7-Eleven Ethical Crisis Analysis

This assignment requires an analysis of the ethical crisis that unfolded at 7-Eleven, examining various aspects like worker exploitation, franchise model flaws, and leadership accountability. Students must apply ethical theories (utilitarianism, deontology) and frameworks (corporate citizenship, sustainability) to understand the situation. The analysis should draw upon provided sources and references, showcasing a critical understanding of business ethics and its implications.

Running Head: Management theory and practices
Management theory and practices
Name of the Student
Name of the University
Author Note

1MANAGEMENT THEORY AND PRACTICES
The concept of ethics in business should be integrated in all aspects of operation. Ethics
refers to abstract concepts derived from the theology, professional societies and philosophy,
which define the right and wrong behaviour Crane & Matten (2016). Ethical decision should be
taken for an organisation that would regulate the organisational behaviour. A business can
integrate the profit making goals with the social goals of management. Social goals emerge from
the obligations of the business towards social responsibility. A multinational organisation can
face many ethical dilemmas which can be understood by recognising the ethical obligation of a
business. Ethical decisions are necessary for the future development of the organisation by
gaining the competitive advantage (Dion, 2012). The aim of the assignment is to identify the
ethical dilemma faced by an organisation that is in news since last two years. In response to the
ethical dilemma, the theoretical concepts from the managerial ethics are used to discuss the issue
critically. The essay cortically evaluates how these theoretical concepts influence the managerial
practices in the chosen organisation. For this purpose, 7-Eleven company is chosen and ethical
dilemma pertains to the Australian franchised stores of this company. Based on thorough
literature review on how ethical decisions can be made. In conclusion, the essay critically reflects
on how the leaders may ensure organisational decisions are made ethically.
The organisation that is chosen for the critical analysis of the ethical dilemma is 7-Eleven
with the focus on the company’s Australian franchised stores. In Australia the first 7-Eleven was
opened in 1977 in Melbourne. 7-Eleven is the American-Japanese organisation. It is the
international chain of convenience stores that franchises, operates and licenses more than fifty
thousand stores in 18 countries. The company in the US sells partially frozen soft drink named
Slurpee. It also sells Big Gulp beverages. Other products of this company are carbonated
beverages, energy drinks, coffee, 7-Select private-brand products, bakery items, fresh fruit,

2MANAGEMENT THEORY AND PRACTICES
salads, fresh sandwiches that are daily made, Bakery items, dairy products, product delivery
service and the financial services (Fraser, 2016).
In Australia the majority of the stores of 7-Eleven are located in the central business
district areas of metropolitan cities. These stores in Australia sell wide range of products
including drinks, confectionery, snack foods, daily newspapers, gift cards, three types of visa
cards. There are a total of 75 7-Eleven stores established in Australia. Majority of the stores
located in the suburban areas are the petrol stations having the central admission. These stores
are operated as franchisee (About Us - 7-Eleven Corporate, 2017). Since, the last two years, the
organisation is in news due to unethical operations and is discussed in subsequent sections.
In 2015, the joint investigation conducted by the Fairfax and the ABC Four corner,
revealed that 7-Eleven’s Australian franchised stores is engaged in unethical employment
practices. As per the investigation, there is strong evidence on the underpayment of staff (7-
Eleven Wage Scandal Reflects Corporate Irresponsibility, 2017). The employees were forced to
work for long hours. For international students, there is a rule of investing 20 hours per work.
These students were afraid to complain about the wage theft to the Fair Work Australia, as they
were blackmailed about visa cancellation on the ground of breach of regulations. As per the
investigation, this issue was prevalent since six years and went unreported. Inspite of the strong
evidence the company argues that this use was faced by employees of small number of
Franchisees. The wage theft was mainly experienced by the migrant workers in Australia. The
joint investigation thus concluded that the franchisee business model cannot work in Australia as
they are unable to pay according to the Australian Law of payment (Ferguson et al., 2015).

