Friday, 13 April 2012

Management Ethics

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…………………Concerned at the bad publicity the business is attracting, the managing director has asked you, as personnel director, to frame an explicitly ethical employment policy which overcomes the difficulties you are facing and draws on some of the business’s existing strengths. There are signs that the adverse publicity is affecting customers and undermining their trust and loyalty towards the company.


1. Evaluate the flexible firm model proposed by the new Marketing director. What do you think would be the implications for A&B and its employees? Overall, would you be in favour of such a policy?

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. Do you feel that A&B can maintain its commitment to ethical employment policies within the current business context? As Personnel manager, what recommendations would you make to the Managing Director to help A&B reconcile successful business strategy and fair and ethical employment practices?

. Consider A&B and other companies with which you are familiar. To what extend, and in what way, do their social, environmental, ethical and management policies affect the choices you make about purchasing products? What information is available for you to make informed choices in this respect?


A&B is currently in a business dilemma that would deeply trouble most major companies that need to operate within the intense environment of a Global, Open Market while maintaining ethical standards. The fundamental problem here seems to be that A&B is loosing market share due to new or existing competitors that flexibly uses third world suppliers (and therefore assuming substantially reduced production costs) while simultaneously using short term / temporary employment policies with reduced employment costs. The competitors are utilising their competitive advantage (lower costs passed over to customers as lower product prices) to get a share of the market previously owned by A&B. Added to the cost advantage of the competitors is the ‘fashion shop’ style coupled with the younger, more “enthusiastic” stuff that attracts the fashion-conscious (and not only) clothing customers.

A&B cannot simply reply to this threat by following the competitors’ business methods as it differs as a nationwide business with a conscious history and long term business relationships with suppliers and customers expectations. Further more the mere size (inc. employees & suppliers) and market share of A&B influences the economics of the local and national market. To further complicate matters the recent information leaks from within the company gave rise to rumours of termination of existing employee contracts and Third World exploitation that have mobilised the employees, the local community/authorities and potentially the media to urge consumers on a nationwide boycott of A&B stores.

Question 1


Overall, The Marketing Director’s plan is following an intensive cost-cutting company wide strategy approach coupled with the promotion of a new company image in its core clothing business that drastically changes the shape of the company. In order to evaluate such a strategy plan we need to consider the possible outcomes of such a strategy while considering the effects on the stakeholders and the side-effects their reactions might have on the company short and long term performance and survival.


Firstly I would like to analyse the separate actions proposed by the marketing director’s plan. It is proposed that a ‘culture of entrepreneurship’ is developed which will withdraw the ‘comfort zone’ and ‘time serving’ of current employment practises.

Depending on the extend of this policy it could on the one hand help to improve the efficiency of the employees and promote entrepreneurship, on the other hand it might jeopardise employees’ revenues and job security. We could interpret such a policy as a programme that introduces or reforms performance related bonuses on top of regular income, allows input and ideas from all levels of staff that could improve how business is done, allows promotions not solely on the criteria of ‘time serving’ but also on performance, knowledge, know-how, experience and services to the company. On the other hand such a policy if extended solely on performance related criteria could introduce aggressive competitiveness between the stuff, job insecurity, opportunism and decrease the level of employees loyalty to the company since ‘time serving’ is not valued.

It is also proposed that specialist boutiques and other facilities (including restaurants) should be opened within the stores, run on a franchise basis, using external subcontractors where possible. The specialist boutiques within the stores could be the answer to the competition faced from the ‘fashion stores’ in terms of product type and style. Extra facilities within the stores could make the shopping experience more comfortable, convenient and keep customers longer within the shopping premises. All these would require extra expenditure / investment towards implementation and marketing, on the other hand it would also mean the creation of new jobs (if stuff is not mobilised from within the company) or the transfer of existing stuff to new positions and thus keeping a significant number of the existing employees. It would also mean that customers would have the choice of finding something different (in terms of product) within our stores and maybe regain that missing market share. The exact implementation in terms of Franchising or not would have to be analysed in terms of advantages/disadvantages. Keeping the business to our selves would mean total control in terms of quality, employment, customer services and prices (relatively)! This would also mean that we would need to supply the total investment needed. On the other hand, Franchising has its advantages in terms of minimising market and investment risk while maintaining significant control over the product and services and of course guaranteeing a certain fixed income.

