Business Ethics
Business Ethics are the moral values and principles that guides businesses the way, they should behave. These ethics help organizations to make right decisions by distinguishing between the right and wrong. The common ethical business practices equal employment opportunities, follow rules regarding child labor, bribery, and copyrighted materials and processes. However, it is not always easy to decide between the wrong and right or to follow an ethical behavior. Since, organizations also have to make competitive profits for their shareholders, carry out fair practices for employees and also perform other important set of responsibilities.
Ethical behavior also requires businesses to minimize any harmful effects on the environment and communities where they operate. Top management plays the most important role in order to practice ethical behavior. It is individual’s moral judgments at the top level that is most concerned with business ethics; whatever decisions are made at the top level influences the whole organization and so its future and image. Therefore, it is important that employees, stakeholders, and managers should be discussed with while making decisions.
Organizations can take on various benefits by practicing business ethics principles like increase profits and sales by attracting customers, increase productivity by decreasing employee turnover, recruitment costs, and by practicing fair behavior with all staff, increase company’s share price and thus attract investors.
Nowadays, most of the global businesses, whether big or small face various kinds of ethical issues that they need to control to maintain their reputation in the market and earn profits. Businesses should develop code of conducts that must be abided by each employee and staff members of the organization. Common types of business ethical issues include,
- Fundamental Issues – these are the most important issues that an organization must control, i.e. integrity and trust. It refers to the understanding of conducting business functions and decisions with honesty and commitment to treat employees and customers fairly. Consequently, the trust of employees and customers results in profits and productivity.
- Diversity Issues – it deals with the issues at workplace due to diverse cultures and employees. An ethical behavior at organization demands that management should recruit employees from different cultures and must be treated equally and respectfully.
- Decision Making Issues – decision making process explore ethical dilemmas and identify ethical courses of action that protect customers and employees rights and make sure that business operations are just and fair.
- Compliance and Governance Issues – these issues relate to the environmental, federal and safety, and civil rights laws. Business management ensures that company’s policies are as according to governmental laws.
Characteristics of Ethical Businesses
The main characteristics of the ethical businesses are as follows;
- They interact with the diverse internal and external groups of stakeholders.
- They have fair attitude towards their employees and emphasize on an individual’s interest as much as they value their own.
- They have clear vision and practice integrity throughout the organization.
- Policies and practices of the business are aligned according to the vision.
- Each decision of the organization has ethical value .
Organizations following these practices are considered to be one among the reputable companies. In year 2012, Reputation Institute carried out an online study that collected reviews through 10,198 customers about 150 companies of US. Each company was rated from 0-100 representing an average measure of an organization’s reputation. The statistical results showed that total global food giant’s pulse score was 83.03. General Mills made a huge lead and blew everyone out of the water. The main reason behind the success of General Mills was its emphasis on the citizenship and governance laws. Kraft Foods was found to be second most reputable company with score of 80.0. Johnson & Johnson stood third with score of 79.9 in views of customers and Kellogg’s as fourth with score of 79.0. As per these statistics, the food and manufacturing industry is leading the market .
This study is based on the business ethics followed by the fourth standing company i.e. Kellogg. The study will analyze the type of ethical issues that are currently arising in the food and manufacturing industry, what plans have been developed by the Kellogg to face these issues and what could be its consequences. For this purpose, managers at Kellogg will be interviewed to identify ethical issues at the company and what practices an organization is following to resolve these issues.
Organization Background
Kellogg Company manufactures and market ready to eat cereal and convenience foods like, cookies, toaster pastries, crackers, cereal bars, frozen waffles, fruit-flavored snacks, and veggie foods. The company was founded in 1906 in the United States. Kellogg manufacture its products in more than 17 countries and market in more than 180 countries. There are number of other brands of Kellogg that also market crackers, cookies, and convenience foods like Keebler, Murray, Cheez-It, Austin and Famous Amos. Currently, the company employs 31,000 employees and has its main headquarters in Battle Creek, and Michigan. As per the statistics of year 2013, the company made sales of $14.2 B .
Kellogg Company claims to follow Global Code of Ethics and K Values and therefore, organization employees and stakeholders also adhere to ethical behavior policies and thus maintains company’s reputation. The company maintains an ethically responsible culture within the organization by practicing responsible acts, honest communication, and fair behavior. The company is committed to hire diverse workforce and is one among pioneers of introducing this concept. Kellogg offers equal employment opportunity and also provide chances to hire women at any level or positions at organization. As according to the CEO of Kellogg, “In this competitive global marketplace, Kellogg can only succeed, if it reflects diversity of employees and customers and retain best talent. The company has formulated various employee resource groups and made partnerships with other organizations to support diversity.
