesco finding it more difficult to raise new capital to continue operating or grow.
Employees – Employees are the human asset of the business and are an extremely important stakeholder. They provide the man-hours which ensure the business keeps operating daily. Within Tesco, employees have different job roles which all help the business run efficiently and effectively. For example, managers, customer advisors, delivery workers and cleaners. Some employees may be male, female, skilled, unskilled, have part time contracts or full time contracts. Tesco recruit employees they feel will become a valuable part of the company and help add to its success.
Employees want paid fairly and on time, to have a contract which they are happy with and agree to, to be trained properly and have good working conditions as well as being treated fairly. Employees are essential to ensure that Tesco operates so that they meet the needs and demands of their customers and the aims of the company. If they are not treated fairly, they can withdraw their labour and go to an employer with better workings or could take industrial action against Tesco.
Customers – Customers are members of the public who purchase or avail of products and/or services from businesses. Tesco have great consideration for their customers as they know they are a stakeholder who is the difference between their success and failure. Customers of Tesco are face to face customers as well as online more and more in recent years. Their customers range from individuals, to families to other businesses. Some customers may be children, adults, have high income, have low income and all are a very important part of the company’s success.
Customers want low prices and good value for money. They also want good quality products and services, good customer service, fair treatment and easy access to stores and the online website. Customers can stop buying products and services from Tesco if they do not agree with the organisations policies such as testing on animals, GM foods and environmental policies. Tesco must try to meet the needs of the customers if they want to increase the number of customers or to prevent them from leaving and going to competitors such as ASDA and Sainsbury’s.
Suppliers – Suppliers are the organisations that supply the resources/materials/products and services to keep the business running on a day to day basis. Tesco have many different suppliers such as suppliers of their milk, cereals, fruit and vegetables, clothing and cigarettes. They also have suppliers of training, professional services, internet access, waste disposal and security.
Suppliers want to be paid on time. For example, if Tesco agree to pay a farmer for potatoes 30 days after collection, the farmer will want paid no later than 30 days. Suppliers also want adherence to their rules and regulations. If the supplier is not treated properly, they may withdraw the supplies they provide to Tesco which means the organisation may not be able to carry out its daily operations or they may have to find another supplier which may be more expensive. Some suppliers may be so powerful that they could put the organisation out of business. However, with Tesco being so huge across many countries, they sometimes appear to be the more superior of the two.
Competitors – Competitors are those organisations which are your rivals. They typically provide the same product and service as you and are competing in the same market. There are local competitors which may be a Tesco and Sainsbury’s store in the same area. There are also online competitors which may be local, national or even international competitors. Competitors try to eliminate one another by lowering prices of products and services which attract customers as well as offering promotions which steer customers away from competitors.
Citizens including pressure groups – This is the people locally and around the world who are impacted by the activities of the business. Tesco would be affected by local people and people in foreign and developing countries. Businesses can affect these communities in both positive and negative ways.
Tesco could create jobs for local communities, increasing the level of income and improving the standard of living. They could also help develop the local area and support local communities and charities. However, Tesco could cause pollution such as CO2 emissions and noise pollution, use up the resources of communities, not trade fairly and destroy the local culture of communities. These communities join pressure groups such as Friends of the Earth and WWF to have an impact on the decisions made by businesses.
Pressure groups are groups that citizens join to try to influence public policy in the interest of a specific case. For example, they may put pressure on Tesco directly to change their ways such as only selling fair trade produce. They also lobby the government to pass laws to control the activities of businesses such as Tesco. A pressure group known closely to Tesco is ‘Tescopoly’.
Government – The government is a stakeholder because in business they have authority to govern the country and implement legislation which businesses must adhere to. Businesses also must pay tax to the government for the provision of public goods and services. Following Brexit, the government will place different implications on Tesco and this is an example of why they are a stakeholder of Tesco. There are different levels of government;
1. Local council; in this area, this would-be Newry Mourne and Down District Council
2. Northern Ireland government; The Northern Ireland Assembly based in Stormont
3. UK Government; Her Majesty’s Government (British Government)
4. European Union (EU); Political authority for the current 28 states within it
5. World Governing Bodies E.g. UN, WHO, WTO; Political authority for all humanity
The government has a very big impact on all organisations. On Tesco, it would have impacts such as introducing rules, regulations and legislation such as data protection legislation and distance selling regulations. It would also impact on businesses to pay taxes to the government, planning legislation, developing the infrastructure, providing Tesco with support and funding grants and training and education such as apprenticeship schemes.
