Business Ethics Case Study: Primark
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This assignment will review the literature on Business Ethics within the context of a particular organisation - PRIMARK. To enhance our understanding of the concepts of 'values' and 'morals our study defines and evaluates ethics in a business context; simultaneously throwing light on issues such as disposable fashion and ethical sourcing.
Primark, the cult value fashion brand owned by Associated British Foods (ABF) is the largest clothing retailer in UK by volume with a whooping 207 stores spanning across Europe. Mr. Arthur Ryan, founder and chairman has been credited of bringing affordable fashion to the high street and is also credited for nurturing Primark into an astounding success story. Starting from the first store in Ireland in 1969 till the 207th store in 2010, this brand has experienced phenomenal growth. Primark picked up the 'Multi Market Retailer of the year' 2010 award at the Oracle world retail awards ceremony. Market Share - 18.2% (http://www.primark.co.uk/page.aspx?pointerid=eb44df4565934edca627dac6ec12145a)
2. LITERATURE REVIEW
Barry (1979) defines Ethics as "studying what constitutes good and bad human conduct, including related actions and values."
According to Velasquez (2010), the prime focus of business ethics lay on morals and values with respect to company policies, decisions and framework. He categorizes business ethics by: social issues, company issues and individual issues.
From the National Business Ethics Survey (NBES), Verschoor cited that companies today are increasingly giving importance to ethical behavior and social responsibility. Also, more unethical practices are getting exposed rather than unethical behavior committed. Hence, it confirms evidence of the fact that companies are taking this issue seriously in order to not jeopardize their global brand and image.
At this juncture, one should think about why should companies engage in ethical business practices? Is it simply to abide by the law, as it is the right thing to do or because it benefits them to do so? This may seem as a 'moral dilemma' in several ways since it is the central issue in business ethics. (Fisher and Lovell, 2009)
An increasing number of consumers make their purchase decisions based on ethical values of a company. Hence, it is crucial to make consumers aware of the ethical issues in trade and to understand what would prompt them to modify their consumption patterns. Marketing strategies can then be developed based on this understanding.
Ethical Consumerism is an emerging process that emphasizes on socially responsible trade activities. It is just as much about supporting the 'good' companies and products, as it is about withdrawing support from the 'bad' ones. An ethical consumer will help in providing information one needs to make an informed decision about a purchase.
Positive ethical purchase behavior, takes into account the trends that comprise attempts to purchase ethical products. For example, use of Fair-trade or Organic products.
Negative ethical purchase behavior or boycott, has been regarded as the key form of ethical consumerism. It means avoiding products that are unethical. Therefore, an informed consumer would only choose products that reflect moral responsibility. For instance, 'in 1997 MORI survey for CAFOD on purchasing products from developing countries, there was particularly high support for a minimum agreed standard of labor conditions for workers in developing countries; 92% of the sample thought that this should apply to UK companies.'
Ethical sourcing simply put is the moral standards put forward by companies, which source their goods from other third party vendors. These standards have been set up to allow companies to ensure that the work they have contracted out to third party firms, have been conducted in an ethical manner. A critical analysis of the levels of ethical standards would lead one to an understanding that the highest level of ethical compliance lies in ethical sourcing. This is because nearly all other ethical standards are internal standards falling within the control of an organization and its framework, whereas ethical sourcing would deal with the (outsourced) production outside the purview of the organization. In essence, to be a supplier for an organization that has ethical sourcing guidelines, the supplier must also be an ethical organization. However, this is an ethical standard that is predominantly seen in companies in developed countries that contract their work to companies located in developing countries.
Ethical Sourcing in the society is not well regulated although there are rules and statutes in place. In the UK, the Combined Code on corporate governance does not deem it essential for companies to adhere to certain policies. Companies can get away with simply explaining why they have not complied with specific provisions in their annual report. This again is only a regulatory mechanism that is in place for public limited companies, which are listed on the stock exchange (Preuss, 2009). Both these mechanisms were set up to pacify the public and various industry players, as neither of these acts have actual policing power.
Most companies' Ethical Sourcing guide is a copy from governing bodies Statute on Ethical Sourcing. The governing body in the United Kingdom is the ETI (Ethical Trading Initiative) (Preuss, 2009). The ETI is essentially a consortium of companies, trade unions and industry players who work together for the upliftment of the workers who make various consumer goods. Most companies take the statute from the ETI and plug in their own inputs or areas of concern.