3MANAGEMENT THEORY AND PRACTICES
7-Eleven Australian stores wok as 365 days business. Therefore, the wages that are to be
paid to the employees should be significant. The scenario was however opposite. The stores
work 24 hours every day and yet the total wage given to the six staff as per the documented
financial statement showed $64,000. As per the law the payment of each employee per hour
should be A$24.69. 7-Eleven Australian stores was paying its staff around A$10-A$14 per hour
(Gartrell, 2016). It was evident that the company had no other option but to underpay its staff to
maintain its position in Australia. If 7-Eleven had to follow the law, then it must compromise on
profit. Further, detailed investigation into the matter showed that there was serious manipulation
of the records of the employee working hours. The employees were even deprived of legal
entitlements of the penalty rates for overtime, public holidays, and others. The issue was
investigated by the Allan Fels, who is the chairman of Australian Competition and Consumer
Commission. As the consequence of the overall investigation, Russ Withers (the chairman) and
Warren Wilmon (chief executive), resigned from 7-Eleven. Therefore, this is the case of the
ethical failure of leadership and led to lawsuit against the organisation
(Planforpersonalsuccess.com, 2017). Highlighting the ethical dilemma faced by the chosen
organisation, the essay further aims to discuss the theoretical concepts of managerial ethics in
this regard.
Managerial ethics refers to set of principles that define the wrong and right operations of
business, and helps analyse the situation of conflict (Dion, 2012). There are several definitions of
Ethics. It is not merely adhering to law and it is seen as beyond this obedience. May it be
business or a –eleven is the personal work the virtue of honesty is essential. The unethical
business operations of 7-Eleven clearly indicate the conflict between the business ethics and the

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moral values. The given ethical dilemma can be explained by ethical theories discussed in
subsequent sections.
According to the Utilitarian theory developed by Jeremy Bentham in 18th century, one
must look beyond self interest and make decisions impartially taking into considerations all the
people who will be affected by the outcomes of the decision (Sheng, 2012). This theory focuses
on the impact of the decision on the stakeholders. As per this theory, when making decisions, the
utilitarian recognises the existing trade-offs. As per this theory, decisions made by utilitarian do
least harm to all the stakeholders involved in business and maximises the profit. The theory is
concerned with rule of “Greatest Good for the Greatest Number” and aligns with the “cost-
benefit analysis decision-making” (Babalola, 2012).
Using the utilitarian theory to critically analyse the business practice of 7-Eleven, it can
be interpreted that the franchisee in Australia worked as per self-interest. It was not ethical as it
does not promote greater good as per utilitarian theory. The manipulation of the employee’s
records of work hours was unethical and selfish behaviour. According to Fraser, (2016) the 7-
Eleven developed false records that showed employees worked only for half hours. The business
tried to prove its innocence showing in the false records that it paid double rates instead of flat
rate. As per the raids carried to investigate the wage theft it was found the both the directors of
the business were aware of these contraventions. It means that the malfunction in the business
was taking place with their will and mind. They were least bothered about the pain caused to the
employees when measuring the personal happiness. Since employees at 7-Eleven worked
overtime and yet were underpaid, it cannot be said that that the business catered for
maximization of everyone. The franchisor threatened the employees for executing personal
motives, which caused heart wrenching pain and harassment to the employees

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(theconversation.com, 2017). In conclusion the business failed to think neutral and accept
multiple perspectives when making decision.
The theory of ethical subjectivism emphasise on determining the moral truths on an
individual level. According to subjective ethics right and wrong cannot be determined by
absolute standards. The theory of ethical relativism focuses on the development of self
consciousness. According to this theory people express their feelings and desires by making
moral judgements (MacKinnon & Fiala, 2014). The decision of wage theft reflects the self-
interest and it motivated to perform selfish actions. One of the reasons for the store’s
underpayment was lack of huge profit generation. This motivated the selfish actions.
Under the theory of psychological egoism, the leadership of 7-Eleven is based on the
selfish behaviour. This theory also states that it is not possible for a person to be unselfish in
every action (Broad, 2014). As per this theory it may be considered ethical for 7-Eleven to
franchise. Under this theory it may be justified for the franchisee to only think of profit
maximisation. The franchisor is greatly benefitted by accepting the parentage of the net profit
from each store. This ensures shareholder’s benefits when the staff is underpaid (Karp, 2017).
Every company makes a strategy to ensure the shareholder’s benefits. Wage theft was one such
strategy of 7-Eleven for profit maximisation. Therefore, there is strong conflict of interest in this
case. It is because, if the franchisee paid legal wages to the employee and acted unselfishly. This
would have led to huge loss and unsustainable for the franchisee stores.
According to the Justice-based ethical theory formulated in the 15th century by Aristotle
and Plato, any decision should ensure the fairness, equity and impartiality. According to this
theory, any action taken by the organisation should demonstrate the comparative treatment of all

