Corporate Social Responsibility: of Primark - Case Study Example

 CORPORATE RESPONSIBILTY Introduction Corporate Social Responsibility has gained much importance for the business entities of today. Businesses are keen to adopt suitable measures by which they can strengthen their reputation in the market and can earn the trust and confidence of their shareholders as well as their stakeholders. Carrol defined corporate social responsibility as the legal, economic, philanthropic and ethical responsibilities that organizations have on the society at a given point of time (Corporate Social Responsibility, Responsiveness, and Performance, n.d.). But it has been found that Primark has been largely deviating from the standards that it should adopt in order to ensure that it performs the responsibilities that the society expects from it at large. The company has been found to adopt unfair practices in order to maximise its profits. It has been deceiving its stakeholders by maintaining double standards in its practices and various processes. So, on revelation of such facts the company has lost its market reputation and it may in future affect its business prospects as well. Therefore, the company needs to adopt suitable measures by which it can earn back its market reputation. About the company Primark has been the leading retail shop of United Kingdom. Established in Ireland way back in 1969 as Pennyes store at Dublin, the company has grown extensively large in the recent past. The journey of Primark outside Ireland started in 1973 as it ventured in Great Britain. Today the retail chain is present in all the major countries of Europe namely Spain, Germany, Netherlands and Portugal. The company is known to get outsourced its end products from the developing nations of Asia. There have been certain issues regarding the prevailing working conditions in those factories. The company is accused of practicing child labours and inhuman working conditions and low salaries. But the company has always maintained that it has maintained excellent opportunities through out its centers. According to the company, it has in fact helping the Asian economies to earn their livelihood. Primark as perceived by internal and external stakeholders Stakeholders are the groups of people who have distinguishable relationship with the company or the corporations (Friedman & Miles, 2006). The internal stakeholders are those who have direct connection with the operations of the company and basically include employees where as external stakeholders comprise of customers (present as well as potential), suppliers, government, competitors, media and bankers among others (Longest, 2004). Primark, one of the leading garment manufacturers of UK, has been off late found to be shrouded amidst controversies with doubts raised about its ethical codes which it practices in its garment manufacturing factories and also in its supplier factories. After an in-depth investigation conducted by ‘The BBC's Panorama programme for a duration of six months, it was found that the company had grossly violated the ethical codes and practices outlined, which were meant to be the guiding principles of the company (BBC, June 2008). The company mainly outsources its manufacturing operations to the developing countries like India and Bangladesh where labour is readily available and is comparatively cheaper than those of the developed countries like UK and US. The company has positioned itself in the market as a company, which aims to offer fashionable garments at the lowest prices possible to its customers. This has also helped the company to build a niche in the market and attract increasing number of customers. As per the company statements, the company has achieved such standards by adopting lean methods of production and by investing lower amounts on marketing promotions and advertisement campaigns but the investigation reports state that the supplier factories of the company are widely violating the ethical codes of production. As per the suppliers, the company pressurizes them to produce garments within strict deadlines violating which they have the possibility of loosing their contracts from the company, so to meet the deadlines, the suppliers are compelled to practice sweatshops thereby underpaying the workers and adopting measures to pressurise them to meet their deadlines. Investigations revealed that the supplier factories of the company employ child workers to work on strict deadlines which is against the ethical codes of the company The company has stated that it adopts strict vigilance and undergoes thorough investigation about their suppliers before entering into any contract with them. The company states that it adopts suitable strategies to ensure that the suppliers comply with the ethical codes and it is always keen to adopt measures by which it can ensure a continuous improvement in the practices carried out in its supplier factories. But the suppliers are compelled to resort to unfair labour practices to meet up the demands of the company. The workers in these factories are not even given the minimum wage. As per the rules, the company should pay their workers £5.73 for each hour but the investigations revealed that the workers are offered only £3.50 for each hour of their service. (Primark linked to UK sweatshops, January 2009). Moreover, the workers are compelled to work for more than 12 hours per day with no leaves given in a week. In Bangladesh, it has been found that workers are forced to work for more than 90 hours per week whereas according to the labour laws, no worker should work for more than 48 hours in a week and should be paid for overtime hours which is totally absent in the work culture of these factories (War on Want, 2006). The workers are treated as mere sources of production and not as human resources, which help them to achieve their ends. The suppliers are reluctant to provide even the basic amenities and requisites to the workers so that they can perform their required tasks. This leads to mass resentment but workers are not allowed to form trade unions. Any such activity is iron handedly suppressed by the company as per the reports. The workers also fear of losing their jobs. Being poor, they are exploited immensely and are threatened that any disclosure of the abuses made to them by the company would lead to their loss of jobs. So, the workers merely decide to keep their mouth shut without revealing any sort of unfair labour practices carried within the factory gates. One of the biggest