A case study of corporate, strategic and government failure?
How did the recession change the communication of corporate social responsibility activities?
Background of MG Rover Collapse
The purpose of this report is to brief the readers with the case of MG Rover and sustainability governance activities of the company. The report is divided into four parts, each one part represents the sustainability issue present in the case along with the actions taken by different companies for the interest of the stakeholders. Briefing the MG Rover case, it should be noted that the company MG Rover collapsed in the year 2005 that resulted in the loss of 6500 jobs in that area. The company collapsed due to the actions were taken by the directors of the company along with many overseas car manufacturing organizations. In the year 1994, the company BMW took over the car manufacturer Rover so as to eliminate its sufferings. The company BMW accepted this deal as a measure to expand their scope of business (Bailey, Kobayashi, & MacNeill, 2008). Nevertheless, the company spent too much in its initial years only but it failed to convert the losses in profits. Further, after lots of drama at the plant, the company finally sold it to the ‘Phoenix Four' consortium in the year 2000.
Afterward, this company somehow managed to entertain the employees of the company and reduce the losses as well. By the end of 2003, full-year loss of £800m in 1999 was converted into £77m. Further, again in the year 2005, the company sold the intellectual property rights to the Chinese state-owned Shanghai Automotive Industrial Corporation (SAIC) to help the company to eliminate the crisis. However, in between that period, the government tried to intervene many times and help them but all of their deeds failed (Oliver, Holweg, & Carver, 2008). In this case, major criticism was given to the Britain government official for not performing well according to the situation and Tower and his group for adversely degrading the value of the company. Further, more details about the case elaborative answers to the case questions are discussed below:
There were many organizations connected with the case along with the government who acted as a reason for the collapse of the company. Starting from the beginning, the directors of the company BMW to the government, every individual or organization took the wrong decision for the growth of the Longbridge plant of the Rover company. Further, the main stakeholders of the case were the employees who were employed in that plant of the company along with the government, BMW Company, and Phoenix Group. No single organization has less importance in the failure of the company as every organization acted in a wrong manner that ultimately affected the growth of the company and increased the ratio of loss (Chapain, & Murie, 2008). Further, below mentioned are the relative stake of the stakeholders of the company in the failure of the case:
Stakeholders and their Relative Stake in the Failure of the Case
BMW officials: Initially BWM took over with an aim to expand their scope of business and product line from luxury segment to medium-sized cars for the normal income level people. The company invested a huge amount in its growth and survival but somehow the plant never reached its competitive level to provide satisfaction to the company. During the BWM tenure, the company initiated several job cuts and flexible working hours but still they failed to attain profits out of the plant resulting in which, the faced an annual loss of £880m. The stake of the company BWM was very important, as it was the first company that created such a worse condition of Rover that other organizations failed to convert its losses in profits in coming years (Bailey, Clark, & De Ruyter, 2010). If the company BMW would have taken the Rover plant with responsibility then they would that surely produced profits out of it. As given in the case study that the land is known for its automotive history and is enriched with resources that are required by plant to operate its business function. But the company BMW was unable to manage the diverse activities of Rover that turned the plant into loss and ultimately the company sold it despite having several subsidiaries (Bailey, & MacNeill, 2008).
Phoenix Group: The entry of Phoenix Group came with good news for the stakeholder of the Rover plant however, it faded soon thereafter. BMW sold the Rover plant to Phoenix Four consortium; at that time the CEO of the company Phoenix was the former CEO of Rover. This gave a sense of relief to the communities and the employees that the company Phoenix will do justice to them and convert the loss into profits. BMW loaded the company Phoenix with the losses along with some assets of total £1 billion. Phoenix Four held a major share in the failure story of the Rover company as the organization entered in the scenario when the company was on the urge to get closure but Tower along with his colleagues reignited hopes in the other stakeholders of the company (Bailey, & De Ruyter, 2012). But the same incident repeated as the company failed to maintain the productivity and started losing money as well. However, the spiral losses were under control but still, there was no scope of profitability for the company. Tower along with his colleagues plays a very important role in the collapse of the MG Rover business because these people already knew the functions of the company along with the current failing stage as well. It was important for the management to focus on the growth of the company and eliminate the losses but still, they were unable to do the same that shattered the hopes of other stakeholders of the company (Bentley, 2007).