According to Preuss Ethical Sourcing includes ensuring ethical standards are followed by work contracted to outside companies from an environmental, economic and social standpoint. However one must realize that these are determined by the individual companies and are tailored to suit their needs and stress is laid on areas of concern to the company putting forth these standards. This leads ethical sourcing standards to be very industry and firm specific. According to Preuss, the key areas of concern, in order of importance, across industries are as follows:
a) Employment Issues
- Compliance with Local Laws
- Safe working environment
- No Child Labor
- Non- Excessive working hours
- Avoiding Illegal Immigrants
b) Environmental Issues
- Commitment to Environmental Protection
- Compliance to local laws
- Minimization of Waste
- Control of Emission/ Pollution
- Use of Environmentally friendly Technologies
c) Economic Issues
- Confidentiality of Supplier Issues
- Prompt Payment
- Reciprocal Business Relationship not required
- Support for Smaller and Local Suppliers
- Recognizing Risk of Dependant Suppliers
- Acknowledge Hardship where Relationship ended (Preuss, 2009)
The world we live in has moved into a new stage of mass consumerism, where no matter how much we have is never enough. As a result, our lives have become more materialistic. This shift has been extremely beneficial to large corporations, who have recognised and exploited the potential of the markets. This holds true for several industries especially the retail and fashion industry.
'Disposable fashion' or 'Fast fashion' is the new trend, which has been catching on among clothing giants like H&M, Forever21, New Look and Primark. It refers to the practice of producing cheaper imitations of the latest fashion trends that are mass-produced quickly at comparatively low costs. This makes fashion more accessible to a larger segment of the population. It may be considered a boon by millions of avid shoppers but it also has considerable drawbacks. First, it possess a serious threat to Fashion designers whose work has been replicated. Further, the ways in which these garments and accessories are being produced also have serious environmental consequences. Lastly, 'the business models that make the retail giants everyday low prices possible rely on subsidies from millions of people around the globe' (Cashing In: Clean Clothes Campaign, 2009).
"Millions of workers in the fashion industry have become little more than slaves," stated Neil Kearney (2007), General Secretary of the International Textile, Garment and Leather WorkersÂ´ Federation (ITGLWF). Poor working conditions and terms of employment, along with low wages are common problems that occur across garment-manufacturing factories. Workers in countries like India, Bangladesh, Sri Lanka and China have a large population that lives below the poverty line, providing extremely cheap labour for companies worldwide. This already oppressed section of society is further exploited to meet the needs of large corporations globally. Workers in garment manufacturing factories are often robbed of their basic rights. A woman at a Walmart and Carrefour supplier in Bangladesh reportedly said, "I feel so sick and tired after a day's work that I do not want to work the next day. But hunger does not allow thinking of sickness; the thought of living with an empty stomach makes everything else forgotten. We work to save ourselves from hunger." (Clean Clothes Campaign, 2009).
Unfortunately, the impact on these factory workers is not equally spread. It is the women and children who suffer the most. 'A recent survey in India suggests that a quarter of all garment factories are employing under-age labour. Most of the production is for export to Europe' (Neil Kearney, 2007).
"The scandalous truth is that the majority of workers in the global fashion industry rarely earn more than two dollars a day, in an industry worth over £36 billion a year in the UK alone"(Lets Clean Up Fashion, 2009). Workers wages are often much lower than the cost of living in their respective countries. Labourers work for over 80 hours a week at 5pence an hour and are often not paid for the additional hours of work they put in. A woman at a Tesco Supplier was documented saying, "We do a lot of overtime. Almost every day there is at least one hour extra. We are called on Sundays as well. However, our monthly wage slip will not show all the overtime that we do. It will quote only 1-2 hours as overtime in a month" (Clean Clothes Campaign, 2009).
"Garment workers are the linchpins of an industry worth over £36 billion annually in the UK alone" (Lets Clean Up Fashion, 2008). Workers in these garment factories end up paying a high price for cheap clothes. The colossal growth of such companies is a testament to the thriving businesses that they are running. Therefore, making their responsibility towards their operations even more pertinent. Many low cost giant retailers claim that they are taking measures to ethically source their materials and ensure workers labour rights, however, this is not enough. There is an urgent need for improvements in the corporate social responsibility system, on behalf of the garment retailers.
Primark, part of ABF is the second largest clothing retailer in UK in terms of volume (Associated British Foods; Retail Segmentation, 2010). The Primark brand has made itself synonymous with affordable fashion. Its value proposition is to provide low cost and highly fashionable clothing, which is targeted at lower income, fashion conscious shoppers. Keeping this in mind, it is no real mystery that Primark must keep its production and overhead costs as low as possible so as to profitably sell their cheaply priced goods.
