The Importance Of Ethics In Business: An Analysis Of IKEA Case Study

IKEA as a Multinational Company

Question:

Discuss about the Significant Ethical Issues Faced By IKEA.

This project focuses on the importance of ethics in the business. It would help in generating understanding about the need of ethics, its importance and the consequences of unethical practices with the help of IKEA. It is a multinational company which provides all home and office needs in the day to day life. Its ethical practices lead it towards one of the largest supplier of home and office furniture. These issues are also discussed with the help of Carroll’s four part model of corporate responsibility. It also discusses the key stakeholders and ethical behavior of the company towards them which also helps in generating understanding about the need and benefits of ethics in competitive business environment.

IKEA is originated from Sweden, it multinational company which is also having more than 340 outlets present at 28 different countries. It is also ranked 46 in top brands list by Forbes “World’s Most Valuable Brands”. It is one of the world’s largest furniture retailer providing attractive designs in low prices due to continuous improvement on product development and materials (IKEA, 2017). Company is also having a strong base of around 9500 products serving all around the world.

IKEA is known for the ethical policies and providing equal opportunities at the work place with facilitating the employees and workers so that it can helps the company to manage. But companies have to face several ethical issues in the past decade which resulted to criticism in the media and global market.   The issues were related to human rights, product quality and environmental issues in some of the countries it is functioning (Crane, and Matten, 2016). It also faced problem of spying the employees and recently on more problem rose relating to living conditions and problems of basic facilitated due to under paid money. Some other problems company faced are relating to the material it is using in the product manufacturing. Information available in sustainability report and actual practices were found different in case of leather and cotton made products (Ethical consumer, 2017).

Recent ethics failure issue is observed in Eastern Europe where some of the drivers were working in extremely bad conditions there were some who are so much underpaid that they are managing to live in the trucks this payment is below the national minimum wages in the county where they are driving (Conway, 2017). Some of the taxi drivers were even sleeping in the cabs over 3-4 months time due to scarcity of money.

Ethical Issues Faced by IKEA

The other case was related to undercover work behind the employees in this case management hired external security agency to provide information about the activities of the employees and checking for the police records of more than 200 employees and customers (Samuel, 2012). Company fired managers responsible for such issue and paid for the penalty by court of France.

Human right issues in Germany were one of the ethical issues faced by IKEA due to activities they performed it happened when prisoners were allotted the furniture work as CSR activity. During the furniture production some of the convicts were forced to work hard and those refuses were physically tortured and punished for denying such activity. IKEA management regretted for such activity performed by its suppliers.

Another scandal damaging ethical practices was in its product, famous meat balls having some content of horse meat as per the medical test of the product. This also hampered the ethical practices although company brought back the product from all over the Europe having issue but it puts negative impression on the customers (Meikle, 2013). Company also assured the customers for non-happening of such problem again and sued the vendor supplying the meat. It also assured that horse meat is not harmful to eat.  

Company tries to improve life of their stakeholders, especially customers, employees, suppliers and society. It is implemented through the core value preposition consist of core values 10, vision statement and suppliers code of conduct. They all together help to direct the various actions that are performed in IKEA (IKEA GROUP, 2016). It also includes procurement of the raw material from the sources having least environment loss, rather than taking it from protected forests. The team which is recruited is also having experience at the training program about the vision and the practices that are adapted at IKEA to create value in the eyes of the customers. It works to achieve quality products at affordable price by optimizing the whole supply chain, with the help of the long term supplier’s contracts and relationships.

Vision and Mission:

IKEA is having vision “To create a better every day life for the many people”. Company is functioning for the achievement of the vision from starting this is the reason for the wide variety and designs of the products it is supplying to the various countries. However it lacks specific contents about the achievements but still company is focused product development, customers interests and towards long term relationships with the suppliers and customers so it focuses regularly on the product development and lower cost products. It also introduced some products which are having maximum use of the recycled material (Aguinis and Glavas, 2012). Organisation also focuses on women empowerment having equal opportunities for women to work and have position in the  management seat. It also introduced talent program where new ideas and creative products are appreciated from the employees and they are given responsibility to develop the same. Cost efficiency is also considered as another component of core values which has leads IKEA to grow as one of the giants in the home furnishing industry. It also accepts ideas and implement change quickly which brings confidence among the employees and boosts the confidence of the manufacturing team with new products every time (Brammer et al., 2012). The work place environment and other additional facilities to the employees results to have diversifies but good place for working with learning, this also leads to growth of both the organisation and employees.

