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Comparing Two Case Studies on Business Ethics and Reputation

Case Study 1: Exploiting Restrictive Rules

Compare two case study and answer the question bellow

Many dimensions contribute to the perceived reputation of a business, however, the ethical dimension has become as important and inextricably linked to, other dimensions that constitute reputation, such as product quality and financial performance. Ethics is even perceived by some organisations as being the source of competitive advantage. 

In essay format, critically discuss (evaluate both positive and negative) the above statement by referring to both cases studies and ethics literature to support your arguments.

Buying shares in a company run by one of the finalists in this year's World Entrepreneur Awards helped finalist Adam Ismail Ebrahim - CEO and CIO of Oasis Group Holdings - fund his company. 

"In 1997 - when I realised that my time as an employee was coming to an end - I sold shares that I had bought in Naspers a year before its listing at R1,45, for R50," says Ebrahim, whose brothers, Mohamed Shaheen (chairman) and Nazeem (deputy chairman), pooled resources with him to start an investment company. 

They wanted to provide a particular service not previously offered to Muslims, both in terms of savings and retirement. Muslims have the dilemma that their religious rules prohibit them from benefiting from the proceeds of companies involved in alcohol, tobacco, financial services, entertainment and pork products as well as companies that are highly leveraged. The use of derivatives is also prohibited. 

Oasis began with R3m seed capital, with a strong focus on developing the niche market of investments that complied with Shari'ah religious law. It has since grown to be the leader worldwide in Shari'ah-compliant investments and both its global funds were rated AA by Standard & Poor's and its Crescent Global Fund received a five-star rating from MorningStar. 

Ebrahim, who hails from District Six, holds a BSoc (Hons) from UCT. He later studied accounting, completed his articles at Deloitte and was seconded to the firm's London office in September 1986. "It was an interesting time, with new regulations being implemented in the financial services sector. On top of first-hand experience of changes in the regulatory environment, I witnessed the stock market crash the following year," says Ebrahim, who gained insight into the world of investment while witnessing the contrast between "absolute euphoria caused by booming market conditions and utter depression" when the tide turned. 

He returned to SA in 1988 and joined Allan Gray as an analyst, but was soon promoted to partner responsible for training managers. "Until 1996 things went very well and I felt that I was living my dream," says Ebrahim, who later found it "increasingly difficult to get motivated by my environment". "When I resigned to start out on my own, Allan Gray offered to fund my business. However, I felt that it would be inappropriate and that I wouldn't really be independent. I wanted the freedom to paddle my own boat, to follow my own philosophy and target untapped markets with my own resources. Thus we became competitors after I had eight good years with Allan Gray gaining confidence and understanding of the industry. 

Case Study 2: African Skies - Taking Our Customers To New Heights

"But then I made a huge mistake," says Ebrahim. "I believed people who made promises of vast amounts of money that they'd invest in the new business. On the strength of that, I made the next mistake: I hired 16 people - six being highly paid CAs. "We had no revenue, no assets, a very expensive salary bill and a very expensive cost structure - and the losses just kept mounting. To make matters worse, two weeks after getting our first institutional client, markets were hit by the Asian crisis. I know it has since become a sensitive image to use, but it was like a toddler taking his first steps along the beach just when a tsunami hits... 

"But we survived - on the foundations of an investment philosophy of no volatility, which, combined with our ethical offering, proved to be a very definite and successful niche. I fired everybody after realising they were having a ball doing nothing. We started managing the money we did have very strictly, our performance improved, losses disappeared and the company - and each of its operating subsidiaries - has never made a loss again," says Ebrahim. 

"After having made every mistake possible, and having learnt very expensive lessons, performance started picking up and we decided to enter the retail market, which provided the breakthrough the company needed. People started coming to us, whereas before we had to call on people trying to convince them to invest R300 a month. Up to 65% of our sales were based on that direct model, which has led to our having the lowest churn ratio in the industry and proving how important personal relationships are in business. We now have 30 000 direct retail clients." 

The Oasis Crescent Equity Fund, its flagship fund, has been the best-performing equity fund since its inception in August 1998: R100 000 invested in that fund is now worth more than R1,1m and the fund has now crossed the R2bn mark. December 2000 was another landmark for the group, when it registered its first global fund, the Crescent Global Equity Fund. That has since established itself as the world's best performing Shari'ah-compliant equity fund. The retail retirement business was launched in 2002, providing all investors access to Shari'ah-compliant and ethical retirement savings not previously available. "We find that 30% of our clientele aren't Muslims," says Ebrahim. Oasis also launched the first Shari'ah-compliant prudential unit trust in April last year and the first listed Shari'ah-compliant property fund in November last year. 

Importance of Ethics in Business Reputation

Ebrahim ascribes the success of the business - voted best collective investment scheme manager in SA for the past two quarters - to an owner-based culture and adherence to global regulatory and ethical standards. He says the Oasis model is also built on selling a product tailored to what people need and not so much on what they want, a result of building up a personal relationship with a client. 

