Social Responsibility: Coles Unconscionable Conduct Scandal Case

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Table of Contents

Case facts
Ethical Issues
Ethical Dilemma
Ethical analysis
The potential worst off parties
Recommendations

Case facts

Cole supermarket is a supermarket chain in Australia owned by Wesfarmers. Coles and Woolworths, one of its competitors both control about 80 per cent of the Australian supermarket. There were accusations that Coles used anticompetitive practices in previous years. Some of the accusations involved the use of handed tactics against its suppliers. The managing director of Cole admitted that the company had acted inappropriately towards some of its suppliers (Ferguson 2014, par. 3).

In 2004, Coles’ and Woolworths engaged in unethical business practices, but no action taken. Investigations by Australian Competition and Customer Commission (ACCC) in 2012 revealed unethical practices involving suppliers receiving anonymity. Further investigations by ACCC in 2014 showed that Coles and Woolworths used devious marketing strategies to coerce suppliers in lowering their prices. In 2014, Coles admitted of its misconduct of engaging in an unconscionable conduct scandal (ACCC 2014, par. 3).

This led to the violation of the company’s ethics. While carrying out its business operations, Coles intentionally used its bargaining power in manipulating suppliers in order to increase its profitability. Coles’ treatment of its suppliers was inconsistent with the social and business standards that apply to any commercial dealings (ACCC 2014, par. 3). Coles’ unethical practices involved attempting to uphold unfair business terms, dealing unfairly with suppliers and exploiting partners with over 200 suppliers affected. Cole’s illegal engagements and unconscionable conduct involved the demanding of payments from its suppliers that were not entitled to it. In addition, Cole wanted to use such actions in order to fill its profit gaps.

Cole did this by use of threats related to suppliers’ commercial consequences (Michael 2014, par. 2). Cole had also breached the consumer law. In April 2013, Cole entered into agreement with a milk supplier for lower prices. This was unethical practice since it resulted in unfair business practices in the industry. The milk supplier was the Murray Goulburn dairy cooperative. It signed up a ten-year deal to supply 200 million litres of milk per year for premium prices using a private label milk brands. Coles’ used the strategy of receiving discounts from its suppliers in order to increase the company’s profitability at the expense of fair business practices (ACCC 2014, para.11).

Ethical Issues

Cole aimed at closing its profits gap and this led to the demanding of money from its suppliers. Mr. Durkin John, the managing director of the supermarket tried to look the best strategy that would create sufficient funds in order to increase Coles’ profitability. However, Cole demanded money from suppliers something that contradicted with acceptable business standards (Michael 2014, par. 2). Cole also tried to increase its profitability, by colluding privately with private label in order to label their products.

The private label is much cheaper as compared to the branded goods and this was to save Cole a lot of money. The managing director of the company had to make a decision on whether to continue increasing profitability or to engage in ethical business practices such as treating suppliers fairly. Coles’ profitability was not able to meet its operation costs and other needs. Its financial positions were deteriorating in the public eye. This made it to take actions to improve its profitability as well as its financial position. However, the unethical practices attracted public interest including the ACCC, which ended up suing Cole.

Ethical Dilemma

The ethical dilemma was:

“To continue with its activities of closing the profit gap by using unethical practices” or “Not to continue closing the profit gap and avoid misusing the suppliers”

John, as the managing director, was the decision maker responsible of maintaining the effective and efficient operation of Cole. John will end up facing some undesirable outcomes resulting from the ethical dilemma alternatives. Continued pressure by other interested parties and competitors’ may ruin Coles’ public relations and perceptions as well as the effects it will have on national image and identity. The alternative of not to continue closing the profit gap while avoiding the use of unacceptable business practices, may result to more pressure to the managing director, John who is accountable to the Coles’ shareholders and board in relation to the improvement of the company’s profitability. John may gain a bad reputation within the industry, which may make it difficult for him to seek employment in other companies.

Ethical analysis

Utilitarian approach

This is a consequential theoretical approach which when applied produces a system that describes actions as good or bad; as per the amount of pleasure that they produce. The approach evaluates the consequences of all the parties affected either directly or indirectly by each of the ethical dilemma alternatives. A decision perceived to be right produces the greatest balance of pleasure over pain for the affected parties. The affected parties include:

Coles
The suppliers
ACCC
Competitors
Durkin John – Managing Director
Customers
The law

The consequences of closing the profit gap by using unethical practices

Firstly, Durkin John will be under pressure because of receiving criticism from competitors, regulators and the government. This is because Coles’ unethical actions violate suppliers’ rights. Secondly, suppliers may eventually become agitated because of Coles actions and thereby decline to supply the company with required resources. This may affect Coles’ operations, both in the short run and long run. Thirdly, Coles may stand to benefit from making profits in the short run by using its unethical practices. This will eventually change in the long -run since, Cole may incur fines and penalties arising from its practices.

