Business Ethical Dilemma: Wal-Marts Series of Ethical Controversies - Case Study Example

June 5, 2016

Business Ethical Dilemma: Wal-Mart’s Series of Ethical Controversies

Introduction

People had always been taught to behave according to what has been defined as good, correct, or universally accepted as moral. The actions being undertaken should ensure that the outcome would serve the best interests of those who are involved. Behaving in an ethical manner is most expected in business. As emphasized, “ethics in business has to do with making the right choices - often there is no apparent one right way and one must choose the best in the circumstances” . As such, an ethical dilemma is described as “a problem where a person has to choose between a moral and an immoral act” . Of course, business practitioners could easily say that they would never choose an immoral act. However, there are situations where the decision is challenging given conflicts of interests, absences of explicitly defined rules or guiding principles, or stipulation of codes of conduct that run counter personal values and beliefs. The current discourse hereby aims to present a business dilemma from the news and to outline the issues in the event, provide details on what the outcome was (if resolved) or should be (if the incident just occurred) and why, and articulate ways the issue could have been either prevented or better handled.

Issues in the Event

Several news articles were found regarding Wal-Mart’s encounter of some ethical dilemmas, especially regarding monitoring adherence to safety standards at a factory in Bangladesh, reportedly used by Walmart suppliers . Due to the failure to abide by fire safety standards, the Tazreen fashions plant reportedly got burned and caused more than 100 deaths in the process . A review of other news items relating to the Tarzeen fire revealed several ethical issues in the event, as follows:

• Walmart denied any direct relationship with alleged suppliers to the Tarzeen fashion plant. As asserted, “Walmart did not confirm for more than a day after the fire whether the factory was making clothes for the company. The retailer ultimately admitted that a Walmart supplier hired the factory without Walmart’s knowledge, adding that Walmart ended its relationship with the supplier as a result” ;
• Serious allegations asserting that “Walmart led an effort to block a plan to have global retailers underwrite safety improvements at factories in Bangladesh” runs against ethical standards of operating through business alliances;
• The system of audits and inspections of Walmart as to the compliance with safety standards in factory conditions were allegedly contributory to exposure of human resources to risks. As revealed,

“Two Walmart-sponsored inspections in 2011, along with a third monitoring report in April 2012, revealed recurring violations, with the first Walmart audit report, containing a warning from a Walmart official, giving the factory an “orange,” or high risk, assessment. Under Walmart’s rules, such factories are to be reinspected within six months, and are disqualified only after failing three audits within two years — raising the possibility that workers remain exposed a year or more to serious dangers before a factory is dropped” .

• Walmart does not actively play an instrumental and essential role in monitoring and instituting appropriate measures to adhere to safety standards of factories to prevent workers from being exposed to risks, accidents, and deaths in the work setting. According to the reports, “in the days after the Tazreen disaster, Mr. Kamalanathan, the Walmart executive who acknowledged the inadequacy of factory inspections, proposed a series of recommendations to improve fire safety. But nearly all of them put the onus on Bangladeshi authorities and factory owners” (Greenhouse and Yardley: Flawed Monitoring par. 5).
• After three (3) years since the fire incident at the Tarzeen factory, a news report disclosed that Walmart never agreed to contribute to a fund, which had allegedly been established, to pay the victims of the fire. Accordingly, “Tazreen’s largest customer, Walmart, still has not provided any funds to compensate the survivors and the families of the deceased workers… Yet to date Walmart has refused to pledge any money to the injured workers and families affected by the Tazreen fire” .
• The actions of Walmart indicate that the retailer failed to exhibit any commitment for corporate social responsibility. Actually, their actions also prove the inability of Walmart to adhere to ethical, moral, and legal codes of conduct, as expected from a large and global retailer like them.

What The Outcome Was

The most glaring and devastating outcome of the event was the deaths of a total of 112 workers and still many were reportedly permanently injured. As stated in the recent report,

“When the fire broke out, workers were trapped inside the building. Exits to the outside were locked and the only way out was through windows on the upper floors. Over a hundred workers were injured by jumping from the windows of the third and fourth floors, sustaining serious back and head injuries which have left many of them in constant pain. For the last three years the families of those killed and injured have been fighting for compensation for the loss of their loved ones or loss of their own ability to earn an income” .

From the gathered information, it was also revealed that Walmart never admitted that the factory was indeed producing clothes for various suppliers of Walmart. Or if indeed, some of the suppliers previously used the factory with the agreement of Walmart, at the time the fire broke, Walmart denied any direct relationship or commitment that they have approved suppliers to contract with the factory for business transactions. In the process, no amount of compensation was awarded to the victims’ families even after three (3) years from the fire incident.

What The Outcome Should Be and Why

First, various reports have already established that the Tarzeen factory was used by Walmart suppliers to produce clothes for the giant retailer (Greenhouse and Yardley; Kavoussi; Clean Clothes Campaign). The fact that the name of Walmart has been attached to the reports already indicate that there has been previous evidences of the forge alliance between Tarzeen factory and Walmart suppliers. Moreover, there were evidences of a number of Walmart suppliers which had been doing business with them through clothes being manufactured in the Tarzeen plant. As noted, “documents found at the factory after the fire show that six Walmart suppliers had been using the factory in the previous 18 months, including two relying on Tazreen in the weeks just before the fire. Documents show that as recently as last Sept. 13, two months before the fire, 55 percent of the factory’s production was for Walmart suppliers” (Greenhouse and Yardley: Repeat Violations par. 2).

Secondly, the fact that Walmart supported inspectors from their suppliers who have allegedly found serious deficiencies in adherance to fire safety standards indicate their involvement in the Tarzeen factory. The news report written by Greenhouse and Yardley for the New York Times has documented several inspection reports from May 2011 up to 2012 disclosed gross violations of fire safety standards including insufficient numbers of fire extinguishers, absence of fire alarms or fire detectors, especially in higher floors, blocked exit routes, inward opening exit doors, and lack of battery-powered emergency lights to be used during power failure.