Corporate Social Responsibility and IKEA

Code of practice:

Code of practice involves regular improvement in the Products Company is highly focused in product innovation and new designs which fulfill the specific needs of the clients. This is the reason it is having more than 9500 types of products available for the customers. The use of supplier conduct is also empowering the organisation to maintain healthy and transparent relations (Schirone, and Torkan, 2012). They strictly warns to suppliers against uses of child labour, forced or bonded labour, discrimination and harassment it has set standards for the overtime and minimum wages to maintain long lasting relationship.  

Company is also strict on unethical practices such as corruption, bribe and any other kind of fraud it takes strict actions against such cases. Same also applies on the vendors and suppliers if they found suing any of such practices than they are also terminated from the services and legal action is taken (Blodgett, et al., 2011). Company also have priority of having customer safety recently there were some issues with beach chair having problem in re-assembly after wash result to injury in fingers this product is full refunded by the company without even asking for receipt of purchase (The Guardian, 2017). On the other side some chocolate products which caused problem to allergic persons recalled from the markets due absence of proper ingredient information on the packing.

Carroll’s corporate social responsibility pyramid is widely used by top  management in various organisations. IKEA is also functioning as a leader in the field of CSR activities whether it is plastic recycling plant or employment to Syrian refugees and other practices with nonprofit organisations and other social causes. This model helps managers to overcome the various possible obligations and expectations of the society with the business. Carroll’s model discusses four major points which are prioritized on the basis of their importance for the growth and sustainability of the company. Economic, legal, ethics and discretionary responsibilities are key expectations of the society with an organisation (Yelkikalan, and Kose, 2012). The foundation of the model is based on the economic responsibility having priority on economic performance, it means maximizing profits, minimizing costs and planning for good amount of returns for the stakeholders is the first priority among the four parts. The next part focuses on legal compliances and following other regulations such as taxation, accounting, pollution emissions and other requirements necessary for the functioning of the business at a particular place. IKEA is functioning in several countries its legal compliances are the reason for successfully sustaining in diversified business places (Ihlen, and von Weltzien Hoivik, 2015). It also binds companies on employment, health and safety and healthy competition without use of unlawful object to compete in the market.

Carroll's Four-Part Model of Corporate Responsibility

The next part considers ethical responsibility which includes eliminating the practices which are disputed it is different from legal boundation but important to follow by business. It is the values and morals which are acceptable in the society sticking with law.  It is also required to inculcate emerging values and society norms so as to maintain a recognized position in the society. It helps in maintaining good relation with the society due to actions which are favoring the society. The practices like health, bonus and other additional services to the employees. Work culture and healthy environment to the employees, relationship with the suppliers is termed as ethical responsibility (Fitjar, 2011). The last part in the model is Philanthropic responsibility which involves the sense of belongingness, so the organisation moves in the direction of returning back something which it receives from the surroundings. IKEA is working with Red Cross society, UNIECEF and renewable energy projects for serving the society what it takes from them.

This model is useful for the business analysts having need to understand the preference to be given and the level of attention to a particular stakeholder. It also leads to choosing the appropriate communication approach for the stakeholder groups. Power is the authority which is present with each of the stakeholders in the company, legitimacy is related with the need or truth behind the fact and last urgency is related to the tasks which cannot be delayed they need immediate response. This technique is related to the stakeholders having different needs and relationship with the company (Toro, 2014). It distinguishes the stakeholders in to various groups and then decides the action plans for them to manage relationships in long term. IKEA is also having different associated stakeholders from employees, customers to suppliers and society. Depending upon the relationship attributes they are given response for the sustainability of the organisation. Dormant stakeholders are having power to force what they want from the organisation but due to lack of legitimacy and urgency their power remains inactive IKEA need to inform these types of stakeholders about decisions other information.   Next category is latent stakeholders which hold legitimacy, they absence power and urgency but they can be very helpful in case organisation is facing problems. They are advocates, legal advisors and chartered accountants or problem solving team of the organisations. Demanding stakeholders are lacking power and legitimacy but have urgent claim needs so they are required to be communicated about the facts but it is required to have relatively low focus on them. Dangerous and dominant stakeholders are more or less same they are having strong influence on the organisation they need informed and satisfied they include top level management and directors (Epinearticles, 2016). Dependent is the last category where stakeholders are dependent on the organization for the information in the absence of balance they leave/ switch to other projects.  

