assignment

Wesfarmers – Kmart’s Social Performance

Introduction

Societies expectations on companies to conduct business in a socially responsible and ethical manner has increased rapidly as greater transparency is demanded through social network reviews (Keevil 2014). Studies have shown that a company’s financial results are directly related to its social performance, it has also been proven to directly affect stakeholders (Barnett & Salomon 2012). Companies with clearly defined and practiced social contracts outperform those that do not in areas of productivity and engagement (Barnett & Salomon 2012; Keevil 2014, 4; Waddock & Graves 1997). Wesfarmers is Australia’s largest listed company with a vast array of businesses in industries as diverse as supermarkets to coal production and export (UN Global Compact 2017). Kmart, one of Wesfarmers businesses is amongst Australia’s largest leading retailers and has over 200 stores across Australia and New Zealand that sell general merchandise and clothing. Kmart also has product sourcing offices in several other countries including Hong Kong, China, Bangladesh and India (Wesfarmers Limited 2017). The focus of this report is on the employment conditions for employees of a key stakeholder that supply goods to the company. In April 2013 questions began to arise about products and where they were supplied from after the much-publicised ‘Rana Plaza Garment Factory’ collapse in Bangladesh, killing over one thousand workers (Hoskins 2015). This report will discuss the company’s social performance in relation to human rights and employment and review the impact on stakeholders including; employees of suppliers, employees of Kmart, suppliers, and consumers. This report will present facts and information that highlight the company’s track record and current efforts to rectify previous deficiencies in its standards and quality control procedures.

Case against Wesfarmers (Kmart)

Resulting investigations into the April 2013 ‘Rana Plaza Garment Factory’ disaster in the Bangladesh capital Dhaka, uncovered a series of international employment standards the manufacturer did not comply with including minimum age, minimum wages, occupational health and safety to name a few (Ryan 2013). Damning reports found Kmart guilty of its obligation and duty to maintain quality and safety standards from all of its suppliers and stakeholders (Ryan 2013). The manufacturer was found to be guilty of engaging child labour and threatening and physically abusing workers under appalling conditions (Australian retailers 2013). Workers were forced to work long hours for as little as AUD $3 per day when the minimum wage for a machinist is AUD $17.49 per hour (Castle 2014). Broader investigations into other Kmart suppliers in Bangladesh discovered that they too did not meet minimum International Standards for the factories (Australian retailers 2013).

The investigations began to highlight the unfortunate situation and position of the Bangladeshi Garment Industry workers (Australian retailers 2013). There is evidence to suggest large Australian companies including Kmart, are among an increasing number of globalised retailers who have been exploiting the remoteness of Bangladesh and the lack of corporate transparency to produce cheap clothing for retail stores across the world (Australian retailers 2013).

The Australian Fashion Report by Baptist World Aid Australia, independently grades companies in the fashion industry in order to educate consumers so they can make ethical purchasing choices while encouraging companies to protect workers that produce their products (Nimbalker, Cremen and Wrinkle 2013). The grading system ranges from the top grade of an A down to the bottom grade of an F. In 2013, Kmart had a disappointing overall grade of a D, this was comprised of several individual grades including Workers Rights Grade F and Transparency and Traceability Grade D (Nimbalker, Cremen and Wrinkle 2013). Kmart received a ‘non-compliance’ rating in the area of Workers Rights including, “Does the brand guarantee that workers make a living wage?” “Does the brand have a system for basing sourcing decisions on supplier labour conditions?” “If child labour is discovered does the brand find a way to provide for the child’s education and replace the lost income to the family?” (Nimbalker, Cremen and Wrinkle 2013, 25).

Stakeholders are either groups or individuals who have an interest in an organisation and can affect or are affected by the decisions of an organisation (Franch, Martini and Buffa 2010; Freeman 1984, 46; Gupta and Pirsch 2008), primary stakeholders are those stakeholders who have the greatest impact and interest on an organisation (Gupta and Pirsch 2008; Schraeder, Mike and Dennis 2010). The employees of the suppliers are primary stakeholders to Kmart, they were treated highly unethically, physically and verbally abused, and paid well below the minimum wage which doesn’t cover basic living costs (Castle 2014). Stakeholder theory suggests that companies should understand the stakeholder’s interests and respond to them, the more the company is engaged with the stakeholders the longer they will contribute to the company and therefore increase the performance of the company (Keevil 2014, 19). In relation to employees in the factories, Kmart wasn’t interested in stakeholder theory, underpaying and overworking employees can lead to a shortage of supply causing the business to fail because employees will leave and suppliers will not have the resources to maintain the level of supply Kmart demands.

