The ethical practices of Biedronka, the largest supermarket chain in Poland

Introduction

This report is concerned with the ethical practices of Biedronka (“Ladybird” in Polish), the largest supermarket chain in Poland. The report carries out a critical evaluation of the company’s current engagement with Corporate Social Responsibility (CSR) agenda and identifies key ethical issues for the organisation.

In particular this report looks at the record of employee grievances regarding forced overtime under threat of dismissal, falsifying of records to deny overtime payments and various instances of employee poor treatment across the supermarket’s chain of stores.

The Company

In Poland, supermarkets started to appear in the mid 1990s. After decades of Communist rule these stores represented the Western ideal with their bright colours and wide choice of products at reasonable prices.

The largest supermarket chain in Poland is Biedronka, based in Ruda Slaska it is a subsidiary of the Portuguese company Jerónimo Martins (JMD). Biedronka has more than 1,400 stores, over 28,000 employees and over 500 private label products (Jerónimo Martins, 2010).

The Board of Directors of Jerónimo Martins consists of five Executive Members and six Non-Executive members. Mr. Pedro Manuel De Castro Soares Dos Santos (Chef Executive Officer of the Board of Directors and Director of Food Distribution Operations of Jerónimo Martins SGPS SA since 1995) is responsible for Operations in Poland (Reuters, 2010).

See Appendix 1 for details of the company’s corporate structure.

Biedronka is regarded as a discount chain with many own branded products; it is probably most similar to Lidl in the UK.

Corporate Governance Structure

The current Code of Best Practice for WSE Listed Companies, as drawn up by the Warsaw Stock Exchange Supervisory Board (May 2010), provides the guidelines for good governance for all companies listed on the Warsaw Stock Exchange (Rancewicz, 2010).

“The Code of Best Practice for WSE Listed Companies aims at enhancing transparency of listed companies, improving quality of communication between companies and investors, and strengthening protection of shareholders’ rights, including those not regulated by legislation, while refraining from imposing a burden on listed companies that may outweigh the benefits resulting from market needs”.

There are three areas that the main principles of the Code of Best Practice deal with:

A – Management Boards

B – Supervisory Board Members

C – Shareholders

These codes advisory only and rely on the self-regulation of companies to abide by them. Companies are asked to comply or, in the case of any non-conformance, explain why they have not applied the code to their governance practices.

The means of providing good governance for a corporate company include the appointment of two distinct types of directors of the company: executive (Management) directors who are involved in the operational and strategic aspects of the business and non-executive (Supervisory) directors. The non-executive directors do not involve themselves in the daily running of the business, there’s is more a role for monitoring the behaviour of the executive management thereby adding a form of protection for shareholders and stakeholders interests.

Stakeholders can be defined as” an individual or a group which either: is harmed by, or benefits from, the corporation; or whose rights can be violated, or have to be respected, by the corporation”. (Crane and Matten, 2007, p58).

Biedronka has, through its parent company Jerónimo Martins, a strong structure of Governance with five Executive Members and six Non-Executive members. Operations for the Polish arm of the company are headed by Mr. Pedro Manuel De Castro Soares Dos Santos (Chef Executive Officer of the Board of Directors and Director of Food Distribution Operations). He also sits on the following committees: Financial Matters Committee, Corporate Responsibility Committee and the Evaluation and Nomination Committee (see Appendix 1 for further details).

The difficulty with this structure is that it is based upon its Portuguese parent company and that the operational activities of Biedronka itself, within Poland, are very much in the hands of local and regional mangers. While the structure for Governance in the parent company is strong the effectiveness of its application may be diluted in the running of its subsidiary company, Biedronka.

Corporate Social Responsibility Agenda

Corporate Social Responsibility (CSR) is “the acknowledgement by companies that they should be accountable not only for their financial performance, but for the impact of their activities on society and/or the environment” (CBI, 2010).