Conclusion

Employees: they are the pillars of the organisation responsible for the key functioning of the organisation. They are interested in the company sue to employment and promotions in case company perform better (Rothaermel, 2015). So they are also induced in high power and high interest category.

Shareholders: they are the external persons investing in the company in small part but large in numbers. They are highly influenced with the decisions and operation of the company. They are classified as high power and high interest.

Government: IKEA is functioning in various countries so it is required to fulfill the requirements of that nation. Whereas government is also have benefits from the growth of the organization in terms of taxes and employment supporting economy. This also helps government in developing infrastructure and other facilities.

Competitors: they are addressed as high power but lacking urgency and legitimacy but there is need to have regular scanning of the steps they are taking so that IKEA is able to take response actions towards competing with rivals.

Customers: they are the parties which are using the products produced by IKEA they are having interest in the quality, price and after sale service of the company. they also attracts towards brand value and marketing so it is considered that they are also having high power but lack legitimacy and urgency but they needs to be focused carefully to gain loyalty.  

All the stakeholders are important for IKEA but the most significant position is with the customers of the organisation. In the absence of customers; Company, business and employees all are having no reason to operate so it is required to focus on the interests of the customers. IKEA is treating its stakeholders ethically; it takes views of the employees towards work place, it also donates handsome amount of money from sales of products towards child education and stopping child labour. It is also raising funds for UNICEF. It also developed IWAY for the suppliers having standards with supplier’s code of conduct for serving the interests of the suppliers (IKEA Group, 2016). 

IKEA is having clear focus towards sustainability in ethics, social responsibility and environmental issues such as green house gas, carbon trading and renewable energy but still it is facing issues of unethical practices in recent years so the possible recommendations are as below:

Transparency and sustainability:

IKEA is already focused towards the process of transparency in the operations and other activities including taxation, accounting and material procurement but it still need more improvement in the sustainable development which is to focus towards more recycled products and low carbon emission which will also help to improve ranking of the company in top ethical companies (Parguel, et al., 2011). It also includes increased use renewable energy resource and energy efficient process of operations. 

Avoiding mistakes:

It is also observed that the products that are introduced in the market are having some problems although it produces products with utmost safety and testing. The products which are supplied are also having user manual which contains its assembling process and use of the product but still some cases are still which are negatively impacting the image of the company so it need to be focused towards zero defect or we can say that products having least safety hazards (Edward, 2017). Company must take expert comments or survey’s to review any kind of problem in the product. Recalling product is appreciable but it is required to minimize such chances of product recall.  

Increased awareness:

There is a need to generate more awareness in the organisation towards ethics and corporate governance which will result to maintain good name in the competitive market. The problems like fraud, bribery and corruption leads to damage the image of the organisation and customers as well as other authorities remember these issues over long period of time (Vollmer, 2014). Company also requires taking care of the suppliers and product packaging which have issues in past years of operations.

Independent Academic experts:

Experts are having problem finding and solving skills they are having vast experience of various issues they have faced during the working environment. They are the external bodies which are having no interest in the companies so they provide actual advice about issues and products helping to improve business practice and products.

Disclosure and accounting policies:

IKEA is known for good practices and quality products with innovative designs but it is also observed that company adjusted its profits in such a manner that it has able to save taxes in Australia continent with having sales of $1 billion but the taxes paid against this sales is just $10.7 million. This clearly indicated the internal adjustments and inflating expenses to avoid tax which is also an unethical practice which may lead to penalties in future (Greenblat, 2016). So it is required to use fair accounting and paying taxes that will also improve goodwill and recognition in the society.

Conclusion:

Ethical practices in the business operations are termed as competitive advantages over the competitors. This report focused on the significance of stakeholders, ethical practices and the steps taken by IKEA to overcome from the various issues such as product defect, tax evasion, human rights etc. Power, legitimacy and urgency attributes were also discussed to understand stakeholders in ethics. It also discusses the management decisions which resulted to manage business in various countries due to continuous focus and improvement. At the end some recommendations are also provided for the improvement in some of the issues still faced by IKEA.

References:

Aguinis, H. and Glavas, A., (2012) What we know and don’t know about corporate social responsibility a review and research agenda, Journal of management, 38(4), pp. 932-968.

Blodgett, M. S., Dumas, C., and Zanzi, A. (2011) Emerging trends in global ethics: A comparative study of US and international family business values, Journal of Business Ethics, 99(1), pp. 29-38.

Brammer, S., Jackson, G. and Matten, D., (2012) Corporate social responsibility and institutional theory: New perspectives on private governance, Socio-Economic Review, 10(1), pp. 3-28.