Transferring all remaining direct employees to part-time contracts can have significant adverse effects. It would of course mean reduced employment costs and flexibility but such a move would go against the business’s historical values and ethics. Part-time staff can lead to high employee turnaround due to job insecurity, lack of belonging and dissatisfaction. It would also mean a reduction in employee loyalty and experienced staff which could be passed over as lower quality customer services. Especially under the current circumstances (employees’ demonstrations, threats of boycott and the media attention) it could have a significant negative affect on the business. It is strongly recommended that we consider alternative options for reducing employment costs such transferring staff to other locations or functions.

Closing the company’s headquarters in Scotland and moving to smaller, more convenient facilities in an English new town could have significant cost advantages. Such a move however would be inconvenient for most of the staff as we assume that most of the employees live close to the company, within the city and probably have bought property in a convenient location in town nearby the headquarters. It could also lead to some voluntary redundancies from extreme location inconvenience and transportation difficulties. However such a decision can be justified within the normal competitive business necessities and the pressure for reducing costs and profitability. Furthermore since the company will retain business presence through the retail stores, most non-managerial and non-administrative staff will not be affected and there should not be a negative influence in terms of employment within the city headquarters. Even if the company’s production facilities are moved along with the headquarters we should be able to find a convenient and cheaper location outside the city but at the same time within a reasonably convenient distance from the city and retail stores.

The marketing director is also recommending that we terminate our contracts with Smith & Co to enable us to buy on the open market and benefit from low labour costs in South-East Asia. Such a move would have significant effects in reducing our production costs and enable us to face our competitors at a relatively equal cost level by offering our products on lower prices to customers. However we need to consider that A&B has developed a long-term relationship with its clothing manufacturer Smith & Co that runs back to 10 and 70% Smith & Co’s output is currently contracted to A&B. Thus by terminating our contract with Smith & Co we are almost condemning Smith & Co out of business. This means that we will not only lose the well proved business relationship with our main supplier, but we will also loose an alternative supplier source (since Smith & Co will most probably go out of business) to the East-Asian suppliers. Furthermore it is most certain that most of the employees in Smith& Co will loose their jobs. Such an adverse effect goes against A&B’s business ethics history and policy. Especially due to current developments, it is highly likely that it will invoke a wave of protest, local community actions and customer boycotts that will damage A&B.


The managing director’s recommendations are a dynamic cost-cutting, restructuring plan that could prove effective in regaining A&B lost market share and revenues; however it goes against A&B’s well advertised traditional values and ethics with regard to employment policies and business relationships with its main supplier. I would be in favour of the plan, but against the points regarding employment policies and suppliers, especially since we have not yet considered any alternatives.


Defining the problem

The key issue here seems to be that A&B needs to become more competitive and cost efficient while at the same time retaining a level of ethical values regarding its employment policies. More specifically, A&B is in need of cutting operational costs (including employment & suppliers costs) while at the same time redesigning products or creating new products to regain a lost market share. Apparently the competitors found a way of operating with lower costs by utilising part-time, lower cost employment while flexibly using alternative Third World suppliers without having to worry about any historical values or ethical standards. A&B on the other hand though has a history of ethical values concerning its operations policies with emphasis in employment. These values are well advertised both within and outside the company, thus any deviation from those values would be immediately apparent to both employees and customers who seem to support A&B as an ethical, quality retailer; as already happened with rumours that originated from within A&B and created a wave of protests and negative public reactions.

However I feel that A&B can regain its competitiveness without compromising significantly its ethical practises in the long-term. There are alternative to the competitors’ practises to consider. There are short-term versus long-term effects of different actions considered and different business strengths and market goals.

Recommendations Plan

A&B has a customer base which is largely comprised of loyal customers that show a level of trust to company products and have certain expectations on its ethical practises. Currently we are being threatened significantly by competition; however employees’ demonstrations, adverse publicity and threats of consumer boycott may prove even more threatening for the viability of the company. Although serious cost cuts (in employment & suppliers) could create a short term rebound, in the long-run it would be preferable to maintain our integrity and historical values as consumers and society are becoming increasingly business-aware.

I would recommend against dismissing any employees (excluding natural shedding), instead we can freeze hires and wage increases, redesign our bonus schemes according to profitability until the business environment dictates otherwise. At the same time, job security can be maintained by means of a system of internal mobility. Vacancies or newly created positions can be filled internally while managerial positions can be promoted internally. Such a move is bound to induce a number of extra voluntary redundancies and resignations as some employees will not be satisfied with the projected returns and that part is usually the less loyal part of the company’s employees. However such a policy is within the boundaries of ‘Utilitarian approach’ Ethics, since it is part of the greater good which is the company survival and competitiveness and hence employment security.

