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BUSINESS ETHICS ASSIGNMENT (LEVEL 5): ETHICAL CONSULTANCY REPORT

You are an ethical consultant. You are asked to prepare an ‘Ethical Consultancy Report’ of a chosen organisation. The assessment has THREE parts:

1). Consider TWO major theoretical normative ethical approaches – one consequential and one non-consequential - identifying their strengths and weaknesses.

2). Apply these approaches to the organisation’s conduct in ONE of the following areas:

a). Corporate Governance.

b). Corporate Social Responsibility (CSR).                                  

c). Sustainability.

3). Consider the impact on TWO group of Stakeholders

Overview of Normative Ethical Theories and Their Applications to Tesco PLC

1). Two major theoretical normative ethical approaches applied in Tesco PLC

What is Normative Ethical Theory 

Normative theories or moral theories are the branch of philosophical ethics to figure out which actions are right and wrong. They describe the ways to conduct business in the organization (Kazeroony, 2016).  According to the Normative Ethical Theory, there are three components of any act viz. firstly there is an agent i.e. the person performing the act. Secondly there should be an act; thirdly there should be the consequences of the act. So, there are three types of normative ethical theories –virtue, deontological and consequentialist, each defining one of these elements (Salloch et al., 2015).  

Role of Normative Ethical Theory in Tesco PLC

Normative Ethical Theory in applied in Tesco PLC by clarifying the arguments related to the areas of morality. It   answers the doubts related to the substance and precision to the arguments in the area of ethical dilemma. It suggests the validation of judgment regarding the rightness and wrongness of actions. They provide claims about moral obligations. It is applicable to the philosophical investigation from the point of view of moral principles to the organization. It argues and  asserts  that as long as the activities of the business are legal and accepted by the customers and stakeholders , the actions can be considered as ethically sound (Ogbari et al.,2016).  

The normative ethical theory is the origin of the ethical analysis in Tesco PLC.  It forms the basis of the Corporate Governance and is imbibed in the vision and mission of the organization.

Consequentialist and Non-Consequentialist Theories of Ethics 

Consequentialist approach is one of the classes of normative ethical theory. It   pertains to the ideology that the results of the person’s behavior form the basis of the judgment about the righteousness or wrongness of the actions. So, according to the consequentialist approach, a morally right act is the one which results into a good result. The ideology of consequentialism is summarized in the saying,” the end justifies the means”.

Utilitarianism is a theory of normative ethics which states that something is moral or good if it produces the greatest amount of good for the largest amount of people. Proposed by Jeremy Bentham, it answers to the question which asks if a specific action is good or bad, moral or immoral. It is derived from the word utility which implies that the action which enhances the utility is the one which maximizes the total benefits and reduces the negative results for the majority of the masses (Marques, 2015).

Strengths and Weaknesses of Consequentialist and Non-Consequentialist Theories of Ethics

Its advantages are that it is based on the simple principle of enhancing happiness and decreasing pain. It is fair since its principles are widely accepted. It is related to actions which can be experienced in the real world.

However, it has certain disadvantages too. Since happiness is not the only good. Utilitarianism ignores the other elements such as love, human life and freedom. Also, the future consequences of the acts can’t be predicted, so it is impractical to base the choices on what is going to happen in the future. It is impossible to measure the amount of pleasure derived from happiness.

The non-consequentialist theory of ethics evaluate on the basis of the sum total of the results of choices. However, it does not always avoid consequences. The theory considers the actions to be wrong or right, their righteousness and wrongness does not depend upon their results (Cortez, 2015).

Kantian Ethics is an example of non-consequentialist theory. It was proposed by German philosopher Immanuel Kant. According to Kantian Ethics, one should ask two questions   within himself while deciding to act viz. the activity being planned to act would be done by everyone? If the answer is negative, then he must not do that act. Secondly if the action does not help the human beings to accomplish their moral objectives in general rather it is used for own purpose then it must not be performed. According to Kant, there was a supreme principle of morality namely The Categorical Imperative. It describes about the moral duties of individuals (MacKinnon and Fiala, 2016).

