Business Ethics and Social Responsibility: Doing Well by Doing Good

Chapter Four ASSESSMENT 240 TOTAL POINTS Business Ethics and Social Responsibility: Doing Well by Doing Good Review Questions (125 TOTAL POINTS) 1. How do relative ethics compare to universal ethical standards? Should ethics ever be relative? Provide a rationale for your response. 10 PTS 2. What is an ethical dilemma? Give 3 examples of ethical dilemmas that workers or managers might face in a business setting. 15 PTS 3. Compare the role of the individual and the role of the organization in ethical decision making. How can business promote an ethical climate? 10 PTS 4. When might the need for social responsibility conflict with the need to maximize profits? When the needs conflict, how should a firm decide which path to pursue? 10 PTS 5. Do you believe that employers should respond to employee needs for work-life balance? Why or why not? What are the trade-offs? 15 PTS 6. What are the 4 consumer rights originally outlined by President Kennedy in the early 1960s? How would you rank those rights in terms of importance? Why? 20 PTS 7. Define the concept of planned obsolescence. Is this strategy ethically unsound? Why or why not? 5 PTS 8. What is the difference between corporate philanthropy and corporate responsibility to the community? Which do you think is better? Why? 10 PTS 9. Define sustainable development. What are 3 examples of successful companies that have pursued sustainable development programs? 20 PTS 10. How can domestic companies that outsource manufacturing to foreign factories ensure that their vendors adhere to ethical standards? 10 PTS Application Questions (60 TOTAL POINTS) 1. If you ve ever spent more than 60 seconds in the hair-care aisle at Walgreens or CVS, you have likely seen products by Organix. The products by the trademarked brand are packaged in rounded, solid-color bottles with gold or black text describing signature

ingredients, such as Brazilian keratin therapy, Moroccan argan oil, teatree mint shampoo. The shampoos and conditioners generally sell for between $5 and $10. In 2012, the brand generated $250 million in revenue. Despite the brand name, none of the Organix products are organic the company doesn t claim they are. Organix s parent company wants to sell it, but large beauty companies like Procter & Gamble and L Oréal, which seem like obvious buyers, are not at all interested. Do you think Organix has an ethical issue? Why or why not? If you were in charge of acquisitions at a beauty company, would you consider purchasing Organix? Do some research on the company, then make a decision and defend it. 20 PTS 2. A growing number of businesses including videogame developers, cigarette companies, soft drink producers, liquor marketers, and fast food chains are feeling the heat from government, the press, and society at large for encouraging harmful consumer habits. But in our free market economy, people are free to choose the products they consume (within legal boundaries, of course). Where does personal responsibility end and corporate responsibility begin? How does your response change across specific industries? What role (if any) do you believe the government should play? Develop a rationale for each of your answers. 20 PTS 3. In 2012, a horsemeat scandal rocked the European Union s food supply chain. Traces of horse were found in food products purporting to contain 100% beef. In some instances, traces of equine pharmaceuticals were also found in beef but not in any quantity that would be harmful to humans. Many companies and EU member nations were affected. Research the horsemeat scandal and how the affected companies responded to it. Pick one company caught up in the scandal and describe how its response reflected its responsibility to its employees and to its customers. Given the fact that the scandal did not present a safety issue, do you agree with how the companies responded? Explain. 20 PTS Case Connections (55 TOTAL POINTS) Fast-Fashion and the Ethics of Low-Cost Labor Who wants to wait six months for runway looks to hit the stores? In today s fast-fashion world, six months is an eternity. Nearly extinct is the tradition of three luxurious fashion seasons per year (fall, spring, resort). Those seasons have been replaced by rock-bottom prices on 30 to 50 trend-driven cycles per year. Consumers in the United States and Europe have embraced the entire fast-fashion approach inexpensive apparel and high turnover of designs. In fact, their shopping behaviors have allowed companies like H&M and Zara to grow into international retailing behemoths. The speed of fast-fashion goes beyond the production cycle. Europe s fast-fashion chains have grown faster than the retail fashion industry as a whole, partly because the combination of low cost, fresh designs, and quick turnover is extremely successful in fueling consumer demand. Fast-fashion companies also boast higher margins that those reported by their traditional counterparts an average 16% compared to an average of 7%. Undeniably, the application of planned obsolescence to fashion has been financially successful.

