Business Proposal Put Together

Running head: RESEARCH PAPER 1

RESEARCH PAPER 16

Unethical Practices in Apple’s Supply Chain

Daniella Clingman Comment by WES WALTER: Daniella: I am not assessing a late penalty. The submission is well organized, and the content is mainly on point with the assignment criteria! The Proposed solutions section needed a chart/graph. The Implementation needed timeline and estimated costs. See corrections and comments below.

GCU PSC-495

Prof. Wesly Walter

May 13, 2018

Problem Statement: Unethical Practices in Apple’s Supply Chain

Executive Summary of Stakeholder Ideas for Potential Solutions Comment by WES WALTER: Executive Summary not required for this submission but will be for the final. It will not be an Executive Summary of Stakeholder Ideas for a Potential Solution however. It will just be an Executive Summary of the proposal.

A group of stakeholders have identified several steps that Apple can take to address ethical concerns that the company is facing currently. For instance, a group of trade and labor unionists propose that Apple should develop a supplier code of conduct. This must be accompanied by undertaking of regular audits of ethical suitability of these suppliers in terms of fair labor practices and observance of environmental sustainability standards (Schiller, 2010). Companies such as Green Choice Initiative have proposed that Apple should collaborate with environmental groups in order to assess the environmental fit of all of its suppliers to conduct business. Introducing environmental competence and certifications can help to minimize emissions of poisonous gases into the atmosphere by its suppliers. Moreover, labor unions and government agencies propose that Apple should conduct regular physical site visits in order to verify whether or not its suppliers continue to violate international and local labor and environmental standards. For instance institutions such as the Environmental Protection Agency and Fair Labor Standards Association have proposed that Apple should undertake regular site visits and give reports on compliance accordingly. Further, the company should give all its suppliers who observe recommended ethical practices certifications. Examples of certification bodies may include Global Reporting Initiative, Social Accountability 8000, and ISO certification.

Purpose Statement

The purpose of this proposal is to explore the ethical challenges that are faced by Apple in its supply chain. This proposal is driven by the desire to examine how organizations can prevent and respond to ethical crises that emerge from its third party stakeholders such as suppliers and manufacturers. In order to realize this objective, the study will investigate the potential impacts of ethical malpractices in Apple’s supply chains on the organization’s public image and reputation. This will include evaluation of customers’ perception and loyalty before and after these ethical problems were exposed to the public by the media. Most importantly, the study offers solutions to these ethical issues.

Problem Statement

Identification of the Problem

Apple is one of the richest organizations in the world. In 2015, the organization was ranked as the world’s most valuable brand at $247 billion (Clarke & Boersma, 2017). The company was the first American firm to attain a market capitalization of &700 billion, which is almost double the market capitalization of Google and Microsoft combined (Clarke & Boersma, 2017). Nonetheless, the world’s most valuable organization has attracted a lot of negative media publicity in the last five years. The organization has come on the spot for allegedly failing to observe universally accepted labor standards in its supply chains in Africa and Asia (Schiller, 2010). For instance, media firms and human rights activists have identified and evaluated more than 100 facilities. In these premises, approximately 17 key violations, such as eight cases of excessive recruitment fees, three cases involving underage employees, and three situations in which suppliers utilized non-certified hazardous waste disposal providers. Comment by WES WALTER: I think this might have been a dollar sign but in any case, the “&” does not make sense here.

A significant number of laborers have been subjected to poor working conditions and low wages. Furthermore, most of the companies that provide supply services to the organization subject their laborers to long working hours and over-working conditions, approximately over 60 hours a week (Schiller, 2010). This was especially common in about 55 factories. The cases of violations by far surpassed the limits by more than half the timeframe (Schiller, 2010). Numerous complaints relating to low payments and underpayments have also been identified in these supply factories. For instance, more than half of the apple employees raised complaints that they were not just deprived of their federal and internationally-required minimum wages, but they were also denied maternity leaves. In worst case situations, some employers even refused to pay them altogether due to disciplinary purposes (Schiller, 2010). Although Apple insists that its policies prohibit such unethical practices, the company has not made significant efforts to address the problems that continue to confront its supply chains scattered across the planet. Comment by WES WALTER: I am always leery of using this word unless I back it up with factual numbers that show that “most” is a true statement. People like to use “all, most, never, etc.” to bolster a point but without revealing any facts to support the bolster.

