Costs and benefits of ethical business
Many owners believe that acting ethically increases costs and reduces profits. For example, a business can cut costs by hiring child labour at very low wages in developing countries. Paying below average wages lowers the firm's total costs.
Other businesses such as the Fairtrade Foundation have built an ethical brand image believing that:
- customers are prepared to pay more for products that consider the environment and pay a reasonable wage
- higher sales compensate for higher costs
Business activities that meet the requirements of the law, but which are considered unfair by stakeholders can result in bad publicity.
For example, a restaurant that pays minimum wage but keeps staff tips to boost profits is not breaking the law. It does, however, run the risk of losing the goodwill of customers.