ASSIGNMENT ON ETHICAL AND UNETHICAL COMPANIES

SUBJECT: BUSINESS ETHICS

SUBMITTED TO : VINOD SIR SUBMITTED BY: SHILPA KOSURI

MBA-PH-01004, SEM IV MBA IN PHARMACEUTICAL INDUSTRY MANAGEMENT

BUSINESS ETHICS
Ethics are absolute. Business ethics are relational. Because it refers to accepted principles, these principles may change from country to country or from business to business. No two countries hold the same identical ethical values. Business ethics are the accepted principles of right and wrong governing the conduct or behavior of business people. And ethical leadership requires a position of influence. Certainly there are absolutes to business ethics, such as respecting employees and stakeholders, competing fairly and within the law and being a responsible corporate citizen. Companies routinely compete for recognition for their corporate citizenship or a best place to work award. They are the companies who force other companies to follow their leadership or fall behind. These are the companies who use ethical leadership as a profit driver. Attributes of a company to be a Ethical Leader are as follows: 1. Good: Companies that proactively engage with communities in which they serve, impact or cooperate. 2. Smart: Companies that invest in innovation, quality and sustainable business practices have reduced resource consumption in the production or use of their products and/or increase consumer health or safety. 3. Business: Companies that leverage relative positions of influence to affect positive industry change. 4. Profit: Companies that look strategically to profit fairly from such ethical leadership practices, as ultimately only profit ensures continuance of desired institutional behavior.

Keeping the above aspects in mind, let us study about couple of companies which were named among the worlds most ethical companies and unethical companies for the year 2011 after being surveyed for their i. Ethics and Compliance program:

ii. iii. iv. v.

Reputation, Leadership and Innovation Governance Corporate Citizenship and responsibility Culture of ethics ETHICAL COMPANIES A. COLGATE-PALMOLIVE COMPANY Founded in 1806, Colgate-Palmolive is a $15.6 billion consumer products company that serves people around the world with well-known brands that make their lives healthier and more enjoyable. Truly global in scope, Colgate sells its products in over 200 countries and territories. The Colgate Code of Conduct plays a vital role in it being a ethical company by promoting the highest ethical standards in all of the companys business dealings. Since 1978, the Code of Conduct has always guided its employees with a set of principles that reflect the Colgates Core Values (Caring, Global Teamwork and Continuous Improvement). The code of conduct applies to all employees including Directors, Officers; all employees of its subsidiaries and its Vendors and Suppliers as a condition for conducting business with Colgate. and

Studying Colgate with respect to the attributes of a Ethical Company established earlier:
a) Colgate is a good company as it has worked for children under the

program Bright Smiles, Bright Futures and reached over half billion children in 80 countries since its inception in 1991, looking forward to expand to one bllion children by 2020. in India, Colgate supports a Positive Step program for children living with HIV/AIDS. Children who have gone through the program are healthier, more confident and are doing better in school. In 2010, Colgate and its employees donated over $750,000 in monetary and in-kind donations after the earthquake in Haiti.

b) Colgate is a smart company as it is has reduced carbon emissions

associated with the manufacture and distribution of our products by 20% and reducing the environmental impact of their product packaging by 20% using sustainable and recycled materials. Also it has reduced its water consumption by 44% and waste water loading by 31% from 2002 -2010.
c) Colgate maintains its business. It has achieved over 50% global sales in

emerging markets in 2010 and ranked No.5 in Business Week Top 50 Performing Companies in 2009 with 9.5 or higher out of 10 from ratings agency Governance metrics International every year. d) Colgate had a 59.1% gross profit margin in 2010, $ 15.6 Billion sales worldwide in 2010 and a $ 3 Million savings from plastic packaging reduction in Latin America in 2010. Case Study: Colgate's Distasteful Toothpaste which deals with ethical issues associated with Colgates repugnant toothpaste brand named Darkie in 50% partnership with Hawley & Hazel. The Ethical issues arising here are about the logo on the toothpaste picturing a black man. This is an ethical issue because the logo was very popular in the Asian market for years which meant that it was very well accepted and non-offensive in the market. But as soon as the word of such action was heard of in the US it was regarded as offensive and unacceptable. The trade mark or logo was singling out black people which were viewed as a form of racism by the US population. In the Asian community this was not a problem because there was not a large black population as compared to the US. The argument was how in the world could this simple logo which had generated millions of dollars to the Colgate and Hawley and Hazel alliance be called offensive? The spokesperson from Hawley and Hazel pointed to the fact they had no problems because the market share was so high in Asia. There was pressure on Colgate from ICCR. So Colgate changed the name Darkie to Darlie and the logo featuring a Englishman thus respecting the cultural sentiments of American citizens.

