Ethical issues on which Starbucks is working

Introduction to Business Ethics

Many a business people, big or small, as owner, employee or CEO of a multinational, on occasions face a complex situation whether the decision they have taken is morally right or wrong. These types of situations are often intricate in nature, since they compel the decision making person to assess the impact their particular decision would have on individuals or a sect and the negative implications these very decisions may have on some other individuals or a class. According to Goodpaster et al. (2005), it is indeed a complex task to arrive at a right decision when confronted with such a predicament. They further say that businessmen generally are prone to take fair and morally justifiable decision and act on that, unless their thinking is overweighed by profitability and not by the code of business fairness. These people who get influenced and misled by considerations of profitability while deciding what is business-wise morally wrong or right often land at biased choices. However, as noticed by Baker et al. (2010), in the conduct of business, it has many a times been held that legality of any action in business does not corroborate with the sense of righteousness. Moreover, different people have different concepts and opinions on business ethics, each having subjective approach. Further, business codes of morality are determined by many divergent forces, including culture, tradition, home atmosphere, religious upbringing, etc. (Shaw, 2004)

Lately, as noticed by Jennings (2008), the issue of business ethics has generated considerable interest. As per Ethics Resource Center and the Council on Economic Priorities, the number of corporations that are now organizing trainings in business ethics and have started socially responsive programs, has increased substantially during the last two decades (Crane and Matten, 2007). Also, there are quite a number of business schools in the USA who now offer courses in business ethics, and such courses have spread over many campuses. In spite of these developments, it has been observed that there have simultaneously been several cases in the business arena where the stock prices have been manipulated through corporate restructuring, punishing whistleblowers and resorting to such practices as lay more emphasis on strengthening the bottom lines rather than on considerations of fairness and morality (Goodpaster et al., 2005).

The notion of ethics is an intricate one, as stated earlier, and is annexed to the compendium of beliefs that individuals in a specific cultural group may have imbibed during mutual discourses. According to Grace and Cohen (1998), the word ‘ethics’ takes its roots from the Greek word ‘ethikos’ that means the ‘authority of custom and tradition’. They advance a pithy reasoning that suggests that the notions of ‘ethical’ and ‘moral’ are synonymous. Other scholars, while defining ethics have followed its verbal connotations.

Weiss (2006) describes ethics as a systematic effort that ascribes the individual and societal moral experience such a connotation that would help define and monitor human conduct, as also values that are worth pursuing, and attributes that should be given impetus in their development in life. On the other hand, Jennings (2008) defines ethics as the search for and appreciating what is good life, and living a life that is worth living. For Solomon, it is largely a matter of perspective, that enjoins putting every activity and goal in its place, realizing what is worth doing and what is not, knowing what is worth wanting and having, and what is not worth wanting and having. Still, Crane and Matten (2007) perceive ethics as the act of examining one’s own moral bearing or societal standards of morality, and trying to understand their role in our lives to find if these ethical norms are justifiable in their application in our lives or not.

All the above descriptions of ethics mostly focus on assigning a meaning to or a quest for understanding, or on a diverse range of emotions and human inter-engagements. One can discern that it is not only difficult to have a universally acceptable definition of business morality, but there is also great diversity of opinions even on elements that determine ethics. These various schools of thought, though widely dispersed, consist of such divergent aspects as utilitarianism, deontology, egoism, virtue and character ethics (Crane and Matten, 2007). Though these philosophical perceptions differ widely and are non-admissible by others, do add to appreciating and understanding the many fine points of the concept of ethics.

According to Cadbury and Cadbury (2002), notion of ethics came into being as a result of centuries of deep thinking across a wide spread of cultures. Eudaimonia, a concept that Aristotle formulated, according to Jennings (2008), dealt with such traits as make life good, and attributes that contribute to make life worth living. Kant, an eighteenth century thinker, postulated that it was essential for an action to have been executed in view of the inner desire to do right, and should not have been based on extraneous factors and derived considerations. Fox and Heller (2006) among many other thinkers advanced the idea of utilitarianism that laid emphasis on maximum good for the largest number of people. A large number of philosophers through generations have been debating on different ethical aspects of life and their prospects. All along the focus has been on the potential good of these aspects and their relevance, and since times, different schools of thought have been investigating the benefits related to ethics (Goodpaster et al. 2005).

