Ethical Audit: Tesco - Essay Example

?Business Ethics: Ethical Audit Report Case Study: Tesco Module UGB 210 Can you pop here? Fiona Thompson Module Leader: Mark Winter Word Count: Table of Contents 1.0.Introduction 4 2.0.Main Ethical Issues 5 2.1.Suppliers – Child Labour 7 2.2.Customers – Misleading Prices 8 2.3.Employees – Treatment of Workers 9 3.0.Evaluation of Ethical Issues 10 3.1.Suppliers – Child Labour 10 3.2.Customers – Misleading Prices 11 3.3.Employees – Treatment of workers 12 4.0.Best Practices 12 4.1. Ethical Operating Practices 12 4.2. Free from Political Colour 13 4.3. Corporate Social Responsibility 14 5.0.Recommendations 15 References 17 Appendix A 21 1.0. Introduction Tesco Plc was established by Jack Cohen in the year 1919. It deals in products such as groceries, financial services, consumers’ goods and telecommunications. The company has over 492,000 employees and over 3,729 stores globally (Tesco Plc, 2011) (For further information on Tesco Plc – please see Appendix A). Being one of the leading retail chains in the global market, Tesco requires maintaining a sustainable position not only to gain competitive advantage but also to attain the corporate image of an ethically sound company. This report is based on the ethical approach applied by Tesco and further intends to analyse the adopted strategies with the use of appropriate theories such as the theory of Utilitarianism, Kantian Ethics, and Virtue Ethics. For instance, the theory of Utilitarianism gives premium emphasis on the overall benefit of the organisation rather than the welfare of individual employees or customers or any stakeholder groups (Snoeyenbos & Humber, 2002). Similarly, the Kantian theory of business ethics consider treating the stakeholders as human beings with the necessity of contentedness rather than treating them as means to achieve organisational success (Bowie, 1999), while the Virtue ethics considers the fact that business enterprises are undividable from society and thus have to grow along with the growth of the society at large (Audi, 2011). Notably, these theories present their views from three distinct perspectives towards the managerial dilemma of business ethics for which these theories have been considered in this report. 2.0. Main Ethical Issues It is worth mentioning that business ethics is amongst the most significant and complex managerial concerns of a business in the 21st century context. Where a few theories suggest the sustainability strategies to be more inclined towards the overall benefit of the organisation such as in the case of Utilitarianism theory, other theories suggest taking into account the interests of the society (i.e. in the case of Virtue ethics) and stakeholders’ interests as individuals and social groups (i.e. in the case of Kantian theory) (Audi, 2011; Snoeyenbos & Humber, 2002; Bowie, 1999). Therefore, focusing on these distinct variables, it is quite likely that the organisations will have to face certain issues with concern to their business ethics which can also be observed in the operational strategies adopted by Tesco in recent times. A few of the noteworthy issues faced by Tesco, was the exploitation of child labour laws in developing countries, employment laws in Bangladesh, anti-discrimination laws in UK (Thompson, 2009; BBC, 2007; BBC, 2006; Guardian News and Media Limited, 2006). The company was also accused to breach competition laws in the year 2007 (Finch, 2005). The issues faced by Tesco and an apparent description of the concerned parties as well as reasons so as to justify why these have been termed as major issues have been presented in the table below. Ranking of Issues: Rank Issue Stakeholder Why? 1 Child labour Suppliers Tesco was accused to employ more than 200 child labours around the age group of 12 in its garment factories of Bangladesh in the year 2006 which was indeed a serious accusation causing the company to reshuffle its entire outlook so as to maintain its competitive position in the global market (Guardian News and Media Limited, 2006) 2 Misleading Prices Customers The supermarket giant was also accused of concealing actual prices of grocery items violating the rules of National Consumer Association that caused the company a fine of approximately €2,000 which was not quite a big amount. However, the news and the accusation harmed the company’s corporate image considerably amid its customers (McDonagh, 2008). 3 Treatment of Workers Employees The company has been accused of providing lower wages than the specified in Bangladesh and other developing countries where the employees are also not provided with a healthy working environment (BBC, 2006). The company was also accused to practices discriminating employee code of conduct in the UK, especially in its poultry and meat supply chains (Thompson, 2009). As a consequence, the company had to face a number of law suits and degraded employee morale which is quite likely to affect the overall organisational productivity to a large extent. 