The advantages of Kantian ethics are that it is logical and not dependent upon results and taboos. Kant’s theory states that the rightness or wrongness of the actions is not dependent upon the results but whether they fulfill the intention of the moral objectives of the humans or not. The Categorical Imperatives describe the rules which apply to every individual and command to respect human life (Follesdal, 2013).

The disadvantages account to the inapplicability of theory. It is abstract and informs only about the category of good actions. It fails to explain the right things to do in a particular situation. This theory is based on some idea of God to explain the rationally ordered world which means that the atheists will not accept this theory.  

Apart from the consequentialist approach, virtue ethics are another branch of normative ethical theories which focus on virtues of mind and character. It is an ethical view originating from the ancient Greece which describes ethics as learning to live well. The theory was proposed by Aristotle (Norman, 2013).   

Application of Ethical Approaches to Corporate Governance at Tesco PLC

The Postmodern ethics are another branch of ethical approach which has a flexible approach to ethics. They are not based on universal or unchanging principles. According to this ideology, there is no way to say that anything is wrong or immoral. However, it suggests that people desire to live free of the wrongful actions such as murder and theft if they agree not to engage themselves in such acts. This approach does not state the wrong action rather provides a way to restrict these from occurring (Lyon, 2017).

2). Application of the Ethical Approaches to the organization’s conduct in the areas of Corporate Governance at Tesco PLC

Corporate Governance refers to the methodology as to how the corporates are run and the interests of the stakeholders are considered while decision making. The term refers to the framework of internal controls which the company has applied to assist the management to act in the best interest of the stakeholders. The principles relevant to the Corporate Governance to achieve maximum shareholder wealth are attributable to three aspects namely:

  1. The ability of the stakeholders to have a voice in the decision making of the company.
  2. The managerial activities are according to the ethical principles towards the company and its stakeholders to ensure its smooth and efficient operations.
  3. The stakeholders are well informed about the financial activities of the company on regular basis, which will result in maximum profitable allocation of resources and capital (Tesco, 2014).

Tesco PLC Structure of Governance

According to ICAEW (2018) Tesco’s international operations have allowed it develops a strong and efficient framework for running the company across all the markets it operates in. The Board comprising of the Chairman, the Chief –Executive along with Non-Executive Directors who provide their independent opinions on the commercial activities of the company are at the forefront of Corporate Governance. Also, a senior Independent Director is also present to resolve the conflicts amongst the Board and the stakeholders. It adheres to the UK Corporate Governance Code.  In the current scenario, Tesco PLC supports its vision with the help of five committees namely:

                                                                                           

  1. The Audit Committee: The committee is allotted with the task of ensuring that the risk management principles of the company are effective and updated to keep the risk management of Tesco aligned with the strategies. Also, interim audits and financial disclosures are verifiable and available when demanded by the investigating authority.
  2. The committee is responsible for hiring of an independent external auditor for the yearly audit and inquiring the management regarding the   matters it deems fit. The committee has also hired legal counsel to receive their suggestions which have raised concern.
  3. The Remuneration Committee: The Remuneration Committee is accountable for determining the compensation agreements of the senior managerial personnel and to evaluate the payment structures for the executive members to retain the competent and experienced management for overseeing the company.
  4. The Corporate Responsibility Committee: The committee incorporates the principles of Companies Act to assist in governing the scope of operation. It ensures that Tesco operates in a sustainable manner so that the communities and the environment are benefitted. It also tracks the impact of the operations of Tesco on the ethical culture present across all the markets in which it operates(Tesco, 2016).   
  5. The Nominations Committee: The committee has been allocated with the task of managing the operations of Tesco PLC. The committee ensures that the board of directors possess appropriate skills to project strategies for the achievement of the goals of the business. It also ensures that proper balance is maintained between executive and non-executive directors to maintain the independence within the company. It also links the management performance to compensation with the help of regular appraisals to ensure that the most cost effective expertise is extended at every level(Bingham   and Druker, 2016).
  6. The Disclosure Committee: The committee deals with incorporating a framework regarding the handling of ‘Material non-public information ‘and how it is disclosed. It ensures that consistency is maintained in the financial statements and verifies the annual reports to make sure that the estimates and policies are appropriate for treatment of various financial matters(Tesco PLC, 2018).