Conflicts of interest between stakeholder groups
When the Board of Directors are making important decisions, there becomes a lot of conflict between different stakeholder groups. In Tesco, some of these different conflicts include;
Satisfying shareholders v Satisfying suppliers – Not paying suppliers on time. If Tesco agree to pay their suppliers within 30 days and this time is exceeding without payment, this will cause conflict between shareholders and suppliers. Tesco may not pay suppliers as they may be able to maximise their profits further and shareholders receive a higher dividend. This means the shareholders and suppliers are in conflict.
Satisfying shareholders v satisfying pressure groups – Moving production out to sweatshops in developing countries.
Tesco have been found before to be exploiting workers in sweatshops in developing countries. This creates huge conflict between shareholders of the company who want a higher profit due to this lower cost in production and pressure groups who protest about this unethical behaviour. This has caused conflict such as pressure groups protesting and campaigning against the purchasing of Tesco goods and services.
Satisfying shareholders v Satisfying employees – Taking short cuts and not adhering to health and safety.
When Tesco skip health and safety precautions and laws, or even health and safety training, the save time and money which benefits shareholders who will ultimately receive a higher dividend. However, this conflicts with employees who are at risk at work and who don’t feel safe in the working environment. Tesco must ensure that they follow health and safety ethically and legally to ensure both stakeholder groups are as satisfied as possible.
Satisfying shareholders v satisfying pressure groups – Testing on animals.
Tesco were found to be selling non-own brand products made by companies which were directly involved in testing their products on animals. This creates conflict with shareholders and pressure groups. Pressure groups argue that is unethical to test products on animals and there has been campaigns launched against Tesco which are evidence of this conflict.
Satisfying shareholders v Satisfying employees – Not paying the minimum wage. Paying employees below the minimum wage is unethical however for shareholders; it will mean a higher dividend as Tesco are more able to make a higher profit. This creates a conflict with employees as they are being treated unfairly. Employees should be paid at least minimum wage and when they are paid below this and are being exploited, this creates a conflict with these two stakeholder groups.
Satisfying shareholders v Satisfying citizens locally and communities – Not cleaning up outside premises.
Citizens in local communities will dislike if Tesco produce a lot of waste and it is left around the streets in their community. This will create a conflict with the citizens and communities and shareholders of Tesco. Some shareholders see the cleaning up process as an expensive procedure which will reduce their dividend at the end of the year and this creates a conflict with the citizens and local communities of where the Tesco store is situated.
Satisfying shareholders v Satisfying employees – Using zero – hour contracts. As a result of Tesco using zero hour contracts, they are not guaranteeing a particular number of hours to their employees each week and to the employee, this is a problem. Zero-hour contracts don’t offer job security and this can be hard for employees as some weeks they may have many hours of work and the next they may have none.
Satisfying shareholders v Satisfying customers – Charging extortionate prices for products and services.
Tesco’s shareholders will want the company to charge the highest possible price for goods so that the profits are maximised and their dividend is increased. This creates a conflict with customers who want cheap, affordable prices and value for their money.
Implications for Tesco and stakeholders of operating ethically
There are many different implications for Tesco and its stakeholders of operating ethically. These will be looked at below.
Adapting business behaviour
Businesses are now becoming more and more aware of the instant impact of ethical scandals on stakeholders. Most large businesses, such as Tesco, are now taking their ethical responsibilities more seriously and are therefore prepared to adapt their behaviour to avoid accusations of wrong doing. For example, Tesco doing away with all zero-hour contracts and trading fairly. This benefits Tesco and its stakeholders as it is seen as an ethically-operating company.