suppliers of Primark in UK, the TNS Knitwear, has been found to contract illegal workers in its factories. Many of the workers working in those factories are not legally allowed to render their service in UK but even on knowing such fact the company deploys such workers. When the supplier was asked about such an occurrence, the co-owner of the factory denied of such allegations and claimed that they were not aware of such incidences. Moreover, TNS Knitwear had been alleged of sub-contracting the contracts of Primark to Fashion Waves. Fashion Waves has been found to maintain unhygienic conditions and have been found to neglect the safety parameters to a considerable extent. After revelation of such reports, the customers have lost faith in the company, which is evident from the mass protests launched in London to express their resentment against the unfair labour practices such as child labour widely practiced by the company in its supplier factories. Though the company claims that it was not aware of such unethical practices, but such statements made by the company are not able to convince the customers of their innocence at large. This has tarnished the brand name of Primark and has led to the erosion in the number of customers buying its products. The company has lost its brand loyalty and the trust of its customers. People are widely condemning the company because of its involvement in such unethical practices. On the other hand, such unethical practices over the years have led to the grievance of the employees and the workers working in its various factories around the world. Though the company has been successful in preventing the onset of such employee protests till date but it has not been able to earn the trust and loyalty of its workers. It’s only that the workers are very poor and they cannot afford to lose their job so they prefer in undergoing the exploitations they are subjected to. Moreover, ignorance about the labour standards is also largely responsible for preventing the workers from claiming their well-deserved rights. Lastly, the suppliers are not able to adhere to the laid down labour standards because they would not be able to meet the deadlines set by the company if they pay their workers their well-deserved wages. Moreover, the company insists them in significantly reducing the cost of production, which prevents its suppliers from investing suitably on improving the working conditions of the factories. So, the company, Primark, has not been able to build its reputation as a friendly, cooperative and supportive business entity. It has not been able to win the trust and confidence of its stakeholders, be it its external or internal stakeholders. The company has not been able to build strong partnership with its stakeholders even on working with them in close association over the years. These points out that the company does not abide by the ethical principles needed to strengthen ties with its various stakeholders. Impact of the CSR debate on the internal and external stakeholders It has been duly observed that business ethics is at the heart of professional practice and in absence of clear understanding of responsibilities and clear accountability, any idea or purpose is lost. Apart from individual behaviour, ethics in business also depends upon the organisation. And with a lost purpose, it inevitably effects the reputation of the company and also the trust of the customers and the society at large (Robinson, et al., 2007). The case of Primark suggest that the company has lost its reputation in the market and it is a well known fact that it take years for an organisation to earn its goodwill, so, every business entity aspires to retain its name in the market and considerably adopts strategies by which it can build its brand loyalty. Primark is one of the leading garment manufacturers in UK. It had a loyal customer base but after revelation of the fact that the company adopts unfair labour practices and has led to sweatshops in its various supplier factories, the company has lost the confidence of its customers at large. This would affect in the coming days the sales rate of the garments manufactured by the company, across the world. To regain the trust of its customers, the company has decided to launch its own investigation so that it can identify the truth about the processes adopted in its supplier factories. The prime priority of the organisation would be to win back the trust of its customers as in today’s world, customers are the kings. They decide the future of an organisation so their importance cannot be underestimated. In an attempt to do so, it’s evident that the suppliers, who have been found to adopt unethical practices in their factories as far as the reports of BBC are concerned, would lose hefty contracts of the company. This was visible as three of the Indian suppliers lost the contracts of the company as they were found to employ child laborers in their factories, which are strictly against the labour laws of any country. The company would try to prove itself innocent and would make it a point to prove that the suppliers have resorted to such unethical practices without making it knowledgeable to them. This would lead to many suppliers losing the contracts of the company. But it is highly doubtful whether the working conditions or the pay given to the workers would improve or not. The company lacks transparency in its operations and so the effects of such a revelation on the workers cannot be calculated in the long–term. Relationship of the organization with its stakeholders with respect to the ethical standards According to the company, it abides by all the ethical standards and ensures that its suppliers strictly abide by the ethical standards laid down by the company. But investigations reveal that the company has forced its suppliers to adopt unfair labour practices in order to meet its major objective- to ensure that it offers the lowest possible price to its customers which in turn means that the suppliers needs to adopt measures by which it can lower the cost of production. To ensure that the company is significantly able to lower the production costs, it has outsourced most of it production to the developing countries. Out of the company’s 400 ‘first tier’ suppliers, only 2% of the suppliers are based in UK and the rest operates in the developing countries like India, China and Bangladesh (Primark- Supplier Selection, n.d.). The company has made strict norms to reduce the lead times and to ensure that the