To maintain profitability and to keep their value proposition in mind, Primark had to keep the production costs low. This had been done by outsourcing work to textile factories in developing countries across Asia. Primark claims that these factories are properly vetted and audited to ensure adherence to fairly high ethical standards that are a part of their supplier contract. Here, a question arises as to how does Primark manage to provide cheap clothing? It is assumed to be the result of negotiations with their suppliers, which is something most suppliers would be willing to compromise on, just to include a brand like Primark on their client list.
The onus lies on these suppliers to produce goods at extremely low costs, considering the abundant availability of cheap labour in developing countries. However, they may opt to subcontract the work or parts of it to vendors with less standardised capital equipment in terms of employee work force and standard of work areas just to maintain optimum profitability. These subcontractors are generally production houses that operate from basements or garages rather than an industrialised area. They simply provide a more profitable way for the contractor to get their orders completed. Surprisingly, these subcontractors are outside the purview of most audits and do not form a part of the regulated market. This allows them to operate, abusing many laws and flouting most rules prescribed by the government and by Primark who gives the original order for production. They ensure that the goods are sent to the factories and no outsiders get to see their production facilities where they employee children, pay low wages and provide unsatisfactory working conditions. However, at the end of the day all fat cats in the supply chain are able to make their bag of money and a customer at the end of the chain is able to get a nice fashionable top to wear for under five pounds!!!
The retail sales figure for the year 2009 has shown a remarkable upswing for Primark as compared to other high street clothing brands. It has emerged as one of the strongest brands during the time of recession and has been recognised as a major success story. In 2008, the big Primark expose was broadcasted on television that caused public outrage and media dismay. This also led to Primark being designated as UK's most unethical clothes shop. But the question here arises, that even after consumers being aware of the unethical practices the clothing chain has cemented its position at the top. (http://londonfashionnetwork.com/c/19/248/primark-vs-our-ethics). This is what a consumer had to say after the expose- "I very much doubt it will stop me from shopping in Primark though. My budget is smaller than my conscience" - Sugarplumfairy 26th May 2008, 22:51 (http://www.thestudentroom.co.uk/showthread.php?t=589698HYPERLINK "http://www.thestudentroom.co.uk/showthread.php?t=589698.".) "I just don't care really" -by Narrr 25th February, 2010. (http://makewealthhistory.org/2009/01/12/how-long-can-primark-get-away-with-it/) The story of rising profits continued, as seen in The Guardian (2009). The report stated that Primark was amongst the fewer retailers who were prospering in the times of recession posting 10% increase in profits.
Primark, despite receiving all the bad press in the months prior to the launch of its flagship store in Oxford Street, London, was the scene of a stampede at its opening. Essentially, one can clearly reason that a normal consumer does not really care. This is cemented in black and white in their Annual report, which shows sales figure to be a staggering £1.1bn, an increase of about 18% from the previous year.
This perception denotes that some people think employing them is in the poor man's interest - "It always makes me laugh when people go on about unethical; what's more unethical giving them a job and a way of living or producing all our stuff here and letting them starve?" Secondly, I can't afford £30 for a top when I can go to Primark and get one for £3." - Thud, 25th May 2008 (http://www.thestudentroom.co.uk/showthread.php?t=589698). The upward trend continued, with Primark performing spectacularly in 2010 with an increase of 35% in operating costs. Sales figures at the popular fashion chain increased by 18% to £2.7bn. Further, an increase in operating profits to £341mn helped by 13 new stores including its first ever in Belgium. Going by the popularity, the management will continue opening new stores all over Europe, where they expect considerable growth. (The Guardian, 2010). It has also agreed to buy 10 stores from their rival Bhs that are scheduled to open from the next financial year that will add 300,000 sq. feet selling space, which points out that they are considering expansion plans. (http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article7035964.ece)
Following BBC's Panorama documentary, Primark conducted a private investigation, which led them to terminate contracts with three Indian suppliers. A spokesman from Primark stated, "We take this lapse in standards very seriously indeed. Under no circumstances would Primark ever knowingly permit such activities, whether directly through its suppliers or through third party sub-contractors." (BBC, 2008).
As a direct response to the crisis, Primark created a comprehensive website called www.ethicalprimark.com. This website contained information and videos which strengthened their positive attitude towards values and policies regarding ethical trading. It was targeted at consumers which aimed at eliminating any doubts regarding Primark's sourcing.
Primark soon created a new standardised selection process for its suppliers, along with a strict 'Supplier Code of Conduct'. They also went on to formulate a stringent auditing program to avoid such a crisis. Their code of conduct was translated into 26 different languages so that workers in factories understand their rights. In addition, Primark heavily invested in new software from BSI management systems that was designed to help Primark manage its supply chain more effectively.