Caroll’s Pyramid of Corporate Social Responsibility and MG Rover
Government: Coming up to the role of government in the given case of MG Rover company, it should be noted that just like the above mentioned two organizations, the government also played a major role in collapse process of the company. Ineffectively government and poor decision-making process of making the Longbridge face such a situation. As given in the case study that the plant had a history in the automotive industry and until the British company held the time the plant, it gave profits as well but soon after its acquisition of BWM the plant started faces losses (Sabikova, 2015). The government is the decision making authority present in the society, they hold the capacity to warn the companies to convert the loss in profits through their activities but the government did not make any effort to save the interest of the employees. If the government would have monitored the growth direction of the company in which it was moving after giving subsidiaries then the company would not have failed. In addition, the intervention of government was required while the association was made with the SAIC so as to manage the employment level in that area. However, the incompetence of the government made the communities pay a heavy penalty (Schwartz, 2017).
Employees and Communities: The most important stakeholders in the case held the least power in their hand. The major impact of the failure of the MG Rover case made the community and the employees pay a heavy penalty. During the growth and successful period of the plant, thousands of employees were working at the site, however, change in the policies by BMW made the company release some employees and lastly when the organization collapsed post purchase of intellectual property right by SAIC, all the employees connected with plant faced unemployment (Ni, & Van Wart, 2015). The community was also developing due to the presence of an automotive plant in that area that gave opportunities for employment, productivity, and success in that region. However, failure of the plant snatched all such benefits from the people living in that community (Quarshie, Salmi, & Leuschner, 2016).
Looking at the MG Rover business collapse, it can be clearly seen that the company has not followed their responsibilities appropriately that affected in the collapse of the company. Resulting in which, Rover business faced many difficulties in surviving in the market. Relating the Caroll’s pyramid of corporate social responsibility to the activities initiated by the company in the external market, it should be noted that there is no such requirement of this pyramid that is completely met by the organization. However, the company has initiated several attempts to follow them but they failed badly. Caroll’s pyramid of CSR explains how and why organizations should meet their social responsibilities (Quarshie, Salmi, & Leuschner, 2016).
The key feature of this model is that profit must come first; the foundation of every business is its profit-earning motive. Afterward comes the need for the business to comply with the rules and regulations created for the company. After complying with the legal legislation, it is important for the organizations to manage their ethical requirements as well so that they can consider the philanthropic options (Tai, & Chuang, 2014). From the above four responsibilities, the objective that MG Rover kept in mind while working in the external environment is the legal responsibilities. No matter what the situation came, the company never failed to comply with the legal responsibilities associated with their process. However, the Caroll’s CSR states that the primary motive of the pyramid is to attain the economic objective that is to satisfy the profit requirement of the business. Further, ranking the CSR objectives according to the priority list of the company MG Rover, it should be noted that the initial objective of the company was to meet the legal requirement, then philanthropic, ethical and economic respectively (Epstein, 2018).
From the ranking mentioned above, it can be clearly seen that the company is ranking its corporate social responsibility priorities in a very wrong way that somehow adversely affected its image in the market as well. The ranking was not at all appropriate according to the given situation, as the company had to most importantly focus on the economic objective. The case study clearly depicts that the major problem aroused when the organization was unable to gain profits in the target market using ethical means (Chen, Feldmann, & Tang, 2015). Economic objective of the Caroll’s pyramid states that it is the responsibility of the business to be profitable using all right terms, survive, and provide benefits to the society in long run. If the company is unable to attain profits then they should initially work on this objective because survival is most important. If an organization is unable to attain the economic objective then they will not fulfil the other given CSR objectives defined in the environment (Setó-Pamies, & Papaoikonomou, 2016).
Apart from attaining the economic objective, the company also failed in complying with the ethical objectives as well. The ethical objectives of an organization go hand in hand with the economic objectives of the company. Therefore, the company failed to comply with the ethical objectives as well. It can be clearly seen with the downgrading progress of the company that the organization prioritized the objectives in a wrong way (Yin, & Jamali, 2016). The appropriate way to succeed in the current environment would be to follow the correct CSR practices of Caroll. The adequate way to prioritize the CSR practices according to the Caroll’s pyramid is by initially focusing on economic than legal, ethical and philanthropic accordingly. The foremost focus of the company should earn profit and become a profitable going concern organization. Along with that, the company also focus on complying with the ethical requirements of the company (Rhodes, 2016). And then lastly comes the philanthropic requirement according to which the organization should focus on giving back to the society in response to the resources that they have taken from it.