Weiss (2006) said that each ethnic group has its own conventions of deciding what is right or wrong in conduct. They have had their own rules and methods for addressing any impediments in social norms that are generally considered to have been instituted as the times demanded and in order to strengthen the obtaining social system. It is not advisable to form an opinion about cultural mores of a particular society without carrying out in-depth study of its organic structure. Fernando (2009) wrote that one also needs to be careful while assessing old values using the yardstick of norms existing today, since the ethical predicaments in which scholars of those times were faced with, pertained to then times and environs in which they were operating. Long sightedness is a nice attribute in a person, but for a person living in the current times; it cannot be expected of all to have the sagacity of hindsight.

Americans put more value on achieving success, which in itself cannot be despised, since everyone is right if he makes use of his abilities to score success in life and provide for his family or self (Aglietta and Rebérioux, 2005). On the other hand, people in business are more often confronted with complex issues concerning the conduct of their business, in which their actions to achieve success in business status, influence or financial standing are likely to adversely impact other individuals or communities (Grandori, 2006). Small business operators are more prone to be subjected to such situations as they themselves enjoy the authority to make a business decision. Further, their ethical business decisions in all probability would have wider repercussions on the members of the society they are operating in, compared to the impact their employees would have. An employee’s behavior at the workplace could at the most concern stealing credits for the work done by others, and claiming incorrect number of working hours (Grandori, 2006). Such a behavior affects only a small number of people, generally his coworkers or the employer. However, the decisions that a businessman makes relating to using low quality materials in the manufacture of his products, or placement of his workforce, or terminating the services of many of his employees to save on his own financial deficiency – all these have much wider impact.

On occasions, the influences that induce making morally deficient business decisions could be very strong, whether one is running a small retail store or operating a regional chain of stores. Such decisions are generally taken when the financial health or popularity of business is at stake. Kim et al. (2010) observed that organizations that go public, sold to outside investors, merge with other companies, mostly face stiff competition in their new operations, and complex situations that demand whether to base a decision on business ethics or on considerations of strengthening the bottom line

There are business academics (like, Grandori, 2006; Fernando, 2009) who think that American business houses and their owners have become more inclined to set aside the business ethics in their decision making. This thinking prevails so much that even a justifiable ethical conduct by many business operators is taken as just another publicity effort rather than really a true demonstration of devotion to ethical business norms. There are also others among critics of modern American business practices, who term these ‘good citizen’ efforts, though appreciable, as abnormal and deviating from the usual. Goodpaster et al. (2005) said that such like actions as pertain to recycling waste, cutting down the greenhouse gases emissions, corporate social initiatives, or providing daycare, all sound commendable, but in fact are marginal aberrations in a dysfunctional system. Korten is of the view that multinationals in their run to accrue maximum returns to their stakeholders makes it difficult for them to commit to their social responsibility. This view on business approach percolates to the lower echelons of business also (Jennings, 2008).

Weiss (2006) said that several economists and ethicists hold that this type of approach to business is in itself proof of its being based on certain ethical principles. Milton Friedman, an economist, does not agree with the view that executives and business owners have social responsibility past their obligations to stakeholders and members (Arun and Turner, 2009). These types of views are only misconceived as the true character of open economy. For him (Friedman), in a free economy, there is only one social responsibility of business, that is, of conducting its business activities in such a manner that would earn more profits, while operating within the norms of the game, engaging in open and free competition without resorting to unfair means. Some others even say that by pursuing business to earn profit ultimately benefits the society at large, though impliedly.

According to economist James Mckie, the primary purpose of business and its motivation is profit (Kallifatides, 2010). Organizations make efforts and take steps to make as much profit as possible, the steps that are governed by the prevailng market competition. This environment of competition compels companies to pursue business with a selfish motive which may not be in sync with their moral thinking of enhancing public welfare (Martin, 2006). Still many others strongly oppose these types of thinking about capitalism and corporate responsibilities which totally absolves them of their social obligations for the sake of making more profits and strengthening their bottom lines (Monks and Minow, 2008). These types of theories only provide a shallow ethical cover to them and permit them to do anything from laying off their employees to misleading advertising and inflicting harm to environment.

According to Sison (2008), corporate pressures particularly on employees of big organizations make the problem of ethics more complex. However, owners in smaller business are better placed in this regard since they are in a position to institute ethical culture in the employees’ working pattern and the ethical framework for the business itself. On the other hand, responsibility of implementing ethics in big organizations is widely dispersed. Many a times businesses, irrespective of their being big or small, introduce such operating norms as compel the workers to adopt unfair and unethical means (Tricker and Tricker, 2009). According to Jennings (2008), an organization may institute commission-based incentive system that would pressurize them to achieve certain set targets by fair or foul means. Corporations can also determine production targets and cost controls that are hard to achieve, and to fulfill them production managers are often forced to take the route of using sub-standard materials or inferior workmanship. Jennings (2008) further says that probably the most telling pressure that an employee is called upon to bear relates to performing in a way that would yield greater returns to the organization. The employee is put into a predicament of choosing between career and morality.