At the same time we need to reassure employees that jobs will be maintained. Also communicate internally that our corporate norms and values hold while stating formally the current business difficulties faced.

I would also recommend against terminating our contracts business relationships with our suppliers and more specifically Smith & co immediately and negotiating with Far East, Military dictatorships supplier countries. Rumors of such an action have already produced negative effects. Instead, at a fist stage, I would recommend to aggressively bargain with our existing suppliers for reduced prices or at least request reduced prices. We can even cooperate with existing suppliers to find ways off making production more competitive and efficient. Adjust our orders to current or projected demand and switch to short-term contracts with the suppliers. We need to maintain the level of business relationship and controls established with our suppliers and reassure them as such as long as the market permits.

Furthermore, within the context of reducing operational costs I would recommend towards moving our headquarters in a more convenient and cheaper location outside the city as mentioned by the Marketing Director or at least reduce the size of our current city offices to a minimum. Our company presence can be maintained through our retail stores while if needed keeping limited offices presence within the city will retain the heritage of our founder and public convenience/expectations. Further operational cost reductions maybe required that we need not expand to at the moment due to limited information available.

I am also proposing the establishment of specialist/fashion boutiques and other facilities within the store as recommended by the Marketing Director. Such an action will give us the opportunity to efficiently compete with the products and services offered by fashion store competitors. Such stores will give us flexibility in experimenting with new or different products that may correspond to a different market segment and thus regain the market share lost to the fashion stores. The specialist boutiques and other facilities will add to the quality and diversity of our services while creating a more convenient and enjoyable shopping environment. They will also create new vacancies which can be filled internally. Moreover such stores can give us an initial, relatively ethical-risk-free opportunity to negotiate with alternative lower cost International suppliers that can supply these specific in store boutiques; so long us these International suppliers and their countries uphold human rights, retain quality & safety standards and relative ethical codes of conduct.

The above cost-cut recommendations will not bring us to an equal cost-competitive level with our competitors. However we have other advantages to consider. I recommend we uphold and promote the higher quality of our products and services. Promote our business history and the trustworthiness our products provide. I further recommend in establishing an internal code of ethics and promoting externally our commitment to quality and ethical business values. Use the local/other media to reassure the public/customers of A&B’s commitment to ethical policies and non-cooperation with non-humanitarian regimes.

A&B is (as customer research has shown) a retailer with a large amount of loyal customers. Following an ethical policy in the short-run may not be completely economical but in the long-run A&B has an advantage. Our goal is to stay in the market for a long time to come though we may go through a short-term period of reduced profitability and market share.

Contingency Plan

To the extend that the above recommendations do no prove sufficient or the market conditions prove even more competitive, I propose further cost reduction policies that need not be “unethical” depending on the frame of reference.

We can still maintain employment levels but reduce / eliminate bonuses, reduce or eliminate extra costly services to employees and offer voluntary redundancy packages. Such measures will further increase the numbers of voluntary redundancies throughout the company. We can implement further operational cost reductions throughout the company once we analyse our conditions. Regarding suppliers, we can start considering negotiations with more efficient ‘Developing Country’ suppliers that abide by quality & safety standards, human rights and relative ethical standards. In the case we decide to proceed as such we need to consider the effects of terminating our contracts with our current suppliers and especially Smith & Co. Terminating our contract is immediately translated to a huge reduction of employment numbers in Smith & Co. On the one hand a large number of British employees will loose their jobs on the other hand as we create demand for products from other countries we also create jobs there as well. At this level the ethics of our business is becoming an international issue. Depending on our ethical frame of reference our business decision may be judged as ethical or not. However since A&B is currently only operating domestically (and are customers as such are British) such a decision is likely to be judged from a National point of view and may have a negative impact on our business.



Research investigating consumers attitudes toward firms suggests that they are multidimensional, reflecting ethical standards of evaluation as well as product performance standards . Although it seems obvious that consumers hold more positive attitudes toward ethically behaving companies than unethically behaving companies and toward companies that make products possessing superior attributes than those with inferior attributes, this information may be combined in complex ways depending on its diagnostics. A US national survey indicated that three out of four consumers are avoiding or refusing to buy from certain businesses because of misconduct . A survey by Cone Communications and Roper Starch Worldwide found that 54 percent of respondents would pay more for a product that supports a cause they care about; 66 percent said they would switch brands, and 6 percent said they would switch retailers, to support a cause they care about. Yet another study found that nearly 0 percent of consumers surveyed would be more likely to buy from the company that has the best reputation for social responsibility when quality, service, and price are otherwise equal among competitors.


