An Essay On IKEA’s Ethical Issues And CSR Practices.

IKEA's significant ethical issues

1.What are the most significant ethical issues IKEA has faced in the past, and what has the company done to address them?

2.Consider and discuss what (if anything) IKEA discloses in terms of vision, mission and code of practice and what implications this might have from an ethics perspective?

3.Discuss IKEA from the perspective of Carroll’s Four-Part Model of Corporate Social Responsibility model?

4.According to Mitchell et ’s (1997) three key relationship attributes (power, legitimacy and urgency) who are IKEAs key stakeholders?

5.Do you think IKEA is doing enough from the perspective of sustainability?

6.What does it mean for an organisation like IKEA to be ethical in its communications and practice? Discuss with relevant examples, and provide a number of recommendations for the organisation in order for it to be a more ethical company in the future?

IKEA is a Swedish company which deals in the manufacture of furniture, home accessories and related home appliances, which in current time has high brand recognition and competitive advantage in the market (IKEA, ICMR, 2014). IKEA’s headquarter located in Netherlands and have 349 stores across 43 countries. It is best known for its Scandinavian design furniture, which is in demand for its simplicity, and sustainability. Its logo colour is blue and yellow that is in resemblance to the Swedish flag. The rationale behind this design is to generate a sense of loyalty among customers. Of note, IKEA is known for its high-quality, superior customer service response, and adequate involvement in corporate social responsibility (CSR) for the benefit of commonwealth and environment (Sebhatu and Enquist, 2014). 

1. IKEA is known for its CSR engagement, especially in conjunction with human rights, in present time. In recent news, an allegation was grounded over IKEA, that raises questionable practice, which reflects “communism” and “discrimination”; that happened around 20 years ago (IKEA, ICMR, 2014). According to Ennals et al. (2016, pp. 153), this is a significant unethical issue; that was practised by IKEA in the past. In particular, the company manufactured furniture parts using forced East German political prisoners. The prisoners who denied working, their feet and hand were tied to bed for many days, which reflects brutal practices and forced execution of the task on the basis of power usage. Those who did not meet the stringent production rate, quality, and timeline, were imprisoned in a dark cellar for several days. This revelation created a blight on the human rights track record of IKEA. To address this issue, the company acknowledged its wrongdoing and assured to avoid such misconduct in future. In spite of their commitment to human rights, it would be not possible for the company to look after the entire supply chain. For example, IKEA has contracted with several small-sized manufacturing units and retailers for rugs (raw material) from India, which uses child labour (Håkansson and O'Neill, 2016). However, IKEA denied any such allegation, as they claim with documents of the audit to confirm that these supply chain firms uses adequate legislative framework for best practices and that the supplies comprise of IWAY standards.

Vision, mission, and code of practice

Another ethical issue that occurred in IKEA is related to its complex corporate structure. Its corporate structure it is run by a private company and consecutively by a Dutch non-profit organisation. According to the critics, the management structure of the company is very much opaque and hierarchical. It is also assumed that the involvement of non-profit is because to exempt the company from the tax applied to it (Cohn, 2016). However, the company denied these allegations and claimed its structure made it competitive and agreed to announce its financial reports. Even in Russia, where 12 IKEA stores are functioning, it went far to resist corruption. It fired two of its senior executives who allowed payoffs in exchange for electric supplies. These reports are indicative of the fact that IKEA ensures the operational standards such that managers and employees are adhering to the ethical standards. According to a report by Cohn et al. (2016), it was suggested that IKEA emphasises on greenwashing concept rather than reflecting real-time ethical practices across the globe.

2. The vision of the company provides a focused path for future and acts as a foundation for the strategic growth approach. The concept of IKEA is to create a better lifestyle for all the people. To accomplish such vision, the company produces varieties of well-designed, efficient home furnishing products at a reasonable price so that all people can access and afford it (Görg, Hanley and Seric, 2015).