While there is legislation that regulates human resource issues, environmental issues, waste management, sustainability and health and safety matters there is a difference between actions that are driven by these legal requirements and others that go beyond this. Companies are often taking actions not because they have a legal requirement but because they are following an ethical policy of behaviour. This is often done at the expense of the company without seeking any financial reward.

In Biedronka case, as shall be discussed later, this includes employee health care programmes, free summer holidays for employees’ families “in greatest need” and Christmas presents for all employees.

This kind of social behaviour by corporations has not always been welcome and even considered unethical by some. Milton Friedman (1970) said social activity was the responsibility of individuals and not of someone whose responsibility is to their company or shareholders. Using company assets for social benefit was, in Friedman’s view, no different than stealing from the company and as such was unethical behaviour itself.

Crane and Matten (2007) argue that corporations do have moral responsibilities and that the ethical position of a corporation is determined by groups of individuals within the company, rather than any single individual acting on their own. This gives the company an identity and therefore a responsibility in its corporate behaviour.

How far a company acts in its own self interest and when an activity become purely an act of social good is represented in Archie Carroll’s Four Part Model of Corporate Social Responsibility (Crane and Matten, 2007, p.49).

This model (Fig.1.) describes the components of CSR that are between fundamental economic responsibilities and more philanthropic activities.

The base of the pyramid represents the most required activities of the company which includes the need to make a profit. In other words a company must act in such a way as to ensure the profitability of the company, if this is not done a company will most probably fail.

The next step up the pyramid is complying with legal requirements. All companies are required to follow the laws governing company behaviour. There can be difficulties at times, especially with multi-national companies trading in countries with different regulations, but it is still the responsibility of the company to ensure it is acting legally in whichever country it is operating in.

Fig.1. Carroll’s CSR Pyramid

The third step concerns Ethical Responsibilities, this is where CSR issues are raised. Here activities go beyond what is required into what should be required, it is where a company takes an ethical stance and promotes certain aspects of behaviour of all its activities guided by an ethical and moral viewpoint.

The final step of the pyramid deals with philanthropic activities. These are actions that could be seen to promote human welfare or goodwill. The can include financial contributions or executive time in such areas as contributions to the arts, education, or the community (Carroll, 1991).

Such actions are not generally required but often desired and contribute to the overall sense of ‘Corporate Citizenship’.

Biedronka and the CSR Agenda

While owned by the Portuguese holding company, with the Polish stores being under the charge of a Portuguese director, Biedronka stores are run by local managers with a certain amount of independence regarding administration and staff management.

However, companies do have certain social responsibilities and this ideally has been pushed further and further into prominence because of Poland’s entry into the EU and her wish to follow the western European countries and adhere to EU employment rules.

Biedronka is quite clear about its position on Corporate Social Responsibility (CSR), it promotes five areas of social responsibility for the company:

Trustworthy Employer

Trustworthy Member of Society

Trustworthy Member of Environment

Trustworthy Quality Food Retailer

Trustworthy Business Partner

(See Appendix 3 for further details)

The company’s activities would certainly appear to follow Carroll’s CSR pyramid model quite well. The company is making a good profit (see Appendix 2), and it could be expected that they operate within the legal requirements of Poland and also the EU regulations now applying to Poland as a full member of the European Community.

The company promotes itself as an ethical company with regards to treatment and working conditions of employees, environmental issues and wider social responsibilities.

The Triple Bottom Line

The Triple Bottom Line (3BL) was a phrase coined by John Elkington in 1994 and specifically in his 1998 book Cannibals with Forks: The Triple Bottom Line of 21st Century Business.

Elkington states: “In the simplest terms, the TBL agenda focuses corporations not just on the economic value that they add, but also on the environmental and social value that they add – or destroy”.