Responding to ethical pressures
Being a large business, Tesco is now responding to particular ethical pressures which are pertinent to their industry. For example, Fair-trade, global warming and waste of products. As a response to ethical pressures, Tesco have introduced a Corporate Social Responsibility programme. This shows how Tesco are putting pressure on their trading partners to follow social responsibility policies.
This will include stakeholders such as suppliers. Suppliers must be ethical no matter what company they are operating in.
This improves corporate image for Tesco as they are being seen as a company who operates more ethically both internally and externally.
Implementing ethical practices
Tesco must implement ethical practices and have policies drawn up to implement ethical practices. Tesco has implemented ethical practices such as whistle blowing policies, recruitment policies and disciplinary policies. As a result of Tesco implementing such ethical practices, they become an organisation which is more ethical and this is seen from many different stakeholders such as suppliers, customers, shareholders and even pressure groups.
Influence of stakeholders and pressure groups
Stakeholders and pressure groups put considerable pressure on businesses such as Tesco to be socially responsible. Above has identified what the various stakeholders want and the conflicts which arise in satisfying their needs.
Pressure groups such as ‘Tescopoly’ have websites and produce videos to highlight the impact of unethical practices by large businesses such as Tesco. This pressure group has identified issues such as Tesco not paying farmers enough for their products and Tesco not paying enough attention to the environment.
Stakeholders and pressure groups ensure that Tesco are always on their toes when it comes to social responsibility as they will be mindful of their corporate image and will usually respond quickly to issues raised by stakeholders and pressure groups as a result.
Impact of competitiveness, reputation and public image
Being more ethical will help to improve the competitiveness of Tesco in the long term. It may however reduce their competitiveness in the short term as being ethical costs money. Being ethical will add value to the product of Tesco. For example, Tesco customers may pay more for coffee which has been traded fairly than a smaller price for coffee which has been unethically produced.
Operating ethically improves the reputation of Tesco and public image of Tesco as they become known as being an ethical business with ethical stakeholders such as their suppliers.
Ethical trade is a way of doing business that takes into account the conditions and practices that occur through the supply chain. In recent years, this has become more important because of the increasing use of global supply chains such as clothing and food.
Tesco is coming under increasing pressure to ensure satisfactory working conditions for their employees and that they only purchase from and deal with ethical suppliers too. Adhering to ethical trade, Tesco are seen as a more ethical company by consumers, citizens, communities and pressure groups.
Businesses that operate with a commitment to doing business ethically are known to increase their profit and turnover significantly higher than those businesses which operate unethically. Tesco has now set up their own codes of ethics and these benefits the company and their stakeholders as they are adding significant value to the business.
Complying with relevant legislation and codes of practice
It is imperative that Tesco has to comply with relevant legislation and codes of practice. UK businesses must comply with a large range of UK laws such as consumer legislation, employment legislation and health and safety legislation.
The EU has introduced many more directives on employment in the workplace, caring for the environment and competition. All businesses within the UK must comply with EU legislation. For example, the Working Time Directive. As a result of Brexit, Tesco’s laws will change for stores operating within the UK and this will have effects on customers, employees, suppliers, communities, owners and shareholders alike.
The United Nations can take action on issues such as peace and security, climate change, human rights, gender equality and food production. These can all relate to Tesco as a business and will affect the different stakeholders outlined above. The UN Global impact is a call to companies such as Tesco to align strategies and operations with universal principles on human rights and labour and take actions that improve society. This would involve Tesco setting up a set of core values in areas of human rights, labour standards and environmental practices. This ensures that Tesco adheres to values and does not carry out practices that are damaging to the environment and citizens.
The UN Declaration of Human Rights was first introduced in 1948. Its purpose was to create a better world based on fairness and justice. It focused on the individual’s right;
- To work
- To just and favourable conditions of work
- To equal pay for equal work
- To form and join trade unions for the protection of interests
Tesco and its stakeholders would have to consider this declaration and ensure they operate within it. This helps Tesco remain a business which is ethical and this in turn creates a great company image.
