Does everything in business have to have a business case to be worth doing?
The business case ideology is a wide topic as it covers stakeholders, ethical, legal, political issues and so forth and there are several literatures on the subject. Business cases have been referred to as the essential value to an organisation of a proposal ... which is used to prevent idealistic or unrealistic ideas/proposals being used that offer no justifiable or provable value to an organization. Business cases are used by organisations for the initiation of new business projects or a business change. There are several reasons as to why organisations develop business cases.
Source: Xrefer, definition on 'Business Case'
The paper draws on past and present theories of business cases, and the relevance of business cases and the important reasons behind the development of business cases.
A business case is a structured proposal for a business project that is justified in terms of costs and benefits (http://en.wikipedia.org/wiki/Business_case). A typical business case framework consists of the reasons behind the project and the goals, aims and objectives the project is intended to achieve. The business case also identifies the benefits that the project will offer, the costs that are expected to be incurred and an analysis of the potential risks posed by the project and also the outcomes, costs and risks of what would happen as a result of not going ahead with the project.
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There are several types of business cases, organisations develop business cases from equal opportunities to business cases for IT projects and many more. Business cases for corporate social responsibility (CSR) and Fair Trade have also been developed and implemented by organisations. An organisation's main goal is to make profit, but by developing business cases for CSR, organisations have driven their attention from making profit to being a good organisation.
The paper focuses upon issues regarding Fair Trade, organisations and CSR, Oxfam ends with a conclusion.
From my understanding, the question is implying: does everything in business require a business plan in order to change or pursue corporate goals and objectives. Relating the question to the issues identified, the question could be seen as, do organisations require a business case for CSR or Fair Trade to be successful or can they successful without being ethical?
Abelson and Nielsen (1967) describe ethics as a general pattern or way of life or a set of rules of conduct or moral code or an inquiry about ways of life and rules of conduct.
Source: Business Source Premier, article 'Smith versus Friedman: Markets and ethics.'
Ethics is about doing the right thing, in business ethics, businesses must follow a professional conduct towards their employees and towards the local community. Law and medicine organisations are examples of where business ethics are required. These types of businesses would have clearly defined codes of professional ethics on a day to day basis.
Business ethics are a vital part of an organisations strategy. Organisations that cause environmental damage have an obligation to ensure a better environment as part of the business ethics. We can look at the examples of fishing companies, where over fishing has placed pressure on marine life around the world. Some types of fish have come close to extinction and there is a growing environmental concern about fishing. Its not just fish species that are affected, other species in the food chain are also affected such as birds. So fisheries do have an environmental responsibility on their behalf to ensure that damage to the environment is reduced and over fishing needs to be stopped.
Other companies such as oil extracting companies actions affect the environment so it is necessary to behave ethically and pay closer attention to CSR, for example, pollution is a common subject so they have a social responsibility to consider the effects of their activities and reduce the levels of pollution to the environment and ensure it is kept to a minimum, this will make them more ethical organisations.
Topshop, a major high street retailer of clothing and fashion, recently adopted an ethical stand against clothing made from fur. The retailer said that it has devoted its Oxford Street store to anti-fur products in association with charity Peta. Supermarket chain, Sainsbury's have begun using re-usable carrier bags. The bags are sold and the money goes to charity
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In order to examine the issues surrounding the essay question, the essay will cover background research, referring to journals on the topics identified and hypotheses of different researchers seeing what they have to say about CSR and fair trade.
In addition, the essay will also take a look at examples of companies who have incorporated CSR into their practices and polices and behaved ethically and unethically and see how it has affected them. The essay will also look at companies that support the fair trade policy.
