Corporate Governance Dilemma - Essay Example

The ‘shareholding’ paradigm involved the maximization of shareholders’ value while the ‘stakeholding’ paradigm involved satisfaction of stakeholders’ interests. This created the conceptual dichotomy over ‘individual liberty’ and ‘justice for everyone’ when making important business decisions (Sullivan and Conlon, 1997). A prime example of this decision making model is the successful multinational furniture manufacturer Ikea (IKEA, 2012) . While starting as a small family business in Sweden, it gradually became the world’s largest home furnishing retailer with a reputation of low prices and novel design.

The company’s internal costs were attributed to the fact most of the products were manufactured in factories from Asian and eastern European countries. However, in early 1998 a scandal ensued stating that Ikea was tolerating appalling working conditions in its suppliers’ factories in Eastern Europe and quickly signed an agreement that would stop exploitation of the workers. Later that year, a TV documentary was shown depicting images of child labour and unhealthy working conditions in factories in India producing IKEA textiles and garments causing uproar in Sweden.

Despite the subsequent debates and campaigns from the Socialist Party (SP), the company failed to acknowledge the problem and refused inspection by third parties. Ikea also didn’t adopt the Rugmark foundation label, which validated the eradication of child labour and was already adopted by many companies at that time. Customer complaints in the following year ensued and yellow cards were signed but in response the company still claimed that it would take measures for child labour but didn’t satisfy the SP’s demands for proper control.

This in turn caused the intensification of the campaigns spreading to other European countries like Austria and Belgium, ultimately leading to the signing of 53.300 red cards on the 3rd of June 1999 which banned the purchase of any Indian rugs or textiles from Ikea. The result was the compliance of Ikea on the 7th of July 1999 with the terms of the SP, which involved stronger measures against child labour and hiring a third party firm to evaluate the process. Ikea also adopted a code of conduct in September 2000, called ‘The Ikea Way of Purchasing Home Furnishing Products’ (IWAY), clearly stating against forced labour and hazardous work conditions (IKEA, 2012).

On one hand, Ikea’s practices displayed a non-professional approach to the company’s problems which was the cause of the subsequent campaigns and product sales ban. The denial of the problem’s existence significantly damaged company’s consumer market by raising questions and awareness of the manufacturing processes of the products. Additionally, the failure of taking initiatives and allowing third party evaluation, raised criticisms for other practices such as tax evasion, further damaging its reputation.

The image of a child-friendly reputation was critically damaged which might affected the sales and market expansion of the company. On the other hand, despite the delayed response from Ikea, various initiatives were taken to restore the company’s image. In addition to introducing the IWAY code of conduct against forced la