There are so many newly emerging, industrialising countries such as China and India and these are opening their economies and beginning to develop into many markets. The practices these new countries operate may cause damage to both people and the planet. Does the UN have any influence over these economies? If there is too much economic activity within industries, it can be dangerous to people and the environment. This is something that many businesses such as Tesco and its stakeholders must be aware of. If there are new economies emerging, Tesco may have to change their economic activity as a result. For example, reducing their CO2 emission even further or producing significantly less waste.
Operating ethically is extremely important for businesses. All of the different stakeholders such as suppliers, customers, owners, shareholders, communities and citizens look to deal with a business which operates ethically. In the past, Tesco has had problems operating ethically. These include issues such as the company having high CO2 emissions, waste products, unequal pay for employees and suppliers as well as exploitation of workers in developing countries.
Tesco could adapt business behaviour. Most large businesses, such as Tesco, are now taking their ethical responsibilities more seriously and are therefore prepared to adapt their behaviour to avoid accusations of wrong doing. For example, Tesco doing away with all zero-hour contracts and trading fairly. This benefits Tesco and its stakeholders as it is seen as an ethically-operating company. Developing an ethical culture within the operations of the business such as treating everyone fairly and equally and sourcing products from suppliers who are being paid fairly allows Tesco to be seen as an ethical business too.
“Our strong belief is that a sustainable business needs a sustainable supply chain, one which is underpinned by fair working conditions for all those involved in the manufacture and supply of our products.” Tesco has built ethical values into its core values and mission statement and this helps them improve the ethics of their operations as everyone has a clear understanding of ethical direction within the company.
To improve the ethics of their operations, Tesco could also introduce new guidance policies and codes of conduct on how activities within the organisation must be carried out. Old policies could also be updated. This is what other organisations such as Sainsbury’s and ASDA are constantly doing to keep up with ethical activity and so Tesco should ensure they adapt this protocol to do the same.
To ensure they are operating ethically, Tesco could improve the ethics of their operations by providing training and support to raise employees’ awareness and ability to use policies. This will mean employees will become more aware of ways they can improve the company as a whole. It will improve their individual ethical responsibility and will help to improve Tesco’s Corporate Social Responsibility too; allowing the business to improve their ethics.
Tesco could also improve the ethics of their operations by adhering to all local, national, international and worldwide legislation and directives. For example, Health and Safety at Work Act and Fair Trade Act. Although this will mean adhering to a lot more laws and paperwork, it will mean Tesco are always adhering to the law and in an ethical way too. This means that Tesco ensure they are operating ethically at all times and will subsequently improve the ethics of their operations.
Other ways of Tesco improving the ethics of their operations include;
- Having clear corporate governance. Ways in which Tesco may be unethical in relation to corporate governance may be paying large salaries and bonuses to the directors only, insider trading in the shares of Tesco, unfairly deselecting or electing new individuals to the BOD or even unfair treatment to company’s shareholders. Tesco must ensure they pay equal salaries and bonuses to all employees and treat shareholders equal. This will help improve the ethics of their operations.
- Adapting codes of practice to govern conduct and behaviour throughout company. Tesco have a business Code of Conduct which states “Our Code of Business Conduct is designed to help and protect us as we go about our work for Tesco. As well as Tesco having business practices in place to ensure they as an organisation operate ethically, every employee within the organisation has an ethical responsibility on behalf of the company. Having proper business practices helps Tesco remain ethical and invites consumers to shop in an environment whose stakeholders are treated in the right way. This in turn helps the company improve their ethics.
In April 2016, according to Ethical Performance News has become the latest retailer to offer leftover food from its stores to charity. Its aim is that by the end of next year, no food in its shops will be ditched. This shows a way in which Tesco is improving the ethics of their operations and this reflects positively on the ethical behaviour and corporate image of the company and is a positive in the eye of consumers and different stakeholders such as pressure groups and suppliers too.
- Diversity of board of directors – not a little clique wanting to line their own pockets or being corrupt for themselves as a group, having women on BOD, representatives of employees on BOD, representatives of different ethnic groups. Having this diversity of the board of directors allows a greater deal of ethical business conduct to be carried out as all voices are heard and listened to.
