Customers in Corporate Decision Making - Essay Example

Contemporary Business Issues Table of Contents Table of Contents 2 s And Suppliers Should Only Be Considered In Corporate Decision Making In Order To Maximize Profit. Explain How This View Relates To Concepts of The Stakeholder 3 Arguments In Favour Of Adopting an Approach Based On Stakeholder Theory 6 Arguments against Adopting an Approach Based On Stakeholder Theory 8 What Companies Generally Hope To Achieve Through The Adoption Of An Ethics Policy? 9 Main Ethical Issues Facing Members of ASDA’s Staff Negotiating with Suppliers 11 Examine the Ethics Policy of ASDA and Evaluate Whether It Is Likely To Influence ASDA’s Negotiating Staff In Balancing The Interests Of Suppliers And Customers 13 References 15 Bibliography 16 Customers And Suppliers Should Only Be Considered In Corporate Decision Making In Order To Maximize Profit. Explain How This View Relates To Concepts of The Stakeholder Profit maximization is considered as one of the main responsibilities of directors and is the primary objective of any business. According to Milton Friedman, an American economist, customers and suppliers should only be considered in corporate decision making to maximise profit, but if the responsibilities of business is seen then it can be found that there are many other stakeholders which are also to be considered and which affect the profitability of business. At present interdependence among various stakeholders is considered vital for the success and growth of any firm. ASDA is a supermarket chain with direct focus on its customers and suppliers. It purchases goods from its suppliers and sells them to its customers. It does not have direct influence on its profitability by any other stakeholders. Although customers and suppliers are the main components of ASDA’s profitability, various other stakeholders also have to be considered and taken into account before arriving into any decision. These variables have an indirect effect on the working and profitability of the company. In respect of ASDA’s profitability and corporate decision making, it would be wise to take into consideration the following stakeholders: a) Shareholders: The aim of the company should be to maximise the return of the shareholder as they have invested their wealth and time in ASDA. Company should decide that whether the decision taken by the company would be right for the shareholders and their wealth or not. b) Customers: Customers are another important component which should be considered before arriving at any decision. Customers basically want good quality products at the lowest possible price. Company must see that they generate profit meeting the needs and wants of its customer at the most efficient price. Profit should be generated from customer satisfaction and not by their exploitation. ASDA assured its customers regarding the products it made was not an outcome of exploitation but behind the scene its workers were even not getting enough wages. c) Management and employees: These are the pillars of any organisation or company. In ASDA the condition of its employees was worst. If worker’s interest is not checked by the company, they will not work to the best of their capability making the company incompetent. No proper attention was provided to the needs and comforts of the workers. ASDA must check that their profitability motive does not overlook their employees. d) Government: Government is another party who does affect the profitability of the company. Many a times, government intervenes into the working of the business through the formulation of new rules and regulations regarding the functioning of the company. In Bangladesh, government requested ASDA to increase the wages of the workers by 20%. Such interference can legally bind the company to change its policies. e) Suppliers: Suppliers are important for ASDA working procedure as they do not manufacture their own product. ASDA got a supply of their products from suppliers and sold it to their customers. Suppliers are crucial for revenue generation of ASDA. Therefore suppliers are one of the major factors to be considered while taking profitability decision. Whenever ASDA arrives at any decision it must see that it does not have a negative impact or does not override the interest of its suppliers. f) Society: At present society has become an important part of the business. As every business operates in a society, it has a number of responsibilities towards the society. CSR have gained increasing importance in past few years. Every strategic decision that ASDA takes should be consistent with the interest of the society. ASDA recently has announced a uniform for children including shoes at a price tag of £9.96, for anti poverty campaign as its corporate social responsibility (Weaver, 2007). Arguments In Favour Of Adopting an Approach Based On Stakeholder Theory The adoption of stakeholder theory in the firm’s decision making has helped ASDA in the following ways: a) Quality relationship with suppliers: Stakeholder theory can lead to better relationship with the suppliers of ASDA. ASDA has been neglecting its supplier’s interest by providing them payments which are at times below the production cost. Considering suppliers interest in decision making will help suppliers to gain benefit from the company. Following stakeholder theory will lead to the benefit of suppliers which will lead to better relation between ASDA and suppliers (Crane & Matten, 2007). b) Better co-operation from workers: ASDA has failed to achieve co-operation from its workers due to negligence of the interest of workers by ASDA. Workers were not compensated fairly and had to work