Further, it should be noted that the topic of ethics has been left behind in the given case. The company lost its ethical capability to work when BMW started gaining loss. After that incident, the company started applying unethical measure with the employees of the company that resulted in decrease in the interest level of the stakeholders along with the employees. The employees would have been treated ethically if the company had not taken their employment. Closure of the Longbridge plant made the 6500 employees unemployed which is an extreme act of unethical means that an organization can do. Even if the company collapsed, it was the duty of the management to provide employment to the workers at somewhere else so that they can earn their subsistence living (Thauer, 2014).
The best practice that the company would have performed is to provide a notice to the employees about the condition of the company and ask them to find job somewhere else. The company MG Rover should have tried their best to maintain the interest of the employees in their business. When the organization provides employment to the people in the company then it is important for the human resource management of that organization to take care of the interest of the employees of the company. Even in such case when the company is failing or shutting down its business, at that time also the company should attempt to arrange employment for the employees are other places so that they do not become unemployed suddenly. The government of the country should monitor the actions of the company so that the interest of the employees is not harmed in any way. In this way, they would have treated the employees ethically (Fuzi, Habidin, Hibadullah, Zamri, & Desa, 2015).
Corporate accountability refers to the ability of the people that are affected by the corporation, to hold the corporation accountable for the situations occurred. This aspect states that the organization is liable for every aspect faced by the stakeholders of the company. Also, the stakeholders have the right to hold the management of the company accountable for the deeds happened to them. This aspect provides the power to the multinational organization to take power in their hand and initiate actions to satisfy the stakeholders of the company. On the other hand, corporate citizenship refers to the process under which the organization is implied to comply with the social, ethical, legal and economic responsibilities as established by the stakeholders of the company (Engert, & Baumgartner, 2016). Considering both the aspects it should be noted that both the aspects corporate citizenship and corporate accountability have same motive to follow but both the aspects provide differential power to both the parties present in the given case that are, government and multinationals (Epstein, Buhovac, & Yuthas, 2015).
The fact should be noted that the power that is present in the hands of the government cannot decrease in any way because the power held with government does not depend on any other aspect, however, the power that an organization has can be easily waived by the decisions of the government. In the given case, the government was unable to make an adequate decision because of their incapacity to understand the depth of the case and take corrective actions. The government did not lose their power in the given case but they did not exercise their powers in the appropriate manner (Nason, Bacq, & Gras, 2018). The aspect of corporate accountability and citizenship lays a major focus on the dimensions in which the company has to focus while initiating their profit-making objective in the external environment. This aspect does not relate to the powers of government against the company. The theories like corporate accountability and citizenship are formed to enhance the corporate sustainability activities of the company and to assist them with various ways that can help them to manage their position in the target market and succeed at the same time (Janssen, Sen, & Bhattacharya, 2015).
So, it can be said that these approaches do not decrease the power of government instead it helps the organizations in easily performing their task and somehow reducing the monitoring activity of the government. As corporate accountability and citizenship both demands the organization to effectively comply with all the CSR activities and become liable for the events that they have performed for the stakeholders of the company. The two main actors in the given case are government and the company MG Rover. In the given case, the government of the country did not take any specific action to protect the interest of stakeholders of company instead; they acted as a mute audience that shows that there was less relative power in the hands of the government. However, it would be a wrong to say that the government lost its power in the MG Rover as no association can rip-off the rights from the government but themselves (Sukitsch, Engert, & Baumgartner, 2015).
Therefore, it can be said that the government failed to exercise the relative power present in their hands. The approach of corporate accountability and citizenship provides power to companies to initiate activities with the help of which they can easily satisfy the stakeholders. So in one way, it increases the power of multinational but there is no second impact on the power of government. The government should have adequately exercised their powers and they should have provided the Longbridge land to some other corporation that would have easily converted the losses into profit. Alternatively, they would have penalized the management and made the organization PSU so that the employees do not lose their jobs (Green, & Peloza, 2015).
Talking about the relative power present in the hands of the MG Rover business, it should be noted that the approach of corporate accountability and citizenship increased the power of the company to organize their activities in such a way that satisfaction for the customers is increased in the market. However, just like the government, the business also failed in complies with such requirements and satisfy the employees as well. As discussed in the above-mentioned stanza that the company had the power to provide employment opportunities to the employees somewhere else. This act of the company would have shown that they adequately tried to comply with the corporate accountability and citizenship activities of the company. Thus, it should be noted that the power of the government does not decline with the increase in power of the multinational however, it depends upon the associations that how they exercise it for the betterment of the people present in the society (Wells, 2017).
