Stakeholder Theory and Maximizing Shareholder Value
The perception towards and the approach of business ethics management has changed drastically in the last few decades along the rapid globalisation and increasing inclination of consumers towards ethical companies. While this might not be the only reason for multinational corporations like AirAsia to engage in ethically sound business processes, it certainly serves as a catalyst. AirAsia in the past few years has been subject to both condemnation and praise, for its business and ethical practices, which this report aims to investigate and explain. For this, secondary data specific to ethical practices of AirAsia have been evaluated based on theories and concepts on business ethics.
According to the doctrine of the maximizing shareholder value, the sole purpose of a company is generation of maximum profit for the shareholders (Clarke & Friedman, 2016). However, the stakeholder theory identifies an organisation’s responsibility to every entity, which it affects in course of its achievement of business goals (Weiss, 2014). Creating value for such stakeholders is essential for achievement of its own goals.
Customers / Guests
Employee (management staff)
Pilots, cabin staffs, ground staff etc.
Interest to impact
Table 1: Stakeholders mapping of AirAsia
(Created by Student)
The table avails an insight into the level of importance, power and interest of the different stakeholders for the company. Communication is the key to the ethical management as it helps in maintaining the transparency in organisational activities and decision (Crane & Matten, 2016). Communicating the right kind of information to the stakeholders is a major part of ethics management.
To ensure that the organisation remains compliant with the current regulations of government concerning the aviation industry AirAsia in 2016 conducted 66 formal meetings with the government officials in Berhad and arranged 25 familiarisation visits to the operating units of the organisation (AirAsia, 2016). However, in 2018 the organisation’s activities in India attracted much condemnation from the Central Bureau of Investigation (CBI) of the country for an alleged attempt of bribery to the government officials, targeting change in rules concerning overseas flying rights (Chowdhury, 2018).
Every action of a business corporation is targeted towards acquiring and retaining consumers. Crane and Matten (2016) identified that regular and relevant communication with consumers is the key to retention of the existing consumers. Verhoef and Lemon (2013) added that retention of existing consumers requires less effort and resources than acquiring new ones. Therefore, AirAsia uses different communication channels such as call centre, live chat, social media, online ticket confirmation measures, direct sales through AirAsia sales officers and AirAsia travel and service centres to maintain effective communication with its consumers (AirAsia, 2016). Fung (2014) argued that although communication is significant for consumer satisfaction yet transparency during service is even more significant. AirAsia has been criticised, repeatedly, for inadequate management of refunds, which raises crucial ethical issues (Malaysiakini, 2008). On the other hand, crash of Flight QZ8501 and the post-crash actions taken by the organisation to handle the situation has been praised in both domestic and international market, which despite the fatal incident added to positive organisation perception (CTV News, 2014).
Stakeholder Mapping of AirAsia
To engage the investors and shareholders in organisational decisions and inform them of relevant trends and incidents, AirAsia arranges corporate forums, investor conferences, global aviation and financial conference, general meetings, quarterly analyst and investor briefing conducted by the senior managers. Different medium of communication such as investor relations apps, websites and conference calls are used apart from direct meetings to stay connected with the investors (AirAsia, 2016).
The employees, in aviation industry, need to be trained, insured and communicated effectively to ensure sustenance in the competitive market and generation of competitive advantage. While the workforce in Thai AirAsia enjoys facilities such as health insurance, annual health check-up, provident fund, Discount in air tickets and free tickets, financial aid in case of medical and family emergencies, social and cultural activities they often have to work longer than their overseas counterparts (AirAsia, 2016 and Malaysiakini, 2008). However, the employees are availed exhaustive training, which might be an effective trigger for employee satisfaction as scope for career development often encourages the employees to generate deeper relationship with the company.
Apart from its responsibilities towards its immediate stakeholders as discussed above, AirAsia also needs to maintain compliance with the following requirements:
AirAsia, through its varied environment-friendly initiatives such as “Green 24” has been able to reduce its carbon emission in 2015, by 22,602 tonnes. Initiatives such as installation of sharklets in A320 aircraft of the company, switching engines while taxiing and flying with less weight to reduce fuel consumption has helped in reducing the carbon footprint of the company (The Sun Daily, 2015). The AirAsia foundation has been working on the initiatives such as animal welfare, the garbage clinical insurance (CGI) and Natural Aceh (“AirAsia Foundation” n.d.).
The AirAsia X, a sister company of the organisation has bagged the Company of the Year Award in the Airline Category in the CSR Malaysia Awards 2017 for outstanding work in community projects while AirAsia, itself, received acknowledgement for its cancer awareness initiatives. The organisation through its #AirAsiaMAKNA campaign in 2015 had succeeded in raising donation worth over RM650,000 for National Cancer Council Malaysia (MAKNA) through various fund raining initiatives (AirAsia, 2017).
AirAsia’s approach towards human rights has received both appreciation and criticism. Its initiatives for creating jobs for the underprivileged people through programmes such as Natural Aceh and healthcare initiatives like CGI and #AirAsiaMAKNA have earned the company considerable appreciation (AirAsia, 2017). However, the huge workload on the trainee pilots has brought it criticism as well (Malaysiakini, 2008).
Communication and Transparency in Ethics Management
AirAsia adheres to the intellectual property laws of the countries that it operates in; trains and instructs its employees as per the identified regulations. It has acquired patents, copyrights, trademarks and licenses to secure its intellectual properties. The copyright computer software of the company is evaluated and installed only by the IT department (ASIA Aviation, 2016).