As Apple continues to enjoy meteoric rise as the world’s most iconic brand, there is an increasing body of evidences that emerge of the negative impacts of unresolved human rights, environmental, and ethical dilemmas in its supply chains (Clarke & Boersma, 2017). Indeed, the beauty of the organization’s brilliant designs and highly polished products eventually rely on the suffering of youthful laborers in electronic sweatshops (Clarke & Boersma, 2017). In such premises, there are gross and systematic violations of human rights standards, labor laws, and environmental safety policies.

Potential Consequences of Not Addressing this Problem

Apple must resolve the ethical problems that continue to affect it for it to protect its image and reputation as a listening and caring organization. Public image is one of the indicators of consumer loyalty. Therefore, as the organization continues to hit the headlines as one that accommodates gross and systematic violations of human- and labor rights, consumers are most likely to lose confidence in the brand. A significant number of consumers often support equality and fair labor standards. As such, they are less likely to associate themselves with an organization that neither stands or social justice, not environmental conservation and sustainability. Apple is also most likely to face numerous lawsuits and litigations that will only result in dramatic reduction of its revenues due to heavy fines. Comment by WES WALTER: This term has some varying definitions but here in the US its use is associated with the “progressive left” or “socialist” movement. I am not sure that Apple or any corporation that values revenue, cares that they do not stand for “social justice”, even though may give lip service to the idea…they are capitalist.

Data and Research Findings

The research found identified three major ethical issues that Apple was facing in its supply chains. They include: poor environmental sustainability standards, poor employment practices on foreign suppliers, and failure to verify the supply chain. Environmental sustainability and conservation forms an integral part of an organization’s social responsibility. Although Apple’s supply firms such as Baosteel and Haworth have taken the lead in promoting environmental conservation, the two firms have attracted public criticisms from Chinese activists, government agencies, and non-governmental organizations (Murphy & Sherry Jr, 2013). Therefore, Apple has been accused of not just violating occupational safety, but also harming the environment. Although Apple responded by defending itself, it failed to address the main issues that were raised by these bodies. For instance, there were numerous cases of spread of pollution through the organization’s supply chain. A large body of case studies found that Apple’s supply chain had shocking levels of environmental pollution, resulting in direct harm to the immediate community members in terms of emission of poisonous gases (Murphy & Sherry Jr, 2013). There also large quantities of hazardous wastes that left hidden dangers for the Chinese communities that live within area of these factories. An audit report also found that there were blood-stained productions. Thus, as the organization carries on with its expansion agenda, it continues to confront numerous ethical challenges related to the environment. This has resulted in emergence of opposition in China through aggressive environmental groups and green coalitions such as the Green Choice Initiative. Therefore, Apple should seek ways of engaging its stakeholders on dialogue about environmental sustainability. Comment by WES WALTER: Either delete “found” or “identified” as using them together is redundant.

Apple is one of the American firms that contract with organizations in developing economies to generate products, such as electronic devices. This is partly attributed to the fact that the wage rates in those countries are significantly lower than the wages in the United States. However, most of these firms exploit their workers through practices such as involving women and children at below minimum-wage rates or by subjecting them to long working hours in environments that are characterized by health hazards. In some situations, some supply chain organizations are offensive to women and often deduct their salaries for participating in labor unions. Just like other high-tech firms, Apple is reliant on foreign suppliers for production of components and assembly of many of its products Clarke & Boersma, 2017). After the unveiling of many labor issues with its foreign suppliers and manufacturers, Apple reported that it began to assess practices at its supply chains and to communicate its ethics. However, this move has not generated its desired results. Critics argue that Apple was not fully committed to ensuring that its practices are fully observed and implemented. Comment by WES WALTER: Whose minimum wage rates, the US or the host country’s?

Apple failed to comply with federal and international regulations that require verification that their supply chain has sufficient controls to safeguard both product safety and ethical practices. Numerous organizations have come to the fore in attempting to demonstrate ethical sourcing throughout their value chains (Gonzalez-Padron, 2016). The organization can manage ethical issues in the supply chain through monitoring efforts that evaluate their suppliers’ ethical environmental performance and competences in connection to ethical standards. In particular, the organization failed to undertake supplier audits, which is a popular mechanism of monitoring suppliers and essentially entails use of assessment questionnaires (Gonzalez-Padron, 2016). Additionally, the company may undertake regular site visits and inspections to verify the degree to which their suppliers comply with universally accepted ethical standards. Monitoring activities can be accompanied by consulting certification bodies such as Global Reporting Initiative, Social Accountability 8000, as well as ISO certification. These certification bodies often require proper verification of the degree to which a potential supplier complies with the global and local ethical standards (Gonzalez-Padron, 2016). Some firms often undertake supply chain audits ion a regular basis to evaluate the degree of compliance with internationally accepted industry codes of conduct, such as the Electronics Industry Code of conduct.