Oxfam is a very good example of an ethical organisation which developed a business case for CSR and fair trade and will be observed in the essay.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
CSR has become the basis on what organisations do well. There are several studies as to what CSR is, several researchers (Friedman, Rudolf, Davis etc.) have given their own definitions, the World Business Council has defined it as 'the continuing commitment by business to behave ethically and to contribute to economic development while improving the quality of life of the workforce and their families, as well as of the local community and society at large'. (Source: Xrefer, definition of Corporate Social Responsibility)
Companies usually implement CSR into their policies and practices so the effects of their activities have a positive social, environmental, legal and economic impact on the communities in which they operate and on their stakeholders. Some organisations behave more socially responsibility because it is an obligation by the managerial board, but also because of fear of backlash from environmentalist and consumer pressure groups and the media, and negative corporate image. It has been argued that behaving in a more socially responsibility manner can be beneficial to an organisation in the long run.
CSR is not only about fulfilling a duty to society and doing the right thing, it can also offer competitive advantages. An article on CSR by Radley Yeldar highlighted several benefits that CSR could offer an organisation. The article stated that according to several academic studies, socially responsible organisations benefit from positive financial performances. In the article, according to a study carried out by DePaul University in 1997 revealed that companies with a defined corporate commitment to ethical principles perform financially better. Authors, Sims (2003), Kotler, Lee (2005) and Horn af Rantzien (2003), also noted that CSR leads to profitability in the long run. Some consumers may prefer to purchase products that have been developed ethically or are environmentally friendly, for example, solar powered appliances to reduce levels of energy consumption. Additionally, behaving more ethically means organisations will need to consider recycling and using less energy which will save them further costs.
It has also been found that organisations who are more committed to CSR benefit from an improved corporate image and reputation. It takes a long time to establish a good reputation, and there is always a risk it can be damaged by unethical activities. By directing practices and policies towards CSR will build stakeholders as the local community's trust which will generate positive press coverage resulting in a stronger brand image and reputation, a good corporate image can offer competitive advantages that will be difficult to imitate such as attracting potential investors, meeting legislations and regulations etc.
Organisations also have a CSR towards their employees. Yeldar discusses that taking a more ethical stance towards employees by focusing their efforts on improving working conditions and increasing employee involvement could result in a growth in quality and productivity. . Employees gain a sense of job satisfaction and recognition and feel valued when they are more involved and this can motivate them to take more care and consideration in their work increasing the level of quality and productivity. Also, by increasing employee involvement, organisations have managed to attract and retain employees as employees prefer to work for organisations whose beliefs and values are in accordance with their own:
78% of employees would rather work for an ethical and reputable company than receive a higher salary. (Source: http://csrnetwork.com/downloads/OpinionWhyBother.pdf)
CSR may be good for businesses and the environment, however, it could be a clever marketing stunt to mislead consumers that the organisation really is ethical. According to Milton Friedman (1970), CSR is 'the social responsibility of business to increase its profits'. For example, organisations that give donations are just using this as a smokescreen for making profit. Organisations are only there to make a profit and will only do things that would offer them potential profit. CSR is just another invention to strengthen corporate image and reputation to attract more consumers. Consumer's behaviours towards what's morally right and what's morally wrong has had an impact on the way businesses operate, so they are becoming supposedly ethical in order to retain customers and attract new ones and gain publicity.
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Fair Trade is another ethical business case and has become very common within organisations. Fair Trade was established in 1959 in Oxfam's Worldshop as a political and social movement. The core principle of Fair Trade is promoting products such as crafts and textiles, tea, coffee, honey, bananas, chocolate and traditional products that are sourced from third world producers and selling them for a premium that guarantees the producers receive a fair price. Each Fair Trade product features a label known as the Fair Trade Mark which acts as the guarantee that disadvantaged producers i.e. farmers in the developing world are getting a better deal. Fair Trade products are sold in accordance with the UN Charter of Human Rights and International Labour Organization agreements that ensure that the prices products are sold for covers the production costs and helps social and economic development for the producers.
Source: Xrefer, definition of 'Fair Trade'.
From the research on the topic of Fair Trade, several benefits and drawbacks of going Fair Trade for organisations have been identified. Peter Hulm (2006) points out that producers in third world countries can earn a decent living and have a better life by being able to sell their products for reasonable prices, Fair Trade also allows them to gradually acquire better technology and market information so they gain better skills and knowledge and more experience in fair trade and exporting. Hulm also argued that Fair Trade does not increase product prices for consumers as Fair Trade organisations remove intermediaries (e.g. suppliers) and work directly with producers. Also, Fair Trade promotes consumerism as consumers receive an insight into Fair Trade and become more conscious of what they buy.