B.PEPSICO PepsiCo is a company full of strong, talented individuals starting with the company leadership. Its values & philosophies (Sustained growth, empowered people and responsibility and trust) are a reflection of the socially and environmentally responsible company it aspires to be, which is the foundation for every business decision. Studying PepsiCo with respect to the attributes of a Ethical Company established earlier:
a) Pepsico is a Good company in terms of striving to improve water-use

efficiency per unit of production by 20% by 2015 against to 19.5% achieved in 2010. In 2009, PepsiCos operations in India achieved positive water balance, enabling to give back to society more than they used for manufacturing products.Also have started to work with Nature Conservancy in 2010 to identify high water risk areas so that proper resource allocation can be done to achieve net positive water impact. It is also working to improve water scarcity problem in developing countries.
b) PepsiCo is Smart in its dealings utilizing atleast 10% recycled pastics for

soft drink containers and innovating the efforts to expand the use of rPET bottles internationally. In France, 1.5 lt containers of Tropicana were sold in 50% rPET bottles in 2010. And they also work to eliminate all solid waste to landfills from their production facilities.
c) PepsiCos Business success is often attributed to the performance of its

employees hence having a strong talent acquisition. They are fully committed to compliance and conduct training program to ensure legal and ethical compliance. In 2010, PepsiCo was awarded Best Company for Leadership Development in India by the Great Places to Work Institute. They have been expanding their production facilities generating employment including $ 2.5 Billion investment in China. Also contributed $ 7.6 Million in 2010 to support education.

d) To look at the Profits, the stock performance went up by 19.8% and WME

index by 30.5% in 2010. . It currently holds 36 percent of the total snack food market share in the U.S. and 25 percent of the market share of the refreshment beverage industry. It has a $119 Billion estimated worldwide retail sales which contributed to a 33% increased revenue. Also the core division operating profit rose to 23%. $8 Billion was returned to the share holders though share repurchases and dividends, raising annual dividend by 7%. Case Study: Aquafina bottled water blamed to be selling normal tapwater. The publics attention was on Aquafina bottled water in 2007 when the watchdog group Corporate Accountability International claimed that the company was using tap water to fill the water bottles being sold. The water was not regular tap water but came from a public water supply before processing. Aquafina was accused of not being transparent in its business practices. It was not publically known that the companys procedures included a rigorous seven-step process which removes unwanted substances and is then branded as purified drinking water. Additionally, the label on the Aquafina bottle had snow capped mountains on it, which seems to suggest that the water is purified spring water. PepsiCo is now required to put the words Public Water Source on the label. Also PepsiCo is in the process of developing bottles that use less amounts of plastic per bottle to help the waste issue. Today, the Aquafina bottle weighs 10.9 grams, compared with the 18.5 grams in 2001, and PepsiCo has set a goal to decrease its packaging by 350 million pounds by 2012.

UNETHICAL COMPANIES A. WALMART In the past 10 years, Wal-Mart has grown to become the largest retailer in the world. As America's largest employer and most successful company, Wal-Mart has tremendous influence. However, the company's business practices have negative impacted its employees throughout the country. Wal-Mart has let American workers down by lowering wages and forcing good paying American jobs overseas. Its leaders have chosen to cut costs and violate labor laws. As a result of these practices,Wal-Mart has been the subject of criticism by various groups and individuals. Labor unions, community groups, grassroots organizations, religious organizations, and environmental groups have all protested the company's policies and business practices at various times. a) Labor Unions Wal-Mart appears committed to following anti-union policies and preventing workers from organizing. It has issued a Toolbox to Remaining Union Free to managers that provides a lists of warning signs that workers might be organizing. In past few years, over 100 unfair labor practice charges have been filed against Wal-Mart throughout the country, with 43 charges filed in 2002 alone. Violations include illegally firing workers who attempt to organize a union, unlawful surveillance, threats, and intimidation of employees. When a Wal-Mart store in Jonquierre, Quebec became the first unionized Wal-Mart in North America, WalMart closed the store down. b) FLSA Violations Wal-Mart, a frequent violator of wage and hour laws, now finds itself defending its labor practices in legal battles across the nation. Wal-Mart is currently facing more than 80 lawsuits alleging that employees were forced to work off the clock and skip lunch and rest breaks while management manipulated time and wage records in order to keep labor costs down. An internal audit performed by WalMart in July 2000 indicated these types of violations were and had been a