The fast-fashion approach is not without controversy, however, particularly when it comes to outsourcing production. Companies like Benetton, Walmart, and Disney place huge orders with offshore vendors who often cannot deliver the entire order without enlisting the help of additional subcontractors. Unauthorized subcontracting is the end result, and brands don t always know who is producing their products or where. Phil Robertson, deputy director of Human Rights Watch s Asia division, affirms this, saying, I ve talked to Thai workers who are three or four levels down from the original orders. If the brands don t know, they should know. A lot of them are turning a blind eye to outsourcing. One country that has grown from outsourcing in the garment industry is Bangladesh. With labor rates averaging $40 per month, Bangladeshi garment workers are the cheapest around. (Compare that to approximately $120 per month on average for garment workers in China.) Those low labor costs have caused explosive growth in the size and scope of the country s garment industry. In 2005, the country exported $6.9 billion worth of clothing. By 2011, that figure had risen to $19.9 billion, making the Bangladesh the world s third largest exporter of clothing, behind China and Italy. Makeshift garment factories have popped up all over Bangladesh. It now has roughly 4,500 garment factories, and disasters have ensued from the rapid growth. In November 2012, the fire at the Tazreen Fashion factory resulted in 112 deaths. In the subsequent five months, over 40 other fire-related accidents occurred in Bangladesh, and in April 2013, Rana Plaza, a building housing numerous garment factories, collapsed killing over 1,000 people. Bangladesh isn t the only country where concerns about subcontracting are growing. Vietnam, Indonesia, Thailand, and Cambodia also regularly face issues with multilayer outsourcing, and each of them could be next in line to wear the lowest-labor-cost title. Subcontracting to vendors to produce garments at lower costs can be beneficial to companies in the following ways: Having access to a network of subcontracts provides companies with the flexibility they need to produce last-minute orders. In the same vein, relying on subcontractors allows companies to adapt their production schedules depending on consumer demand and keep fixed costs lower than if they built their own production infrastructures. Regularly moving manufacturing work to low-cost labor centers keeps labor costs low and allows companies to compete more ardently against each other. Garment work is often the only industry that poorer nations can attract as they develop into more robust economies. Threatening to revoke trade agreements or exit countries risks putting workers desperate for income out of work. One government official said off the record, If they are really trying to help garment workers in Bangladesh, this is not really the way. These are people who need the work What use is compassion if it takes away the livelihood of thousands of workers? Using a network of subcontractors insulates brands from direct contact with unsavory work environments with unsafe working conditions.

Using low-cost labor has created value for the consumer who benefits from lower prices in the store. Fewer household resources need to be spent on the same basket of apparel goods as a decade ago. Despite the benefits, subcontracting to low-cost providers with unsafe working conditions has generated much controversy, not only in fast-fashion, but in the broader apparel and footwear industry as well: The European Union is considering revoking a favored trading status it had awarded to Bangladesh as a result of the series of workplace disasters that happened in that country in 2012 and 2013. The EU is Bangladesh s larges trading partner. Women s Wear Daily reported that EU trade commissioner Karel De Gucht told Belgian media, The government of Bangladesh must change something. Otherwise, I am ready to launch an investigation, which may lead to the suspension of Bangladesh s trade status with the EU. According to an analysis by the Workers Rights Consortium, it would take roughly $3 billion and five years to upgrade Bangladesh s garment factories to Western standards. However, because the relationships are based on short-term contracts, WRC director Scott Nova told The Atlantic, Long-term commitments they don t want to make. Bangladeshi suppliers say Western companies put heavy pressure on prices, resulting in bad pay and unsafe conditions for workers. In fact, demands for ultralow prices and ultrafast turnaround times put extreme pressure on garment manufacturers throughout the developing world. Auret van Heerden, CEO of the Fair Labor Association, argues, The manufacturing industry is running out of low-cost sourcing destinations, and it s time to invest in making factories safer and better, rather than searching for cheaper labor. Hopscotching throughout the developing world looking for the lowest labor costs ultimately threatens brands reputations. Even Helena Helmersson, head of sustainability for H&M, seems to agree. She told The Observer, Remember that H&M does not own any factories itself. We are to some extent dependent on the suppliers it is impossible to be in full control. Sourcing practices have exposed sharp contrasts between fast-fashion and luxury designers and exposed hypocrisy among critics. Italian designer Miuccia Prada, who also holds a PhD in political science, told Women s Wear Daily, People who are intellectual leftists, they say I am expensive and horrible, How can you sell clothes at that price? Simply, it s the cost. If you pay people to do everything with the right system, things are expensive. And the same people who criticize the dangerous production environments, when it comes to cost, they like the inexpensive pieces because they think it s more democratic. So, who is ethically responsible? You Decide: 1. Do you agree with the EU s threat to use trade agreements as a weapon in the fight against low-cost subcontracting? If governments were to regulate the number of subcontractors that can be involved in the production of a product, do you believe

businesses that outsource their work would be more prone to respond ethically to catastrophes and to working conditions in general? 30 PTS 4. If a brand explicitly forbids a vendor from subcontracting, but the vendor subcontracts anyway, which company bears the responsibility for any tragedy that ensues? In other words, who is ethically responsible for events like Tazreen Fashion factory fire and the New Wave Style building collapse, both in Bangladesh? 20 PTS 2. What level of ethical responsibility does the end consumer of fast-fashion apparel bear for those tragedies? 5 PTS