Fig. 2. The Triple Bottom Line

The main principle behind 3BL is that corporations should not only take into account the economic factors of business but should incorporate social and environmental factors as well. The ‘bottom line’ refers to the accounting term for the actual, real cost to the business. Elkington argues that a cost benefit can be measured for environmental and social activities that a company ought to engage in. 3BL also involves the promotion of sustainability; that is meeting the needs of the present without compromising the ability of future generations to meet their own needs (Crane and Matten, 2007. p.22).

While the emphasis of corporations has generally been on the economic factors the Triple Bottom Line attempts to create a balance between “people, planet and profit” (Elkington, 1994).

Biedronka promote the ideas behind 3BL but in practice have failed to implement social value, specifically amongst its staff, as a goal. Social Justice does not just refer to concerns such as the impacts of business activities on indigenous communities in less developed countries and regions (Crane and Matten, 2007. p.27) but anywhere where there are stakeholders affected by the actions of corporations.

Ethical Issues and Application of Normative Theories

It is worth mentioning here the difference between Morals and Ethics:

“Morality is concerned with the norms, values, and beliefs embedded in social processes which define right and wrong for an individual or a community”.

“Ethics is concerned with the study of morality and the application of reason to elucidate specific rules and principles that determine right and wrong for a given situation. These rules and principles are called ethical theories” (Crane and Matten, 2007).

It can be seen that ethics is open to interpretation and different people will have different opinions on what exactly is right and wrong, is it reasonable to apply some rules in certain situations but not in others? Can a ‘white lie’ be acceptable in certain situations where the truth may cause distress?

The following discusses various ethical theories and applies them to the activities of Biedronka.

Utilitarianism

If we apply the moral principle of Utilitarianism that it should be “the greatest good for the greatest number of people” (Bradburn, 2001) to the example of the forced overtime mentioned before then it could be argued that this business decision was morally acceptable. A handful of people (per store) might experience some level of discomfort but they would remain employed and the customers of the supermarket would be able to buy their products with ease as staff would be on the shop floor rather than finished for the day. The company could employ more staff but this would increase overheads and affect profit.

The following table identifies various stakeholders and the cost ( or pain) and benefit (or pleasure) of the activities to those involved:

Stakeholder

Cost

Benefit

Employer

Bad publicity from legal action. Loss or reputation. Financial cost of legal action. High staff turnover.

Cost savings, no need to employ more staff.

Employee

Poor morale. Adverse effects of working long hours.

Retain job in the face of high unemployment.

Customer

Poor service through unhappy employees. Not wanting to be associated with a company following such practices.

Long opening hours.

Supplier

Concerns about being associated with a company following such practices.

Continued profits of company reduce risk of losing supply contracts

Employee Family

Family life disrupted due to long working hours.

Continued income.

Employees have stated that the local managers seem to delight in creating an atmosphere of intimidation which leads to unhappy workers and a high turnover of staff. Because Polish unemployment is high there will always be replacements but a low turnover of staff is good for business as it removes the time needed to find and train new employees. Therefore one might question the action of the company which provoke such a negative effect with comparatively small benefits.

If we look at the basic principle of Utilitarianism that the few have to make sacrifices for the many then there are potentially far more customers satisfied with continuing cheap products than those worried about employee issues.

Egoism

From an egoism point of view one can understand this style of management culture. The egoist argues that the true test of a man is not what he has done for others but rather what he has made of himself (Nielsen, 1959) The managers’ primary concern when making decisions would be company profits and placing the company in a better position than before, regardless of the employees’ wellbeing. The directors of the company want their supermarket chain to be the top supermarket in Poland. Therefore, it is acceptable to do what needs to be done to maintain an edge over competitors. On the other hand, from the employees’ point of view and taking the same egoism stance, in the short-term it might be necessary to “follow orders” in order to get their wage but their longer term needs should be to find alternative employment and seek legal action through the courts if they feel the need. The fact that the turnover of staff in Biedronka is significantly high because of the poor working conditions seems to have been ignored by management. They continue to pressurise staff to work longer and longer hours with the stick of unemployment being waved in their faces on a regular basis. Whether this is in the long-term interests of the business is questionable and if the workers were more highly skilled one would say that it is not a good business decision to treat them in this way, but as the staff are not highly skilled and there are a sufficient number of candidates willing to take their places (at least temporarily) then one can understand the management’s policy of making the workers work hard for longer.