From these information, the following outcome should have happened if and when Walmart assumed appropriate business ethical practices:

• All suppliers should disclose where they would source the products that would be directly shipped to Walmart stores;
• Inspections of factories on conformity to safety and health standards should come from representatives of the supplier, Walmart, and the host countries’ authorized safety inspectors;
• When violations are noted, these should first be corrected by the factory, with the assistance of the supplier, Walmart, and the owners of the factory;
• Correction period should be immediate; as in within 30 days upon detection of violations. If the violations are not corrected, even with the assistance of the supplier and Walmart, the factory should never be used to manufacture products to be sold by Walmart.
• If any accidents, injuries or deaths occur even after measures for stringent adherence to safety policies and procedures have been instituted, the three (3) parties (the owner of the factory, the supplier and Walmart) should share responsibilities, accountabilities, and liabilities. This means that all parties should be able to provide needed assistance to the victims on a unilateral manner.
• As recommended, retailers like Walmart should share in financing requirements to improve safety practices or procedures in affiliate companies. As proposed by “Richard Locke, a factory monitoring expert at the Massachusetts Institute of Technology, questioned Walmart’s approach. ‘If Walmart is serious about trying to improve safety,’ he said, ‘then the retailers need to contribute” to financing safety improvements’” (Greenhouse and Yardley: Blocking Fixes par. 6). Tracing the supply chain for the products sold at Walmart would clearly indicate that factories like Tarzeen factory need to be assisted to conform to the safety standards disclosed from inspection reports. The products manufactured from these factories enable retailers like Walmart to market the products at the least cost due to the low labor costs and materials that have been sourced through these factories.

If and when these ethical issues are resolved, it would have been expected that accidents, injuries and deaths would have been ultimately minimized or outrightly prevented. As such, the working conditions of the local labor force in areas like Bangladesh would have significantly been improved to the point where strict adherence to health and safety standards are complied and no casualties would ever occur.

How Could the Issue Have Been Either Prevented or Better Handled?

The issued would have been prevented if a tripartite agreement was forged between Walmart, its supplies, and the factories where products to be marketed by Walmart are made. The agreement should include adherence to ethical standards, including stipulation of safety and health policies and procedures. It should also include the extent of financial assistance or contribution of all parties when improvements in safety conditions are to be made. Moreover, aside from inspectors from these parties are sent to monitor and inspect adherence to safety and health standards, as suggested, an independent inspector should also be contracted to ensure unbiased report. As revealed, “an independent international monitor would inspect factories, and the companies would promise to pay what was needed to bring the factories up to standard” (Greenhouse and Yardley: Blocking Fixes par. 7).

Concurrently, on the part of policymakers and legislators, the respective governments (Walmart, the suppliers, and the host factories) should also play an essenntial part in ensuring that these parties comply with the conditions of the tripartite agreement. In retrospect, looking at what happened with Walmart, apparently, the United States’ policymakers and legislators, especially those who could have evaluated how Walmart was remiss in having a direct accountability and responsibility for helping the victims at the Tarzeen factory, failed to demand Walmart to help the victims financially or contribute towards improving the safety conditions of these factories. For the millions in revenue that Walmart continue to generate, a portion could be allotted for the improvement of safety conditions of factories that supply Walmart’s goods, especially in areas such as India or China. To date, Walmart was noted to have generated as much as $485.65 billion in 2015 and net $16.18 billion . There were a total of 112 workers who died in the Tarzeen factory fire. Walmart could have contributed even a small portion of their income to these victims and the contribution would not even hurt the company’s bottom-line.

Moreover, taking the perspectives of Bangladesh workers, they have actually made some recommendations which were never acknowledged by Walmart. The following proposal was hereby appropriately cited:

“Walmart should sign onto the legally-binding Accord on Fire and Building Safety in Bangladesh, an agreement between more than 180 companies and two global unions and ten Bangladeshi unions. The Accord is a five-year program of independent safety inspections with public reports; mandatory repairs and renovations to address all identified hazards; and a central role for workers and unions, including worker-led safety committees, in all factories and access to factories for unions to educate workers on how they can protect their rights and their safety, including their right to refuse dangerous work. The companies in the Accord commit to work with their suppliers to secure financing, maintain orders, and ensure renovations are completed to make factory buildings in Bangladesh safe. Walmart can help prevent more workers from being killed in its Bangladesh supply chain by joining the Accord” .

The incident could have been better handled if and when the suggested tripartite agreement was forged at the onset. Big retailers, like Walmart, should not wash their hands and assume that they do not have any accountability or responsibility in incidents that happened to factories like the Tarzeen plant in Bangladesh. They have to acknowledge that they continue to promote their business model of offering the lowest cost or price to their consumers due to the workers in factories, such as those in Bangladesh or China. Insodoing, it is their responsibility, in part, to ensure that excellent working conditions through good health and safety sandards are continued to be enforced and maintained on a regular basis.

Conclusion

The news on ethical dilemmas facing Walmart confirmed that even large organizations with departments and officers in charge of conformity to ethical standards still face confounding problems. Although the leaders and managers at Walmart believe that they adhere to universal ethical, moral, and legal standards, there are still some situations that indicate that there are still areas that need to be improved. As such, the event should be taken as a lesson for the executive management team and decision-makers at Walmart to learn from the experience and to change aspects that apparently violated ethical rules. Walmart should learn to admit their mistakes and take accountability for the accidents, injuries, and deaths that happened in factories that were identified to contribute to their supply chain. The incident at Tarzeen factory should never happen again.