Deutsche Lufthansa AG Moral Audit Report - Case Study Example

Lufthansa: Ethical Audit Report Introduction Over the years, public sensitivity to unethical behaviours has increased. There is a growing sense of ethical norms among customers, suppliers, companies and employees. The standards have been raised, inspiring transparency and equality in the workplace. This ethics audit is directed to the German-based company, Deutsche Lufthansa AG, one of the world's leading airlines. The study aims to gain perspective on the ethical practices of the company as an employer and, as a business entity. It aims to present facts and incidents relating to ethical policies involving human resources, financial disclosures and corporate social responsibilities. Furthermore, the study seeks to identify actual implementations of the said ethical policies to personnel of all levels. The methodology used was primary research through Lufthansa's official website, www.lufthansa-financials.com, as well as news articles involving the company. Secondary research on business ethics practices online and in school libraries were also conducted. During the course of the research, several limitations were encountered: direct interview with company officials and employees due to inaccessibility. Company Overview Deutsche Lufthansa AG is a globally operating aviation group with around 400 companies and subsidiaries. It is active in five (until the end of 2006, six) business segments. Passenger Transportation is the Group's core business activity. Logistics, MRO, IT Services, Catering and Leisure Travel are further segments of the group. The Leisure Travel segment is due for disposal according to the supervisory board decision on 7 March 2007 and after approval of the competition commission.Annual average Group employee numbers were 93,541. The Group generated around EUR 19.8bn in revenue ("Portrait")." Findings Management System Lufthansa is a publicly traded company. As such, it is under the scrutiny of the German government. "It operates with the customary two-tier management system in Germany comprising an Executive and a Supervisory Board. The Executive Board is independently responsible for company management. The Supervisory Board appoints, supervises and advises the Executive Board ("Corporate Governance at Lufthansa")." This two-pronged approach checks and balances senior and junior managers. It encourages transparency in the workplace; effecting self-regulation by decentralizing power that could lead to collusions and unethical practices. Staff & Welfare In its quest to offer competitive remuneration, permanent jobs and attractive working conditions, the company has implemented a wide range of career-development measures such as trainings and an integrated study/work courses. "Each year Lufthansa invests around 300m in training measures for their employees. The Lufthansa Group offers over 40 different vocational courses with a technical, commercial or information technology focus. Another growing field is eLearning. Last year around 450 different learning programmes with a total of 1,762 teaching hours were in use at Lufthansa ("Employees")." Lufthansa employs people from all over the world, seeing opportunities in diversity. It provides in-house medical service for staff in handling health and safety issues. Governance Code International standards on Corporate Governance have been developed in recent years with primary focus on protecting the interests of the shareholders. The Corporate Governance Code was developed by the German Commission in February 2002 "to make the Corporate Governance System transparent and comprehensible. The code recommends clear and transparent presentation of a company and its business development, establishment of structures and processes which lead to proper and responsible management, administration and supervision. Such increases the trust of the investors and other providers of capital ("In General")." Since 2002 up to present, Lufthansa has been complying with the code in full, amending the Articles of Association to reflect relevant regulations. The amendments and all financial reports are publicly available at the company's website. The company's latest statement, based on the Executive and Supervisory Board Meeting on 6 December 2006, in accordance with Article 161 of the German Stock Corporation Act, declared: "... that the recommendations of the Government Commission on the German Corporate Governance Code...have been complied with in full and will continue to be complied with in full ("Declaration of compliance pursuant to 161 AktG")." In September 2004 Lufthansa adopted a compliance programme on three essential building blocks: competition, capital market and integrity. The Compliance Programme aims to achieve the following: a) familiarise employees with relevant provisions of cartel legislations to minimise or rule out cartel risks for Lufthansa; b) give employees statutory regulations that govern the capital market in order to ensure that neither Lufthansa nor its employees are guilty of breaches of the law; c) document compliance with legal requirements in all Lufthansa's commercial dealings. Directors' Dealings "The purchase and/or sale of Lufthansa shares on the stock market, options or other derivative products by Executive Board, Supervisory Board and Airline Board members and their family members (so called "directors' dealings") are disclosed immediately on the Internet site when the amount exceeds the minimum level of 5,000 Euro during a year. If the total is greater than one per cent of the total shares issued by the company, a detailed report on the ownership of shares, including options or derivatives is made available. In the year 2005,the following transactions occurred: 1.) 