Ethics of Duty

Immanuel Kant in Grounding for the Metaphysics of Morals (1785) declared three maxims that should be to determine the ethical correctness of a situation. For the actions to be considered ethically correct they must pass all three maxims:

Consistency

“Act only according to that maxim by which you can at the same time will that it should become a universal law”.

It is unlikely that Biedronka would consider that forced overtime as a ‘universal law, applied to everyone’ would be acceptable. This does not discount agreed overtime with pay and even time off in lieu with perhaps an agreed threshold for the maximum of hours overtime contractually required, over which additional hours should be on a voluntary basis.

Human Dignity

“Act so that you treat humanity, whether in your own person or in that of another, always as an end and never as a means only”.

It is clear that the Biedronka management are indeed using its employees as a means to an end and they are not being treated equally in such a way as to benefit all.

Universality

“Act as though the maxim of your action were by your will to become a universal law of nature”.

This maxim asks if you would like to have your actions universally known, the New York Times test (Trevino and Nelson, 2007). In other word would you be happy with your actions appearing on the front page of the New York Times (Fakt, Poland’s largest selling newspaper, in this case)? Clearly Biedronka would not, and indeed did not, like the publicity from the court cases in Poland and it is assumed that their treatment of staff on these occasions is something they would not wish to occur again or be made public.

Overall is would seem that Biedronka fails all tests, let alone pass all three. However, it is difficult to apply Kant’s theories to real world situations and inevitably any conclusion is a subjective one with a natural bias on the side of the person judging the activities.

The Rights Theory (Natural Law)

The Ethics of Rights maintain that everyone has certain natural rights that they are entitled to (Locke, 1689). Those rights cover things such as justice, liberty, a right to life, etc. Its author, John Locke, believed that human nature was characterised by tolerance and reason. However, Locke also stated that humans had a right to self interest – they have the right to life and liberty – therefore shouldn’t a manager who wishes to progress in the company will do whatever it takes to be noticed by his superiors in order to enhance his career? And if what needs to be done requires hurting a few people along the way then let it be done. But I would strongly argue that Locke would consider Biedronka’s policies to go against his idea of most people’s natural rights and if the goal of this theory is fairness and there is such a wide division between the winners (management) and the losers (the employees) then the only way to resolve this situation can only be to seek to narrow the division between the two parties.

With the enforced overtime, this ethical theory suggests that it is against a person’s rights to be forced to involuntarily work long hours. Such an action should be on a voluntary basis and should involve payment for extra hours worked. There should certainly be no punishment for refusing unreasonable overtime work. Therefore, this policy would be considered unethical.

Virtue Ethics

Virtue ethics looks entirely at the character of the person making a decision rather than the decision itself (Mellahi and Wood, 2003). Would a person of virtue come to the same decision? To apply this to Biedronka, we would need to look at their whole philosophy rather than these isolated incidents. On their website, they clearly state that they place heavy emphasis on ethical behaviour.

To a visitor with no knowledge of the supermarket chain’s reputation, they seem to be a pioneer in terms of ethics in business but there is consistent evidence in the courts (Internal Commission of Jurists, 2010), from individuals and in the media that the company has serious failures in implementing its ethical stance. One could argue that these decisions are made on the basis of growing the business and opening more stores in order to provide increased employment not only in its stores but also for its suppliers and for improving customer choice; but surely there should be a limit on how far a company can go in terms of its decisions. If the paramount question when considering a company’s ethical standpoint is: “What would a decent, honest person do in this situation?” then I believe that Biedronka and its senior and junior management failed to ask themselves this question because of their wish for the company to improve financially and have entirely focused on profit to the detriment of their staff.