Oasis has more than R25bn of assets under management, employs 140 people in SA and Ireland and will shortly launch operations in Dubai. Through a joint venture in Malaysia, the group has exposure to Singapore, Indonesia and Brunei. "We see SA as a great investment destination and intend to run our global business from our head office in Cape Town," says Ebrahim. 

Key leadership figures: 

  • Dr Richard Dhlamini: Chairman of the Board & CEO
  • Ms Phumi Ngcobo: Company Secretary
  • Mr Jack Dawson: Chief Risk Officer
  • Ms Melanie Oliphant: HR Manager
  • Ms Lesego Radebe: Head of Cabin Crew
  • Mr Albert Jackson: Sales Director
  • Mr Themba Moloi: Procurement Manager
  • Mr Jan Pretorius: Chief Technical and Ground Operations Director.

Company background: 

African Skies is a low-cost airline that covers the Southern and Eastern African region, having been operational between Nairobi, Maputo, Harare, Gaborone, Zanzibar, Johannesburg and Cape Town for the last four years. The airline has a ground staff (administrative, customer interface and technical) of 600 personnel and a team of cabin crew and pilots totalling just under 300. African Skies, with a turnover of R1.85 billion in the last financial year, is a private, unlisted company. Its public interest score consistently exceeded 1 000 points over the last three years. The company's board is chaired by Dr Richard Dhlamini, who is also the CEO. The main board has the following sub-committees: audit and risk, remuneration, and safety. The Board has expressed its intentions to list on the Alt-Ex of the Johannesburg Securities Exchange within 24 months. 

The chief risk officer, Mr Jack Dawson, has produced an organisational risk register that addresses the following risks: aircraft safety, procurement, environmental impact, illegal substance use by cabin crew, cabin-crew and pilot fatigue, theft of catering supplies (in particular 50ml bottles of liquor) by cabin crew, luggage theft, ticket-issuing, and reputation. 

The CEO: 

Dr Richard Dhlamini joined African Skies three years ago. Prior to that he was the country's ambassador in Armenia. He was recruited to African Skies in the wake of a fine of R25 million invoked by the Competition Commission for having paid incentives to travel agents to punt African Skies as their preferred carrier. He spent most of his working career in the mining industry. He currently serves on the boards of eight other companies as an independent non-executive director. Dr Dhlamini has been acting as caretaker CEO for the last 13 months. The previous CEO (Dimitri Sarbanes) was suspended by the Board under a cloud of secrecy after having been in the position for 11 months. Rumours were rife that Sarbanes was being investigated by his previous employer, (before he joined African Skies), for alleged accounting irregularities. 

The current situation: 

Due to the competitive nature of the local low-cost airline industry, coupled with an economic downturn and increasing fuel costs, African Skies has been burning cash of late and has initiated a corporate strategy to increase the bottom line. Dr Richard Dhlamini has advised EXCO to "sweat our assets" and instructed cost-cutting measures to be instituted across the organisation, as well as identifying alternative revenue streams. After issuing these directives, the following incidents have played out at African Skies: 

  • Melanie Oliphant, HR manager for African Skies, decided to implement a moratorium on hiring new employees, specifically cabin crew. To compensate for the lack of available personnel as a result of this hiring freeze, she has given Lesego Radebe, head of cabin crew, a fixed budget to offer overtime to the existing cabin crew. Lately, however, Melanie has received complaints from several cabin crew that certain individuals are always being chosen for overtime, despite others indicating their willingness to work extra shifts. Melanie meets with Lesego to discuss these matters. Lesego agrees that certain crew are given more overtime shifts than others, but that is because the chosen ones are willing to work much longer shifts, even consecutive shifts, and are, in general much more enthusiastic and energetic.
  • After further probing, Lesego revealed that she had noticed that many crew members had been using an energy-boosting 'tonic! On enquiry, Melanie discovered that the tonic contained high levels of pseudoephedrine, which is a highly regulated chemical compound across the globe, with medications containing it classed as a scheduled substance. Upon hearing this, Lesego expressed surprise, but stated that she did not believe it to be harmful, despite some of the cabin crew indicating minor palpitations, dizziness and anxiety; besides, 'it was their choice, and it worked to everyone's advantage. Melanie, satisfied with Lesego's explanation, closed the matter.
  • Under the direction of Mr Albert Jackson, the sales director, an aggressive drive to capture market share had been initiated, leading to flights being grossly overbooked, causing increasing numbers of travellers to miss their flights. Although overbooking of flights was standard industry practice, African Skies had pushed this quite a bit further. Albert had glossed over this by remarking, "If they miss their flight and are late for a meeting it wouldn't be the end of the world."
  • Another initiative introduced was to charge customers for ancillaries, specifically extra baggage. Albert had inserted these costs in the terms and conditions, making passengers liable to pay these charges at the check-in counter before boarding. The African Skies strapline reads 'taking our customers to new heights’. After handling yet another customer complaint about ancillary fees and overbooking, one check-in counter assistant suggested to her supervisor that the slogan should be amended to read 'taking our customers mile-high to frustration’ This off-hand remark had caught on and support staff had taken to suffixing their sentences with 'new heights of frustration.

