Woolworths Ethical Dilemma

This assignment tackles the ethical dilemma faced by Woolworths, a leading Australian supermarket chain, regarding its investments in poker machines. It examines the negative social impacts of these machines, particularly on low-income communities and individuals struggling with gambling addiction. The assignment argues that Woolworths should divest from this sector to protect its socially responsible image and mitigate harm to vulnerable Australians.

Accounting Society
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Executive Summary
The main objective of the report is to present an evaluation of the case of Woolworths
relating to its operations in the gaming machine sector and the problems it is causing among the
people of the country. In this regard, the report has incorporated the arguments from the agency
and stakeholder theory to analyze ad evaluate whether it should continue its operations in the
gaming machine sector or not. At last, the report has provided recommendations to the company
from the perspective of a business consultant whether it should continue operating in gaming
machines.
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Contents
Introduction......................................................................................................................................4
Evaluation of whether Woolworths to continue operate gaming machines in Australia................4
Woolworths Gaming Machines in Australia................................................................................4
Evaluation of Woolworths to continue operate gaming machines in Australia or not by
supporting from Agency and Stakeholder Theory.......................................................................5
Recommendation.............................................................................................................................7
Conclusion.......................................................................................................................................8
References........................................................................................................................................9
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Introduction
The Woolworths Limited is recognized to be largest Australian company that has its
operations in various sectors such as supermarkets, liquor stores, petrol, poker machines and
finance. The company is regarded to be the second largest company in terms of revenue in
Australia. It has largest takeaway liquor retail outlets and gaming poker machine operators in
Australia. The supermarket giant Woolworths is realizing largest share of its revenue from its
poker machines that are mainly concentrated in low-income areas. The company is known to
operate about 6 per cent of the electronic gaming machines of Australia (Yocam and Choi,
2010). However, there have been several campaigns in Australia recently demanding a ban on
poker machines of the company operating in clubs and hotels as they are mainly targeting
disadvantaged people (Peatling, 2012). As such, the present report aims to present an evaluation
whether Woolworths should contribute operate gaming machines in the country by supporting
the arguments from agency and stakeholder theory from the perspective of a business consultant.
At last, the board presents recommendation on whether Woolworths should continue operating
gaming machines.
Evaluation of whether Woolworths to continue operate gaming
machines in Australia
Woolworths Gaming Machines in Australia
Australia is known to have most poker machines than any other country in the world and
on average Australians is estimated to loss about A$11 billion on poker machines in clubs and
hotels. The Australians are regarded to lose more on gambling as compared to any other nation
such as the United States and New Zealand. The increase in gambling related problems of
Australians is putting pressure on the government of the country to ban the poker machines.
There has been several media articles published demanding a ban on the poker machines as it is
killing on an average an Australian in a day. The retail giant of Australia Woolworths is
recognized to operate about 5594 poker machines in about 93 hotels or clubs that provides the
company approximately annual revenue of $835 million. The company operates its gaming
machines in low-income areas such as Brimbank, Hume, Monash and Wyndham. Thus, the retail
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giant earning heavy revenues from country’s poorest regions through operating poker machines
is being heavily criticized by the media (Knox, 2015).
Evaluation of Woolworths to continue operate gaming machines in Australia
or not by supporting from Agency and Stakeholder Theory
Woolworths is presently having the recognition of biggest poker machine owner in
Australia that is in contradiction to its socially responsible company image and thus can
negatively impact its growth and development in the long-term. The poker machines of the
company provide it revenue of about $300 million from its pubs and clubs in areas with low
average incomes. The media articles in Australia are emphasizing on the fact that gaming
machines owned by the company are mainly targeting poor people of the country. Thus, local
government is now putting cap on the number of poking machines being provided by the offer of
pubs and clubs in country. The Woolworths is being heavily criticized by the media as people are
not able to purchase food and groceries at its store due to their money lost on its poker machine
(Hatch and Low, 2016). In addition to this, the company’s owned poker machines are mainly
located in the poorest regions and thus targeting mainly disadvantaged people. This is because
living close to pokies venue drive poor sections more to gamble and thus impacting their lives
largely. Therefore, more pressure is put on Woolworths to stop its contribution in operation of
poker machines for securing low-income people from gambling problems (Peatling, 2012).