For instance, Coles’ already has agreed to pay fines and costs amounting $11.25 million due to its unethical practices (Michael 2014, par. 1). In addition, such actions will affect competitors negatively in the short run. This is because, as Cole forces suppliers to issue resources at lower prices, they may end up selling their products at lower prices as compared to those of the competitors. Fifthly, customers stand to benefit in the short run since they will be able to access much cheaper products from Coles. Lastly, Coles violates the law and ACCC through its actions of mistreating suppliers as well as engaging in unethical and unfair business practices. This will call upon the ACCC to put in place strict measures to prevent such ethical violations.

The consequences of not closing the profit gap and avoid misusing the suppliers

Firstly, the managing director is accountable to the shareholders to explain to them the reason behind Coles declining profits. As a result, John’s professional reputation and capabilities may come into question, since he will have demonstrated incapability of performing the duties given to him. Secondly, the supermarkets’ reputation lowers the consumer confidence, because of its weakened financial position since profits are declining.

Thirdly, suppliers will stand to benefit both in the short and long term since their rights and actions will be under protection. This will result to a market in which the forces of demand and supply influences on the suppliers prices. Fourthly, competitors may stand to benefit in the short run because they have competitive advantage of having impressive financial positions. This leads to increased attraction of customers, investors and other interested parties. Lastly, Coles’ compliance and respect of suppliers’ rights impress the ACCC and the law.

Kantian Approach

This theory argues that, the dignity of rational beings needs to receive respect from other rational beings when making certain decisions and without making considerations of consequences. The theory analyzes Coles’ intentions and on whether the suppliers’ owes a primary duty. The Categorical Imperative (CI) used in defining and testing alternative maxims in order to examine and give conclusions on the Kantian approach. The rules followed by all rational beings without any contradiction are the maxims.

For the decision-maker the maxim is to:

“To always respect supplier rights” or “To never respect supplier rights”

To determine whether a maxim respects others, the intent of the decision-maker examines and establishes whether it fulfills a reasonable duty to others. In order to accomplish this, the CI conducts and tests whether there is existence of a universal ethical law for each alternative.

“To always respect supplier rights”

Universal = YES
The outcome will be that all the supplier rights receive respect, as well as upholding the company’s reputation.
Respect for Rational Beings = YES
The decision maker has the intent of respecting their professional duty to the employer at the expense of their own reputation.
Respect for Autonomy = YES
The intent of the decision maker is in respecting the rights of the suppliers.

“To never respect supplier rights”

Universal = NO
The outcome results to the ignorance of all the supplier rights and Coles’ reputation damaged – making it difficult to do business.
Respect for Rational Beings = NO
The decision makers’ intent would be to promote their own self-interests by preserving their reputation at the expense of their employers.
Respect for Autonomy = NO
The decision makers’ intent would be to ignore the suppliers’ rights.

The maxim, – to always respect supplier rights passes the CI, while to never respect supplier rights does not pass. Hence, the Kantian analysis gives the conclusion that John Draught must always respect supplier rights.

Rights Approach

Ethical rights are significant and justifiable claims, which attach obligations and impose on other rational beings not to deny that right. The existence and conflict of rights stand to be an essential consideration while making business decisions. Analysis of the theory identifies the relevant rights for affected parties. Rights are prioritized with respect to their importance and in a descending order. In conflict situations, usually basic rights prevail.

The Rights in play may include:

Supplier’s negative Right to autonomy, which obligates others to refrain from coercing them in their decision-making.
Supplier’s negative Right to make supply decision, which controls others not to prevent them from making supply decisions.
Coles negative Right to make business decision, which controls others not to prevent them from making business decisions.
John’s negative Right to make business decisions, which controls others not to prevent them from making business decisions.
Customer’s Negative Right to free speech, obligating others not to prevent them from speaking.
Supplier’s Negative Right to free speech, obligating others not to prevent them from speaking.
Competitor’s Negative Right to free speech, obligating others not to prevent them from speaking.

Distributive justice

This approach involves the distribution of resources with justice to the entire society. When individuals face ethical dilemma, the ignorance test holds that rational beings respect other rational beings. In addition, they aim at maximizing utility as they value their own goods as well as that of others. Hence, a decision-maker will ultimately assume the position of worst off party during the making of a decision.

The potential worst off parties

Suppliers are losing money
Coles is at the risk of losing money through fines and other costs
Coles reputation may be diminished
John faces forced choice, which may result to undesirable consequences.

The suppliers are the worst off as they continue to lose money through unethical business practices. As utility maximizers, Coles must select the ethical dilemma alternative that will best serve the worst off in the society. Alternative outcomes comprise of,

To continue closing the profit gap, would have the outcome that suppliers’ rights will never be respected.
To not continuing to close the profit gap, would have the outcome that suppliers’ rights will always be respected.

The Justice analysis requires Coles managing director to choose the ethical dilemma that serves best interests of worst off in the society. The suppliers, as the worst off, would be best served by the ethical dilemma alternative of not to continue closing the profit gap, as this alternative prevents the loss of money.

Recommendations

The final recommendation would be for Cole to stop closing the profit gap through mistreating suppliers. However, Coles must contend with all the consequences associated with that decision. In order to minimize the negative public perception, Coles can consider the following actions:

Settle all the suppliers with the money’s they took from them
Pay all the fines and costs imposed to them by the court
Make a public apology pertaining to their past unethical behaviors.

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