The company reinvest its significant profits in reimbursement process and new construction of stores, developmental research and creating sustainable and viable products. IKEA’s mission primarily focuses on delivering sustainable long-term growth by financing in the future, which will be benefitted to the buyers, suppliers and employees (Vallaster, Lindgreen and Maon, 2012, pp. 34). As per IKEA, its mission is based on the fact that luxury is a good, but it must be affordable by most of the customers. Following its mission of sustainability, the company entirely phased out wooden pallets in its international transport network and used only paper pallets (Alvarado-Herrera, Bigne, Aldas-Manzano and Curras-Perez, 2015, pp. 1). Moreover, the mentioned strategic approach is also valuable in terms of achieving environment stability, minimization of solid waste, and implement easier disposal methods. As a result of this approach, various international regulations, especially in the European nation, IKEA achieved awards for its CSR effort in maintaining “Green Practices”.

IKEA follows IWAY code of practice, which was first introduced in the year 2000. IWAY helps the workers of the company to abide by the ethical and health standards that in turn aims to facilitate valuable environment at workplace, offers the scope of self-enlightenment for employees, and retains the human rights and flexibility. According to a report by Strand et al. (2015, pp. 1), IWAY approach is also valuable because along with abiding by the legislative and regulatory framework (local, national, and international), the approach also helps in providing positive workplace environment for employees. Correspondingly, the issues like high employee turnover, the existence of negative emotions at the workplace, and frustration or delay in the work procedure are not evidenced that can possibly reduce the overall proficiency.

Four-Part Model of Corporate Social Responsibility

IKEA also ensures that it covers the primary working conditions which include preventing child labour, using motivational tools in the working condition, environment protection by employing best practices, and responsible forestry management. For the potential suppliers, the company has specified certain standards that are codified in IWAY code of practice (Magnusson, Westjohn and Zdravkovic, 2015, pp. 663). As per IWAY, they should not force or encourage child labour, and to another end, the suppliers must ensure optimal quality in their procedure and practice.

3. According to Reinecke et al. (2015), there are primarily four parts of corporate social responsibility in the society that deals with economic, legal, ethical and philanthropic aspects (figure 1). In regards to the corporate accountability and operational measures, IKEA uses the CSR for influencing the customers as well as the stakeholders with the objective to bring a positive outcome for their company. For example, in 2007, the company started taking the initiative to stop the use of plastic bags by its customers. Even it started selling the reusable bag named “Big blue bag” to replace the plastic bags. Likewise, since 2015, IKEA introduced new hourly basis of wages in which the focus of the company is to seek the needs and requirements of individual employees, rather than to focus on the market standards (Luo and Zheng, 2013, pp. 203). Other than this, IKEA is also known for its contribution to issues like energy conservation, using solar panels to put emphasis on usage of renewable sources of energy, using recyclable packages, omitting gender inequality within their organisation, contributing to the refugee funds, investing for causes that will directly benefit the agricultural prospects, and enforcing the code of conducts like avoiding child labour (IKEA Ltd – Human Rights, 2015; Garfield, 2016). These issues are not only helping the company to gain market value but are also reflecting towards their greenwashing activities that ensure achievement of market competitiveness as well as successful integration with the commonwealth benefit besides the focus on business profit. 

Based on the perspective analysis of Carroll’s Four-Part Model, IKEA manages their CSR activity in the following dimension.

Economic responsibility - According to this dimension, IKEA performs its primary function of manufacturing (processing) products and making a satisfactory profit from the market. This is fundamentally greater responsibility among all as without sufficient economy; other responsibilities cannot be executed. Specific attributes that are being paved by the company is a contribution to society in the form of donations to refugee, offering free health check-ups, and providing education to poor children (El Ghoul, Guedhami, Nash and Patel, 2016).

IKEA's Key Stakeholders

Legal responsibility - The company always try to achieve their goal within the context of law. IKEA always abide the code of conduct of IWAY and maintain ethical relationship within the organisation. The company even protest against child labour in most of the countries and strictly manage the legal obligations. In addition to this, the company also discourages the claims of incorporating non-profit organisation into the stakeholder’s consideration to avoid taxes. Rather, the company always reflect their taxation liabilities with financial reports that in turn contributes to the development of nation’s GDP and another economic benefit to local governments (Windsor, 2015).