Feminist Ethics

Crane and Matten (2007) indicated that feminist theory emphasises harmony and empathy with one’s fellow human; particularly with those who might be vulnerable to the decisions that we make. In Poland, where unemployment is high and years of Communism led to great hardship, the culture is different to the US and the UK and so it could be argued that Poles have a different level of empathy – arguably they are twenty years behind Western Europe in terms of law and business (Lewicka-Strzalecka, 2006).

To the managers most employees have a good job and are paid reasonably well, but I would say that the argument against this is much stronger – forcing staff to work unpaid overtime (or to not be compensated enough for it) was in direct conflict with the employees emotions and would inevitably lead to disenchantment and poor morale, not to mention fatigue. The reason for this forced overtime would appear to be mostly financial and did not seek to promote harmonious and healthy relationship amongst the workforce.

Discourse Ethics

Discourse ethics requires all parties in a conflict to reflect on the situation and come to a rational settlement that is suitable for all parties. If all parties were to include the customers of the supermarket, who have an indirect interest in this situation then there would be some difficulty in reaching a good decision. However, if by all parties we were to mean management and employees then this becomes more possible. The lack of trade unions within the Polish supermarket system would be an obstacle and obviously it would be difficult to include all employees in the meeting but discourse theory does seem the most sensible option to resolve this situation; although the management in the past has shown reluctance to listen to employees’ needs. There is also the risk that with the more powerful and articulate management in the room with a group of less powerful and inarticulate employees in fear of their jobs there is a strong likelihood that any decisions made will still be heavily in favour of those who run the organisation

Postmodern Ethics

Postmodern theory argues that those theories mentioned above are outdated in a world of complex human characters and businesses that cater to more and more specific needs (Crane and Matten, 2007). There cannot be one theory that fits for all eventualities and asks individuals to question practices such as those mentioned here and to go with their emotions and their gut feelings in these situations. My gut feeling in this case is in favour of the staff at the supermarket but it would be preferable to interview all those actors involved and spend some time there- indeed the only real way to could come to a conclusion would be to spend time working in the supermarket, both as a manager and a cashier. This option is unlikely to be open to anyone proposing such a study and so some time spent as a customer watching how staff acts in the supermarket might help more than being sat in an office trying to come to a conclusion. My initial instinct is that I would side with the supermarket staff, but as it would be unlikely to be able to see the management in action without arousing suspicion such a decision may be considered to be a little biased. It’s a question that should also have been raised by the individual shop managers – why didn’t they ask themselves why they were so slavishly following the senior management rather than making their conclusions on what was morally right? With the forced overtime, I suspect the policy would not have been followed if the postmodern theory was followed.

Conclusion

Poland was for many years under the rule of a communist regime and workers did not have the legal protection or the accepted rights to working conditions and benefits seen in the west.

It is likely that it will still take time and a significant shift in attitudes for the country to fully adopt a western view of how to treat its workers and for this attitude to be accepted at all levels of society.

As in the west and elsewhere there are many ethical questions regarding the rights of workers which can be answered in many different ways: an egoist may ask why should one person owe any sort of duty to another? But even here there are differences of opinion with Psychological (descriptive) egoism, Ethical egoism and Rational egoism all giving a different position on egoism itself (Shaver, 2002).

However, the majority of normative theories would seem to allow us to come to roughly the same conclusions, that is that actions taken by the various managers of these supermarkets were unethical and the majority of people would consider that the decisions they made lacked empathy with their fellow human beings.

PART B

A Critical Appraisal of Traditional Ethical Theories

Traditional ethical theories have powerful influence on our understanding of the relevance of business ethics but are often criticised for their limitation in business practices and lack of attention to human emotions.