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the stakeholder who will be effected by the outcomes of decision (LaFollette & Persson, 2013).
The malpractice helped the business to sustain Australia’s strict law but was unfair to employee.
Applying this theory to ethical dilemma of 7-Eleven, it can be said that for personal gains, the
franchisee did not pay the wage that the employees were legally entitled to. In this case only one
party is at loss and other gains profit, there is no equity. The leader did partiality that does not
justify the employees’ hard work.
Another theory that can be explained in the context of unethical business practice
conducted by 7-Eleven is the “Agency Theory”. According to this theory, in business, people
mainly focus on profit maximisation. The morality of the practices in business context is
determined by the market trend. It means that the position of the business in the market decides
what is right for the business. External factors do influence the moral choice that may cause bias
in perception and judgment of the businessperson (Shafer-Landau, 2012). Applying this theory
to the 7-Eleven case, it can be said that, the franchisee blindly followed the basic model of
business. With this model it was easy for the business to maintain the operational funds and
underpayment to staff appeared correct decision. It did not appear to the organisation as wage
theft. The leader was unethical at being failed to recognise the prominent line between the
business needs and personal choices. In case of 7-Elevne the personal choice of the leader was
subjective that negatively influenced the hard work of the employees. Hence, it is necessary for
any business leader to be aware of the managerial ethics and corporate code of conduct. There is
the change in the line between the tics and law in business due to turbulent world. What might be
ethical in one business may turn unethical for other business. This situation demands taking into
consideration the perspective of stakeholders on ethics. Ethical leadership is the one that
maintains the respect, dignity and interests of employees (www.abc.net.au, 2017).

7MANAGEMENT THEORY AND PRACTICES
The conflict been the business ethics and the moral values during ethical dilemma can be
addressed by the use of utilitarian theory. Using the agency argument a business can protect the
personal interest. However, from the perspective of the utilitarian their actions will have direct
impact on the employees (Broad, 2014). Analysing the ethical dilemma of 7-Eleven it can be
concluded that there is a complete failure of leadership. When some of the staff approached the
head office before communicating with the Fair Work Australia, the concerns should have been
addressed. The malpractice would not have then led to this big scam. It can also be concluded
that there is a need of developing leadership style and business structure that ensures satisfaction
of all the -stakeholders of 7-Eleven. Studying the theoretical concepts of managerial ethics had
well explained the influence of the ethical dilemma on managerial practices and is discussed in
subsequent sections.
A thorough literature review was performed to understand the factors contributing to the
ethical dilemma in 7-Eleven. The given theoretical concepts seem to influence the managerial
practices in 7-Eleven. The franchisees fail to handle the operational expenses, when sharing the
profit. The new chief executive after replacing Mr. Wither announced the company is ready for
prevention of wage abuse. It was demonstrated that the company is ready for satisfactory
remediation (Regan, 2016). However, this decision hit the company with worse outcomes. Due
to lack of sufficient resources, the company failed to pay the running cost of the stores.
Consequently most of the stores were sold. It may add to unemployment. This outcomes
predicted in advance could be the cause of unethical practices. Therefore, the leader’s decision
aligns with the Agency theory, which is concerned with the profit maximization (Johnson, 2017).
Following the utilitarian theory would not have led to profit maximisation.

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The 7-Eleven franchise models in the Australia works in an unfair manner, the model has
unique style of sharing profits. In Australia, the head office takes 57% of the net profit from the
franchisee stores. Therefore, only 43% is left with the franchisee. Since the head office was
unfair, the franchisee is left with no option but wage theft to manage expenses. Under the theory
of psychological egoism, this is the selfish behaviour of the head office that influenced the
managerial practices of 7-Eleven’s franchisees in Australia. Without sharing 50-50 profits by the
head office, it is difficult to eliminate the wage theft (Terry-Armstrong, 2016).
When international students are working for extra income, they need to manage the
funds. In order to so there is a need of government support. The regulators must be more
supportive in this matter by regularly monitoring the operations. They need to be more
responsible in creating the awareness among students and should be better resourced. It is the
lack of government support that the workers feared to expose their hardships. They were afraid
of visa cancellations. Therefore, it was easy for the franchise of 7-Eleven to blackmail the
workers and prevent them from seeking help (Regan, 2016). It is due to lack of government
support and regulation that the Franchisee practiced in discrimination when recruiting the foreign
students from Asian countries and other places. The head office was only profit oriented and
never checked the profile of these students. On the other hand, these international students were
willing to work for less spay. Due to language barrier thee students could not opt for any other
job. They were an easy prey for 7-Eleven scam. The regulators were negligent in duties and in
ethically safeguarding these employees. These students were not aware of the rights and pay
system that they deserve. According to Terry-Armstrong, (2016) there is a need of induction
training for the foreign students for work rights awareness.

