Analysis

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MGT 3023 Business Ethics 2020/21 Individual Coursework – Analytical Report Brief:

Analyse one of below vignette cases in report format1.

In this report, you are expected to do the following:

• Explain the ethical issue(s) of your chosen case (see below) using references (textbooks, journal articles etc.). Explain which stakeholder groups are involved in / affected by this issue and how. Do not copy the case description, instead, summarise and analyse as taught in class (400-500 words). (20%)

• Use TWO ethical theories [see lectures Learning Weeks 2 and 3] to justify why this issue / these issues deserve(s) attention (400-500 words). (20%)

• Set out any FOUR individual or situational factors [see lecture Learning Week 4] that explain the occurrence of the ethical issues described in the case (200-300 words). (10%)

• Provide THREE specific possible solutions or recommendations (referenced) as to how this issue / these issues may be addressed effectively. Consider a) what the company/companies named in the case study may do and b) what other societal actors may do. Where possible, point out the links or complementarities between the solutions you suggest. Where appropriate, link your suggestions to general business ethics management tools (see, for example, Crane et al. 2019, ch. 5) (500-600 words). (30%)

• Provide a critical evaluation of your solutions, i.e., show that you can discuss your own ideas through a critical lens by indicating the limitations. (200-300 words). (10%)

Your report should have a brief introduction (setting out what you are planning to cover in the report). Your evaluation can be your conclusion, but you may also write a separate conclusion.

Your word limit is 2,000 words (excluding bibliography and word count in appendices). 10% below or above allowed. Do not forget to include your word count in your report.

The report needs to have a minimum of five references (theory and case related).

The marksheet (see separate document) sets out the marking criteria in detail.

(Presentation and Style has a weighting of 10%)

1 That is, you are expected to use sub-headings.

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Option 1

In recent years, Swiss company Nestlé, one of the largest food and drinks manufacturers in the world, has been facing mounting criticism in the United States of America as it expanded its production of bottled water and massively increased its sales of the product. In 2016, bottled water sales surpassed soda as the largest US beverage category, with Americans consuming 12.8bn gallons that year. In 2018, Nestlé Waters’ North American sales were worth $4.5bn.

In California, Nestlé each year draws millions of gallons of pristine spring water from a network of clear streams including Strawberry Creek, to bottle it under the Arrowhead Water label. These water streams are on federal land, and Nestlé only paid a $500 fee to the US Forest Service for permission to draw water. Environmentalists say some creek beds in the area are now bone dry and once-gushing springs have been reduced to mere trickles. The Forest Service recently determined Nestlé’s activities has left Strawberry Creek “impaired” while “the current water extraction is drying up surface water resources”. Despite this, in 2018, the Forest Service approved a new five-year permit that allows Nestlé to continue using federal land to extract water. Critics say this decision defied common sense, in particular as Californian state officials had found in 2017 that the company exceeded its yearly allowance of water claimed each year and advised that Nestlé immediately cease any unauthorized diversions in order to comply with original allowances and maintain consumer trust. A whistleblower, who used to work for the Forest Service, claims that Nestlé had an informal quid pro quo arrangement with the Forest Service, which had faced a number of severe budget cuts: Nestlé would fund forest conversation projects in return for acquiring the permit for drawing water.