Figure 1: Environmental Audits

1.

Figure 2: Apple’s Audit Report on Cases of Violations in 2017

2.

Figure 3: Consumer Perception of Apple's Ethical Image

Proposed Solutions to the Problems Comment by WES WALTER: This section is required to have a chart/graph in the grading rubric.

There are various steps that Apple can take to reverse the worrying trends of unethical practices in its supply chains across the world. Proactive strategies are often the best steps that can be taken to deter possible loss in consumer loyalty to the company (Errell & Speh, 2017). However, when the crisis has already taken place, the organization can manage ethics in the distribution and supply chain strategies. For instance, the company can develop a supplier code of conduct. This must be followed by undertaking regular audits to ensure that supply firms are observing compliance standards (Errell & Speh, 2017). The organization can also engage in public relations and communication campaigns to assure its clients and stakeholders that they are taking genuine steps to address the problems.

While Apple has taken various steps to respond to the ethical concerns relating to its supply chain, ethical issues still persist as indicated in the data results. Therefore, the company can employ several strategies to perfect its inner and external ethical environment (McLaverty & McKee, 2016). First, the organization should launch business transformation and change management initiatives. Apple can improve its own ethical climate by promoting radical transformations from the top, too speedily and in frequent ways. In particular, the implementation of programs such as those that seek to avoid conflicts of interest. The selection of the right suppliers who observe ethical policies can be attained by having company leaders who do not have conflict of interest issues. Comment by WES WALTER: This part does not make sense as written.

The second step that the organization can take is to introduce incentive programs to suppliers and employees. The provision of rewards and incentives to award-winning suppliers and corporate members for observing the company’s recommended ethical standards can help to avert possible breach of ethics (McLaverty & McKee, 2016). This is because humans tend to do what they are awarded to do. In light of the above, corporate leaders often receive exemplary rewards for meeting the targets. In some cases, ethical targets must also be introduced into the performance equation. Leaders who have the tendency to award contracts to suppliers who do not observe ethical policies have poor records of being awarded by the organization. For instance, bonus payments and executive share programs are normally premised on short-term business indices, which have the potential to overcome long-term initiatives and success.

Apple should also embrace a proactive strategy when responding to ethical issues. In the past, Apple’s strategy has been strongly reactive. This is evident by the social and environmental activities that it has undertaken to its supply chain (Clarke & Boersma, 2017). The essential company legitimacy is often negotiated via a multifaceted procedure with specific configurations of companies and stakeholders. The organization’s search for legitimacy is often faced with matters related to human and employment rights and activist groups. The company does not give room for stakeholders to express themselves on ethical violations. As a result, the organization is unable to interpret the real ethical issues that it is confronting. This problem can be countered by developing an open and two-way communication channel in which people are able to voice their concerns and the organization’s leaders respond in a timely fashion. Therefore, Apple should work as a listening organization.

Further, the organization should introduce an auditing model that evaluates the conduct of suppliers with respect to its ethical standards and guidelines. Currently, there is a major disparity between Apple’s declared values and standards and the actual ethical behaviors of its suppliers and business partners (Clarke & Boersma, 2017). Like other multinational corporations, Apple scores high-grade in corporate social responsibility standards but is in actuality breaching CSR principles in the behaviors of its suppliers. This is partly attributed to the fact that its social responsibility markers might not behave in a socially responsible way. Ethics auditing can be important in ensuring that all the ethical standards are observed by the organization’s suppliers.

Finally, Apple should develop labor relations principles and standards that should be followed by its suppliers. The firm should cut ties with suppliers who are expressing hesitance to embrace good labor laws (Adeyeye et al. 2015). For instance, Apple should disengage with suppliers that punish employees who join labor groups and unions. In addition, the company should join hands with activists and other stakeholders to improve the standards of living of employees within its supply chains.

Stakeholder Analysis

Summary of Stakeholder Attitude

The general stakeholders’ attitude towards the ethical problems that Apple is facing is negative. Almost all stakeholder groups perceive the organization as having lost their confidence on issues related to social responsibility, environmental conservation, and upholding of human rights in all its supply chain companies. This perception has been brought by the fact that the company has been attracting negative media publicity over its hesitance to address the ethical and legal malpractices that continue to face laborers in all its supply chains (Schiller, 2010). The media, civil rights movements, government agencies, and labor unions are examples of stakeholder groups that have accused Apple of being secretive about the unethical practices that continue to emerge in its supply chains in China and other parts of the world such as Africa and India. Furthermore, nearly all stakeholders have accused Apple of lack of transparency and accountability in explaining the steps that it has taken to address these challenges.