more i.e. overtime. Application of stakeholder model will result in improved working conditions for workers and protection of their interest which will help ASDA in achieving co-operation from workers (Crane & Matten, 2007). c) Improved public relations: Public relation is concerned with maintaining good relation with the public for maintaining goodwill of the business. If ASDA takes into consideration the welfare of the society like it did by providing cheap school uniforms, it will achieve better image in the mind of public (Crane & Matten, 2007). d) Higher employee motivation: Employees of ASDA are motivated to work just for their basic wages which they need for living. There are no other motivation factors involved on the working of the workers. If ASDA takes into consideration the welfare of its employees, then they will be highly motivated and co-operate better with the management to serve their best to the company (Crane & Matten, 2007). e) Reduced impact of pressure groups on firm’s activities: As in the case of ASDA, many pressure groups were influencing the working of ASDA. Recently the pressure group Farmers for Action threatened ASDA to increase the price of milk. Such activity leaves an impact on the working and the goodwill of the firm (Ward, 2004). f) More favourable reporting of firm’s activities in media: ASDA’s media reporting has not been favourable to this point. Many reporting companies like Oxfam, War on Want, Competition Commission have reported negatively against the firm activities. Maintaining a good relation with them will help ASDA to get good publications from these media companies (Crane & Matten, 2007). Arguments against Adopting an Approach Based On Stakeholder Theory A few of the major drawbacks of adoption of stakeholder theory by ASDA are: a) Problem in decision making: Implementation of stakeholder theory forces business to take into account all the stakeholders at the time of decision making. It directly affects the decision making of the company leading to increase in decision making time and ineffective decision for the business. b) Not possible to fulfil all the wants or demands of all stakeholders completely: Often companies are not able to meet all the needs or demands of the stakeholders. This will show the inefficiency of the company in respect of resources and decision making. It may also lead to a bitter relation between the stakeholder and the company. c) Inefficient performance of business due to increased responsibility: With the adoption of stakeholder theory, ASDA has responsibilities towards many other stakeholders rather than only on shareholders. This increases the responsibilities of the business which may lead to inefficient performance of business with respect to operational activities. What Companies Generally Hope To Achieve Through The Adoption Of An Ethics Policy? The discipline of ethics deal with the study of norms, system or value for the distinction of what is wrong and what is right. Business ethics are a set of code of conducts and principles related with the right and wrong of human conduct governing the working of the business. Business ethics governs business working and behaviour and implies companies to take into consideration all other aspects or responsibilities of the business including obligations and responsibilities of businesses to customers, national and multinational authorities, employees, other businesses and the environment rather than focussing only on maximising profit for the shareholders. An ethical firm is socially responsible towards all the stakeholders related to its business. Today almost all corporate houses have adopted business ethics in the working of their business. Corporate houses have realised the importance of ethics in their business. Adoption of ethics not only helps business to build a strong reputation in the market but also helps in growth of any organisation. It helps companies in building a good brand name in the market and increases its goodwill which creates trust among the stakeholders and attracts best talents. Most of the companies today are using business ethics to gain competitive advantage on its competitors. This concept has been defined as the “hidden logic of business ethics” (Butcher, 2008). ASDA’s corporate ethical policy forced its suppliers to comply with its terms and conditions and provided the company with the advantage over its suppliers regarding rights. According to is ethical policy if any of its suppliers failed to meet its business standards, ASDA possessed the right to cancel any of its deals and cease to continue doing business with any of its suppliers. ASDA through the adoption of corporate policy has been successful in influencing the customers that their products have been made without any kind of exploitation and under sound working conditions. It helped ASDA in negotiating with its suppliers and getting better deals from them. Main Ethical Issues Facing Members of ASDA’s Staff Negotiating with Suppliers ASDA have been gaining advantage over its suppliers through its ethical policy. Many of the suppliers in Britain were supplying goods only to one supermarket, therefore in order to avoid any financial ruin they had to comply with the terms of the supermarket. ASDA followed a set of standards for their suppliers while selecting them. As per ASDA these guidelines were to be strictly followed by its suppliers to meet their criteria and standards, but to the worst side many of its suppliers were not meeting their criteria. A few of the ethical issues faced by the members of ASDA while negotiating with their suppliers are: a) Employment is freely chosen: ASDA’s policy regarding employment