In the given case, it can be clearly seen that the company and directors were struggling hard to survive in such tough and critical situation; SAIC had purchased the intellectual property right from the company so they also do not hold the liability to provide employment to the employees of MG Rover. Resulting in which, the workers themselves hold the ultimate liability for their employment. However, the most underplayed party held the most significant power with them to exercise but they did not use it. The government of the UK should have adequately used their power to provide ethical justice to the employees of the company. If the government of the UK had exercised their powers appropriately in the target market then the company also would not have faced the situation of liquidation. Protection the jobs in Longbridge was an important task for the government because the MG Rover plant was a major reason for the subsistence earning for the people living in that area. The collapse of the company from that land made more than 6000 people unemployed at once. The fact is known to all that every organization works with a profit-making motive in the society they might someday leeway the corporate citizenship activity (Balmer, 2017).
But it is the duty of the government to remind the corporates about their duties against the government and the stakeholders as well. Considering the case, starting from the beginning if the government would have kept a strict eye on the company from the beginning when BMW purchased it and even when Phoenix Four purchased the business. When Tower purchased the business, the company was facing a critical condition and it required a new kick start for the business. However, the management was unable to tackle the situation and the government also failed to review the internal activities of the company. Lastly, when SAIC came into the scenario to buy the company and the government again took the wrong decision resulting in which the buyouts deal faded. SAIC only purchased the intellectual property right of two model of the company so that they can introduce it in China. This aspect resulted in the failure of the deal along with the collapse of MG Rover business as well (Robinson, & Smallman, 2016).
So, it should be noted that ,when no other association took the responsibility of the employees then they themselves became liable for their employmnt without even doing anything wrong. Also unemployment is a thing that no one wants to take charge of in the given case study, however, the UK government can be held liable for not initiating ethical measures for the prevention of the interest of the employees in the MG Rover case. Along with the government, the directors of the company can also be equally held responsible for the collapse and the dissatisfaction of the employees; but again, the situation would not have occurred if the government had taken appropriate action for the same. The end result in the liquidation of any major organization is the same but the circumstances or the post-event situations can be different for the stakeholders(Kusumaningtias, Ludigdo, Irianto, & Mulawarman, 2016). Like, if the government would have provided jobs to the employees somewhere else, they would have compensated with the loss of the employees in monetary ways, or they would have provided a prior notice to the employees to find jobs somewhere else. From the above-given alternatives, the company did not perform any of them because the government never forced them to do the same nor they felt that the interest of the employees is important.
Unemployment is a bitter pill but releasing the employees in such a way without setting off their interest is not good on the part of the company. The government of UK had adequate powers to make the company liable to set-off the interest of the employees with some optimum pay or another job to them. But they were incompetent to exercise their powers for the benefit of the employees in the society(Charles Jr, Schmidheiny, & Watts, 2017).
Longbridge is the land of the automotive industry that has a past in the same field as well. This explains that the 6500 employees associated with the company were well qualified in the field in which they were employed. So, there was no scope to say that the company collapsed due to the incompetence of the worker to work according to the given situations by the higher authority. However, it can be said that the company failed to form policies to convert the losses into profits that followed the step of corporate restructuring making the employees pay the price of it. Thus, it should be noted that corporate restructuring is not a bad idea but less intervention of the government in inefficient company practices made the employees pay a heavy penalty (Kiser, Leipziger, & Shubert, 2017).
Thus, in the limelight of the above-mentioned events, the fact should be noted that the report discussed the case of MG Rover and ethical actions related to it. It is important to note that ethics is an important part of the business as it helps them to earn profits in a justifiable manner. It is important for the organization to comply with the ethical practices of the company and maintain the interest of stakeholders as well. The corporate sustainability responsibilities of the company are formed so that the management follow them and do not harm the interest of the society while fulfilling their profit motive. In the given case, the interest of stakeholder is waived off by the activities of the company along with the practices of the government as well. The report answers four given questions present in the case study along with an explanation where the company went wrong and where the government did not exercise the given powers for the benefits of stakeholders. The report gives an overview of the importance of the CSR activities along with the ethical requirements of the company to follow.
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