Kellogg Company has a great team of employees and is been committed to the organization. Most of the company employees are been working for more than 20 years and they still work hard to take their organization at the top. The company carry out employee surveys from time to time so that to know about any issues that employees are facing. Thus, programs are developed according to the employees’ concerns and ideas. Meetings, discussions, and intranet discussion groups are also conducted to share the views with employees. Company launched K-Connect in 2012 that unified teams and employees around the world and now it can keep them updated about the latest activities and decisions.
Similarly, in 2012 a survey was conducted to refresh company’s vision and purpose and to communicate it to employees, implement new development program, and provide employees with better approaches and solutions for work/life. More than 22,000 responses were collected with 75% response rate. The results showed that company was quite successful in communicating with the employees and implementing plans as according to the employees’ views. Kellogg respect governmental and environmental laws and formulate ethical policies accordingly. Company regularly audits distribution and manufacturing facilities to ensure if governmental regulations and laws are been followed. Employee benefits and payroll are administered to confirm compliance .
The company has been rewarded and recognized as being the top reputable organization around the world. Recently, in 2014, it is been recognized as “Canada’s Top 10 Most Reputable Brands” by Marketing Corporate Reputation Survey, “World’s Most Admired Companies” by Fortune, “Top Company for Executive Women” by National Association of Female Executives, and “2014 UK Consumer Superbrand” by Superbrands Organization.
However, the sale of cereals is going down currently in some of the markets. For this reason, organization is planning to bring change to the infrastructure of the business and enforce new policies to cut down costs and earn better profits. Recently, an organization has lighten up an idea of two-tier payroll system at Memphis Plant but it received lots of criticism against such kind of policy.
Ethical Issues within an Organization
Recently, 226 employees at Kellogg’s Memphis manufacturing plant have been locked out of their jobs that were producing Froot Loops and Frosted Flakes for over 3 months. For this reason, company’s management and workers union – Confectionery, Bakery, Grain Millers International Union, and Tobacco workers joined their hands and reached at stalemate due to lockout. The main issue is the Kellogg’s demand of increasing the number of temporary workers who would only earn $6 or less per hour and also subject to least benefits whereas other group of employees at high level jobs $28 per hour. In other words, Kellogg is up to enforce two tier system of payroll, one with high pay and benefits and other with low pay and no benefits.
Two-tier payroll system is a type of the system in which one group of company employees receive low benefits and wages than the other. There are certain benefits that organizations seek in through implementing two tier payroll system. First, employer can better compensate and make the senior employees satisfied by offering those benefits and high wage without increasing overall payroll budget. Second, employers build up the motivation of higher pay among the employees by executing pay for performance or merit pay system. Third, the overall payroll costs are reduced for new employees.
There is one group of critics that is against the two tier system and the other is in its support. As according to Tim Sullivan, the chief executive of Bucyrus, two tier system does not support teamwork in the organization and therefore efficiencies cannot be improved. However, the other group, Harley Davidson of motor cycle manufacturing company has signed contracts with unions to embed two tier system. There are also some examples of the companies who have earned success after imposing two tier system like Caterpillar and Mercury Marine. But on the other side, there are examples of the failure as well like airline industry didn’t work when two classes of citizens was imposed. American airlines that started two tier system had to overhaul it the very next year due to various issues that arose at an organization.
Currently, most of the American companies are using this two-tier payroll system to cut labor costs to overcome the losses due to recession period of 2008. Though, by this method, organizations are able to cut costs but at the same time, it has to face various issues related to human rights, labor board, and other barriers at the lower tier of organization. Consequently, company has to invest on other programs to control and build up the reputation of organization in market.
In case of Kellogg has the right to hire only 30% of the temporary workers but as according to unions, the company is pushing up to 100%. Moreover, as according to the locked out employees, company was up to hire more number of employees due to the reason that previously, workers had to work 7 days in a week and 40 to 50 days in row. But, resolving this issue by replacing the current employees with temporary workers is not a good idea for employees, neither favorable for the organization. Most employees at Kellogg are facing issues related to their job loss, or reduced benefits. Employees whose health insurance has been suspended by the company have a fear of losing their job or been forced for taking low wages. As according to the company CEO, current or senior employees will remain unaffected by the change but the new two tier system at an organization making employees conscious. As according to experts, two tier payroll systems create tension between employees, increase turnover, resentment of management, and complicate relations with the unions. Such systems cannot be sustained in the long run as it undermines the concept of shared reward, shared sacrifice, and development of strong culture becomes hard.