Apart from the committees formulated at the Executive Management level, Tesco PLC ensures that at the business strategy level, each division has its own strategic plan to increase its performance and assist the company in accomplishing its vision. The following committees are formulated by the company in addition to the above mentioned committees:

  1. Compliance Committee
  2. Multichannel Committee
  3. People Matters Group
  4. Property Strategy Committee
  5. Social Responsibility Committee
  6. Technology Committee
  7. Commercial Committee

The Chief Executive Officer is accountable for the efficient working of these committees.

The normative ethical approach is applicable to Tesco PLC when the board needs to take any action or formulate any strategy and it faces the dilemma of what is the right thing to do or which mode should be adopted for accomplishing the objectives of the organization. Cases such as merger and acquisitions, downsizing and large investments involve conflicting versions of what is right in the moral sense.

Tesco PLC's Compliance with UK Governance Code

The normative ethical theory solves the problem of the management. When the directors choose to act on individual decisions, they would be able to decide about the rightness or wrongness of the actions based on their fundamental and unspoken assumptions (Kaptein, 2017).

Utilitarianism theory denotes that maximum good should be done to maximum people. It is applicable to Tesco PLC when the compensation scheme is designed in such as way by The Remuneration Committee so that managerial personnel are benefitted and the company can retain the talent. But along with this, it brings some difficulties like the increasing inequalities between different groups and emphasizing too much on material wealth thus ignoring other aspects of wellbeing. By implementing such policies, the share of profits towards the employees will be reduced (Tesco PLC, 2015).

Kantian Ethics pertains that if the action performed by the individuals does not fulfill the moral objectives, then it should not be done. So, in context of Tesco PLC the management should not   deceive, cheat or manipulate for achieving their personal gains. Kantian approach criticizes these as the violations of human dignity (Stanford Encyclopedia of Philosophy, 2016).

Virtue ethics in the context of Tesco PLC refers to the cultivation of business virtues to pursue the objectives of the company while the postmodern ethics refers to restriction of the wrong things from occurring. In Tesco PLC the management and the workers should follow the code of ethics to prevent wrong things   from occurring (Besser and Slote, 2015).

3). Impact on ethical behavior of Tesco PLC on its Stakeholders

Though the main objective of managers is to maximize the profit, but Tesco PLC has started to focus on the effect of the ethical behavior on its stakeholders. The views of the stakeholders are considered   to be the basis of the corporate governance and corporate social responsibility. The company frames its policies to minimize the shareholder conflicts, litigations and turnover. Stakeholders are the group of individuals whose interests affect or are affected by the activities, objectives and policies of the company. These can be defined as the internal and external. Internal shareholders can be categorized as managers and employees. External are shareholders, customers and suppliers (Tesco, 2014).  

The impact of the ethical behavior of the company can affect the interests of two of the above mentioned stakeholders in the following ways:

  1. Employees: The employees form the basis of the company as they are the ones which transform the objectives of the company into reality. They endeavour to maximize the profits of the company so that it can accomplish its mission and vision. The employees convert inputs into outputs and are involved in every process of the company right from the procurement to the final delivery of goods to the consumers including the after sales services.

In return of their efforts, they expect maximization of their salaries and benefits on particular skills from the company. Most of the employees want an employment with continuity. When discrimination and exploitation happens in the company, the conflict of interest occurs amongst the company and the employees.

Committees Formulated at Executive Management and Business Strategy Levels

Tesco PLC has formulated policies for the welfare of the employees. It gives equal opportunities to the employees belonging to various cultures, employees with disabilities, older and younger employees. It conducts training sessions and provides lifetime learning opportunities to all its employees (Tesco Corporate Responsibility, 2018).