Stakeholder attitudes to Previously Implemented Solutions

In an effort to change stakeholder perceptions towards Apple as an organization that does not regard the rights and freedom of its employees and laborers in the supply chain, Apple has taken various steps. These steps include conducting internal and external audits of all the manufacturing plants of its stakeholders (Sethi, 2012). While the company made such decisions and developed a report to assure the public and other stakeholder groups that it was committed to end unethical practices, a group of stakeholders have trashed the company as practicing mere publicity campaigns. This is partly owed to the fact that some of its reports gave positive picture of the situation although other non-governmental organization that had conducted previous surveys on these sites revealed incidences of child labor, long working hours, poor working conditions, and numerous cases of environmental degradation and pollution. However, a group of customers are optimistic that Apple is on the right path towards realization of an ethical climate that respects human dignity and environmental sustainability.

Evaluating Success and Stakeholders who will Support Apple

While many stakeholders may take a critical stance against Apple, there are various stakeholder groups that have the potential to help Apple to improve its ethical environment. These stakeholders include government agencies, nongovernmental organizations, civil society, and customers. Government agencies such as Environmental protection Agency, and Fair Labor Standards Association, might help Apple by providing ethical advices and financial resources required for compliance (Schiller, 2010). Civil society and labor unions can provide their feedback by giving value judgment on areas that they view as requiring urgent attention.

Stakeholders who will be Directly Affected and those who pose Potential Problems

The main stakeholder groups who will be directly affected by the implementation of the proposed solutions are laborers and employees. Employees could be the beneficiaries of the solutions because their motivations will improve when they have been given flexible working hours, human-friendly conditions, and fair wages (Clarke & Boersma, 2017). Another stakeholder group that will be affected includes members of the public, who will be saved from suffering arising from pollution arising from emissions. However, those who are most likely to pose potential roadblocks are suppliers since they are going to complain of costs of production as a result in increased wages.

Implementation methods Comment by WES WALTER: I do not see any timelines or costs for the implementation of the solutions.

In light of the above challenges, Apple needs to cope and respond to the realities of implementing an ethics program for its supply chain. This will require execution of specified actions that ensure the realization of business ethical objectives. In particular, Apple will develop strategies of managing, assessing, and controlling its business ethics programs. There are five key elements that will form the basis of the implementation plan. First, the organization will develop a standardized code of ethics for all its supplies. The contents of the code of ethics document will include ethical issues that mainly affect these companies, such as unfair labor practices, child labor, employee harassments, environmental degradation, and poor working conditions. In addition, a clear communication plan will be developed to communicate to the public and all stakeholders on the efforts that Apple is taking to address the ethical concerns raised by the media and members of the public. The communication plan will also be used to receive regular updates from all suppliers on the progress that they have made to address the ethical concerns that are affecting them.

Conclusion/Call to Action

Communication will be done on a regular basis in order to effectively manage progress and potential challenges that might emerge. Another important part of the implementation program will include training and mentoring of all suppliers on ethical issues. Training will be offered on a periodical basis to keep them updated on major changes that might occur. Further, regular ethical audits will be conducted on suppliers for conformity. Audits will examine the degree of observance of ethics in relation to the ethical standards set by the company. References

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Clarke, T., & Boersma, M. (2017). The governance of global value chains: Unresolved human

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Irresponsibility

Sethi, P.S. (2012). Two faces of Apple. Carnegie Council for Ethics in International Affairs.

Number of Environmnetal Assessments Done by Apple 2007 2008 2009 2010 2011 2012 39 83 102 127 229 393 Column1 2007 2008 2009 2010 2011 2012 Column2 2007 2008 2009 2010 2011 2012

Violaton Rate in 2017 (in a 5-Point Likert Scale)

Violaton Rate in 2017 (out of 5)) Compensaiton Working Hours Prevention of Involuntary Labor Anti-Harrassment Grievance Mechanism 4.4000000000000004 3.9 0.70000000000000062 0.2 0.5 Number of Customers Strongly Disagree Disagree Neutral Agree Strongly Agree 1 3 8 16 12 Column1 Strongly Disagree Disagree Neutral Agree Strongly Agree Column2 Strongly Disagree Disagree Neutral Agree Strongly Agree