McDonald's Corp - Case Study Example

McDonalds Corp, headquartered in Oak Brook Illinois is world’s number one fast food chain. It has a leading share in the globally branded quick service restaurant segment in virtually every country. The company primarily franchises and operates McDonalds restaurants. They have company-owned restaurants in mature and developed markets but due to the restaurant business being capital-intensive, they serve as franchisors in other countries (Orji, 2005). McDonalds has enjoyed continuous growth but of late it has been accused of resorting to unfair and unethical business practices. It was involved in the ‘beef-fries’ controversy in 2001 when they ended up paying $10 million for the settlement of the law suits (Mukund, 2002). Other allegation against McDonalds is that the processed food that they serve contributes to obesity (Schröder & McEachern, 2005). There have been other allegations that McDonald’s have indulged in deceptive acts that lures people to eat with substantial frequency. McDonald usually does not disclose the nutritional information for their food and as well as the adverse health effects associated with consumption of foods considered being high in cholesterol (Ritter et al., 2003). Their advertisements entice children and lure them towards unhealthy eating habits which are considered unethical. While McDonald’s defends that its products form an overall balanced diet, a consultant to the World Health Organization claims that they are encouraging the use of a style of food that is closely associated with the risk of cancer and heart disease (Kellner, n.d.). They even target advertising at children associating with popular films and pop culture artifacts, with an intention to attract young customers who would persuade their parents in to buying them food from McDonald’s. According to Schröder and McEachern (2005) consumer value in marketing activity integrates product attributes, quality attributes, process-related attributes and less tangible sources of value like brand image. The product attributes in fast food products can be broken down into nutritional, sensory and hygienic quality. Consumers today are concerned about how food is produced or processed. They value ethical production in terms of animal and human welfare and environmental protection. Based on the Weber’s theory of rationalization also McDonald’s does not provide the value that it promises. Besides, McDonald’s practices are environmentally harmful. They initially denied importing beef from areas like Costa Rica and Brazil that were threatened with excessive deforestation, but it was later proved that they did receive supplied from these areas (Kellner, n.d.). Under public pressure they had to resort to biodegradable products for their previously non-biodegradable styrofoam cups and other packaging materials. Being socially responsible has costs and can be counter to the ethics of individualism which suggest that companies should be able to pursue their own self-interest. Economist Milton Friedman argues that firms should operate in the best interest of the stockholders who are primarily interested in financial returns (Joyce, 2005). He contends that unless firms deploy resources to produce as efficiently as possible otherwise they will be driven out of business. This is the neoclassical economic theory which specifies that business organizations exist to maximize shareholder value (Koh & Boo, 2004). McDonalds was doing just this until the consumer consciousness forced them to resort to ethical means of processing food. According to Orme and Ashton (2003) being ethical involves taking action to ensure that right rules and practices are applied consistently in all day-to-day business situations. Becoming a global player has certain responsibilities that have to be fulfilled. Economic opportunities also bring with it social and political considerations, which cannot be ignored. Post (2000) contends that an organization’s global corporate citizenship is shaped by internal and external factors. In the ‘beef-fries’ case, McDonalds ignored that there are many who avoid beef on ethical, religious or health grounds. When they were confronted, McDonald’s initially declined to comment and then issued a ‘conditional apology’. As the people became more violent, the company kept changing their approach. The teaching of business ethics is inherently pluralistic. Pluralism can be defined as the view that more than one basic principle operates equally in an area of human endeavor (Burton, Dunn & Goldsby, 2006). It has been argued that all moral theories are pluralistic to some extent because it is a middle ground between monism and relativism. Moral principles become necessary to judge which principle or good gains the highest priority, while still fulfilling other principles or attaining other goods. Firms resort to pluralism more out of convenience because in different situations they can resort to different principles. Theorists argue that it is very difficult for firms to avoid engaging in a certain level of moral pluralism. McDonalds too was trying to do just that. Tung & Miller (1990) emphasize that in international business relations, managers face uncertain situations and tend to fall back on their own values to make decisions (cited by Wong & Chung). When they were confronted, McDonalds first reacted saying that the ingredients in ‘natural flavors’ need not be broken down. When an upsurge was created they said they never claimed that the fries sold in US were vegetarian. This only compounds the confusion and the company ended up paying a hefty sum in settlement. Different philosophers have given different views on ethics. The Utilitarian and deontological perception of Kant on ethics is based on reason, intention and duty. Carrigan, Marinova and Szmigin (2006) state that according to Kant duties cannot be associated with self-interest