Tesco follows its core values which says,” Treat people as you like to be treated”. It has created a healthy atmosphere in the workplace  by following the principles of mutual trust  and respect , support to each other, sharing knowledge, enjoying work and celebrating success and above all  considering each and every employee irrespective of his/her cadre in the organization  as a part of one team (Tesco , 2015).

Tesco believes in the theories of Normative Approach, Utilitarianism, Kantian Ethics, Virtue ethics and postmodern ethics.

The normative approach suggests that morally right act is the one which produces good results. According to utilitarianism approach, the maximum good should be done to the maximum people. Tesco PLC follow these  approaches by formulating policies which are committed to staff development so that the employees feel motivated and their personal interest are aligned with the interests of the organization.

Kantian Ethics suggests that the organization should avoid doing those practices which do not accomplish its moral objectives. Tesco PLC provides promotional opportunities to every staff member. It organizes the Options scheme which is a development program to promote those employees who have the potential to do better job.

The virtue ethics suggests the virtue of mind and character. Tesco PLC has imbibed the policies related to health and safety of its employees into is core values. The postmodern ethics provide a way to restrict the wrong actions from occurring. Tesco has formulated the whistleblower policy so that the employees from any cadre can complaint about the faults and inaccuracies occurring in any process directly to the management.

  1. Suppliers: According to Tesco Corporate Responsibility (2018) the company has supported the local economy and worked with the country’s food and agricultural industry. It has committed to support the local economy and initiated various programs in this behalf. It has promoted entrepreneurial development in the food and agricultural sector and evaluated export opportunities for the same.

It has also initiated ‘Local Supplier Programs’ to promote the local suppliers to provide high quality products to the Tesco stores. The company is providing storage spaces to its suppliers for the storage of their goods. Also, it provides opportunities to small local suppliers to interact with the buyers and the technical team. It also conducts training programs to assist the suppliers dealing in dairy products, seafood, beverage and frozen sectors for developing their skills to achieve sustainable growth at the multiple retail level.

Tesco applies the theories of Normative Approach, Utilitarianism, Kantian Ethics, Virtue ethics and postmodern ethics while dealing with its suppliers.

Impact of Compensation Policies on Employees and Shareholders

The normative approach states that the rightness and wrongness of the actions decide the uprightness of the act. So, Tesco applies the normative approach in dealing with its suppliers. It has initiated the ‘Tesco Nature’s Choice Growing Standard’ which recognizes the suppliers which show the best ecofriendly agricultural practices (Rode et al., 2015).

The utilitarianism approach suggests that maximum people would be benefited by doing the good. So, the company observes ethical trading practices by imbibing the principles of ethical trading initiatives in its business policies. It helps to bring more products within the reach of ordinary people by providing beat quality products at nominal prices.

Kantian Ethics suggest that the organization should avoid doing those activities which are unethical. So, Tesco requires that its suppliers meet the strict criteria on labor standards (Ferrell, Fraedrich and Ferrell, 2016).

The virtue ethics describe ethics as the moral uprightness of mind and character while the postmodern ethics define the ways to confine the unethical activities from occurring. The company aims at providing high quality products at nominal prices to its customers. It also observes the ethical trading practices by procuring goods from suppliers who promote ecofriendly agricultural practices (Tesco PLC, 2018).

Conclusion:

Thus, to conclude, Tesco PLC which is the third largest retailer in the world in terms of profits has imbibed the ethical approaches in its core values. It adheres to the principles of ethical trading initiatives and sustainable environmental impact in its business practices.

It has assimilated its core values and normative approaches, utilitarianism, Kantian and virtue ethics and the postmodernisation approach in to its mission and vision statements.  It is committed to work hard to progress and addressing the issues faced by its stakeholders. It is also committed to uphold the human rights and provides safer working environment for its employees.

With the increase in the rights and expectations of the stakeholders, the organizations are becoming more ethically responsible in the present scenario. Business ethics form of the basis of the four core values viz. attitude, integrity, moral uprightness and behavior which are essential for the long term growth and sustainability of the business.

