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Summary of the ethical scenario
When Jack and Paolo were establishing their company, Elegance Clothing, they designed ethics to be the core value that the company would operate on in its supply chain. As a clothing company, they were committed to environmental sustainability and practices that nurture a diverse and safe workplace. Later, they expanded and hired Alexander to manage a new warehousing facility. Regardless of Elegance Clothing’s ethical approach with respect to the supply chain, Alexander set up a supply chain agreement with Fashionista, a clothing manufacturing company that violated every moral standard that Elegance upheld.
For instance, Fashionista is faced with frequent labour violations and has fibre factory with a poor waste management process that results in the environmental pollution. Nevertheless, the relatively lower supply prices offered by Fashionista have increased Elegance Clothing’s profit margin. Therefore, Jack and Paolo had a dilemma of choosing between the ethical and profitable path.
Introduction
Although it is simple for companies to set ethical standards, the way in which values in the moral code are embedded makes a big difference. Therefore, because Elegance Clothing is grounded in ethics as its core value, Jack and Paolo should choose the ethical path, as this would further emphasise the company’s stance on its set standards. Although this might put their company and employees at risk, it is still the most appropriate decision.
The ability of a company to address societal issues is integral to profit maximisation. The justification for Jack and Paolo’s choice for ethics is that, in case they choose the profitable path, the relatively low quality of clothes being supplied by Fashionista might adversely affect future purchases. In addition, in case labour violations in Fashionista are publicised, this can have a potential negative effect on Elegance Clothing’s brand name. Last but not least, Elegance Clothing’s excellent financial performance over the previous 12 months can be attributed to the online marketing channel, since the company initially operated solely in a physical store.
In this scenario, business ethics or rather social responsibility dwarfs profits. Corporate social responsibility (CSR) is a self-regulating business model that facilitates expanded social stewardship by organisations and businesses. It dictates that corporations should show accountability to a broader group of stakeholders, which include employees, customers and society at large, as well as their financial obligations to stakeholders.
Therefore, with Alexander’s inception of a supply company that violates their ethical beliefs, Elegance Clothing’s vision was blurred. Jack and Paolo should be accountable to their stakeholders by disassociating themselves with Fashionista as it violates various ethical standards. There is a thin line between CSR and profit. Initially, the sole social responsibility of a business was to maximise profits. However, with the advent of climate change and other global challenges, CSR grew to be a fundamental social responsibility.
CSR goes beyond compliance and philanthropy to address how corporations can manage their social, economic and environmental impacts, in conjunction with their relationships in all spheres (the supply chain, workplace, marketplace and public policy). Shared value is not social responsibility, sustainability or philanthropy; instead, it is a new technique of achieving economic success.
Ways in which CSR will be beneficial to Elegance Clothing
CSR has no “price tag”, therefore, linking CSR-driven profit to abstract variables that are often complex to define is quite challenging. However, the more business ethical values are put into practice, the better and more consistent the decision-making process is at each level. Consequently, this virtuous circle is expected to rub onto customers, suppliers and other stakeholders. Currently, the largest public companies have incorporated social responsibility and sustainability programmes into their business activities.
This move clearly illustrates that regardless of how challenging it is to define CSR and link it to profits, social responsibility is still crucial to the bottom line. Several ways in which CSR can positively affect Elegance Clothing is through improving customer relations, hence leading to increased sales. We are living in an era where customers want to hold corporations responsible for their actions in the world. Consumers want to be more associated with a company’s reliability and dedication to quality and honesty. Moreover, since the clothing industry is very competitive, Elegance Clothing will be able to differentiate its brand and products from those offered by the competition.
Secondly, CSR will lead to enhanced employee loyalty and creativity. When employees feel that Elegance Clothing is socially responsible, they are inclined to experience a greater sense of identity with the company; therefore, they will be more engaged and perform better. Moreover, CSR will attract better personnel to the company. This is mainly because people want to be associated with high impact organisations. Finally, CSR activities that emphasise on sustainability can lead to a reduction in costs as well as improve efficiency.
Alternatives that Elegance Clothing can take
Corporate citizenship is increasingly becoming essential for the long-term health of corporations, although a considerable portion struggles to generate returns on their investments from socially responsible activities. Companies can strategically engage in socially responsible activities to generate profits. Elegance Clothing relies on Fashionista as a core supplier; therefore, the move to terminate Fashionista’s supply chain can have substantial adverse effects. Elegance Clothing has to seek for alternatives, which include suppliers in other global regions that offer competitive prices to that of Fashionista and are renowned for embracing sustainability programmes.
Consequently, in order to make a successful conversion, the company will have to lower its profit margin. Moreover, Jack and Paolo should not strive to expand the company too fast as this can likely throw the system out of balance. The fashion industry is a relatively large segment, hence, small companies like Elegance Clothing should use their unique selling proposition, which, in this case, is social responsibility, to navigate the market and build its brand name. Different customers are attracted to distinct product features; therefore, irrespective of Elegance Clothing’s product prices, there will still be customers who will be attracted to the quality of clothing.
Ethical conduct is neither a barrier to financial success nor a prerequisite to it. Ethics often pays, but it is sometimes costly. In conclusion, Jack and Paolo, as financial leaders of Elegance Clothing, are required to manage the standard of ethics maintained by the company.
Consequentially, this implies that sales, marketing, operations, manufacturing and finance, among others, should adhere to a strict code of ethics to gain value. If the company falls short of one of these business elements, it fails completely. The effect of ethics on financial results and profitability can be found on either side of the spectrum; hence, it is not constant. Therefore, because the guarantee of profit is uncertain, Jack and Paolo should stick to their objective of not letting down their ethical standards for the sake of profitability.
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