Ethical responsibility - IKEA maintains legal liability in a fair and justified way within the codified law, which is acceptable by the societal members. IKEA ensure the sustainable forestry standard of the wood being sourced through company’s compliance, with the help collaborative foresters. In addition to this, they are also seeking value measures for their employees, such as ensuring their self-development, seeking for actions that corresponds to individual employee’ needs, avoiding gender inequality at workplace, offering equitable opportunity to every employees, and ensuring that customer requirements must be fulfilled so as to provide optimal return in conjunction to their payments for the products (Isaksson, Kiessling and Harvey, 2014, pp. 64).  

Philanthropic responsibility - IKEA satisfied the requirement of society by becoming a good corporate citizen by participating in welfare programs. It fulfilled the philanthropic responsibility to the community by engaging in CSR activity like “Big blue bag” campaign and donating all the income to American Forests. Likewise, they ensure that packaging must be degradable and hence focus on paper bags, discarding the plastic usage (Windsor, 2015). Other than this, the company also emphasises on using solar panels for energy production which in turn reduces the consumption of natural resources and other non-renewable sources of energy. 

Figure 1:  Illustration of CSR activities, according to the Caroll’s Four-part Pyramid. The figure has been adopted from Windsor (2015).

4. The three key relationship attributes: power to influence, the legitimacy of their claim and urgency of their claim. In IKEA, the power of stakeholder exists when one can get the other to do something, in term of higher power. In particular, for the given scenario of IKEA, legitimacy of stakeholders is the belief that represents their action within the norms and values framed by the company (Giovannucci,  Von Hagen and Wozniak, 2014, pp. 359). Similarly, the urgency attribute is considered when there exists both criticality as well as time urgency in context to the operational requirement at the company. The internal stakeholders involve within the firm include (i) management system and (ii) employees. On the other hand, the external stakeholders include (i) suppliers, (ii) customers, (iii) NGOs, (iv) media, society as a whole, (v) host communities which are represented by the commonwealth and lastly, (vi) the regulatory agencies (Williams, 2013).

IKEA's Sustainability Efforts

While considering the power attribute, stakeholders involved are the management and customer of IKEA. The administration of the company has the direct power to have an impact on the individual department that is reflective in routine operational measures such as delegation, responsibility sharing, negotiation, budgetary allocation, and varieties of strategic decision-making procedures (Asgary and Li, 2014, pp. 1). Likewise, the customers possess the indirect power, as the company runs in accordance with the demand of the client. It is the market values, the expectation of customers, technological trend, and the competitiveness in a market that regulate the product features, price consideration, marketing measures, and corresponding responsibility dedicated towards sustainability in environment and community issues.  

The stakeholders of IKEA having legitimacy and holding legal relation with the company include the suppliers, media, host community, shareholders, regulatory agencies, and NGOs (Kelly, 2012). These agents conduct the collaborative as well as shared vision; which in turn governs both the conductance of commercial procedure as well as compliance with the regulatory and legislative framework. Urgency attribute in the company can be explained in terms of criticality and time-sensitivity for a stakeholder. These stakeholders primarily include suppliers and the employees of the company. It is further noteworthy to mention that company need to manage all the dimension with an active approach such that both financial objectives, as well as ethical responsibility towards the society, can be achieved. As a result of which, it becomes easier for IKEA to maintain its brand recognition in parallel with the aim of retaining market competitiveness (Kelly, 2012).

5. Using examples from your research on IKEA, evaluate its sustainability activities regarding employees, society and the environment.

As discussed in the above section, the premier mission of IKEA is to attain sustainability, which can be affordable to all the group of customers in terms of product access. In addition to this, the economic responsibility is also being managed by engaging into activates like a donation, contribution, and offering opportunities to the commonwealth for development (Vallaster, Lindgreen and Maon, 2012, pp. 34). The company is also known to contribute towards a society with a provision like avoiding gender inequality, resisting child labour, and using renewable sources of energy. These activities not only help the company in getting activity engaged in ethical practices but also set standards for the community that helps in achieving competitive advantage for the company.     