However, Fair Trade is not always successful, although the Fair Trade movement benefits the producers in third world countries, and can also have a positive effect on the image of an organisation promoting fair trade products, it, however, can mean further or higher costs to the buyer of fair trade products. For example, because a percentage of the profit goes towards the producers of the products, this means Fair Trade products would need to be sold at a higher price than non Fair Trade products, and this may be a problem as consumers may not be willing to pay the extra premium when they can buy the same product for less. According to Hulm (2006), only 20% of consumers at are prepared to pay higher prices for fair trade products, Alexander Kasterine (2006) also supported this statement by saying there are a limited number of well-off consumers that are willing to pay a premium on Fair Trade products to support developing producers who cannot compete with bigger, more established producers which leaves organisations with less opportunities for expansion.
Also, although Fair Trade is still a successful market, critics suggest the market share for Fair Trade is too small to have an influence on developing countries. For example, there are not enough consumers aware of the Fair Trade movement and may just perceive Fair Trade products as simply being expensive rather than being sold for a good cause. Because of this problem, the Fair Trade market requires more promotion to encourage consumers which means higher marketing costs, this in turn results in the third world producers receiving a lower amount of money than they are supposed to. Furthermore, organisations who claim they back Fair Trade need to ask themselves, how much profit do the producers make when a product is sold for 2?
However, it is evident that there is a trend for being a Fair Trade organisation. As organisations evolve ethically, Fair Trade is becoming increasingly popular as more and more organisations start to sell fair trade products and is becoming a driver for growth. For example, AMT Coffee, a UK takeaway coffee company, switched to Fair Trade coffee to become the UK's first national coffee bar company to sell 100% Fair Trade coffee. The move was decided due to high demand for fair trade.
An article on Fair Trade by Richard Fletcher and Harry Wallop says that sales of Fair Trade products soared by 46% in 2006 to 290 million. This indicates that companies can have a business case for Fair Trade and still profit. The article also highlights that more and more consumers demand Fair Trade products and Fair Trade is becoming more of an obligation than an option for organisations.
Sainsbury's, the UK's largest Fairtrade retailer, pledged to sell only Fair Trade tea, coffee and hot chocolate in its restaurants and plans to sell clothing ranges made from Fair Trade cotton. Other retailers, including Top Shop and Marks & Spencer, have also started to offer Fair Trade clothing ranges. Threshers recently released Fair Trade wine. Starbucks is also following the trends to be more ethical, the coffee company has started sourcing its supplies from developing producers, and is selling Fair Trade and organic coffee.
Oxfam's business case is a good example that supports the argument that companies can be successful and ethical at the same time.
Oxfam is a long established British charity organisation. Oxfam's core business case is directed towards CSR concentrating on reducing famine and suffering due to poverty and natural disasters. The organisation is a non-profit organisation and raises money from donations, campaigns and charity projects which goes towards helping third world countries.
Oxfam has been working together with communities, allies and approximately 3250 partner organisations in around 100 countries and has invested around $528.03 million globally in development programmes focused towards issues such as human rights, reducing poverty, HIV/AIDs, improving education, debt, and conflict and has also worked in humanitarian disaster/emergency situations. Oxfam business case also includes aims to manipulate the international policies to ensure that poor people have better rights such as a rights to sustainable livelihoods and basic social services and opportunities available to them to improve their lives. Oxfam has also been involved in campaigns, projects and media work, all of which is intended to raise awareness amongst the public about the issues surrounding the world such as global poverty, to encourage more people to play a part in improving the world. The organisation has recently been promoting wristbands as fashion accessories, each wristband is engraved with messages such as 'Make Poverty History', the wristbands are being sold to raise awareness amongst the public on issues such as racism, bullying and breast cancer etc. In addition to Oxfam's duties, the organisation has been recognised for its support for fair trade and plays an active part in promoting fair trade products.