suppliers are able to deliver quality products. This has compelled most of the suppliers to resort to unethical practices such as employing child labourers and resorting to sub-contracting. The suppliers do not abide by the ethical codes and are found to maintain poor work standards, unhygienic conditions and unsafe work atmosphere where accidents can occur at any point of time. The workers in these factories are not treated well and are not even given the minimum basic wages. They are made to toil for more than 12 hours per day without even being given a single day of leave. The suppliers do not adopt any welfare scheme for the workers. Some of the workers are not permissible under law to work in UK but the suppliers conceal such facts and employ such people. Such an employment is illegal in the eye of law and the employer can suffer a penalty worth £10,000 for each person if they are found to disobey the Asylum, Nationality and immigration Act of the country (Primark linked to UK sweatshops, January 2009). Primark is largely responsible for making the practice of sweatshop a common phenomenon in the garment industry. In an urge to increase the profits of the organisation, the company is willfully overlooking the working standards followed in its supplier factories as found by the research reports. The company claims that it conducts regular audits to ensure that its suppliers comply with the ethical codes of conduct but questions arise if that is true then how can these suppliers openly disobey the underlined labour standards. Besides, the company has underlined that it is always keen to identify strategies by which it can ensure the greater well being of its employees and ensure that it abides by the ethical codes of business. The company makes it a point that it would adopt measures to ensure that the workers in the company’s suppler factories are treated according to the company’s norms protecting their human rights. But the investigation proves that the company does not adhere to any of the ethical principles it has underlined. Moreover, the company had not undertaken any step to improve the employment condition of the workers. Workers are made to toil more than 90 hours a week with no overtime payments made (Fashion Victims- How cheap is too cheap?, n.d.). They are just treated as units of production and not at all as humans. The company is relentlessly exploiting these workers as they are poor and need money for survival but even by working for longer hours these workers are not able to earn a decent pay. They are not made aware of their well-deserved rights and any sort of protest or attempt to form trades unions is condemned vehemently. Such protests lead to loss of their jobs so they are frightened to protest for their rights. So, it is apparent that the organisation is not at all willing to mend its ways and does not care about the ethical standards that it needs to maintain so that it can strengthen its relationship with its stakeholders. Features of the organisation’s business that raise concerns about corporate responsibility and ethical issues CSR Newswire has defined corporate social responsibility as, “Corporate Social Responsibility (CSR) aligns business operations with social values. CSR integrates the interests of stakeholders—all of those affected by a company's conduct—into the company's business policies and actions. CSR focuses on the social, environmental, and financial success of a company—the triple bottom line, with the goal being to positively impact society while achieving business success” (CSR Newswire, n.d.) In recent times, corporate social responsibility has been an important parameter to judge an enterprise along with the ethical stances undertaken by the companies. Primark promises to adhere to the ethical codes underlined by the company. The company claims that it allows its workers to express their views freely to the management and is given the freedom to form trade unions. They have built a reputation by which they claim to adopt suitable measures to ensure safety of its workers. The company has stated that child labourers are not at all recruited in the factories and all the factories are directed to adhere with the working hours, which should not exceed more than 48 hours in a week. The company claims that it encourages its workers to resort to collective bargaining procedures in order to resolve disputes between the workers and the management. But though the company has claimed that it adheres strictly to the ethical principles and the norms of corporate social responsibility, the investigation carried out by BBC raises questions about the company’s ethical codes. Investigation reports revealed that the company had been indirectly encouraging the sweatshop practices and the wide usage of child labourers in its supplier factories located in UK, Bangladesh, China and India. Due to its constant focus on lowering the cost of production and offering garments at the lowest prices possible to the customers, the company has been playing a vital role in exposing the workers of the supplier factories to immense work pressure, unhealthy and unsafe conditions. The company is also largely responsible for underpaying the workers. The company claims of paying its workers living wages but does not even pay the minimum basic wages that they very well deserve. Such practices raise doubts about the company’s ethical stance and thus raise concerns about the corporate social responsibility measures that the company adopts to benefit the society at large. The company has claimed that it does not condemn the workers from forming trade unions and bears an open attitude as far as resolution of grievances is concerned. But research carried on the supplier factories of the company revealed that the company followed an anti-union approach and was strict in adopting measures by which it can suppress any such agitation within the workers. The workers were also threatened of losing jobs if they expressed any interest of forming trade union bodies. So, fear of losing jobs made the workers undergo exploitation without launching protests. The company had stated that it conducts strict vigilance on the working conditions maintained by the suppliers and ensures that they abide by the ethical codes underlined by the company but investigations have revealed that the working conditions in the supplier factories is deplorable . This makes it totally unfit for the workers to carry out their regular duties. The suppliers do not provide even the basic amenities