As another example, in Michigan, where the company is operating a number of wells in Evart and Osceola, it paid for new ambulances, baseball fields and fireworks for these economically struggling communities, as it obtained necessary permits for water extraction. In 2003, a Michigan court ruled that Nestlé was solely responsible for draining the Dead River watershed in Evart from which it pulled 400 gallons per minute, or 210m gallons annually. After a long drawn out legal battle, Nestlé finally agreed in 2009 to drastically reduce the amount of water it takes and monitor levels in real time. More recently, in neighbouring Osceola, Nestlé was successfully blocked from building a pumping station. In order to increase the amount of water from a wellhead, Nestlé needed to build a pump in a children’s campground in Osceola Township to transport the increased load via a pipe system. The township rejected the plans based on its zoning laws, and Nestlé subsequently sued. A lower court decided in late 2017 in favour of Nestlé, stating that water was essential for life and bottling water was an “essential public service” that met a demand which trumped Osceola Township’s zoning laws. However, this decision was reversed in the appeals court, with the new decision saying that marketing bottled water in an area where tap water is available is unessential. “The circuit court’s conclusion that [Nestlé’s] commercial water bottling operation is an ‘essential public service’ is clearly erroneous” the judges wrote, “other than in areas with no other source of water, bottled water is not essential.” The judges also disagreed with Nestlé’s argument that it represented a “public water supply”. They said state law “unambiguously” implies public water supplies are “conveyed to a site through pipes” while nonessential water is provided in bottles. However, Nestlé can still appeal to the Michigan Supreme Court, or it could attempt to build the pump elsewhere in the township.

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As a final example, in Fryeburg, Maine, Nestlé’s activities have contributed to the drying out of wells and depletion of the aquifer. Despite this, in a recent legal challenge that went to the Maine Supreme Court, justices upheld a deal allowing Nestlé to draw between 75m and 220m gallons annually from a Fryeburg well for 45 years.

Critics characterize Nestlé as a “predatory” water company that targets struggling communities with sometimes exaggerated job promises while employing a variety of what critics call ‘cheap strategies’, like making donations to community organisations and projects to win over small town officials who hold the keys to valuable springs. The company spends millions of dollars on lobbying and campaign contributions at the federal and state levels totals, there is a revolving door between the company and government, and Nestlé is said to maintain cosy relationships with a range of federal officials. Nestlé, on the other hand, maintains that it is a responsible steward of US America’s water and an eco-friendly “healthy hydration” company aiming to save the world’s freshwater supply, as well as a job creator that invests heavily in local municipalities. The company says it bottles a minuscule amount of the nation’s water and draws water sustainably according to its science. Critics fear that Nestlé’s activities and tactics will in fact push forward the privatization of public water, thus diminishing access to water as a public resource. (Adapted from: Perkins, T. (2019a) The fight to stop Nestlé from taking America's water to sell in plastic bottles, The Guardian, 29 Oct 2019; Perkins, T. (2019b) Nestlé cannot claim bottled water is 'essential public service', court rules, The Guardian, 5 Dec 2019; Rock, T. (2017) Nestlé has been extracting water illegally in drought-stricken California, state says, LA Times, 28 Dec 2017) Option 2 Boeing, headquartered in the United States of America, is one of the largest aeroplane manufacturers in the world. In 2016, in an attempt to beat main rival Airbus, which had recently developed a fuel efficient aircraft, and to maintain its market share, Boeing rushed a new aircraft type called 737 MAX to market. The 737 MAX promised to be big business, as many airlines around the world ordered a total of several thousand 737 MAX aircraft from Boeing. In October 2018, however, one of the Boeing 737 MAX planes operated by Lion Air, an Indonesian airline, crashed. Four months later, another Boeing 737 MAX plane operated by Ethiopian airlines crashed shortly after take-off. A total of 346 people died in both crashes.

Several news outlets have examined the reasons for those crashes, which will potentially cost Boeing at least $1 billion to settle legal claims by airlines. An article in Forbes has focused on the rushed process to get the new aircraft to market, which did not leave enough time to get the design of the new aircraft right. Boeing engineers reportedly found that under certain conditions the aeroplane’s engine boosted the chances that the aircraft would tilt upward too steeply, causing the plane to stall. To offset that risk, Boeing engineers installed a Manoeuvring Characteristics Augmentation System (MCAS) in the 737 MAX which would be triggered by sensors and which would push down the nose of the plane. This was risky, because if only one sensor was faulty, the MCAS would push the nose down even though the 737 MAX was not actually stalling -- thus sending the aircraft into a nosedive. While there is no final conclusion about the cause, a preliminary probe found that this is why

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Lion Air 610 crashed in October 2018. Pilots flying the 737 MAX for Lion Air and most other airlines received no training on the MCAS system and saw almost no mention of it in manuals, according to the pilots and industry officials. Most pilots would get no visible cockpit warnings when a sensor used to trigger the system malfunctioned, only those working for airlines who paid extra to get better protection from a faulty MCAS.