Various ethical approaches are followed by the organizations. Normative ethics is one of them. It is the branch of philosophical ethics which studies the ethical actions. It provides the solution to the set of questions which arise while considering how one ought to act (Hendry, 2013).

So, as an ethical consultant of Tesco PLC, I would be preparing an ‘Ethical Consultancy Report’ of the organization. It is a British multinational grocery and general merchandise retailer which is headquartered in Welwyn Garden City, Hertfordshire, England, United Kingdom (Tesco PLC, 2018).

Application of Kantian Ethics to Tesco PLC

References:

Besser, L.L. and Slote, M. (2015) The Routledge Companion to Virtue Ethics. Routledge.

Bingham, C. and Druker, J. (2016) CIPD Applied Research Conference 2016 The shifting landscape of work and working lives [online]. Available from: https://www.cipd.co.uk/Images/human-resources-ethics-and-corporate-social-responsibility_2016-what-makes-people-count-within-the-organisations-corporate-social-responsibility-platform_tcm18-20008.pdf [Accessed 7th March, 2018].

Cortez, F.G.F. (2015) Critical Business Ethics: Contributions and Challenges. Kritike. 9(2), pp. 98-117.

Ferrell, O.C., Fraedrich, J. and Ferrell, L. (2016) Business Ethics: Ethical Decision Making & Cases. Cengage Learning.

Follesdal, A. (2013) Kantian Theory and Human Rights. Routledge.

ICAEW (2018) UK Corporate Governance Code [online]. Available from: https://www.icaew.com/library/subject-gateways/corporate-governance/codes-and-reports/uk-corporate-governance-code [Accessed 7th March, 2018].

Kaptein, M. (2017) The Battle for Business Ethics: A Struggle Theory. Journal of Busienss Ethics. 144(2), pp. 343-361.

Kazeroony , H.(2016)Sustainable Management Development in Africa: Building Capabilities to Serve African Organizations. Routledge.

Lyon, D. (2017) Surveillance Culture: Engagement, Exposure, and Ethics in Digital Modernity. International Journal of Communication. 11(2017), pp. 824-842.

MacKinnon, B. and Fiala , A.(2016) Ethics: Theory and Contemporary Issues. Cengage Learning.

Marques, J.(2015)Universalism and Utilitarianism: An Evaluation of Two Popular Moral Theories in Business Decision Making. The Journal of Values-Based Leadership. 8(2),pp. 1-11.

Norman, W.(2013) Business Ethics. Blackwell Publishing Ltd.

Ogbari, M.E., Oke, A.O., Ibukunoluwa, A.A., Ajagbe, M.A. and Ologbo, A.C.(2016) Entrepreneurship and Business Ethics: Implications on Corporate Performance. International Journal of Economics and Financial Issues. 6(S3),pp. 50-58.

Rode , J., Menestrel , M.L., Wassenhove , L.V. and  Simon , A.(2015)Ethical Analysis for Evaluating Sustainable Business Decisions: The Case of Environmental Impact Evaluation in the Inambari Hydropower Project. Sustainability. 2015(7), pp. 10343-10364.

Salloch , S., Wäscher, S., Vollmann, J. and Schildmann, J.( 2015)The normative background of empirical-ethical research: first steps towards a transparent and reasoned approach in the selection of an ethical theory. BMC Medical Ethics .2015, pp.1-9.

Standford Encyclopedia of Philosophy (2016) Business Ethics [online]. Available from: https://plato.stanford.edu/entries/ethics-business/ [Accessed 7th March, 2018].

Tesco (2015) Strategic Report 2015 [online]. Available from: https://www.tescoplc.com/media/264150/strategic_report_15.pdf [Accessed 7th March, 2018].

Tesco PLC (2015) Our approach [online]. Available from: https://www.tescoplc.com/media/1069/tesco_cr15_corporateresponsibilityupdate2015.pdf [Accessed 7th March, 2018].

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