2.1. Suppliers – Child Labour Tesco encountered an objection regarding the dealing of the company with its migrant staffs employed in the supply chain of meat as well as poultry brought forward by a trade union called Unite. It was claimed by the union that the company failed to meet up to its own ethical practices with the staffs working for meat suppliers. The company was said to pay the migrant staffs less compared to its indigenous workers which prompted a sense of discrimination and racism. The company has been also said to unfairly treat the employees at its garment factories in Bangladesh by paying them quite low wages and making them work for extended hours. It was also pointed out in this regard that the working environment of its factories was not considered to be suitable and not enough steps were taken to improve them. All these ethical problems or violations called for an investigation regarding the employment practices involved with their supply chain (Thompson, 2009). Tesco was also stated to be found guilty of employing child labour in its factories situated in Bangladesh as well (The Guardian, 2006). In relation to the theories of business ethics, it can be stated that this ethical misconduct of Tesco were against the ideologies presented in the Kantian and Virtue theories. The company was observed to treat the child labours as means rather than human beings and also was liable in ignoring the society benefits as comprehended in these theories to be quite vital for an organisation to be successful in its long run. 2.2. Customers – Misleading Prices Tesco faced charges of ethical misconduct as one of its advertisements regarding comparing its prices with its other competitors was found to be misleading. The company was found to claim in its advertisement that it would pay a customer double the price of difference for the goods if those were found at cheaper prices than what was offered by Tesco. In reality, a price cap was maintained by the company which meant that till a certain amount the refund would be given by the company but not above that amount. This clause or condition was not mentioned in its advertisements and thus were regarded to be misleading by the Advertising Standards Authority (ASA). This action of the company was said to likely have an adverse effect on the buying decisions of the customers at Tesco (King, 2011). Even in this case also the company can be observed to disregard the significance of stakeholders in the overall business growth which was mentioned as vital in the Kantian theory of business ethics. According to the Kantian theory Tesco should have considered the interest of stakeholders to be quite significant in deriving sustainable growth and thus also avoided the virtues of overall organisational benefits in relation to the Utilitarianism theory. 2.3. Employees – Treatment of Workers Tesco has been accused of not treating its workers fairly and of ethnic profiling. The migrant workers have been stated to be paid less than the indigenous which was again the violation of the approaches presented by Kantian to term employees and other stakeholders as human beings respecting their requirement of prosperity. This act of the company has initiated a feeling of discrimination among the workers. The company was accused of unfair treatment of its meat workers present in the supply chain. The workers were said to be paid a quite minimum amount which was a serious violation of ethics. The working conditions of the factories were also not regarded to be suitable for the employees or the workers working there (Thompson, 2009; The Guardian, 2006). From an overall point of view, this misconduct of Tesco can be termed to disregard the concepts put forward in the theories of Kantian, Virtue as well as Utilitarianism on the whole. For instance, the violation of employment laws by Tesco proved to be the company’s negligence in treating its employees as its vital stakeholders akin to the specification of the Kantian theory and its intention to separate the business from the society going against the Virtues theory. These actions altogether opposed the Utilitarianism theory stating the organisation’s benefit in the long run to be the most vital aspects in business ethics. 