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In October 2012, Reuters news agency published a special report investigating major tax avoidance by Starbucks in the UK. The investigation was prompted by the company’s practice of telling those who invest in it that the business is profitable, while claiming that they are making losses in their financial reporting to the tax authorities. Since the company opened its first UK branch in 1998, it had earned more than £3 billion in sales of coffee. Yet, during these first 14 years of business, it paid only £8.6 million in taxes. In the three years leading up to the Reuters investigation, Starbucks did not report any profit and therefore paid no income tax on sales amounting to £1.2 billion. In contrast, a company, such as KFC, who achieved similar revenue of £1.1 billion, paid income tax of £36 million. At the same time, transcripts of
investor phone calls over 12 years revealed that officials from the corporation regularly referred to
their business as “profitable”. Although there has been no suggestion that such practices are illegal, Michael Meacher MP went on the record to declare that the practice “is certainly profoundly against the interests of the countries where they operate and is extremely unfair ... they are trying to play the taxman ... It is disgraceful.

Using the case study of Starbucks as an example, this assignment will discuss to that extent ethics play a part in the success or demise of an organization as well as the measures the organization can take to ensure ethical practice.

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Business Ethics Case Study


Key Learning Outcomes

By the end of the case, students should be able to:
  • Get knowledge and understanding of relevant research relating to ethical issues pertinent to prescribed case study as well as analysing and understanding the implications of these issues.
  • Apply ethical theory to a case study organization and understand the extent ethics play a part in the success or demise of an organisation.

 

1.0 INTRODUCTION


Ethics involves the process of evaluating actions according to moral values (Lluka 2010). Luthan et al (1984) has defined ethics as a theory which aims at systemizing moral judgement as well as establishing and defending moral principles. Whereas most people may confuse law with ethics, Abutalib (2018) has noted that acting ethically and obeying the law are totally different. The author further states that the law just puts up a structure for ethical conducts thus making it a floor of an ethical structure (Abutalib 2018). 
Through the years, balancing profitability and acting ethically has become one of the biggest dilemmas for businesses considering that they have to keep their original purpose of functioning which is profit making (Lluka 2010). Never the less, Mullin (2005) points out that there is no single view of what makes something wrong or right in ethics, anything done by a company can be done ethically or unethically.Below are some business ethical theories.

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