AirAsia, while conducting its operations in Malaysia has claimed to maintain transparency, integrity and fairness through prohibiting all its employees and director from engaging into acts of bribery or any other form of corruption. The directors, employees and management, as per the company policy, are restricted to accept any financial benefit from customers, business partners or any direct stakeholders of the company (ASIA Aviation, 2016). However, as per the investigation of CBI, India, the organisation has conspired with government officials for changing rules concerning overseas flying rights. It has been accused of paying INR 22 crore to two fictitious companies in Singapore and India though no consumption of service was documented (Chowdhury, 2018).
The Malaysian law protects people with disability from discrimination through the Persons with Disabilities Act 2008 (Islam, 2015). The article 153 of the constitution also protects the citizens of Malaysia from discrimination. It is the responsibility of a business corporation to ensure that discrimination is not practised within the organisation or by its employees while providing service to a customer. However, multiple incidents of discrimination have been reported against AirAsia. While in 2016 the cabin crew of Flight QZ 508 were accused of practising discrimination against a ten-year-old with a rare illness, in 2017 the organisation was accused of racial discrimination, which if proven true would raise significant questions about ethical practices of the company (The Independent, 2016 and The Thaiger, 2017).
The ethical decisions of AirAsia that are discussed above might be evaluated based on three of the major ethical frameworks such as virtue ethics, consequentialism and deontology. The virtue ethics framework puts emphasis upon the personal character of the decision maker while explaining a particular behaviour (Chakrabarty & Bass, 2015). That is, if the incidents of discrimination in AirAsia services were evaluated through this framework then they would be identified as the outcome of lack of moral judgement in part of the flight attendants and staff members. However, the deontological framework would find it unacceptable as it violates the regulations of Persons with Disabilities Act 2008 and article 153 of the Malaysian constitution as this framework identifies that ethical behaviour of an organisation should be in line with the universal principle of rights, duty and justice (Crossan, Mazutis & Seijts, 2013).
AirAsia's Compliance with Regulations and Initiatives
The issue of long working hour for the trainee pilots, when evaluated through this framework would identify the viability of the action based on international standards of employee rights. In contrary to this approach the consequentialist approach would attempt to evaluate the practicality of such working hours by comparing the cost with the results (Crossan, Mazutis & Seijts, 2013). That is if the cost of such decision entails high expenses on employee health, employee turnover, corporate image and loss of business then it would be considered as a wrong decision.
Therefore, the value of philanthropic initiatives of AirAsia such as Natural Aceh, CGI and #AirAsiaMAKNA lies in the quantitative value that such actions generate for the company in terms of profit and sales increase. In contrary, deontological framework might perceive its value based on the standards of ethical practices.
Globalisation has opened new doors for business expansion for AirAsia, which the organisation has embraced successfully. However, this has made the organisation vulnerable to the global economic events and the market environment of its host countries. Such situation calls for careful management of business ethics. For instance, while the organisation’s operation in Berhad concerning community projects has earned it appreciation, its active involvement with the political leader Razak, the former prime minister of Malaysia, who was accused of several wrongdoings has caused significant damage to its image in the global market (AirAsia, 2017 and Susanty, 2017).
Difference in the tax structure is another crucial aspect that affects the ethical behaviour and business performance. AirAsia faced loss worth US$35.9 million in Indonesia, due to the tax burden. The loss has been calculated after the payment of tax worth $19.9 million in Indonesia and $29.1 in Philippines (Daga, 2017). This marks that failure in identifying an ethical way of generating profit despite high tax rates is essential.
The organisation, to assure its consumers of food safety has acquired ISO 22000 (World Food Safety Guidelines for Airline Catering) certificate (AirAsia, 2016). The organisation has installed a Safety Management System (SMS) as per the regulations of International Civil Aviation Organization (ICAO) and the Department of Civil Aviation Malaysia (DCAM). As the organisation operates in 165 destinations spread in 25 different countries it needs to abide by their aviation, passenger safety, minimum wages and employment rules and laws while operating in those countries, which sometimes leads to conflicts. For instance, the long working hour for its freshly graduate trainee pilots in Malaysia might not be in line with the legal structure of the several countries it operates in (Malaysiakini, 2008).
Human Rights, Intellectual Property Laws, and Discrimination Policies
Through the evaluation above, it is evident that AirAsia, despite the presence of significant effort in complying with the ethical requirements in its target markets has faced a number of ethical that has affected its image, significantly in the target market. For instance, the incidents of discrimination in the AirAsia services marks the lack of regulation against discrimination and the organisation also needs to maintain equal rule for working hours for its employee to encourage equality among the workforce. Incorporation of the opinion of its workforce during development of new policy might also be needed for ethical management of its human resource. Its regulations against corruption might also need to be stricter to avoid any future complaint of bribery.
AirAsia is one of the leading economic carriers of Malaysia, which through philanthropic undertakings such as #AirAsiaMAKNA campaign, garbage clinical insurance (CGI) and Natural Aceh has developed as positive ethical image in the markets that it operates in. However, the incidences of negligence, involvement in bribery and discriminations have marked loopholes in its ethics management programme. The organisation needs to review such aspects of its ethics management programme and bring positive changes to it for better image in the market.
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