3.0. Evaluation of Ethical Issues The major theories considered in this report of Tesco’s business ethics are the Utilitarianism theory, Kantian theory and the Virtues theory. Although these theories tend to describe the ethical concerns of organisations in distinct ways, the main consideration noted in the theories relates to the balance in stakeholders interest, overall social benefits and organisational growth (Audi, 2011; Snoeyenbos & Humber, 2002; Bowie, 1999). Based on the assumptions noted in these theories, it can be stated that Tesco’s practices in relation to labour welfare, customer relations and competition hampered its corporate image not only as an employer and as a competitor or a marketer, but also affected its brand value in the global market which certainly caused a significant ethical dilemmas for the organisation in its long run perspective (Crane & Matten, 2007). The ethical issues faced by Tesco on these grounds have been discussed below with reference to the theories related to business ethics. 3.1. Suppliers – Child Labour It was in the 2006 that Tesco was first alleged to recruit child labours below and around the age of 12 years in Bangladesh. In addition, the children working in the company’s garment factories were also not served with a healthy working condition or good pay (The Guardian, 2006). Even though the organisation provided with certain specifications and clarifications to the context, the company was again accused on the same ground in the year 2009 (Thompson, 2009). Considering the ethical principles as revealed in the Kantian theory, an organisation should protect the rights of its stakeholders treating them as human beings with social values which also include the aspects of labour welfare and society benefits (Bowie, 1999). A similar kind of vision has been depicted in the theoretical explanation of business ethics in the Virtues theory (Audi, 2011). By engaging children in the garment factories of the company, Tesco not only violated the employment laws of the country affecting its overall social environment, but also hampered the stakeholders’ interests treating them as means to greater profit. From an in-depth perspective, these facts can also be observed to infringe the growth prospects of the organisation at large and thus negatively affect the overall organisational benefit in the long run disregarding the principles under Utilitarianism theory of business ethics (Snoeyenbos & Humber, 2002). 3.2. Customers – Misleading Prices The company also has been found to be misleading its customers through one of its advertisements and this is not for the greater good. Concealing the price of groceries marketed to the customers depict the intention of gaining better return by avoiding the principles of business ethics to consider the overall organisational benefits as the most significant concern based on the theory of Utilitarianism. On the similar context, the concealing of price and misleading the customers is quite likely to hamper the trust of the customers on the company which shall affect Tesco in its long run. Furthermore, the pricing misconduct of Tesco can also be observed to disregard the social values as well as stakeholder’s interest and thus can also be related to the Kantian and the Virtues theories. 3.3. Employees – Treatment of workers In terms of following legal rules as well as regulations, the company has been stated to have violated the interests of employees in terms of low wage rate in Bangladesh and discriminative HRM practices in the UK. For instance, a few of its factories at Bangladesh were found to lack in terms proper authorisations so as to carry out the manufacturing activities which is not apparently for the greater good (BBC, 2006). Similarly in the UK, the company was observed to executing discriminating rules for the migrant workers, especially in its meat and poultry trading supply chains (Thompson, 2009). These issues not only depict the ill-treatment of society welfare encouraging discrimination amid workers, but also illustrate the degradation of stakeholders’ (i.e. employees’) interests at large. With this concern, the facts can be observed as opposing to the principles described by the Kantian and the Virtues Theories of business ethics. 4.0. Best Practices 4.1. Ethical Operating Practices Tesco was observed to be operating its business in an ethical way and had stated to incorporate the ethical practices in its ways of performing business. The company proclaims to be operating its business nationally and internationally in accordance with the relevant rules as well as regulations. It also ensures that the employees execute their work in a legal and ethical way. The company has also stated to deal fairly and honestly with the public, the shareholders, and the other employees, the business group of people, the customers, the competitors, the suppliers and the government authorities (Tesco, 2011). These activities considered by the company in its recent operations can be observed to coherently link with the theories of Kantian