The above discussed issues are already arising at the Kellogg Company. Fear of job loss and reduced benefits among the employees is making them less committed to the organization. Though, imposing a two tiered payroll system is not unethical if the company signs a contract before implementing it but it are definitely a matter of fairness. New hires at the company do the same work, but at low wages. This will benefit the company in case of reduced payroll but will undermine the reputation of the company in the market. Thus, it will definitely affect company’s profits and sales in the long run .
There are different offensive reviews been given by the employees of Kellogg after the “Locked out”. Most comment that the company is becoming greedy and wants to pay least to its employees of its huge profits. Other comments that the company is seeking to knock out the middle class workers by giving them off with the little amount of benefits and pay. However, Kellogg seeks this system as the motivation building act for the employees at Memphis. As according to the top level management, the low level workers will work harder and be productive to reach at the higher level to attain better pay and benefits. Moreover, an organization can also complain that the sales of cereal is going down and for this it has to compensate the shortcomings by reducing salaries and changing the infrastructure of the organization. Even then, employees should not be compromised. Since, in 2013, the company paid back over 600 million dollars to shareholders in dividends that shows company is earning a lot but have less to pay its employees. Similarly, Kellogg’s CEO received 90% increase in 2011 and got 6.6 million dollars. Unions and employees are requesting National Labor Relations Board to declare lockout as an illegal act.
Recommendations
It is important to bring change to the system so that to build up motivation and interest of employees but it is not a good idea to implement new system at the cost of making your employees unhappy. Kellogg’s idea of two tier system will help an organization to cut costs of wages, build motivation among employees to work harder and thus increase productivity but it may also affect the reputation of the organization in the market. Damage to reputation can lead to decrease in profits and sales in the future. It is therefore recommended that organization should implement the system that keeps its employees happy. All employees at an organization should be valued and be given equal importance. It is highly important for an organization to retain senior employees since they are the ones that build up morale of their subordinates and make them committed to the company. Kellogg is though valuing its senior employees at Memphis but still the top management is not happy with the two tier system. They are not in favor of this system because of which life gets difficult for the next generation.
It has been observed that the staff at Kellogg and the unions do not have much problem with the lower benefits but they demand equal pay and permanent jobs. Whereas, the company is seeking to impose up to 100% of temporary jobs replacing current junior level employees taking higher wages and benefits. Therefore, Kellogg should not go for such drastic change instantly that could badly affect the reputation standing of the organization. Moreover, an organization top management should go for negotiation with the employees so that to make them feel valued and ensure them, how the new system is safe and can be beneficial for them. Even if the company wants to introduce pay for performance system, it must reward employees at the lower level from time to time.
Job security instigates commitment among the employees for the organization. If Kellogg hires temporary staff for the large number of positions, it can lead to great risk for the organization. Till now, employees at Kellogg seek their future with the same organization but if two tier system and hiring of temporary employees plan is implemented then it may reduce the level of productivity instead of an increase. Human resources are the most valuable assets of any organization and if it is lost then the roots are weaken. Therefore, it is recommended that Kellogg should especially not go for the recruitment of temporary staff.
Kellogg’s new strategy of two tier payroll system at Memphis is making lots of employees unhappy and disappointed because of the unfair behavior of the organization for the low level or junior employees. Fairness being one of the most important features of any ethical organization must be practiced at Kellogg since it has reputable position in the market and it must maintain it else there are number of other competitors in the food manufacturing and services industry to take the place of Kellogg.
References
Coutermarsh, Patrick. Kellogg: Is the Two-Tier System Ethically Problematic? 12 Feb 2014. http://www.scu.edu/r/ethics-center/ethicsblog/business-ethics-news/18885/KELLOGG:-Is-the-Two-Tier-System-Ethically-Problematic.
Forbes. "Kellogg." May 2013. Forbes. http://www.forbes.com/companies/kellogg/.
Kellogg's. Empoyee Engagement. 2014. http://crr.kelloggcompany.com/en_US/corporate-responsibility/workplace/employee-engagement.html.
McNamara, Carter. "Complete Guide to Ethics Management: An Ethics Toolkit for Managers." n.d. Management Help . http://managementhelp.org/businessethics/ethics-guide.htm.
Smith, Jacquelyn. "America's Most Reputable Companies." 04 04 2012. Forbes. http://www.forbes.com/sites/jacquelynsmith/2012/04/04/americas-most-reputable-companies/.
