Analysis of the Efficacy of an Ethics Management System into Mattel Incorporated - Essay Example

I. Introduction This paper is an analysis of the efficacy of an ethics management system implemented in a certain company. For thediscussion of this paper, the undersigned elected Mattel Inc., the famous company known for its Barbie dolls as a subject of discussion in determining the efficacy of its ethics management system implemented on its manufacturing operation which in this case, was the General Manufacturing Principles or GMP. II. Profile of the Company for Discussion: Mattel Incorporated Mattel, Inc. is headquartered at El Segundo California specializing in the production and selling of toys. It has a market reach to more than 150 countries with 36 offices in different countries and is considered as the world's biggest toy manufacturer in the world. In 2010 it registered a net income of 684.861 and its product range includes Fisher Price, Barbie dolls, Hot Wheels and Matchbox cars, Masters of the Universe, American Girl dolls and board games. It also introduced video game consoles in the 1980’s as part of its product diversification and, in the early 1980s, introduced video game consoles. The company derives its name from its founders Harol “Matt” Matson and Elliot Handler, who founded the company in 1945. Ruth, Elliot Handler’s wife was the one responsible in introducing the Barbie dolls product line for the company when she became its President in 1959. The introduction of Barbie doll with its talking dolls and toys among Mattel’s product line revolutionized the toy industry that only few years later, with the product line Chatty Cathy in 1960 and See ‘N Say toys in 1965, Mattel became as the number one toy manufacturer in America. III. The Global Manufacturing Principles (GMP)as an Ethics Management System In November 1997, Mattel announced the creation of a global code of conduct for its production facilities and contract manufacturers. Mattel dubbed it Global Manufacturing Principles (GMP), an operational corporate code of ethics which covered such issues as wages and hours, child labor, forced labor, discrimination, freedom of association, legal and ethical business practices, product safety and product quality, protection of the environment, and respect for local culture, values, and traditions (Sethi et al, 2011, pg. 483-484) which will be used on all manufacturing plants and subsidiaries of Mattel. Mattel’s GMP policy applies to all parties that manufacture, assemble, or distribute any product, or package bearing the Mattel logo. At the time the GMP was introduced, Mattel Inc. was registering a $4.5 billion annual revenue. This initiative was a result of an innovative and proactive response to the social challenge that confronted the toy industry by crafting a code of ethics that will be implemented in all of Mattel’s manufacturing operation (MIMCO/ICCA Audit Report, 1999). IV. The Effectiveness and Failure of Global Manufacturing System (GMP) In a significant way, Mattel’s version of corporate ethics as enunciated in its Global Manufacturing Principle was different among the host of other corporate ethics employed by other companies and industry. Initially, Mattel Inc. showed commitment itself for its implementation along with its strategic partners to comply with all the provisions of the GMP (Sethi et al, 2011, pg. 487). While other corporate entity only crafts corporate ethics to assuage public distrust on corporate malpractice as it employs cheap labor in underdeveloped countries with lenient enforcement of mandated minimum state wage and benefits, health and safety consideration, pollution and environmental concerns, Mattel’s Global Manufacturing Principles (GMP) manifested genuine concern in implementing a sound corporate ethics management system when it made as one of the major component of its GMP that its strategic partners and suppliers will be audited by an independent auditor such as MIMCO and ICCA (Mattel Independent Monitoring Council for Global Manufacturing Principles, the precursor of ICCA, International Center for Corporate Accountability) alongside with its own internal audit. In a way, this provides an ideal check and balance of audit, as the internal audit’s flaw will be countercheck by an independent outside auditor while the external auditor’s efficacy will be tested by the internal audit to ensure that GMP is properly enforced and implemented. This also provides a greater transparency about the management and labor practice of Mattel Inc. During the initial phase of introduction of Global Manufacturing Principles at Mattel Inc., GMP had a strong support from the top management that hastened the implementation and efficacy of GMP. This initiative of public disclosure and greater transparency motivated its line managers as the market is recognizing its efforts to align and ground its business practices with proper business. This increased trust among the public and enhanced corporate reputation provided its employees a sense of professional satisfaction. But equally fast in its implementation, GMP’s decline was also equally sharp as the company’s commitment to comply with GMP’s component of transparency lost support from the top management. Also, as previously enunciated in its GMP code of conduct that Mattel will discontinue conducting business with any entities who are