and Virtues. To be elaborated, with the significance provided by the company towards its shareholders and stakeholders interests, the company intends to engage its business as inseparable from the society with regards to the Virtues Theory. Similarly, by the company’s intention to provide due consideration to stakeholders’ interest through employee, customer and social welfare also ensures its ethical best practices with regards to the Kantian theory. Moreover, the company proclaims to have a strict policy regarding accepting any kind of benefits or gifts from organisations or individuals involved in business activities with the company. According to the ethical guideline of the company, any kind of benefit or gift which might be manipulating any kind of a business decision should not be accepted by anyone from the company (Tesco, 2004). This represents the company’s ideology to provide major concern to the overall organisational benefits linking to the theory of Utilitarianism. 4.2. Free from Political Colour Tesco states to be free of any political colour and abides by the accounting guidelines and procedures. The employees of the company need to behave and perform in harmony with the company’s interest and no such conduct with the intention of personal interest is said to be accepted by the company. The company has been also known to abide by the rules as well as regulations of its operating countries. Any violation of the ethics of the company calls for strict action by the management of the company (Tesco, 2004). Being ethical towards the rules and regulations prescribed by the government of the related countries, the company intends to focus on the Utilitarianism theory of overall organisational growth securing its corporate image as ethically reputed. 4.3. Corporate Social Responsibility Tesco declares to have adopted several measures so as to maintain its corporate social responsibility (CSR). It has undertaken necessary steps to bring down its consumption of energy and the emission of greenhouse gases. The company is also dedicated and determined in trimming down its generation of waste in the course of their business operations as a motive of social welfare providing due significance to thought that businesses are inseparable from society with regards to the Virtues theory. It ensures that superior quality and comparatively reasonably price products are created by complying with the environmental as well as welfare specifications which relates to the theory of Kantian to refer the stakeholders as humans with social values. The company contributes towards the community it is operating in by way of giving away a certain minimum portion of their pre-tax proceeds in terms of donations and aids in kind to charitable institutions. The company takes initiatives and conduct programs to raise funds to support education, support serious causes like cancer and also to support education globally in different countries (Tesco Plc, 2011). These activities executed by the company also signify its business ethics approach to be related with the Kantian and Virtues theory of stakeholder value. 5.0. Recommendations Although Tesco seems to provide significant consideration to its ethical outlook with regards to the Utilitarianism, Kantian and virtues approaches, the company has been accused to practices several ethical misconducts in its earlier practices concerning employee treatment to a major extent. Notably, the ethical issues faced by Tesco were mostly based on its unfair treatment of labourers both in the developed and developing nations in terms of real wages and also in terms of unhealthy working conditions encouraging the issues of racial discriminations. With this concern, the company should focus on restructuring its wages for its part-time as well as indigenous workers according to the specifications of the industry based on the principles stated in the Kantian theory of valuing stakeholders’ needs. This would also help the company to keep its workers satisfied and attain the overall organisational growth relating to the specification of Utilitarianism theory. The company should also take necessary measures so as to enhance the working environment of its factories so that it becomes suitable for the workers. The company should even be vigilant and strict regarding employing child workers as being an illegal practice. This could also affect the image and reputation of the company which might hamper the business and existence of the company in the long run providing due significance to the Kantian and Virtues theories of business ethics. Tesco should also be careful to pay wages to its workers in the other countries in accordance with the specifications of the country it is operating in. The company should refrain