such as proper sanitary conditions. So, it is totally evident that the company vehemently disobeys the ethical codes outlined by the industry as a whole just to maximize its profits and minimise its overall cost of production. Ethical Codes of Primark Awareness of the stakeholders about the ethical codes of Primark It is often presumed that regulations do not have value in its own right. It is for the subjects to derive the true spirit and use it for the larger benefits. Ethical codes try to inculcate belief in the behavior regarding responsibilities, obligations, rights and duties. Corporate ethics codes are recent initiatives among the companies as they are growing excessively large (Cragg, 2005). Primark has a well-written ethical code, which it claims to practice. It also claims that it ensures that its external stakeholders mainly the suppliers adhere to such codes of conduct. The company states that, “Primark is committed to providing the best possible value for our customers, but not at the expense of the people who make our products” (Primark-Ethical Trading, n.d.). The company claims that it chooses its suppliers very meticulously after undergoing a thorough investigation about the processes followed in the factories. To ensure that the suppliers are adhering to the underlined principles, the company has stated that it conducts audit of the supplier factories with the help of ethical trade personnel and external auditors. To ensure that the human rights are preserved in these factories, these audits are conducted in association with the NGOs. The company claims that it gives it suppliers suitable training to help them adopt the ethical standards outlined by the company from time to time. So, it is apparent that its suppliers are well aware of the ethical standards that they need to adhere but they have been found to grossly disobey such standards. This means that they are able to do so with the indulgence of the company. It is apparent that the company is well aware of such unethical practices being carried out in its supplier factories. Most of the workers working in the supplier’s factories are unaware of the labour standards and their well-deserved rights. The workers working in these factories are mostly poor and illiterate people and so the company relentlessly exploits them. They are not made aware of the labour standards that the company should adhere to. The company also does not make an effort to make these workers know about their rights as these would lead to grievance building and they would understand that they are badly exploited by the company. This might lead to the onset of industrial disputes creating bottlenecks in the production process. The customers of Primark were totally ignorant about the working standards that the company maintained in its supplier factories till the findings of the investigation reports were disclosed. As soon as the customers of the company gained knowledge about the unfair practices the company was involved in, it led to mass protests of the customers, which compelled the company to take measures in order to prove its innocence. A debate on Primark’s responsible behaviour Primark has been enjoying a very good reputation of being a company, which has been strictly adhering to the ethical principles. The company is one of the active member’s of a body known as Ethical Trading Initiative (ETI). This was formed to find out measures by which the working conditions of the workers employed in the company’s various supplier factories could be improved considerably. The company claims that it is always finding out techniques to ensure welfare of its workers. For that it has entered into partnerships with some of the leading NGOs and welfare groups. They have become member of such a group known as Indian National Homeworker Group. The company has successfully formed such partnerships with similar worker welfare groups both in China and India. As far as their ethical codes and standards are concerned, they claim to adopt techniques and measures that would ensure the welfare of the workers but investigations have revealed that the company is not at all keen to adhere to their ethical codes. In order to gain the trust of their customers, they have entered into such partnerships but have been found to be reluctant to adopt suitable measures by which they can ensure the welfare of their workers in their supplier factories. Suggested Improvements After analyzing the pros and cons of the issue, it is apparent that the company is totally driven by profit objective. In order to maximize its profits, the company has adopted measures to lower its cost of production abnormally. To minimise the labour overhead costs, the company had outsourced the major portion of its production to the third world countries like China, India and Bangladesh where labour is cheap and readily available. Moreover, the suppliers were able to maintain poor labour standards without facing legal hassles mainly in China because the country has weak labour standards. The company should understand that to increase its growth prospects in the global arena and to retain its market reputation, it needs to adhere to the ethical codes and ensure that these codes are strictly followed in its supplier factories. It should realise the fact that the workers are the key resources, which would lead to its greater profitability and growth in the industry, so the company should adopt worker welfare schemes and adopt steps to reduce their exploitation. The company’s reputation has suffered a serious blow with the disclosure of the working conditions that its suppliers maintain in their factories, so in order to gain back the trust and confidence of its customers it needs to adopt appropriate measures and improve the working conditions of the workers employed in its supplier factories. References BBC, June 2008. Primark fires child worker firms. News. [Online] Avaliable at http://news.bbc.co.uk/2/hi/business/7456897.stm [Accessed 16 June 2009] Corporate Social Responsibility, Responsiveness, and Performance, No Date. [Online] Avaliable at http://www.business.utah.edu/~mgtab/BS-02.ppt [Accessed 16 June 2009] CSR Newswire, No Date. Definition of CSR. Middlebury College. [Online] Available at: https://segueuserfiles.middlebury.edu/envs0401a-f05/DefineCSR.doc [Accessed 27 June 2009]. Cragg, W. 2005. Ethical Codes, Corporations and the Challenge of Globalisation. Edward Elgar Publishing. Friedman, A. L. & Miles, S., 2006. 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