The Seattle Times has examined the lack of regulatory scrutiny that is thought to have contributed to the MAX aircraft disaster. In the US, the regulator FAA (Federal Aviation Administration) delegates oversight and scrutiny in certification processes to senior engineers working for the company. As Boeing sought to bring the MAX aircraft to market quickly, the company balked at a request for higher safety scrutiny put forward by the engineer working on behalf of the FAA, and removed him from the MAX development programme before conducting the testing he had advocated. He was only one of many engineers, employed by Boeing while officially designated to be the FAA’s eyes and ears, who are thought to have faced heavy pressure from Boeing managers to limit safety analysis and testing so the company could meet its schedule and keep down costs. That pressure increased even further when the FAA stopped dealing directly with those designated employees and allowed Boeing managers determine what was presented to the regulator, thus minimising independent assessment and scrutiny.

Finally, a whistleblower’s report in the New York Times cited a number of production problems that made the 737 MAX aircraft potentially unsafe. The whistleblower, a former Boeing employee, reported that workers at the factory where the MAX was produced were overworked, exhausted and making mistakes. A cascade of damaged parts, missing tools and incomplete instructions was preventing planes from being built on time. Executives were said to pressure workers to complete planes despite staff shortages and a chaotic factory floor, and even to increase the production rate in order to deal with a significant backlog. The whistleblower called on Boeing’s chief executive repeatedly to shut down the MAX production line but the company kept producing planes and did not make major changes in response to his complaints, even after the first crash. Only after the second crash, the aircraft range was grounded. The whistleblower expressed concern that many of the planes produced in 2018 were unsafe and that Boeing was more focused on meeting production deadlines than on safety. He identified a number of instances in which the newly produced aircrafts had safety incidents, besides the crashes, including engine shutdowns and problems with hydraulics. A Boeing spokesperson has disputed the notion of any connection between the production problems and the crashes, and stated that it is “deeply committed to encouraging its employees to raise issues — particularly those that might involve safety or quality”. The whistleblower, on the other hand, was worried that once the MAX was flying again, Boeing — scrambling to make up for the costly delays — would not have changed. (Adapted from: Cohan, P. (2019). Did Airbus Rivalry Drive Dangerous Tradeoffs For Boeing's 737 MAX?, Forbes, 28 Mar 2019; Gates, D. and Baker, M. (2019). Engineers say Boeing pushed to limit safety testing in race to certify planes, including 737 MAX, Seattle Times, 5 May 2019; Gelles, D. (2019). Boeing 737 Max Factory Was Plagued With Problems, Whistle-Blower Says, The New York Times, 9 December 2019).

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Option 3

Boohoo, a fast growing fast-fashion brand in the UK, managed to profit from the coronavirus crisis, as it made a decision to ‘pivot’ its offerings to customers at the end of March 2020. It advertised an everything-must-go flash sale, with 70% off all stock and 50% off 500 dresses. And it started selling loungewear, such as knitted lounge sets and cropped sweatshirts to cater to people’s changed circumstances of having to work from, and spend a lot of time at, home.

A few weeks later, the company announced that it had not only survived the first weeks of the crisis, but increased its April sales against the previous year. Announcing pre- tax profits of £92.2m for 2019-20, the chief executive noted that the crisis had highlighted the company’s “ability to be agile and flexible”. The company’s agility was made possible through the rapid work of suppliers based in Leicester, whose clothing industry sells about 75%-80% to Boohoo.

Despite Boohoo being hailed a British coronavirus success story, the dark side of it began soon to emerge. Leicester was denied the loosening of lockdown restrictions that the UK as a whole enjoyed from end of June, as infection rates were abnormally high in the city. It appeared that one reason for this was that the virus appeared to have taken hold in a number of Leicester’s factories and workshops – and in some cases those places are said to have never closed during the lockdown.