itself from exploiting its workers in an illegal way. The company also needs to be careful while planning its advertisements by revealing the necessary clauses with regard to the declarations made by the company. This would make the advertisements to put across a clear message regarding the intentions of the company and prevent the advertisements from appearing to be misleading. Thus, from an overall perspective, it can be stated that the company should focus on creating stakeholder value along with shareholder values with due consideration to the principles suggested by the stakeholder theories such as the Kantian theory and the Virtues theory. Conclusively, it should be stated that enhanced stakeholders value is quite likely to add to the overall organisation value and thus also satisfy the requirements of business ethics as per the Utilitarianism theory. References Audi, R., 2011. Virtue Ethics as a Resource in Business. Business Ethics Quarterly. BBC, 2006. UK firms 'Exploiting Bangladesh'. Business. [Online] Available at: http://news.bbc.co.uk/2/hi/business/6219274.stm [Accessed November 28, 2011]. BBC, 2007. UK Grocers Face Competition Probe. Business. [Online] Available at: http://news.bbc.co.uk/2/hi/business/6287923.stm [Accessed November 28, 2011]. Bowie, N. E., 1999. A Kantian Approach to Business Ethics. Business Ethics Quarterly, pp. 37–60. Crane, A. & Matten, D., 2007. Business Ethics: Managing Corporate Citizenship And Sustainability In The Age Of Globalization. Oxford University Press. Finch, J., 2005. Tesco and Unilever Fail Test. The Guardian. [Online] Available at: http://www.guardian.co.uk/business/2005/jan/29/supermarkets.unilever [Accessed November 28, 2011]. Guardian News and Media Limited, 2006. Tesco Denies Child Labour Claims. Staff and Agencies. [Online] Available at: http://www.guardian.co.uk/business/2006/oct/11/supermarkets.internationalnews?INTCMP=ILCNETTXT3487 [Accessed November 28, 2011]. King, M., 2011. Tesco Price Check Claim Was Misleading, Says ASA. Consumer affairs [Online] Available at: http://www.guardian.co.uk/money/2011/nov/16/tesco-price-check-claim-misleading-asa [Accessed November 28, 2011]. McDonagh, P. 2008. Tesco One Of Seven Firms Fined For Not Displaying Their Prices. Independent.ie. [Online] Available at: http://www.independent.ie/national-news/tesco-one-of-seven-firms-fined-for-not-displaying-their-prices-1435055.html [Accessed November 28, 2011]. Snoeyenbos, M. & Humber, J., 2002. Chapter 2: Utilitarianism and Business Ethics. Blackwell Publishing, pp. 17-29. Tesco, 2004. TESCO Corporation Business Ethics Policy. Ethics and Business Conduct, pp. 1-15. Tesco Plc, 2011. Our History. About Tesco. [Online] Available at: http://www.tescoplc.com/about-tesco / [Accessed November 26, 2011]. Tesco Plc, 2011. Corporate Responsibility. About Tesco. [Online] Available at: http://www.tescoplc.com/corporate-responsibility/ [Accessed November 26, 2011]. Tesco Plc, 2011. Corporate Responsibility Report. Media. [Online] Available at: http://www.tescoplc.com/media/60113/tesco_cr_report_2011_final.pdf [Accessed November 26, 2011]. The Guardian, 2006. Tesco Denies Child Labour Claims. Business. [Online] Available at: http://www.guardian.co.uk/business/2006/oct/11/supermarkets.internationalnews?INTCMP=ILCNETTXT3487 [Accessed November 28, 2011]. Thompson, J., 2009. Tesco Faces Union Anger Over Meat Workers. The Independent. [Online] Available at: http://www.independent.co.uk/news/business/news/tesco-faces-union-anger-over-meat-workers-1729640.html [Accessed November 26, 2011]. Appendix A The creator of Tesco that is Jack Cohen sold grocery items in the London markets since 1919. The initial store of the company was started in the year 1929 in Edgware in London. The company was included in the year 1974 on the London Stock Exchange. The initial self-services store of Tesco was started in the year 1948 at St Albans in London and remains still operational (Tesco Plc, 2011). The primary supermarket of the company was started in the year 1956 and its earliest superstore in the year of 1968. The expansion of the stores of the company has continued since then and also initiated the facility of internet shopping. The period of 1990 witnessed the expansion of the company in various other regions including Central Europe, Asia as well as in Ireland. It began grocery retailing through internet from July 2001 in the US after acquiring a certain percentage in a grocery store. Its telecom division commenced in 2003 which entailed services related to mobiles along with home phones with the intention to balance its present business of a service provider. The company not only branched out with the help of opening new stores but also with the help of acquiring other chain stores (Tesco Plc, 2011). Read More