found to have failed the GMP audit report, as enunciated by its former President of Worldwide Manufacturing Operations, “according to Joseph Gandolfo, then President of Mattel’s Worldwide Manufacturing Operations, however, manufacturers that do not meet our standards, or refuse to take swift, corrective action to do so, will no longer work for Mattel (PR Newswire, 1997)’’. In practice however, Mattel Inc. became hesitant in implementing the sanction of its GMP as contained in the audit report “as we have noted in earlier parts of this article, notwithstanding Mattel’s formal commitments and assertions, the company was quite reluctant to discontinue its business relationships with vendors that were charged with repeated violations of GMP standards” (Sethi et al, 2011, 514). Plants in China as audited by MIMCO/ICCA were found to be blatant violators of the GMP to the point that it coached its employee how to pass the GMP audit yet Mattel continued to do business with them. During late 2008 when ICCA was about to conduct its third round of audit among Mattel’s strategic partners to check if previous findings were addressed, the GMP audit however was unilaterally discontinued by Mattel Inc. This was later replaced by Mattel’s new management ethics system called “Corporate Responsibility”. It however lacked one very important component which is the audit of an independent party to ensure its objectivity. Instead, “it joined the toy industry’s ICTI Care program. This program professes to carry out independent audits. However, it does not provide any details as to how these audits are carried out, so that one might assess the quality and independent character of these audits. Second, the findings of these audits are not publicly disclosed (Sethi et al, 2011, 515). While its webpage contained audit reports (Mattel, 2011), it is however very hard to independently verify its objectivity and fairness. V. Analysis of the Sufficiency or Potential Effectiveness of the Ethics Management System. The GMP could have been sufficient and an effective ethics management system for Mattel Inc. which required only minor improvement had it been continued and not replaced by its new management ethic system “Corporate Responsibility”. One component of Mattel’s GMP which is not only relevant to this class but also to the course I am majoring is the independent audit component of GMP, which in this case was done by MIMCO/ICCA. It goes without saying that such external and independent audit is vital to ensure the objectivity and accuracy of the implementation of such ethic management system and to validate the accuracy of Mattel’s internal audit findings through external audit. But as it is the nature of the audit is to be objective, audit findings will not always be pleasant and favorable to those who commissioned it and can sometimes its results can be inconvenient. Audit results of GMP concluded that while in general,” Mattel’s provision of GMP has been generally complied, there were plants and areas which this was not implemented as shown in the audit result” (MIMCO Audit Report, 1999, 11). This was manifested in the audit of Mattel’s strategic partners in China whose payroll practice to its employees is not consistent and even violates the GMP’s code of conduct. It lacked transparency and the computation is contestable and doubtful and runs counter to Mattel value of transparency and fairness. While it is enunciated in Mattel’s GMP that it will cease to do business with partners who does not conform with its provision, Mattel hesitated to discontinue its China operation. Relating to the ethical practice of my course in Accounting which is objectivity not only in the conduct of the auditors but also to those who are audited and the method that they are being audited, there is a practice among Mattel’s Strategic Partner in China which is grossly unethical and unacceptable. This is when they deliberately “coached” its employees to pass the GMP audit. This practice is not acceptable in the Accounting profession and the undersigned also believes that it is a very serious ground for undermining the integrity of the audit and as such, Mattel should discontinue doing business with them. The practice is tantamount to fraud and should not be tolerated. If its Strategic Partner cheats in one area, it is very likely that it will cheat on other areas as well that can undermine the quality of Mattel’s product by cutting corners. Mattel however hesitated and violated its own code of ethics which it has initiated and the repercussion showed later when it had to recall products that are made from China. Mattel instead replaced it with “Corporate Responsibility” which lacks the audit component that was inherent in its previous code of ethics which is GMP. Such, there is no assurance whether such code of ethics is really observed and practice. VI. Conclusion: Recommendations to Improve the Ethics Management System The current ethics management system of Mattel is called “Corporate Responsibility”. While it spells of good corporate governance and sound business practice, it however lacks the assurance that it will be implemented and enforced as it lacks the component of being independently verified and audited. And as such, only becomes suggestive to assuage public’s distrust against businesses unethical practices. It is suggested that to make such ethics