In 2009, Primark established a specialized Ethical Trade Program. It consisted of a Director of Ethical Trade, along with ethical trade staff who was stationed in sourcing countries. Primark's Ethical Trade Strategy aimed at implementing ethical trade policies and ensuring suppliers met the required standards. Through workshops, training and audits this committed team intended to protect the rights of workers within the supply chains.
On assessing the compatibility of Primark in terms of its Marketing and Ethics (Lecture Notes) on a scale of one to ten, we would position Primark in Group B category. Based on our reading, it has been targeted victim a number of times for its indulgence in unethical practices. However, it never admitted to the onus of such activities, hence we can say they are responsible and hence, abiding by the law and not Group A. They do not have a set of core, non-financial values and principles that is regarded as one of the most important assets of a company's existence, which strikes them off Group D. Also, they are not strongly committed to being ethical; else they wouldn't have been targeted several times for their morally irresponsible activities. Hence, they do not fall within Group C. Primark's value proposition is provision of cheap clothing. To fulfill the same, they need to keep the cost of production minimal. With this in mind, the company's purpose for existence is to ensure profits for ABF rather than being socially responsible. They do try to improve ethical standards but not at the cost of reducing their profits. Thus, we think Primark falls under Group B.
All companies function differently and can classified and put in different groups based on their ethical standing. As has been shown below:
Kolhberg's theory of moral reasoning (Referencing - Lecture Notes and URL)
Kohlberg suggested that a company progresses in their moral reasoning (i.e., in their bases for ethical behaviour) through a series of stages. He believed that there were six identifiable stages.
Stage 1 - Organisations behave according to socially acceptable norms and their motive is to abide by the law.
Stage 2 - Characterised by a view that right behavior means acting in one's self interest.
Stage 3 - Complying with social norms. Characterised by an attitude, which seeks to do what will gain the approval of others.
Stage 4 - Oriented to abiding by the law and responding to the obligations of duty.
Stage 5 - A genuine interest in the welfare of society and prepared to challenge the societal norms when necessary.
Stage 6 - Belief in universal principles. Based on respect for universal principles and the demands of individual conscience.
Referring back to the initial model of categorising companies between Groups A - D, we would place Primark at level 2 on the Kohlberg's model of moral reasoning. Primark, as a company is known to act for its self-interest. This level complements its characteristics of Group B. This can be supported by the fact that although Primark has been pointed fingers at several times for their indulgence in unethical practices, their responses have always been the same and nothing has practically been done about it i.e., they have taken the necessary steps to control unethical practices and would try further tighten control over suppliers. (BBC, 2008)
"It can be expected to be less about ethics and more about a promise of freedom from moral anxiety when in fact it is that anxiety that is the substance of morality."
From this we understand that a company chooses to be as ethical as it really wants to be. From what we gather, Primark would like to be seen as an ethical company. After the expose, Primark made sure they improved their ethical standards as well as their suppliers' standards. Primark paid for auditors to ensure the ethical standards of their suppliers, which is a sign of dedication to their ethical stance. As a group, we concluded that even though Primark was at the centre of this scandal, they have been repeatedly targeted by market speculations primarily because they are the big name at the end of the supply chain. One must acknowledge that Primark is not entirely at fault. It's supplier's sub-contracted work to other local vendors, without Primark's knowledge. These sub-contracted vendors had children working in their warehouses, which were overworked and paid sub standard wages. Primark's auditors should have been aware of this. This poses the question of who is responsible for allowing these ethical breaches to take place.
After the expose, Primark has taken various steps to portray an ethical image and maintain a high level of ethical standards. After sacking suppliers who did not meet their standards, they invested in auditing software, and established a specialized ethical strategy.Â So is Primark really at fault or is it easier to blame a giant retailer.
The fact remains that Primark and its suppliers were caught again engaging in the same unethical practices, so was Primark turning a blind eye or were they unaware of the situation.
The expose hit the public eye during the recession, where people were shopping on the cheap, thereby forcing them to switch to cheaper alternatives.Â Does that make your everyday shopper an unethical consumer, or were these consumers forced to shop at Primark solely for economic reasons? If the former is true, Primark and its suppliers will be able to continue trading without a problem.Â However, if one dwells on it and the latter is true, the time line for Panorama to have an effect on the minds of the society has faded away. Essentially, it is upto Primark's conscience whether they want to take strict action against their auditors and suppliers ensuring adherence to higher ethical standards, or will they simply portray an image of having taken action to put to rest the allegations against them.
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