Apple is one of the most valuable companies in the world. It is at the forefront of innovation in the areas of desktop computing and publishing and mobile entertainment and communication. It revolutionized the world of portable music with the introduction of the iPod. The opening of iTunes redefined the whole concept of selling music for portable media. The opening of iTunes changed the music retail industry altogether. It led to the demise of two music retail giants: Tower Records and Virgin Megastores.
Recently, however, the company seems to be suffering from bad publicity regarding some ethical issues. The company seems to be a far cry from its image as a responsible company in the past. In 1985, research studies showed that the company was among the leaders in the practice of corporate social responsibility. Today, the company’s business practices are being questioned. It seems to be totally the reverse of what it was in the late 1980s.
Twin disasters
Reports of suicide at Foxconn came up in news in 2010. The suicides were said to be a result of the intense work pressure at the factory. Statistically, given the high number of employees, the number of suicides in the company was lower than the average suicide rate per 100,000 persons in China. Clients of Foxconn like Apple and Hewlett-Packard promised to investigate the case. While the suicides may not be extraordinary, they called attention to the work conditions of Foxconn’s factories. The investigation conducted by the Fair Labor Association (FLA) did not reveal many findings regarding the plant facilities and workers’ situation in those factories. However the FLA found that Foxcomm violated some of China’s laws regarding work hours.
The issue was further aggravated by an accident. In May 2011, an explosion occurred at one of the plants of Foxconn. Three persons were killed. Again, the incident called attention to the workplace especially with regard to the safety of people working there. At the time, there were no reports of wrong-doing or unsafe practices. Unfortunately, the accident occurred shortly after the launching of the new generation of the iPad. The issue continues to persist because the problems never seem to have not ceased. Reports of suicide continued to come out.
Foxconn had US clients other than Apple. Unfortunately, Apple had to bear the brunt of all the negative publicity even if Foxconn did not reveal its clients as a matter of policy.
Violations
Apple itself did not violate its own code of conduct and its suppliers’ code . It was the suppliers that violated the code.
Two years after the investigation begun, the Fair Labor Association (FLA) released its report. It found that Apple’s suppliers—Foxconn, Pingzhou Electronics, and Pegatron Corp.—committed several violations. Not only did they violate the supplier code, but they also violated China’s laws. Foxconn overworked its employees. So, employees did overtime to augment their income. Unfortunately, the employees worked 60 hours a week, way beyond China’s legal limit of only 49 hours. They also worked overtime above the legal limit of only 36 hours. However, these violations were still within the limits set by the FLA.
Meanwhile, Pingzhou Electronics was found to have been hiring children to do work. This was in violation of China’s laws, and of Apple’s supplier code and of FLA’s regulations. The age limit was set at 15 years. The report was further aggravated when news of a 15-year-old buy died at a factory. Although the boy’s death had nothing to do with work—he died of pneumonia, the resulting negative publicity triggered widespread criticism of Apple. Apple promptly fired Pinzhou. Unfortunately, the damage was done.
Clearly, the suppliers committed the violations but not Apple. It may be argued that Apple should take command responsibility. Actually, it did although belated. It fired Pingzhou when the law violations were discovered.
With regard to Foxconn, the company may not have violated any Apple code at all. The present and recently updated Supplier Responsibility code is a document of vague statement. It can be subject to various interpretations, especially with regard to the treatment of employees.
On the contrary, the labor hours at Foxconn reflected Apple’s espoused work ethic. The biography of Steve Jobs reveals that since Jobs returned to Apple, the culture of overly work hours and intense pressure was revived. Apple’s culture was a mirror image of that of Jobs. In turn, Foxconn reflected the culture of Apple. It was the only way it could cope with the demands.
The dynamics of having work farmed out to a foreign country is different from having all that work done at home. Apple is a guest in China. It cannot and should not impose its ethics on the country. It has to abide by the host country’s rules.
The real problem. The reason that Apple did not violate any of code of conduct is that because it did not seem to have had a real one. This is where the problem. Apple does not seem to have a concrete corporate governance and CSR policy and program. Its code of ethics and CSR directions are more reactive rather than proactive. As such, it is as good as not having any social responsibility at all. Sanctions on wrong-doing or unethical behavior do not prevent things from going bad. They are steps only after an accident has happened. In the meantime, the company does not do anything.
Apple has a code to rule over its suppliers . Its code of ethics is not really what is should be. It is largely a guide to protect the company from any wrong-doing by the employee. It hardly speaks of anything beyond the good of the company.
With regard to its environmental responsibility, its claims to commitment are nothing more than requirements fulfilled by ISO-registered companies. They are now a normal part of operations and doing business. If a company violates these rules, the company will be shut down immediately.
So the question remains, what are Apple’s CSR policy and commitment? Apparently, there are none.