- Adhering to laws and regulations. For example, health and safety at work act. Follow and adhering to laws and regulations allow Tesco to improve the ethics of their operations. If they trade fairly, follow all legislation in relation to health and safety, pay appropriate prices for goods and services and offer satisfactory working conditions for employees, they are able to improve the ethics of their operations. ASDA and Sainsbury’s adhere to law and regulations and this helps them improve their ethics too; something Tesco should be mindful of.
Tescopoly have revealed that “In 2006 Viva! Made a complaint, supported by the Food Standards Agency, about Tesco packaging on own-label duck products, which were misleading customers. The packaging suggested that the birds were reared free-range, but Viva! Provided evidence that they were housed in industrial sheds with no outdoor access.” This restricts Tesco from improving the ethics of their operations and doesn’t look good for the ethical image of the company. They have broken the law as they have advertised a product for something which it is not. If Tesco want to improve the ethics of their operations, they need to cut out this unethical and negative practice.
- Trading fairly. Tesco now sells Fair-trade products which represent that the product has been produced fairly and they have paid an appropriate price for it. This helps improve the corporate image of Tesco and helps them improve the ethics of their operations.
- Not exploiting customers or suppliers. ‘Tescopoly’ have identified that Tesco have underpaid UK employees by not offering minimum wage in some cases and not paying suppliers such as farmers appropriate prices for their crops and products. Tesco should pay all staff at least minimum wage and pay suppliers appropriate prices and on time to ensure they improve the ethics of their operations.
- Animal welfare. Tesco must ensure that they purchase from suppliers who treat their animals well and in good conditions. Tesco has been found before to be purchasing beef and pork from farmers where cows and pigs were in tight stalls and overcrowded. This would be unethical and Tesco should provide evidence that they purchase from reputable suppliers and farmers to ensure they improve their ethical behaviour.
Tesco have 14 members in its Board of Directors. This comprises the Chairman, Sir Richard Broadbent, five Executive Directors and eight independent Non-Executive Directors. In January 2016, Tesco were involved in a scandal in which they were accused of bringing forward payments to flatter its financial results as sales fell. The company could have been ordered to pay a fine of £350m and forced to repay hundreds of millions of pounds to suppliers. Four executives were suspended from the company. Financial scandals like this reflect poorly on the company as they appear to be operating unethically and corruptly. This does not help Tesco to improve the ethics of their operations and instead can be detrimental to the future success of the company.
Just like Tesco, other organisations such as ASDA and Sainsbury’s are doing similar to the above to help improve the ethics of their operations. ASDA have introduced ethical policies to improve the ethics of their operations “to ensure that all ASDA suppliers, both direct and domestic should source or manufacture products under a minimum set of internationally acceptable conditions of employment in the areas covered in the standard.” This shows the extent other organisations are going to as well as they fight to be the most ethical organisation in the industry.
Ethical behaviour has a huge impact on both businesses and their stakeholders. Good ethical behaviour can be the difference between a business making a huge profit and their shareholders a large dividend and a business making a huge loss and their shareholders selling their shares. In the first six months of 2016, Tesco made an operating profit of £515m which was up 38.4% compared to the same figure at the same time in 2015. Could this be a result of Tesco improving their ethical behaviour over the last year?
Positives of improving ethics include;
- Increased profits. This is because improving ethics typically improves efficiency within the business. This reduction in costs helps to increase profits. This helps the business work well as they have more capital to use which impacts suppliers and employees as they have more chance of being paid on time as well as shareholders and owners receiving a higher dividend.
- Increased sales. As a result of Tesco improving their ethics, customers will be more likely to shop with them. This increases sales throughout the company.
- Employee/customer loyalty. If customers and employees alike know that Tesco effectively operate ethically and have ethics at the heart of the company, they will be more likely to stick with the company. They will also know that they will be treated fairly and equally.
- Attract better personnel. Individuals are more enticed to work in a company which is ethical. They will feel a better chance of being paid equal, being treated fairly and being treated equally.