Crane and Matten (2007) separate traditional ethical theories into two types:

Consequentialist – if the outcome of a situation is that that which is required then the method is ethically sound. If the outcome is one that was not desired then the method is ethically wrong. Egoism and Utilitarianism are examples of consequentialist theories.

Non-consequentialist – based upon the method used and the underlying principles of the actor. In these cases it is the actual ethical value of the method used rather than the actual outcome (Crane and Matten, 2007. p.90). Ethics of Duty and Rights Theory are examples of non-consequentialist theories.

Consequentialist theories tend to dismiss the damaging effects on people and the environment if the required outcome is achieved. The problem with this end justifies the means approach is that in many cases people are harmed and the environment is damaged. Where a large proportion of people would seem to benefit from a particular action it must still be determined the acceptable degree of suffering that any minority would expect to take. The difficulty is decided the unacceptable degree of suffering which even the needs of the many cannot justify.

Non-consequentialist theories tend to be more focused on the moral philosophy behind an action and are often difficult to apply to real world situations. However, in a more enlightened age, certainly a more informed one, it is hoped that, even in the high-powered world of corporate business, the power of Rights Theories, for example, would be preferable to the more self-interest based ones of Egoism and Utilitarianism.

An Evaluation of Contemporary Developments in Ethical Theories

Because of the inherent problems of the traditional theories Contemporary Ethical Theories remove themselves from the more philosophical and rule based theories. Contemporary Ethical Theories include Virtue ethics, Feminist ethics, Discourse ethics and Postmodern ethics.

Virtue ethics is concerned with the decision maker themselves and their intellectual and moral virtues (Nielson, 2006). The emphasis is on the characteristics of the decision maker such as wisdom, honesty, courage loyalty, patience, etc. (Crane and Matten, 2007. p.110). The underlying principle is that a virtuous person would be, by inclination, more likely to make ethical decisions in general and only in specific cases.

Even if that was the case, it is still difficult to apply virtue ethics in modern society because one rule does not fit everybody and one person’s “virtues” might be different to another person’s.

Feminist ethics are based more on social behaviour and cooperation between groups where differences of opinion can be settled by reasonable compromises. Maintaining a healthy relationship between groups is more important than what may be regarded as maintaining the rights of the individual. The thinking here is that rights are often a perceived value that is different in one country than another, for example. Crane and Matten (2007) give an example of child labour being wrong for feminine ethics not because it violated perceived (western) principles but because of the likely distress and suffering of the children (Crane and Matten, 2007. p.113).

Discourse ethics attempt to solve ethical issues by reasonable, rational discussion of all parties. While based upon providing a practical solution to wide ranging problems there is in itself the practical problem of all involved parties being able to communicate with each other.

Postmodern ethics are similar to virtue ethics in that it looks at view of the individuals particular sense of what is right and wrong. It deliberately removes itself from the rules of other theories which tell someone what is right or wrong rather than what are actually a person’s own beliefs. It relies on a person’s experience and their ‘gut feeling’ on what is right and what is wrong. While this is the theories’ strength it is also a weakness as it depends upon a person’s experience and therefore any lack of experience, especially in a multicultural environment, may weaken that person’s ability to make an informed judgement.

An Opinion on the Value and Use of Descriptive Ethical Theories

Descriptive ethics is the study of what people believe is morally acceptable. In other words, what do they think is right and how do they come to that conclusion? Different people have different beliefs and understanding, often based on such things as upbringing, ethnic and cultural background, religion and personal experiences. Studying the different morals and standards of groups and societies helps to understand such differences and by understanding leads to better ways of solving ethical issues between such groups.

Conclusion

While it is useful to have specific theories that can be applied to particular problems they all seem to have their own strengths and weaknesses, and failings.

Using one particular theory to resolve a situation can prove unsatisfactory. Using a pluralistic approach (Crane and Matten, 2007) where different aspects of the various theories are used to give a balanced outcome would seem to be the best approach.

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