Weiss (2006) said that many a times business people face the predicament of indecision when they see ethical obligations weighing heavily on one side, and on the other end more inviting opportunities that hold the key to professional and financial growth. Shaw (2004) observes that ethical behavior in business requires determination, inner discipline, strength, and inherent aptitude to do the right thing irrespective of the cost. According to him, it is not difficult to differentiate between right and wrong, but understanding the nature of difference that is what matters. Choosing to execute a wrong action disregarding the rights of others can cause harm to them.

Case Study

The Times conducted a survey to identify the reasons that might have contributed to Starbucks losing more ethical customers than the other competitive coffee shops and fast-food organizations. The survey found that these were the environmental and sourcing contentions that were responsible for the decline in Starbucks’ footprints. The most predominant coffee chain of Starbucks had an enviable growth for decades, but recently it shut down almost 700 of its outlets in the USA, Australia & UK, and according to The Times survey, has suffered the loss of support among green and ethically enlightened customers (http://factoidz.com/survey-of-starbucks/).

The survey asked the customers their opinion about the general behavior of fast-food outlets and coffee shops. They rated Starbucks as worse on many counts than many other chains, and its fall in rating was very steep at it came down by 7 points to 42 out of possible 100. The ratings of McDonald’s, Burger King, and KFC though also fell, yet Starbucks received maximum criticism of the environmentalists as it, in the previous months, kept its water taps running just for washing the utensils. This practice since has been changed (http://factoidz.com/survey-of-starbucks/).

The coffee chain of Starbucks also met criticism for putting hurdles in an Ethiopian attempt to register the trademark of its coffee, ie, “Fairtrade”, which resulted in a loss of $ 47 million a year to the country. However, Starbucks has now entered into an agreement with Ethopia and has settled the existing dispute, after which it announced having become the largest purchaser of Fairtrade coffee. Meanwhile Fairtrade Foundation expressed that the agreement would swell its supplies in other countries. In London, the Starbucks founder and CEO Mr. Howard Schultz, told The Times that their company is strongly convinced that its clientele in UK and USA do want to encourage an organization with identical values as those of the customers. Schultz believes that even in the era of global economic crisis, the customers are prone to support the company and the company will satisfy their conviction.

The survey findings further show that the number of customers having faith in the coffee shops that take adequate measures for social causes and environmental problems, has come down by four percentage points to record 16 percent. The survey concludes that the drive on the part of fast-food chains to impart healthier image has borne fruit, and bigger chains have cut on salt and trans-fat on menu and have introduced more of salads since the previous two years (http://factoidz.com/survey-of-starbucks/).

Following the ensuing trend, Pizza Hut has rechristened itself as Pasta Hut in order to attract new customers. In the same strain of trends, Subway has started offering fresh food prepared in front of the customers. This approach has made it gain an edge and become a favorite among customers among food restaurants. Glenn (2005), observes that fast-food companies now sell more of health foods and are focused on fresh foods since last year. That has also brought in a shift in consumers’ perceptions about fast food. Companies are now going beyond burgers and chips, though McDonald and Burger King are yet to adopt this line.

According to Glenn (2005), the global financial crisis in the world economy have had influenced customers priorities in making a purchase based on a company’s ethical behavior and track record. As of February 2010, according to Kallifatides (2010), over 70 percent of customers still preferred ethical companies even when they incurred extra cost on their buys. Lately, this percentage has come down to 60 percent. At the same time, the number of consumers who prefer going in for the best buy, irrespective of the cost or the company having any regard for ethics or environment, has grown to 40 percent from the earlier figure of 35 percent. They are increasingly giving more weightage to price.

Because of slowdown, the jittery consumers have cut down on their shopping expenses. As a result the importance given to ethical practices in dealings has also declined for the consumers. They have become more concerned about the product cost and less bothered about the business behavior of suppliers and the treatment meted out to employees. According to Sison (2008), it is not that customers have ceased to be considerate, it is only that their concerns have shifted a bit more towards comparatively other important issues. If organizations create confidence among the consumers even in times of economic slowdown, they will continue with them after the reversal of crisis. Though there has been some change in the priorities of consumers, they yet care for the environment and other social concerns. It is presumed that there are 25 percent more customers that would assign increasing importance to companies that are sensitive to environmental issues and social causes and would be prepared to shed extra money on their purchases, even during slowdown. Similarly, there are 13 percent more of such customers as would form high opinion of organizations that continue expending in the above areas even though economic conditions may take a worse turn (Kallifatides, 2010).