WestLB (Westdeutsche Landesbank Girozentrale) is German Bank based in Düsseldorf that specialises in Investment and Corporate banking.

At some point in September 00 the Environmental pressure group Greenpeace called on WestLB to cancel its financing of the $1.1 billion OCP crude oil pipeline project that was to be built through rain forest areas in northwest Ecuador.

During a demonstration at WestLBs Düsseldorf headquarters, Greenpeace claimed

the pipeline and its construction threaten one of the worlds five most diverse habitats and that Deutsche Bank had already pulled out of the financing due to concerns about the projects environmental impact.

WestLB defended the project as meeting environmental protection standards as set by the International Bank for Reconstruction and Development. WestLB also claimed the project had been approved as environmentally sound by independent auditors and that a team including non-governmental associations would supervise the construction. However, a Green Party member of North-Rhine Westphalias state parliament mentioned that WestLB has issued conflicting statements about the project which has led members of parliament to seek clarifications.

WestLB is owned by state and local authorities in North-Rhine Westphalia, which is governed by a centre with-left and environmentalist Social Democrat and Green coalition government. The state itself owns 4.% of the bank. As such WestLB is autonomous in its decision-making as the state government owns only a minority. However, public pressure would help determine whether the project had actually taken all possible environmental risks into account.

Public protests in Ecuador had earlier led to some changes to the pipeline project. The 50 kilometre pipeline will now largely be placed underground. Critics at the time mentioned that this could lead to underground oil leakage and contaminate ground water.

To my knowledge the project went ahead although slightly delayed. Government pressure did not change the policies of WestLB and the German public/consumers did not react in a way that would cancel this investment. Maybe this has to do with the fact that WestLB is not a retail bank and thus the public is not directly related to its operations nor well informed or interested. Also the specific project investment was in Ecuador, a practically extremely distant country in relation to Germany and the minds of the German public. Furthermore, the information from the mainstream media regarding this issue was minimal.

The Body Shop

The well known case of the Body Shop is of particular interest because inherent to its positioning, as being socially responsible, is the need for it to act in an ethical manner.

There is no personal association between my self and the specific company I am merely commenting from the point of view of a customer.

The Body Shop is perceived to be among the most ethical of companies, with media and NGOs considering it to be one of the best companies worldwide at managing and effecting environmental resources. It raises the question of whether it is better to claim to be ethical and not deliver in full, or to not even pretend to be ethical in the first place.

Criticism of the Body Shop came to the forefront with when London Greenpeace launched an all-encompassing protest. Despite the extensive referencing of Greenpeace’s leaflet, the Body Shop responds to criticism neither in its most recent Annual Report, nor in its most recent Values Report.

We can briefly considering to what extent the Body Shop is actually practicing what it preaches. The Body Shop claims “Against Animal Testing”, however almost half of its products were tested on animals. The most infamous of the Body Shop’s community trade practices is that of its relationship with the Kayapo Indians of Brazil, who supply the Body Shop with Brazil nut oil. Proceeds to the indigenous people however represent less than 1% of the final product’s price. The evidence suggesting that the partnership is more public relations than anything else is damning.

The Body Shop also uses a wide variety of artificial ingredients, making up the majority of any given product .

Such information is available to the public but not widely promoted by the media. Consumers still consider the Body Shop one of the “greenest” retailers. Furthermore, players are few in the “green” market, and so environmentally-conscious consumers have limited options. In this case, the Body Shop represents the lesser of several evils for consumers.

Information Channels

Information regarding most companies operating at a National or Global scale is widely available through different media. However, usually the mainstream media (TV, Radio & Newspapers) provide limited information (in the form of news) regarding specific operations or policies for businesses unless there is an active protest against those policies. For a more conscious consumer however there are alternative resources to be exploited in detail. Company annual reports, mission statements, employment policies, ethical codes/values and further information can be found on most company websites. There are independent bodies and organisation where consumer can retain information. A significant amount of information can also be transferred in the form of company reputation and the experiences of customers. The primary and initial channel though is by far promotion and advertising which usually provides the very basic information regarding the product and the company.


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