massive problem companywide for years. The lawsuits allege that Wal-Mart knew that it was violating the Fair Labor Standards Act and hid evidence of its illegal practices in order to attempt to avoid liability. Also it employees children as young as 12yrs and it has been found that more than 60,000 apparent cases of minors not taking breaks and 156,000 apparent cases of working through meal times. These cases are unethical because minors should be able to do well in school, without being scheduled too many hours (according to the law), working late, etc. They are essentially being deprived of a good education. c) Health Care Nationally, 64% of workers in companies of 5,000 employees or more receive their health benefits from their employer. However, Wal-Mart typically covers only around 50% of its employees. In addition, the average wait for full-time WalMart workers to qualify for benefits is six months, compared to the retail average of 2.6 months. Wal-Mart avoids providing benefits by relying more heavily on part-time workers, who must wait a year before receiving any benefits. In addition, with Wal-Mart's high employee turnover rate, many workers never get health care. The affordability of Wal-Mart's health plan options is another problem. Getting Wal-Mart's choice network family plan with a $322.60 biweekly premium, $700 annual deductible, $500 health care credit, and $4000 out-of-pocket medical expenses could potentially cost over $12,000 a year. However, the average Wal-Mart employee makes approximately $20,000 a year. d) Low Wages Wal-Mart typically pays its sales associates, cashiers, team leaders, and overnight stockers 26-37% less than the national average for the same jobs in the retail industry. A study conducted by Dr. Richard Drogin in 2003 revealed then women earn less than men and hold fewer managerial positions at Wal-Mart. Using WalMart's figures, a full-time employee at 34 hours per week, making the Wal-Mart average wage of $10.86 per hour, will earn $19,200.48 per year. This falls below the federal governments definition of poverty for a family of four in the contiguous United States, which is $21,200.

e)

Environmental Issues

In 2001, the Environmental Protection Agency and Justice Department fined Wal-Mart for violating newly adopted standards for storm water runoff. In 2004, Wal-Mart faced fines for violations of environmental laws in nine states and paid the government $400,000 to settle claims that it had violated air pollution regulations in eleven states. Wal-Mart was also fined in Georgia for allowing polluted storm water to run into state waters and in Florida for failing to adhere to safety restrictions on petroleum storage at its auto service centers. Currently, Wal-Mart is under investigation for ignoring hazardous waste laws in several states. f) Female Discrimination The females are paid lesser than their male counterparts even having the same designation. Though 72% of employees are females, only 33% of them are managers. Also women are not promoted on the corporate ladder as the higher management thinks women are useless and the policies against them stem from home office. Also amongst women they show racial discrimination. With FDI at the door and in stpes of welcoming Walmart to India one should really give a thought if in a country like India where women and the weaker sections of society have started being recognized and their power slowly rising, will a company with such work culture be apt for future development.

B) RYAN AIRWAYS Ryanair is one of the most unethical companies in the world. While not quite at the foot of the 581 global brands and companies subjected to this latest survey, its appearance at number 575 means the budget airline is propping up the bulk of the chart. According to an article on www.dailymail.co.uk, RyanAir charges 374 percent more than supermarkets for snacks offered onboard. It also charges extra for the use of lavatories and for luggage. It is unethical for Ryanair to charge extra for the use of lavatories as it is a right to use the bathroom without paying. The charges for the use of bathrooms will affect mostly young children, handicapped, or the elderly, who have low-incomes and may not be informed of these extra charges. RyanAirs logo of low fares can be deceiving and thus unethical. The also charge extra of 25pounds per every exta kilo of luggage and if it is 15.1 it is rounded up to 16 leaving passengers to swap and rearranging their luggage or pay up extra and if they donot want to pay extra then they re-join the check-in queue instead of continuing or aborting the boarding process. Also the only cabin luggage allowed is a handbag, not even a mini suitcase as they have not made shelves enough of size to fit it in.