Conway, Z. (2017) Ikea drivers living in trucks for months. [Online]. Available at:  https://www.bbc.com/news/business-39196056 (Accessed: 13 September 2017).

Crane, A., and Matten, D. (2016) Business ethics: Managing corporate citizenship and sustainability in the age of globalization. UK: Oxford University Press.

Edward, J. (2017) You might want to check if you own any of these recalled Ikea items. [Online]. Available at: https://www.cosmopolitan.com/uk/worklife/a10395528/ikea-recalled-products/ (Accessed: 14 September 2017).

Epinearticles, (2016) Who are the stakeholders of IKEA?. [Online]. Available at: https://epinearticles.wordpress.com/2016/08/29/who-are-the-stakeholders-of-ikea/ (Accessed: 13 September 2017).

Ethical consumer (2017) IKEA Ltd - Pollution & Toxics. [Online]. Available at: https://www.ethicalconsumer.org/companystories.aspx?CompanyId=45436&CategoryId=288190 (Accessed: 14 September 2017).

Fitjar, R. D. (2011) Little big firms? Corporate social responsibility in small businesses that do not compete against big ones, Business Ethics: A European Review, 20(1), pp. 30-44.

Greenblat, E. (2016) Ikea pays just $10.7m tax on nearly $1bn in sales. [Online]. Available at: https://www.theaustralian.com.au/business/companies/ikea-pays-just-107m-tax-on-nearly-1bn-in-sales/news-story/082ee48185383b477916994a9e7c4c0c (Accessed: 14 September 2017).

Ihlen, Ø., and von Weltzien Hoivik, H. (2015) Ye olde CSR: The historic roots of corporate social responsibility in Norway, Journal of Business Ethics, 127(1), pp. 109-120.

IKEA (2017) This is Ikea. [Online]. Available at: https://www.ikea.com/gb/en/this-is-ikea/ (Accessed: 14 September 2017).

IKEA Group (2016) Sustainability report FY16. [Online]. Available at: https://www.ikea.com/ms/en_US/img/ad_content/IKEA_Group_Sustainability_Report_FY16.pdf (Accessed: 14 September 2017).

IKEA GROUP (2016) Yearly summary FY16. [Online]. Available at: https://www.ikea.com/gb/en/doc/ikea-read-ikea-group-yearly-summary- 2016__1364328887312.pdf (Accessed: 14 September 2017).

Meikle, J. (2013) Horsemeat scandal: Ikea withdraws all meatballs from UK stores. [Online]. Available at: https://www.theguardian.com/uk/2013/feb/25/horsemeat-scandal-ikea-meatballs-uk (Accessed: 13 September 2017).

Nalband, N. A., and Kelabi, S. A. (2014) Redesigning Carroll’s CSR pyramid model, Journal of Advanced Management Science, 2(3) pp. 236-238.

Parguel, B., Benoît-Moreau, F., and Larceneux, F. (2011) How sustainability ratings might deter ‘greenwashing’: A closer look at ethical corporate communication, Journal of business ethics, 102(1), pp. 15.

Rothaermel, F. T. (2015) Strategic management. US: McGraw-Hill Education.

Samuel, H. (2012) Ikea in France says sorry for spying on staff. [Online]. Available at: https://www.telegraph.co.uk/news/worldnews/europe/france/9190652/Ikea-in-France-says-sorry-for-spying-on-staff.html (Accessed: 13 September 2017).

Schirone, D. A., & Torkan, G. (2012) The integration of environmental responsibility in corporate strategy: the case of IKEA, International Proceedings of Economics Development & Research, 28, pp. 27-31.

The Guardian, (2017) Ikea issues global recall for deckchair after reports of injuries. [Online]. Available at: https://www.theguardian.com/business/2017/jan/24/ikea-global-recall-mysingso-beach-chair (Accessed: 14 September 2017).

Toro, M (2014) POWER, LEGITIMACY AND URGENCY MODEL. [Online]. Available at: https://requirementstechniques.wordpress.com/stakeholder-analysis/power-legitimacy-and-urgency-model/ (Accessed: 15 September 2017).

Vollmer, S. (2014) How to become one of the world’s most ethical companies. [Online]. Available at: https://www.cgma.org/magazine/2014/mar/20149847.html (Accessed: 14 September 2017).

Yelkikalan, N., and Köse, C. (2012) The effects of the financial crisis on corporate social responsibility, International Journal of Business and Social Science, 3(3) pp. 292-298.