was that employment should be freely chosen by the worker but in factories of suppliers workers were forced to work overtime to increase production and to meet production deadline (ASDA, n.d.). b) Freedom of association and the right to collective bargaining are respected: One of the ethical standards for the suppliers of ASDA was freedom of association for workers and for collective bargaining, but in many factories of suppliers there was no trade union for the employees. Moreover whenever employees tried to organise the week overtime work to meet the deadline, management with the help of police would punish the workers (ASDA, n.d.). c) Compensation: ASDA was adopting a policy of fair remuneration to its worker but its suppliers were only providing £13.97 a month in Bangladesh which was not even enough for their basic needs. If the workers wanted to earn extra money they had to produce even more extra units of garments and work extra hours irrespective of the overtime. It was reported that just to earn their basic income they had to work 10-14 hours a day (ASDA, n.d.). d) Working hours are not excessive: ASDA implemented that the working hours of their workers was not excessive but in factories workers had to work about 60 hours a week which was far beyond the standard 48 hours a week. The normal working hours of workers was 10-14 hours a day (ASDA, n.d.). e) No harsh or inhumane treatment is allowed: According to ASDA no harsh or in humane treatment was allowed to its workers in the factories of its suppliers. In contrary to this policy, the workers in the factories were treated roughly and inhumanely. To mention this issue, when the workers tried to organise a week’s overtime work for meeting the deadline, management punished them with the help of law keepers (ASDA, n.d.). f) Immigration law and compliance: As regard to immigration law and compliance, the suppliers were not providing proper wage to the workers of Bangladesh for their basic needs and when Bangladesh’s government suggested ASDA to increase the wages of its workers, ASDA did not respond. Another aspect is of working time. As in Bangladesh the standard working time of workers was 8 hours a day and 48 hours a week, but in factories situation was different where workers had to work around 10-14 hours a day. In one factory condition was even worst with workers working for 50 hours of overtime a week for meeting the deadline (ASDA, n.d.). Examine the Ethics Policy of ASDA and Evaluate Whether It Is Likely To Influence ASDA’s Negotiating Staff In Balancing The Interests Of Suppliers And Customers ASDA’s ethical policy was to ensure that the goods that their customers bought from them were produced in acceptable and sustainable working conditions and without any kind of exploitation. This policy was maintained by ASDA through implementation of strict standards to its suppliers. The standards implemented to suppliers were: a) Freedom of employment b) Freedom of association and the right to collective bargaining are respected c) Safe and hygienic working conditions d) Compensation e) Moderate working hours f) No discrimination is practiced g) Regular employment is provided h) No harsh or inhumane treatment is allowed i) Immigration law and compliance (ASDA, n.d.). The policy adopted by ASDA will definitely affect the negotiation staff of ASDA in balancing the interest of customer and suppliers. As it is clear from the above evaluation, that suppliers of ASDA do not fulfil the standard criteria. On the other hand, ASDA assures its customers that the products produced are free from any exploitation. Therefore if ASDA supervises the interest of its customers than it may have to loose many of its suppliers and because one supplier provides good to only one supermarket, its supplier will go on to a financial ruin. Similarly if ASDA goes for its suppliers to which it is already paying less than the production cost, its ethical issues will be violated and its reputation may fall which will decrease its customers and its customers may shift to other firms. ASDA’s negotiating staff may have to face a tough situation in balancing the interest of both the customers and the suppliers for mutual benefit as both of them are of vital importance to the company. References ASDA, No Date. Ethical Policy. ASDA Wal-Mart Policy on Ethical Trading. [Online] Available at: http://www.ASDAsupplier.com/what-is-ASDA/ethical-policy [Accessed November 02, 2010]. Butcher, D. R., 2008. Is Goodwill Bad Business? Industrial Market Trends. [Online] Available at: http://www.section404.org/UserFiles/File/research/Is%20Goodwill%20Bad%20Business%20%28Thomasnet%29.pdf [Accessed November 02, 2010]. Crane, A. & Matten, D. 2007. Business Ethics: Managing Corporate Citizenship and Sustainability in the Age of Globalization. Oxford University Press. Ward, S., 2004. Anger as ASDA Targets Pressure Group. Farming Crisis. [Online] Available at: http://business.scotsman.com/farmingcrisis/Anger-as-ASDA-targets-pressure.2583047.jp [Accessed November 02, 2010]. Weaver, M., 2007. Ethical Fears over ASDAs £10 School Uniform. Environment. [Online] Available at: http://www.guardian.co.uk/environment/2007/may/30/supermarkets.schools [Accessed November 02, 2010]. Bibliography Azmi, R. A., 2006. Business Ethics as Competitive Advantage for Companies in the Globalization Era. Globalization, Business Ethics & Competitive Advantage. [Online] Available at: www.pitt.edu/~super7/24011-25001/24451.ppt [Accessed November 02, 2010]. Tutor2u, No Date. Introduction to Business Ethics. Business Ethics. [Online] Available at: http://tutor2u.net/business/strategy/business-ethics-introduction.html [Accessed November 02, 2010]. Read More