The majority of Australian consumers are well known to have a conscience when making purchases and base their decisions primarily on emotion, of which the ethical standards and social performance of a company has a strong influence (Castle 2014). Therefore, when consumers are presented with garments that are priced at $3, questions are raised regarding the cost of manufacture and the possible employment conditions of the workforce required to support the supply of these products (Bagshaw 2016; Castle 2014).

The ultimate demise of low tier manufacturers is inevitable if companies such as Kmart continue to condone the appalling conditions that some manufacturers employ their staff under, by purchasing their products (Australian retailers 2013). Kmart has failed in their duty of corporate citizenship by consciously letting their social performance be well below the acceptable levels for any company. If Kmart does not make immediate significant changes to their processes and systems, they can expect to witness a consumer boycott of their stores and products, this will have catastrophic consequences to all stakeholders of the company.

Case for Wesfarmers (Kmart)

Kmart acted swiftly in the aftermath of the April 2013 ‘Rana Plaza Garment Factory’ disaster, by becoming a signatory of the Bangladesh Accord, which among other things, commits each signatory to disclose the location of their manufacturing factories, for the purpose of third party independent auditing and provide funding for the continual improvements to safety (Victory for Bangladeshi 2013; Castle 2014).

In a conscious move towards acting with greater corporate citizenship, the Wesfarmers department store, Kmart has developed an Ethical Sourcing Code which they must adhere to, in order to act in a socially acceptable manner. The ethical sourcing code forms part of the contract between Kmart and the supplier and states that suppliers will have no employee under the age of 15. Suppliers are required to provide the local legal minimum wage to employees, employees will not be over worked, benefits shall be granted to employees and forced labour will never be tolerated. The employees of suppliers must be respected and treated with dignity and the facilities of the factories are to be safe, clean and apply with all laws and regulations (Kmart Australia 2017). To ensure the suppliers are complying with the Ethical Sourcing Code the factories will have planned and random audits by Wesfarmers trained third party auditors (Wesfarmers Limited 2016a), if the factory fails to meet standards, measurable action plans are provided to improve all areas. In 2016 Kmart conducted 1,120 audits, in the case of factories not meeting the standards, audits are rescheduled to ensure they rectify the defects and then adhere to the code (Our Sustainability Performance 2017).

Companies should consider stakeholders wants and needs in order to be more socially responsible, if companies are socially responsible and listen to stakeholders, stakeholders will directly impact the company (Gupta and Pirsch 2008). By Kmart sourcing ethically, stakeholder theory is recognised, the employees of the suppliers, primary and external stakeholders, are positively impacted because they are being treated fairly and working in approved environments by the Core Labour Standards which have been enforced by the International Labour Organisation (Sourcing Ethically 2017).

In order for companies to build trust with the public and build their socially responsible profile, they should be fully transparent, respectfully acknowledging and supporting their suppliers. In the 2016 Australian Fashion Report, Kmart received a B+ grade for “Knowing your supplier”, by making a public list of the location and name of their suppliers (Nimbalker, Mawson and Harris 2016). In the same report, Kmart received an overall rating of a B, an enormous improvement on its results in the 2013 Australian Fashion Report. (Nimbalker, Mawson and Harris 2016).

Kmart’s in store team members are educated to respond to consumer questions regarding where the stock is supplied from, the employees are continuously being educated and updated so the information they are providing to consumers is current and ethical (Kmart Australia 2017b). Consumers are more willing to pay increased prices for garments if it means the price they have paid covers the fair treatment of workers and the conditions of the factory are ethical (Killalea 2017).

Kmart is taking active steps to join initiatives and partnerships to increase the company’s transparency in wages and workers’ rights. The 2016 Wesfarmers Sustainability report, outlines Kmart has joined ‘Action, Collaboration, Transformation’ an initiative for stakeholders to the garment and textile industry to discuss living wages (Wesfarmers Limited 2016b).

Conclusion

In conclusion, this report has presented facts and information that highlights Wesfarmers retail company Kmart’s track record and current efforts to rectify the human rights and employment deficiencies in its standards and quality control procedures. Prior to the ‘Rana Plaza Garment Factory’ Collapse, Kmart failed in their duty of corporate citizenship by consciously letting their social performance slip well below the acceptable levels for any company. Since then Kmart has been making positive improvements to their social performance, in regard to the Ethical Sourcing Code that forms part of the contract between themselves and the supplier to ensure employees are treated ethically and in a socially acceptable manner. Although Kmart has made tremendous improvements to their ethical sourcing, according to the 2016 Australian Fashion Report they are on an overall B grade (Nimbalker, Mawson and Harris 2016), still leaving room to continually increase the standards and conditions of workers. As Economist Milton Friedman said, “the business of business is business”, the purpose of a business is to be profitable, but the financial status of the company positively correlates to the company’s social performance, therefore if a company is profitable and socially responsible it receives more support from and positively affects stakeholders.

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