- Lower costs. In the long term, if Tesco operate ethically, they have the opportunity to lower their costs. This is because the company will operate more efficiently. For example, reducing waste and having consideration for their CO2 emissions and this will lower their overall operating costs. This impacts stakeholders such as shareholders as they will receive a higher dividend due to higher profits being made from these lower costs.
- Improved efficiencies. If Tesco improve their ethical behaviour, they can improve their efficiencies. For example, reducing their waste can help improve efficiencies. This impact on different stakeholders such as pressure groups and communities as well as citizens who will be happier and more satisfied with Tesco’s ethical operations.
- Promotes respect. Tesco developing ethical behaviours promotes respect amongst the company. This impact on different stakeholders such as employees, customers and communities who will be happier being a part of the company. It will also impact suppliers and promote respect between them and Tesco, improving links externally too.
- Improved corporate image. Tesco operating ethically significantly improves their corporate image. They have an ethical responsibility and failing to fulfil this can be detrimental to the corporate image of the company. This will impact on stakeholders such customers who won’t like to shop with the company and on employees who will be embarrassed to work for the company. Other stakeholders affected by poor ethical activity will be suppliers who may lose their corporate image as a result of trading with a company such as Tesco if they had a poor corporate image.
Negatives of improving ethics;
- May be costlier in the short term which may decrease profits. To implement ethics and develop ethical behaviour can be costly at the start and may decrease profits in the short term. This has an impact on shareholders who may receive a smaller dividend as a result of Tesco improving their ethics. However, in the long term the company should become more efficient and profits should increase.
- Can be difficult to conduct. It can be difficult for Tesco to conduct and sustain ethical behaviour. Developing ethical behaviour can be difficult due to so much paperwork having to be drawn up. For example, codes of conduct and compliance laws. This will impact on employees who will have to ensure this legislation is always up to date.
- Can be time consuming. Ensuring that the business always has ethics at the heart of the company can be time consuming. This is because owners and employees have to ensure that the business is always operating ethically which takes up a lot of time.
- You must police your policies. Ethical behaviour involves policing policies which are in place to ensure Tesco remain ethical throughout their daily operations. Policing policies impacts on many different stakeholders in different ways. It means that the owners and shareholders of the company have a policy to back them up if anything were to go wrong with a supplier for example. Customers will also be impacted as if they know that policies are not in place to ensure good ethical behaviour or that these policies are not policed, they may withdraw their custom from Tesco and go to a competitor such as ASDA or LIDL.
Tesco are very good at adapting business behaviour. They are a company who adapt very quickly to different trends in the market and quite often, ethics are a big part of this. Tesco adapt very well to ethical issues which may shine them in a negative light. For example, when the unethical ‘horse meat scandal’ came to surface in Tesco, the company immediately guaranteed their customers that all meat had been removed from shelves and precautions were put in place which would ensure there was absolutely no chance of horse meat entering their food production ever again. This ability to adapt business behaviour and respond to ethical pressures affects many different stakeholders. It will affect customers, citizens, communities and pressure groups as they will be unhappy this has happened. It will also affect suppliers who will all have to be checked to see where the error has occurred. Profits would fall because of a decrease in customers and in spending and this affects owners and shareholders as they receive a smaller dividend.
In the past, Tesco have been excellent in implementing ethical practices. Tesco have a business Code of Conduct which states “Our Code of Business Conduct is designed to help and protect us as we go about our work for Tesco. This shows their ability and effectiveness in implementing ethical behaviour to their operations and everyday business activity. This improves Tesco’s corporate image and this positively affects stakeholders. Customers will be more inclined to shop in a store with ethical practices in place and a store with ethical values and this increase in customers also increases the dividend which owners and shareholders of Tesco receive. Suppliers will also be more enticed to supply Tesco as they have a code of business conduct so suppliers can see how the company carries out their business and how ethical they are. Employees also want to be a part of an ethical environment and because of Tesco implementing ethical practices effectively, they may find it easier to recruit and retain staff.