Impact of negative publicity
Apple has continued to suffer from the bad publicity which being revived. Labor rights groups have been calling every now and then for boycotts. They have also been calling o people to sign their petitions against Apple. Recently, some parties have revived the same calls.
Also recently, one analyst downgraded the recommendations for Amazon and Apple. This is perhaps one of the worst reactions so far. This is largely in response to alleged bad treatment of employees in China.
Making Suppliers Comply with Wage Standards
The suppliers are already over-stretched. Tough negotiations will not lead into any solutions. They may aggravate the problem.
Instead, Apple should help the suppliers to enable themselves. This can be done in two ways as Amazon did with its warehouse problems .
First, Apple should try to automate some of the processes to eliminate. They could try to build the equipment themselves or purchase from existing suppliers. This requires full cooperation from the supplier. Apple will have to guarantee the supplier that they will be partners for a long period—defined by how long the machine depreciates or the loan amortized. Apple should assist the supplier in paying for the machines, and demand exclusive rights for its use.
Second, develop new software for existing and new machines. Sometimes, problems with certain machines can be corrected with new software . Since Apple is capable of developing software, it should be able to develop new processes along the lines of Japanese manufacturing .
Like Amazon, Apple is in a position to develop new technology both in the hardware and software areas. If it does not have the capability within, it can surely tap outsiders to help them. The company is already in that industry.
One thing that Apple should do is to trust the supplier. It should choose its suppliers very carefully and pick those that they could trust it the long term. This will require both Apple and the supplier to open themselves up to each other. Japanese companies have been able to do this with their just-in-time (JIT) and other processes. These methods have been adopted by some American multinationals.
Both approaches will help lower labor inputs. Workers can achieve the same goals in less time. With fewer employees, the suppliers can provide the employees with higher wages and better benefits. More importantly, the entire work process would have become more efficient.
No Price Increase
Apple’s customers may not be willing to pay a higher price for its products. To begin with, Apple’s products are among the highest in the industry. It will be able to keep a solid following, but it will not be able to dominate the market. It has plenty of competitors that offer arguably similar if not better quality products. The world has not fully recovered from the 2008 financial crisis. People will not be spending as much as they may have used to.
Given Apple’s history, it is not likely that any transformation the company makes would be significant enough to justify any price increase. It smacks of arrogance and greed that would run contrary to any social responsibility efforts.
Going for the Long Term
Apple could learn from Amazon’s business model and strategy. It may have to delay profits. It may have to lose a little at present so it will gain in the future. If a company does these things right, the profits will eventually come. Amazon applies this principle with regard to customer satisfaction. It has not applied the principle yet to investor interests.
Steven Jobs claims that the reason that Apple did not do well during his absence was because management was more interested in building shareholder value. It raised prices and introduced many product variants. It lost customers as a result.
Apple should learn to advocate the three-bottom-line approach to business. The approach puts together three important dimensions on business: financial, social and environmental. Aside from pursuing higher profits, the company should exercise greater social responsibility. It should try to help the community through active corporate social responsibility programs. It should take steps to help its different stakeholders—including employees and laborers of its suppliers. The environment is the third dimension. Again, it has to take a proactive rather than a reactive approach in this regard. Apple should not wait until for the government to strictly require companies to follow the TBL approach. Otherwise, it would again seem that the company is being reactionary.
Customers and financial analyst already identified what they want. Apple will have to listen. First, it will have to have to counter the issue of low wages in China. Laborers in China are paid lower than those in the US. However, China is not the US. It does not have as a high a standard and a cost of living. Apple will need to emphasize that it is already paying higher than China’s minimum wage . This problem erupted because Apple never explained it before. A happy balance will have to be achieved between giving in to this demand to the demand and losing money. Apple may not have to lose money, but it may have to reduce its profits. Investors may not likely complain because that is what they also wanted.
Apple can reassurance that companies that conduct CSR—especially those preferred by investors and customers—eventually perform better
Apple should also rethink its CSR and environmental efforts. These will have to be more proactive. The company does not yet have any community assistance or outreach activities. Without such activities, the company would seem like to exist solely for its benefit and for profit. That is not good publicity. CSR can make good publicity.
The company should also take a more proactive stance with regard the environment. At present, all its claims and contributions are mainly about not doing any harm. True, there are costs in involved in the purchase of solar panels for instance, but that is not enough. An example of what it can do is to think about what happens to their devices when customers do not want them anymore. Apple could develop a program to collect these and convert them into environment friendly waste.
Apple may have to reduce its profit in the short term. It definitely has everything to gain in the long term. Not only Apple will gain, but society as well.
Conclusion
Fortunately for Apple, the whole idea of the three-bottom line—profit, social responsibility, and environmental protection—has not really sank in among American consumers and investors. Apples sales and value have continued to grow in spite the lack of CSR policies.
The incident in China is a bit far and remote for people in the US. Until such time that the company suffers another incident or accident closer to home, only then will the company feel the full impact of its negligence.
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