like rewards and pay-offs. Firms exist for the society and have a moral obligation to satisfy the needs and deliver benefits to the society. Such an approach would result in richer dividends for a firm because consumers will perceive its operations as ethical. Even Hooker (2003) argues in the long run morality pays. Unethical people do run into trouble even if they have reaped profits for some time. Very often companies are not willing to place the interest and welfare of the society before its self-interest. This is what McDonald’s resorted to. Since they had been able to make the number one position for themselves in the fast food industry, their relinquished the moral obligation to deliver benefits to the society. John Mills views on ethics based on Utilitarianism, is also associated with common good rather the company’s self interest. The utilitarian view does not always result in ethical marketing conduct. The term ‘common good’ is ambiguous since in international marketing it could mean transcending country borders and nationalities (Carrigan, Marinova & Szmigin, 2006). The theory states that business ethics should maximize the total amount of happiness in the world and minimize the pain. Kant places the customer first while Mills views place profitability as the core purpose of business. McDonald’s was concerned with self interest but did not attempt to minimize the pain. Morality is not absolute and is based on the social norms of the society in which they are practiced. Ethical relativism applies to different ethical standards applicable in different countries. Had McDonald’s responded to the beef-fries controversy in a responsible manner, they would have got the support of the investors when they were in trouble. Their approach was totally against business ethics and was vested with self-interest. They had total disregard for customers’ religious sentiments and health concerns. As global players, they are expected to have a mature outlook and as theory suggests morality is what pays at the end. McDonalds has now become conscious and adheres to certain norms of ethics. Mascarenhas states that marketers should behave in an ethical manner because information about a firm’s ethical behaviors influences product sales and the consumers’ image of the company (Carrigan & Attalla, 2001). McDonald’s now appear to have woken up to this reality because to boost its green credentials, they have announced in January 2007 that all of its 1200 outlets in Britain will sell coffee only from growers certified by the Rainforest Alliance. To further overhaul its image it now procures beef only from farmers who meet special standards on animal welfare and environmental practices. Thus despite being the number one in fast food industry, they have attracted criticism, hostility and allegations because of unethical business practices and lack of social responsibility. They have failed in the responsibility to all the stakeholders including the consumers, investors, employees and the suppliers. They adopted a pluralistic approach to alter the principles when the situation so demanded but this only landed them in deeper trouble. Morality pays in the long run and this is what firms are now becoming conscious. Firms exist in the society for the society and they do have a moral obligation for the welfare of the society. They cannot afford to ignore the good of the maximum people. They cannot exist ignoring the external environment. Consumer value includes reliability and consistency in food quality. Religious sentiments cannot be ignored and nor can health factors. The market for ethical consumption is now expanding and the fast food companies need to be continuously conscious of the corporate ethics. The code of ethics are not just to be formulated but have to be adhered to for the sake of all the stakeholders and not just operate in the interest of the stockholders. References: Burton, B. K. Dunn, C. P. & Goldsby, M. (2006). Moral Pluralism in Business Ethics Education: It is About Time. Journal of Management Education 2006; 30; 90 Carrigan, M. & Attalla, A. (2001). The myth of the ethical consumer - do ethics matter in purchase behaviour? Journal of Consumer Marketing, Vol. 18 No. 7 pp. 560-577 Carrigan, M. Marinova, S. & Szmigin, I. (2006). Ethics and international marketing, International Marketing Review Vol. 22 No. 5, 2005 pp. 481-493 Hooker, J. (2003). Why business ethics? Available from http://web.gsia.cmu.edu/ethics/whybizethics.pdf; accessed 09 May 2008 Joyce, W. B. (2005). ACCOUNTING AND SOCIAL RESPONSIBILITY. Journal of Accounting and Finance Research Vol. 13, No. 3. pp. 1-8 Kellner, D. (n.d.). Theorizing/Resisting McDonaldization: A Multiperspectivist Approach Available from http://www.gseis.ucla.edu/faculty/kellner/Illumina%20Folder/kell30.htm; accessed 09 May 2008 Koh, H. C. & Boo, E. H. (2004). Organisational ethics and employee satisfaction and commitment. Management Decision Vol. 42 No. 5, 2004 pp. 677-693 Mukund, A. (2002). The McDonalds "Beef Fries controversy, ICFAI Center for Management Research Orji, A. Bao, C. Zino, A. & Philippis, E. (2005). MacDonald’s Corporation. FIN 284, Asset Management, Summer 2005 Orme, G. & Ashton, C. (2003). Ethics - a foundation competency. Industrial and Commercial Training. Vol. 35. No. 5. pp. 184-190 Post, J. E. (2000). Moving from Geographic to Virtual Communities: Global Corporate Citizenship in a Dot.com world. Business and Society Review, 105:1 27-46 Royle, T. (1999). Recruiting the acquiescent workforce. Employee Relations, Vol. 21 No. 6, 1999, pp. 540-555. Schröder, M. J. A. & McEachern, M. G. (2005). Fast foods and ethical consumer value: a focus on McDonald’s and KFC. British Food Journal Vol. 107 No. 4, 2005 pp. 212-224 Wong, C. S. & Chung, K. H. (2003). Work values of Chinese food service managers. International Journal of Contemporary Hospitality Management Volume 15 Number 2 2003 pp. 66-75 Read More