According to the report by Kelly et al. (2012), IKEA’s approach towards sustainability is impressive and comes with useful results which are clearly reflected in the production of its own renewable electricity supplies. The organisational goal is to produce more energy supplies than it uses till 2020 and apart from this it also expands its contributions to the customers also. It has been reported that IKEA owns 157 windmills (capacity rating of 345 megawatts) and 550,000 solar panels (capacity rating of 90 megawatts), which is quite similar to outcomes by any energy company (IKEA Report, 2012). Some of the significant examples of IKEA’s sustainability activities are as follows:

Ethical Communications and Recommendations

KEA encourage those projects only which involve the benefits of more than 110,000 farmers. Even it has reduced the use of fertilisers by one-third in most of the regions and this initiative helped to increase the earnings of the farmers. In the present day, the company is selling 100% sustainable cotton. This step for sustainability is beneficiary for both the society and environment (IKEA Report, 2012).

IKEA is involved with 21 foresters to ensure the sustainable forestry standard of the wood being sourced through company’s compliance. It has been reported that more than 30% of timber being used by the company are from sustainable sources (either recycled or FSC certified sources) (Giovannucci, Von Hagen and Wozniak, 2014, pp. 359). This strategy for sustainability turned out with a positive result for the company as well as its employees.

It inspires million of its customers to maintain a sustainable lifestyle by providing innovative products which use less energy and even produce its renewable power. Its product also saves and recycles water and minimises the waste (IKEA Report, 2012).

6. It is very much essential for a company like IKEA to be ethical in its communication and practice. In the company, ethical communication is the primary component of an effective communication strategy. It rarely tries to implement ethical concerns for the messages to stakeholders and customers and remains indefinite about the previously obtained results. For example, to communicate the CSR commitments, IKEA uses the traditional communication tools such as catalogues, in-store information, line communication, codes of conduct, sustainable development reports, and cause-related marketing operations with organisations such as like that of “UNICEF” or missions like “Save the children”. In order to keep an ethical prospect, the company tries to keep a low profile and prefer to advance cautiously by favouring actions instead of CSR communication. In such perception, IKEA reveals a passive behaviour for the CSR communication. According to a survey, it is found that around 66 percent of IKEA’s customers have positive perception about the company’s CSR commitments. However, their positive attitude towards IKEA’s CSR communication does not really affect their buying attitude. According to Alvarado-Herrera et al. (2015), this reason is the essential basis that retains the competitive market environment, and hence the company need to manage their product quality, cost consideration and seeking values of the customer in the strategic building. There are certain incidences according to Magnusson et al. (2015) that few percentage of stakeholders and non-partner organisation also claimed the CSR communication of IKEA to be unclear and unethical and needs further accomplishment.

In order to become more ethical company in future, IKEA should maintain the following guidelines

• The company should be abiding by the code of conduct “IWAY” of IKEA. Everyone should think about the ethical consequences before making any decision (Neville, 2013).
• Specified employees should be hired to maintain ethics in the workplace. Thus, the ethical behaviour can be rectified by an ethics coordinator through implementing ethical training programs.
• The senior officers should follow the ethics, so that other employees can be influenced. This should be performed in conjunction with the evaluation framework within the working areas (Milne, 2015).
• The company should undertake timely survey and interviews with a representative from the community, leading organisation, and principal analyst that in turn will provide valuable information regarding their greenwashing and CSR activities.

Conclusion

In summary, the present report focuses on IKEA and their corresponding activities that reflect ethical managerial practices. IKEA has a strong reputation in the society for selling sustainable, innovative and reasonable quality products. Its mission and vision are to drive the sustainability strategy for societal development. It has a strong inclination towards innovativeness, sustainability and philanthropy. The points illustrated in the report has been justified with relevant examples, as well as information present in peer-reviewed report. In final, it is learned that though the company is engaged in ethical practices which bring sustainability towards societal and environmental practices; there is further requirement of best practices which must be implemented into organisational practice. These working standards are critical for the organisation as it will be helpful in bringing competitiveness as well as a positive brand image for the company.

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