11 November: the Lufthansa CFO Dr. Karl-Ludwig Kley purchased 2,500 Lufthansa shares (price: EUR 11.45) and Carl Sigel (member of the Passenger Airlines Board) 2,472 Lufthansa shares (price: EUR 11.54); 2.) 22 November: Dr. Holger Htty (member of the Passenger Airlines Board) purchased 600 Lufthansa shares (price: EUR 11.40)through the stock exchange. So far to the knowledge of the company, no member of the Executive or Supervisory Board possesses company stock, options or derivatives worth more than one per cent of the shares issued by the company. The total shareholding of all Executive and Supervisory Board members does not surpass one per cent of the issued shares ("Management Boards")." Conflicts of Interests As discussed in the Corporate Governance Code, Management and Supervisory Board are subject to rules affecting conflicts of interests (Section 4.3 & 4.4). Basing from the declaration of full compliance to the code, Lufthansa employees are guided by such. Setting Conflicts of Interest for management play an important role in ensuring that both the Supervisory and Executive Management levels are subject to comprehensive non-competition obligation. Non-competition obligation generally involves "not pursuing personal interests in the decisions or use of business opportunities intended for the enterprise for oneself, as well as disclosing conflicts of interests to Supervisory Board without delay and informing other members of the Board thereof (Government Commission, 11)." Taking on sideline activities is also not allowed unless approved by the Supervisory Board. Sustainability: Corporate Social Responsibility Lufthansa is committed to striking a balance between entrepreneurial sustainability and environmental protection, seeing the two as mutually in-exclusive. "They have had binding guidelines on environmental precautions for over ten years, recognised by financial experts. In recent years the group has received various awards in the most important Sustainability Indices, namely, the Dow Jones Sustainability World Index (DJSI World) for 2007/08 and in the internationally acknowledged FTSE4Good Index for 2006. Moreover, Lufthansa is also included in the Ethibel Investment Register and Ethibel Sustainability Index (ESI) and of the ASPI Index ("Indices", 1)." As part of its commitment to be socially responsible, Lufthansa supports several environmental protection projects including protecting its heraldic bird, the crane, as well as its staff-initiated "HelpAlliance" that oversees about a dozen worldwide projects involving apprenticeship facilities, orphanages, and projects for street children, bush hospitals. It is also involve in a number of scientific and development projects on climate and noise research, high-altitude radiation and occupational medicine. Over the years, the company has consciously been reducing the average kerosene consumption per passenger within the Lufthansa fleet. It is also the first airline in the world to be a member of the UN Global Compact, launched by UN Secretary-General Kofi Annan. This compact aims at upholding Human Rights, social and ecological minimum standards as well as combating corruption. Conclusions / Recommendations Exemplary leadership is best shown through committed implementation of the rules and regulations of the company. Lufthansa's membership to relevant national and international organizations, as well as its full implementation of the Corporate Governance Code and many other compliance guidelines, shows that it is serious in reinforcing ethical measures within the company. Both supervisory management and executive management along with its 92,000-strong staff all follow the same work guidelines. Transparency is present and alive in the company protecting investors relations altogether. Although the company was involved in a price fixing scam several years back and paid an $85m settlement in 2006, it can be assessed that it learned its lesson and is now preventing history to repeat itself through the implementation of the Compliance Programme, protecting its employees along the way. The value it places in honing of employee competencies through sustained training and apprentices programme is also commendable. Equally, the involvement of the company to a social development and to projects protecting the environment is worthy of applause. It is fully aware of its ethical responsibilities to contribute to the development of the marginalized sectors of society, as well to Mother Nature. By and large, it is a great company to work with. Lufthansa is undertaking a committed front to implementing major moral standards enabling it to behave in a corruption-free and ethical manner. References Portrait. 8 March 2007. 30 February 2008. Management Boards. 2008. 2 March 2008. Germany. Government Commission. German Corporate Governance Code.14 June 2007. 11. 2 March 2008. In General. 2008. 4 March 2008. Declaration of compliance pursuant to 161 AktG. 2008. 1 March 2008. Corporate Governance at Lufthansa. 2008. 30 February 2008. "Indices." Responsibility. 2008. 1. 3 March 2008. Employees. 2005. 02 March 2008. Read More