’The airline marketing material depicted a photograph of a smiling family having lunch on a beach under a palm tree. The photograph's heading reads: 'Breakfast in Johannesburg ... lunch in Zanzibar. Recently some of the company's advertisement posters in a number of shopping centres were defaced with the words ... and luggage in Harare' applied boldly below 'lunch in Zanzibar'. 

  • Mr Themba Moloi, the procurement manager, identified the in-flight snacks served on board as an area where significant cost savings could be made. An ex-colleague, Ravi, who had left the airline to start his own catering business had approached Themba, punting his strong BBBEE credentials and low wholesale prices, for the opportunity to supply the in-flight snacks. Themba arranged for samples of the snacks and pricelists to be presented in order for him to make a determination. The prices were indeed much lower than several other competitors. A colleague, overheard Themba setting up a meeting with Ravi, and noticed a familiarity in the way in which the conversation proceeded. He confronted Themba after he had put down the phone and warned "You know that doing business with friends must be declared." Themba responded that "Ravi's daughter and my daughter go to the same school, that's all. There's no funny business, so there is nothing to declare."

At the presentation, Themba quizzed Ravi as to how he could afford such lower prices on goods supplied. Ravi shifted a pack of crisps closer, turned it over and pointed to the sell-by date. The sell-by-date was just one week off. This was good for the environment Ravi suggested, 'less wastage’. Upon concluding his presentation, Ravi left behind several boxes of crisps and chocolates which he said Themba should pass on to somebody in need. Themba then consulted the company's gift policy which, while listing currency thresholds on gifts that require registration, did not contain anything about receiving samples from a supplier. Later that afternoon Themba packed two boxes of the samples into the boot of his car. A week later Ravi was awarded the contract. 

  • The head of Ground Operations, Mr Jan Pretorius, had interpreted the directive to 'sweat our assets' to mean that certain preventative maintenance on the aircraft could be pushed out a bit further, in spite of the ageing nature of the leased fleet. Also, in line with the aim to increase revenue, Jan indicated that aircraft turnaround times - the time needed after landing to clean, replenish and refuel the aircraft - should be decreased so that an extra flight per route could be squeezed in per day. To achieve this, he indicated that certain checks should be scaled back from a per-flight basis to a per-day basis, such as ensuring that each passenger seat had an emergency landing card in its pouch. He remarked that 'no-one pays attention to the safety demonstration anyway’.
  • Aware that staff morale could be suffering due to the cost constraints introduced, Richard Dhlamini tasked Mr Jack Dawson, the risk officer, to produce a cost-effective intervention to address this. Jack considered this and decided that redrafting the African Skies values statement would boost employee morale. After scouring the internet for ideas he came across a values statement for a well-known American airline and adopted it, in particular, the values of 'servant leadership 'perseverance' and 'honesty’. Happy with his decision he produced a document and sent it to the printers to print 50 posters designated for the walls of the administrative offices and staff canteens. He also sent out an email to all employees informing them of their new values statement, to which he received several responses seeking clarity on what the values meant, and in particular what exactly a 'servant leader' was.
  • Phumi Ngcobo, the company secretary and compliance officer, was one of the founding members' of African Skies. She is highly respected by all and is known as a person with integrity. The three independent non-executive Board members often rely on her for information and advice. Phumi has notified Jack Dawson that she is unhappy about how the new values came about. She advises that they should be scrapped and that a new set should be formulated through employee participation. The office of the company secretary is also the custodian of all policies. The following ethics-related policies exist in the company: anti-money laundering, responsible use of company resources, gifts and gratuities, anti-sexual harassment, and prevention of corruption and bribery.
  • Dr Dhlamini also considered how African Skies could leverage its social responsibility mandate in such a way as to enhance the company's reputation. Later that week he announced in the press that African Skies had entered into a sponsorship agreement with a local sports personality, a tennis player, justifying this costly brand partnership on the grounds that it would raise the profile of the airline, and so increase revenue. Thereafter he also outlined a plan to start the African Skies Tennis Academy that would develop young talent in under-privileged areas in partnership with the famous tennis player.
  • That weekend Dr Dhlamini's daughter handed him her phone showing him a tweet trending on Twitter from an African Skies employee with a meme showing Dr Dhlamini playing tennis with the new brand ambassador overlaid on the new values statement with the caption 'youbeenserved! The hashtag #youbeenserved had caught on, with unflattering responses from both the public and employees. Before the weekend was over a parody account '(African Flies') in the name of African Skies had been created in the social media.

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