Campaign group Labour Behind the Label published workers’ claims of being asked to keep working despite coronavirus outbreaks on site, and an industry source provided a list of more than a dozen suppliers which they alleged sold to Boohoo and continued to operate during the crisis despite infected workers being on site.

It was difficult to get workers to speak up, as they either spoke no English or they feared they might lose their jobs if they talked. One employee witness, however, reported that the garment manufacturer he worked for locked people into the factory instead of closing it due to the risks arising from the coronavirus: “They wrote on pieces of paper: ‘The factory is closed because of coronavirus.’ But they locked the doors, and inside, people were working.” The employee further reported that the factory had so many orders during lockdown that they would require employees to work overnight to meet production targets. Due to this forced overtime, employees received wages lower than the legal minimum wage, as they would only be paid their official hours. The employee who reported this said that during that time he had only earned £5 per hour. He further stated that there was no canteen, that rats and mice were visible on the factory floor, and that there was no hand sanitiser available until recently, and that the men’s toilet had no soap. “They have put us in danger,” he said. “If I feel sick, I make my family sick. I put them in danger too.” Other employee witnesses reported that workers’ employment or identity documents were held by factory bosses, leaving them unable to seek employment elsewhere. However, it was not clear which fashion brands the factories that these employees work for supply. Leicester’s garment manufacturing base has long been criticised for poor working conditions and low pay. In 2018 the Financial Times found some workers were being paid as little as £3 an hour, less than half the minimum wage. Leicester has a long history of clothing manufacture, but Boohoo’s dominance is relatively new. The company, significantly increased its share of the city’s output after rivals, including Missguided and ASOS, were put off by concerns about conditions in some of Leicester’s factories – including claims over

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conditions of modern slavery, illegally low wages, VAT fraud and inadequate safety measures – and sought suppliers elsewhere. Boohoo maintains that it has bespoke audit systems, including unannounced factory visits, and said it was “working with our third-party compliance partner to further investigate the claims raised and … working with suppliers to ensure compliance”. Critics have, however, pointed out that Boohoo’s audit systems have been far from perfect, because as recently as late 2019 Boohoo conducted their audits of the factories in-house and supervisors in the factories seemed to know when audits would take place and they would select workers in advance instructing them what to say to the auditors. Meanwhile, the Health and Safety Executive (HSE), a UK government agency, said it had contacted 17 textile businesses in Leicester, was actively investigating three, and taking enforcement action against one. The National Crime Agency also got involved in investigating the allegations against certain garment manufacturers in Leicester. A local MP has called the issue a “national shame”, whilst another local MP pointed out that agencies such as the HSE had their budgets cut over the years so would not have been able to be more proactive to investigate alleged malpractices in previous years. MAKE BOOHOO THE MAIN FOCUS OF ANALYSIS.

(Adapted from: Bland, A. and Kelly, A. (2020). Boohoo booms as Leicester garment factories are linked to lockdown, The Guardian, 4 July 2020; Barker, A. and Eley, J. (2020). UK ministers promise crackdown on Leicester clothing factories, Financial Times, 5 July 2020; Bland, A. (2020). Leicester factory put lives at risk during lockdown, claims garment worker, The Guardian, 11 July 2020)

Option 4 You may choose a case that you have come across in the media. Your choice needs to be cleared with the module leader Dr Andrea Werner by email ([email protected]) by Sunday, 25 October 2020. Your case must about a ‘real life’, relatively contemporary ethical/CSR issue (not older than 5 years) that a specific company has been facing.

Process:

1. Submit your coursework by Monday, 23 November 2020, 9pm. Failure to submit on time will result in a fail grade. You are required to submit your coursework electronically through TurnItIn (see instructions on MyUniHub module site). Please be aware that students may be asked to attend a viva should there be any doubts regarding the authenticity of their work.