Tesco are a very competitive business. In fact, alongside ASDA they are the two most competitive in the grocery industry. Being more ethical will help to improve the competitiveness of Tesco in the long term. It may however reduce their competitiveness in the short term as being ethical costs money. Operating ethically improves the reputation of Tesco and public image of Tesco as they become known as being an ethical business with ethical stakeholders such as their suppliers. The horse meat scandal in Tesco has revealed a worrying lack of knowledge about where our food comes from and highlighted the baffling inefficiency and complexity of the global food supply chain. This scandal also resulted in a 5.5 percent drop in profits for Tesco’s Europe stores. This proves that as a result of a business operating unethically, it affects the business immensely. Suppliers are affected as they won’t be known as reputable when a case like this arises, customers are impacted as they lose trust with the supermarket and shop elsewhere. Pressure groups are impacted and citizens/communities as they protest about Tesco’s unethical behaviour.
Being competitive, having a good ethical reputation and trading ethically all have impacts on stakeholders and Tesco as a business. Trading fairly has a positive impact on customers as they want to buy products which have been sourced fairly meaning that nobody has been exploited in the production process. This positive impact on customers also has impacts on other stakeholders. If more customers shop with Tesco because of their excellent ethical behaviour and ethical reputation, Tesco’s profits are going to increase and this impacts shareholders as they receive a greater dividend and employees and suppliers can be paid on time and be paid fairly. However, if Tesco had poor ethical behaviour, this would affect different stakeholders such as customers who would shop elsewhere, suppliers who may not wish to supply Tesco with their products and services, communities and pressure groups who may protest against the company and government who may take action against the company for breaking law in relation to ethical behaviour.
Tesco are always improving their ethical behaviour and are becoming a leading company in the industry when it comes to ethics. For Tesco, operating ethically and implementing ethical practices to their operations allows them to add value to their products and services. This means they can charge higher prices which can help them grow as well as pay more to their suppliers for the products and services they supply. This will build positive relationships between stakeholders such as suppliers and Tesco as a business.
Tesco have shown they can effectively comply with relevant legislation and codes of practice. For example, UK law and EU law. This ability to comply with such law has impacts on stakeholders and the business. Following the law shows that Tesco are trading fairly and are not exploiting their customers or suppliers. This ethical behaviour creates a positive atmosphere for all stakeholders. Customers will be happy shopping with Tesco, suppliers will be happy supplying the goods and services to Tesco and employees will be happy working in that environment. In a survey carried out by GT Nexus, more than 1,100 consumers were questioned and 52% said they would pay more for food and beverage products that were sourced under ethical and sustainable means. When it came to clothing and footwear, 45% of consumers would pay more for such products. This shows the impact of ethical behaviours on consumers and shows how important it is for businesses to adapt ethical behaviours to attract and retain customers.
When looking at the corporate behaviour of Tesco and ASDA, Tesco certainly come out on top. War on Want found garment workers in India being paid as little as 16p per hour by Tesco. However, War on Want found workers in Bangladesh on wages being paid as low as 7p per hour by Tesco in 2015. ASDA were also rated worst for animal welfare in the Rough Guide to Ethical Shopping. As a result of Tesco implementing ethical behaviour and successfully coming out on top of ASDA, where different stakeholders are impacted. Pressure groups are more likely to attack ASDA for their unethical behaviour as they have been seen to be more unethical. Citizens, customers and communities alike are also impacted as they will be more inclined to shop with Tesco knowing that they have adapted better ethical behaviour. Suppliers will also be impacted as they will want to work with Tesco – the more ethical business. When it comes to ethical behaviour, Tesco is seen to be better than ASDA. Although both are in great competition, Tesco have the opportunity to improve their corporate image even further as they appear as being more ethical. This shows that benchmarking ethical behaviour against other competitors has consequences for Tesco and impacts on its stakeholders too.
This report highlights the importance of a business such as Tesco operating ethically and adapting ethical behaviour in its everyday operations. It also signifies the impact of operating ethically and failing to operate ethically on all the different stakeholders. Reasons for Tesco to operate ethically include investor confidence, customer loyalty, and supplier trust and to improve corporate image and all of these have a positive impact on each of the different stakeholders of Tesco.