In this context, agency theory can help in resolving problems that arise due to
contradictions between the goal and desires of the principal and agent. As such, the company is
presently facing dilemma of continuing its investment in poker machine sector as it realizes
largest proportion of its income from the respective sector. The agency theory can help the
company executives to take a better decision in the present situation in support of its
shareholders (Solomon. 2007). The company can face conflict in the present situation between
the company executives and shareholders to continue its operations in the poker machine sector
or not. This is because company executives may plan to divest its operations in the poker
machine sector for achieving long-term growth while its shareholders for achieving higher profit
can intend to invest more in the gaming sector (Knox, 2015).
Thus, as such agency theory can help the company to handle the situation regarding
different conflict of interest between the company executives and its shareholders. The problem
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mainly can arise in the Woolworths in the present situation due to issue with incentives. The
problem can be resolved as per the agency theory in Woolworths by reforming the compensation
structure. As per the agency theory, the company executives should sacrifice their own self-
interest against the shareholder’s benefit. Thus, the company executives should act responsibly
towards the shareholders by paying them higher dividends even if it negatively impacts their own
profitability (Yocam and Choi, 2010). The media articles published in Australia demands
Woolworths to appeal to every person in the country to avoid gambling. The Woolworths is thus
facing major risk factor if it continues to operate in the pokies sector as it can negatively impact
its profitability and growth in the long-term. The company can implement the agency theory
proposition for successfully divesting its business operations in the gaming machine sector. The
company executives must take decision that promotes the sustainable growth of the company by
sacrificing their own profitability and acting in favor of the shareholders. The executives should
aim to realize complete support from its shareholders for achieving success in its major decision
of divesting from the pokies machine sector (Knox, 2015).
In addition to this, the stakeholder theory can also help the company to take decision
relating to its operation in the gaming machine sector. The stakeholder theory seeks to address
morals and values related to the management of an organization. As per the stakeholder theory,
the company owns huge responsibility towards all its stakeholders such as government and local
communities other than only shareholders. The company’s stakeholders include all those people
that are impacted by the business actions in either way (Solomon. 2007). Therefore, as stated by
the stakeholder’s theory Woolworths should restrict itself from the activities or actions that
negatively impact its stakeholder interests. The gaming machine sector of the company is having
a negative impact on the well-being of the people living in low-income areas. Thus, as per the
stakeholder theory the company should not continue its operations in the gaming machine sector
for supporting the well-being of its stakeholders (Singleton et al., 2012).
The stakeholder theory emphasizes on conducting the operations of a business
organization in an ethical way. It is important for a business organization to promote its
sustainable growth and development by effectively meeting the diverse needs and demands of its
stakeholders (Solomon. 2007). This need to be recognized by Woolworths as it has maintained
and promotes its socially responsible image to its various stakeholders and thus has to conduct its
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operations morally and ethically. The poker machines of the company are mainly concentrated in
the poorest suburbs thus driving the weaker sections of the society towards gambling and thus
affecting their life. The heavy losses suffered by the gamblers due to poker machines are
impacting the quality of their life. Thus, the company has to act strictly in this direction to reduce
the losses suffered by the low-income areas from the gambling problems. The company should
determine the limits for the gamblers before they start playing to reduce the monetary loss
suffered by them at the initial stage. The company should strive to invest in other profitable
sectors thereby to continue its present profitability and then should eventually withdraw from the
poker machines sector (Singleton et al., 2012).