management system more credible and effective, the former component of GMP’s external and independent audit entity like MIMCO/ICCA should be integrated in the new ethics management system. This will ensure objectivity and fairness that such ethics management system is implemented and enforced not to mention more credible. For the management’s benefit, it will guarantee them that the intended ethical practice of the company is implemented and enforced all through-out its operation and for its own sake can apply remedial measures to any deviation of its own set standard. This will prove to be beneficial to the company as it will enhance its corporate image by being more credible in implementing its ethics management system. In addition, it is suggested that such audit findings to be made available to the public especially to those who are consumer’s of Mattel’s products for greater transparency and to make itself more accountable to its customers. It is also advised that Mattel should launch a strong information campaign to orient its employees and strategic partners about its ethics management system to make its practice and enforcement more effective. This orientation of the employees and strategic partners about Mattel’s ethics management system has been found lacking in the previous version code of conduct (GMP) and it is hoped that this deficiency will be address in Mattel’s new management ethical system “Corporate Responsibility” by including and making it mandatory it in the employee orientation. It can also add one additional component which Global Manufacturing Principle lacks which is an incentive to its strategic partners to comply. Experience with GMP audit in China revealed that its local counterparts are very hesitant to cooperate and implement certain aspects of the management ethical system if it entails capital spending. As it was, GMP had only one component of enforcing it and the manner was even punitive which is to discontinue business with a partner or supplier who constantly fails GMP standard. It does not clearly provide any reward or incentive to partners and suppliers are fully compliant with it. It is highly suggested that there should be a reward aspect in the new ethical management system to make fulfillment more enticing. The initiative of auditing management ethics system was an idea that came from its top management. Such, Mattel Inc. already knew how to implement this as it has already done it before. To implement objectivity and achieve efficacy, it has to partner with an external and independent auditing entity who will check whether such intended code of ethics is implemented in the company and its strategic partners. Time changed and the nature of operation of Mattel and its strategic partners might have become more complex and it is suggested that the composition of such auditing entity must come from different disciplines that is not only expert on the ethical practice of a business but must also knowledgeable on the other areas of the business like manufacturing, distribution and other aspects of business to ensure the efficacy, appropriateness, scope and scale of the audit. Finally, Mattel should not succumb to the industry pressure that if there is no foreseeable and immediate benefit of implementing a proactive management ethics system, nor adverse consequences for not implementing it, that it should not be implemented. It was right the first time when it initiated GMP to take concrete action against exploitative corporate practices of manufacturing their toys (Sethi et al, 2011, 484-485). There may have been other factors and issues that led to the dissolution of GMP. One of which that the company may concentrate on its core business with less stringent ethical practice so that it can bounce back to profitability. But this perspective is myopic and can get back to the company evident with Mattel’s experience with China that made Mattel’s products a suspect due to the series of product recall in that region (Palmeri, 2007). This is not surprising however. During the earlier phase of GMP’s audit, it has been found that Strategic Partners in China was not only cutting corners on quality, but even cheated with the audit by coaching its employees that are to be audited. The product recall was just a by-product of Mattel’s previous remission of fully implementing its GMP. Such, the practice and implementation of any management ethics system should be looked at in a long-term. That though there may be no immediate benefit for the company, it will however register in the long-run through absence of product recall, high employee satisfaction and enhanced corporate image. REFERENCES: Article for Global Focus, "Reflections and Perspectives" Section, MIMCO Audit Report, 1999, 12/15/03 Page - 11. Sethi, S.; Veral, Emre; Shapiro, H.; Emelianova, Olga. Mattel, Inc.: Global Manufacturing Principles (GMP) - A Life-Cycle Analysis of a Company-Based Code of Conduct in the Toy Industry.Journal of Business Ethics, Apr2011, Vol. 99 Issue 4, p483-517, 35p, 1 Chart PR Newswire Association LLC.: 1997, November 20, Mattel, Inc. Launches Global Code of Conduct Intended to Improve Workplace, Workers’ Standard of Living. Palmeri, Christopher. What Went Wrong at Mattel.BusinessWeek Online, 8/15/2007, p7-7, 1p Retrieved from: on June 27, 2011 at 8 pm. Retrieved from on June 27, 2011 9 pm Read More