UNITED NATION'S CHILDREN'S FUND (UNICEF)
UNICEF is another globally recognised charity organisation that has been established a very long time which has a business case to help and protect children. UNICEF works in 191 countries and has been involved with promoting education to give disadvantaged children to a head start in life. In poor countries, diseases are common due to the lack of sanitation as there is shortage of water, environmental pollution and diseases that may have been passed on from parent to child. Children are vulnerable to these illnesses so UNICEF aims to protect children by ensuring they receive immunisation. UNIFEC also looks at other issues facing poor children such as famine and abuse and provides assistance during emergencies, the charity is aims to give children better rights to protect them from abuse or exploitation and discrimination.
THE BODY SHOP
Another very popular example of an ethical organisation is the Body Shop. The Body Shop had a business case to provide body care products that have not been tested on animals and their business case just provides further support that an organisation can be profitable whilst being ethical.
The Body Shop was founded by Anita Roddick in 1976, and has achieved worldwide status for being profitable and socially responsible, which proved that an organisation can be ethical and successful and reward shareholders and satisfy stakeholders at the same time. It has achieved worldwide popularity due its ethical practices, famously recognised for being against animal testing and promoting cosmetic products that have not been tested on animals.
The Body Shop has taken a strong stand against animal testing (AAT) and support and use alternative methods of cosmetic tests. The Body Shop ensures that their products do not include any ingredients that have been tested on animals and display the label 'AAT' on all their products, for further reassurance, the suppliers of Body Shop undergo annual reviews and checks based on this policy.
As well as being against animal testing, Body Shop also supports community trade which is part of Fair Trade. Community Trade involves purchasing accessories and natural ingredients from disadvantaged communities around the world which goes towards improving education or sanitation, building homes and modernizing farming methods etc. The Body Shop has been involved with community trade since the 1980's trading with over 35 suppliers in 25 countries. During 2002 to 2003, The Body Shop purchased around 5million worth of accessories and natural ingredients through community trade including almost 700 tonnes of natural ingredients.
As well as being involved in AAT policies and community trade, the Body Shop is also involved in encouraging self esteem and human rights programmes.
Anita Roddick established the Body Shop for something she believed in, not to make profit, this is what made Body Shop so successful today. In an interview about organisational responsibilities, Anita Roddick said you're never remembered for what you do in business, what you are remembered for is what you do in civil society.
Regarding this statement, companies are more successful due to their social responsibility attitude towards their stakeholders and local communities rather than their business activities. This can be seen in the case of Nestle, who was at the centre of a huge ethical controversy over infant formula referred to as the 'The Baby Food Tragedy' during the 1970's.
In 1867, NestlÃ© developed a baby milk formula, as a substitute to natural milk. The formula was very popular, especially in the developing countries. However, Nestle was faced with a looming crisis.
Evidence was found that the infant formula was related to a string of infant mortalities in the developing world, and Nestle's promotional campaigns were to blame. It was revealed that Nestle employed promotional campaigns aimed at mothers with newborn babies in poor countries to purchase infant formulas as a substitute to breast feeding. Promotional techniques included paying commission to nurses to help promote the infant formula products. Nestle failed to acknowledge that some mothers were illiterate and could not read the instructions on sterilisation procedures, and that the water supply in these developing countries was also contaminated. The formulas were mixed with contaminated water resulting in several infant deaths. These series of events led to the boycott of Nestle who suffered a public relations disaster.
By looking at this situation, it is evident Nestle didn't have business case for the above situation involving infant formula, had they developed a plan or structure prior to the launch of the formula, the whole situation could have been avoided. Nestle did manage to recover, but since the incident, the company has since taken a focus towards CSR and has made it clear on its website that is has taken an ethical stand and is committed to promoting natural breast milk.
Nike is another example of an organisation which had been in the spotlight for ethical issues regarding child labour.