Recommendation
On the basis of the above discussion, the Woolworths Limited is strongly recommended
to divest its stake from the gaming machine sector of the country. As provided by the theory of
agency and stakeholder, the continuing operations in the poker machines can provide short-term
profitability to the company but eventually will negatively impacts its long-term growth and
sustainability. The company at the initial stage should place a cap on the offers it provides on its
pubs and clubs on the poker machines that drives low-income people from playing it and thus
they become addicted to gambling. Also, it should determine a limit for the gamblers primarily
before the game begins so that loss suffered by the people from gambling can be reduced. Also,
the company should research other business segments where it can match its profitability from
the poker machine sector so that it can divest its business segment of gaming machine easily
(Too close to home: people who live near pokie venues at risk, 2013). The federal government is
also actively involved on putting restrictions on the gambling activities after its drawbacks for
the disadvantaged people has been published in various media articles of the country. The strong
emphasis in the country to ban poker machines is causing a demand to Woolworths to adopt
strong actions towards reducing the gambling activities from its gaming machine sector. As per
the agency and stakeholder theory, the company is obliged to maximize the interest of its
stakeholders that also include the people from the poorest suburbs where the poker machines
owned by the company are located. Therefore, it should take strong actions towards upliftment of
the people suffering from gambling problems caused by its poker machines. This can include
participating in the campaigns seeking to promote awareness among the people about the
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gambling problems. The company is known from the past to provide fresh food to the people and
thus should promote the necessity f staying healthy by avoiding gambling activities (Nick
Xenophon and Andrew Wilkie demand federal reform of gambling laws, 2016).
Conclusion
Thus, it can be concluded from the overall report that Woolworths should not engage in
business operations that are against its socially responsible image. The company is a leading
retail giant of Australia that is recognized among the customers for providing fresh food through
its food and groceries items. Though, it has invested in various business sectors such as petrol,
liquor and gaming machines but it need to cat responsibly and ethically towards its customers for
maintaining its goodwill in the market. The company should divest its stake in the poker machine
sector as it is causing gambling problems among the poorest suburbs of the country. The poker
machines are responsible for causing gambling addiction among the poorest sections of the
society that is running the quality of their life. They are unable to purchase groceries and food
from the supermarket due to the heavy losses suffered by them by the poker machines owned by
the company. The Australian media has published various articles related to the need of putting
cap on the gambling activities in the country by the federal government for minimizing the
gambling related problems. The federal government is also acting strictly in this regard to save
Australians from gambling activities. Therefore, continuing operations in the gaming machine
sector by Woolworths can prove to be risky business and therefore it should divest its stake in
this business sector.
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References
Barrows, C. and Hing, N. 2012. Club Management Issues in Australia and North America.
Routledge.
Hatch, P. and Low, C. 2016. Poker machine reform raises stakes for Woolworths supermarket
chain. [Online]. Available at: http://www.smh.com.au/business/retail/poker-machine-reform-
raises-stakes-for-woolworths-supermarket-chain-20160721-gqb4qz.html [Accessed on: 10
August 2017].
Kingma. S.F. 2009. Global Gambling: Cultural Perspectives on Gambling Organizations.
Routledge.
Knox, M. 2015. Supermarket Monsters: The Price of Coles and Woolworths' Dominance. Black
Inc.
Nick Xenophon and Andrew Wilkie demand federal reform of gambling laws. 2016. [Online].
Available at: https://www.theguardian.com/australia-news/2016/jul/14/nick-xenophon-and-
andrew-wilkie-demand-federal-reform-of-gambling-laws [Accessed on: 10 August 2017].
Peatling, S. 2012. Woolworths' pokies 'target low-earners. [Online]. Available at:
http://www.smh.com.au/national/woolworths-pokies-target-lowearners-20120929-26sem.html
[Accessed on: 10 August 2017].
Singleton, G. et al. 2012. Australian Politcal Institutions. Pearson Higher Education AU.
Solomon. J. 2007. Corporate Governance and Accountability. John Wiley & Sons.
Too close to home: people who live near pokie venues at risk. 2013. [Online]. Available at:
https://theconversation.com/too-close-to-home-people-who-live-near-pokie-venues-at-risk-
20771 [Accessed on: 10 August 2017].
Yocam, E. and Choi, A. 2010. Corporate Governance: A Board Director’s Pocket Guide:
Leadership, Diligence, and Wisdom. IUniverse.
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