9MANAGEMENT THEORY AND PRACTICES
In this situation the remedial option would be to avoid the profit sharing model. If the
head office shares or contributes some percentage to the running cost, it will help in efficient
operation of stores while eliminating the staff underpayment. Therefore, it can be concluded that
there is need of adopting the alternative operational model. There is also need of strict regulation
by the government against the malpractice in the franchisee. The business needs to understand
the line between the personal interest and the corporate needs to behave ethically. This
malpractice is influencing the whole franchisee network, as stores practices what other stores
does (MacKinnon, & Fiala, 2014).
Based on the above discussion, it is recommended that there is further investigation into
the head office responsibilities in this regard and in auditing. Since the entire business model is
flawed there is no point in implementing the payback solution. Some evidence based measure
that the companies can implement in such events includes development of strict code of conduct
and impose penalty for breaching the legislations such as cancelling of the franchisee agreement
(Babalola, 2012). There should be regular auditing of the operations by both franchisee and the
company. When the employees complain of the workplace issue there is a need of immediate
investigation. The employee recruitment process must be monitored particularly for vulnerable
groups. To indentify the noncompliance, independent investors should be present in the
company. 7-Eleven can develop union to implement the model for supporting the equal benefit
for multi-stakeholders (Ferguson et al., 2015).
In conclusion, the essay discussed in detailed the ethical dilemma of 7-Eleven’s
franchisee stores in Australia. The theoretical concepts of managerial ethics thus helped in
evaluating the ethical dilemma of 7-Eleven and it is now better known how the big companies
engage profit maximisation. Staff exploitation is the major pathway in this process. Although the

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joint investigation revealed that the company had direct involvement in the malpractice, the
company denied accepting the fraud. The ethical theories helped to understand the influence of
ethical dilemma on managerial practice. Therefore, it is the lesson for other companies to
scrutinise the payroll and other work records of the employees. It is not easy to implement the
payback solution to such huge wage theft. Implementing the utilitarian theory is the best way to
resolve the conflicts of interest between business needs and moral values. It is necessary for very
organisation to have defined “ethical policy” for such conflicts. Only with the help of such policy
a business can engage in rationale thinking and greater good. Subjectivism will emerge when the
leader is engaged in personal preference and partiality. Various external factors hamper the
decision making of any organisation. The leaders thus need to have strategic goals and specific
operational plans. The values and mission statement should be effectively communicated to the
employees. Overall considering the stakeholders of the Australian market there is a serious
revision to the Franchisee model of 7-Eeven for fair share of profit. Stringent government
policies are needed to penalise the culprits of scam.

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References
7-Eleven founder flags changes to business model. (2017). ABC News. Retrieved 13 October
2017, from http://www.abc.net.au/news/2015-09-10/7-eleven-founder-flags-changes-to-
business-model/6765940
7-Eleven Wage Scandal Reflects Corporate Irresponsibility. (2017). Workplace Ethics Advice.
Retrieved 13 October 2017, from http://www.workplaceethicsadvice.com/2015/10/7-
eleven-wage-scandal-reflects-corporate-irresponsibility.html
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http://corp.7-eleven.com/corp/about
Babalola, Y. A. (2012). The impact of corporate social responsibility on firms’ profitability in
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Broad, C. D. (2014). Five types of ethical theory (Vol. 2). Routledge.
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Crane, A., & Matten, D. (2016). Business ethics: Managing corporate citizenship and
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Dion, M. (2012). Are ethical theories relevant for ethical leadership?. Leadership &
Organization Development Journal, 33(1), 4-24.

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Ferguson, A., Danckert, S., & Toft, K. (2015). 7-Eleven: A sweatshop on every corner. The
Sydney Morning Herald. Retrieved 13 September 2017, from
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