In an article by The Daily Mail newspaper, Nike had been accused of exploiting child labour. An investigation into the companies by BBC revealed that Nike and Gap had allegedly employed girls aged 12 and 14 in a factory in Cambodia where the legal age for employment is 15. The girls were forced to work under gruelling working conditions involving working for sixteen hours a day, seven days a week earning only 26 a month. When refusing to work, workers were bullied and abused by their employers. This was not the only time Nike had been guilty of gross misconduct, the sports brand had been accused on other occasions of similar issues in Pakistan.
Because of the child labour issues, Nike received considerable media attention which damaged their corporate image, so that is why they implemented CSR, but prior to that, Nike was only concerned with making as much profit as possible, but has learned that that being ethical is just as important as making profit and has now said that it aims to improve the situation by imposing stricter rules on the ages of employees highlighted in its first 'CSR' report.
However, ethics is a complicated subject as there is no definite right or wrong, what one person may perceive as right, another may perceive as wrong. In this case, although child labour was a serious ethical issue for Nike and its shareholders who might now think twice about investing in Nike, it may have also been a good thing for the children in the developing countries. Although the children were under aged and earning below average wages, it was still a source of income for them and now that Nike have been stung by critics, the children have lost their sources of income and are now earning nothing and are more poorer than before.
Oil giant, Shell, has also been in the media for ethical issues regarding pollution. The oil company has been slated for causing damage to the environment where its Brazil plant is based. Shell was also involved in another fiasco regarding oil pollution in the waters of Nigeria. The company had been under investigation and found responsible for environmental damage.
The reputation and ethical principles of a company has become more of a priority to employees in this modern day and age. As a result of this, Shell experienced a difficulties when recruiting new employees. The oil company has been forced to take further action on ethical and environmental issues.
After observing the various research and studies and looking at the examples of organisations who have behaved in ethical and unethical manners, my opinion is in favour that a business does need to be more ethical to be more successful. By looking at the cases of Oxfam and Body Shop, business cases for CSR and Fair Trade have proved successful, and others such as AMT Coffee and Starbucks etc. have seen this and are now following in their footsteps. If we refer back to Anita Roddick's comment on organisations being remembered for their social activities rather than their business activities, organisations need to pay greater attention to CSR and Fair Trade. If we also look back at the examples of Nestle and Nike, they changed their policies after the consequences of their unethical actions.
Organisations began with the main intention to be profitable, but over the years, it has become clear that this can only be achieved by being ethical. Although there are implications to CSR and Fair Trade, there are more added benefits that organisations can reap.
From the organisational perspective, Fair Trade, although a niche market, is a potential market for organisations as more and more demand Fair Trade products. Also, by playing their part towards third world development, organisations will generate better press coverage resulting in better public relations image. More over, organisations will benefit financially in the future, firstly as consumers are likely to stay with suppliers that are more ethical, and secondly, organisations that are more ethical are likely to incur less costs e.g. consuming less energy etc. CSR also makes attracting new employees easier, as employees these days are more interested in the social activities of the business. There are also benefits from an environmental scope, such as encouraging social and economic developed for third world producers.
More and more consumers are becoming more ethically conscious, particularly in relation to Fair Trade, so organisations, although, will only be as unethical as they can get away with, need to have some level of ethics and keep up with the demand for Fair Trade, therefore, an organisation would benefit from a business case for CSR and Fair Trade. We can look at the cases of Topman, AMT Coffee and Starbucks etc. and see that they have evolved ethically and have become more successful than before they developed business cases for CSR and Fair Trade.
If an organisation does not plan this can in return lead to them not being able to differentiate between right and what is wrong. The plan enables a company to identify the factors that will need to be met in order to meet standards of being an ethical organisation and a business case would be useful as it would ensure the best interests of the organisation and the local community also benefit.
Referring back to the point that Milton Friedman made the social responsibility of business is to increase its profits (1970), I conclude that this perception is flawed as there is more to a business than making money, for example, Oxfam and Body Shop, whose purpose is to run a business by means of ethical practices and policies. A business case doesn't always have to be about maximising profit, a business case can also have moral values, an organisation can be ethical and STILL be profitable at the same time, and the local community also benefit.