Case Study Analysis: Retail Food Group and IOOF Holdings
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This case study analysis discusses the unethical practices of Retail Food Group (RFG) and IOOF Holdings. It explores the ethical issues of accounting malpractices, exploitation, and whistleblowing. The analysis provides solutions and recommendations for auditing and legal action to hold RFG and IOOF accountable for their actions.
CASE STUDY ANALYSIS1 Case Study Analysis Author’s Name Institutional Affiliation Professor Code +Course City and State Date
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CASE STUDY ANALYSIS2 Case study one; retail food group Introduction This case study describes how getting into business agreements without some partners can run down a person’s business if an individual will not critically examine the agreement they are entering in. The case study talks of the Bankses started their Donut business in 2015 by entering into a franchise agreement with the Gold Coast-based retail food group (RFG) which was the country’s largest food franchise operator. However, the Bankses ended up being financially devastated after they signed up with retail food group (RFG) as debts and losses mounted forcing them to lose their family home as well all their savings. All this is because the retail food group (RFG) despite making more profits and many acquisitions, has been operating under a systematic wage fraud that was characterized by underpayment of its overseas workers and the use of sham unemployment contracts. These illegal proceedings were noticed when the balance sheets from RFG started to show some signs of stress. There was also an issue with the way RFG is monitoring the stores it’s in the franchise agreement, for example, RFG was said to have hired people to spy on the franchise which is against their franchise agreement. It’s because of this that UBS suggested that for RFG to meet new accounting standards, it’s mandatory for it to restate its accounts. Ethical issues From this case study, there are various ethical issues that come out. First it’s the issue ethical malpractices in accounting. Carroll & Buchholtz (2014, p.67) in their research established that accounting malpractices occur when the financial reports or books of a given company contain cooked figures that do not match the actual spending that happened. From the case study,
CASE STUDY ANALYSIS3 we are told that the balance sheet from the retail food Group (RFG) was showing some signs of stress as a result of the company failing to account for the underpayment of its overseas workers and also operating under sham unemployment contracts. In addition to this, we are told that the all the franchise that had entered into a franchise agreement with retail food group (RFG) was currently not in operational while some were being sold at discounted prices. For example, the Bankses was the Donut King in the country before getting into the agreement with RFG. But after getting into a franchise agreement with retail food group, the Bankses is reported “to have joined the list of stores that had either been closed or sold at a massive discount”. This shows a malpractice in accounting on the part of RFG which could not account why most of the stores were running down immediately after getting into an agreement with it. For example, before being bought by RFG, Brumby Company had 321 stores in the chain. But after being bought by RFG, the number of stores in Brumby was less than 246 and RFG could not account for the loss of more than 100 stores. Another ethical issue that arises in this case study is the issue of exploitation. The best term that can describe what RFG has done to franchise based on the case study is exploitation and there are various instances that prove this. For example, we are told from the case study that when Michael Fraser and Maddison Johnstone decided to monitor RFG networks of brands by running an assistance and support business for disaffected franchisees, the franchisees told them that “RFG acquired a brand, decimated the franchisees support staff, renegotiated supplier deals and collected kickbacks to the detriment of the franchisee's profit line, milked every possible cent out of the franchisees, before finally allowing the brand to die”. From this experience, it’s evident that RFG had no any interest of the franchisees it entered into a franchise agreement with at heart, but it just wanted to exploit this franchisees for its personal gain. In addition, we are told
CASE STUDY ANALYSIS4 that getting into a franchise agreement with RFG was very expensive that and many franchise felt that RFG is exploiting them. For example, purchasing a franchise store alone with RFG was at least $700,000 and there is a franchise fee that every store was expected to pay for using the RFG brand. Also there was a training fee that was more than $10, 000 for every course that RFG runs without considering the administration fee that RFG charged for preparing the documents. Then there are rental costs that these franchises were supposed to pay, utility fee, project management and computer fees were all charged by RFG. Solutions and recommendations The main strategy that this Franchise can use to ensure that RFG is accountable for all its actions is auditing. Laasch & Conaway, (2014, p.57) in their study established that through auditing, a business can get to know if all of its accounting reports are accurate. From the case study, most of the franchise that entered into franchise agreement with RFG ended up closing or being sold at a discount while RFG itself was still making profits. This only means that these franchises were not doing auditing of the financial statements to understand why they are making loses while their partner is making profit at their expense. Therefore, these franchise need to start auditing their accounts and financial statements to understand where the problem is. By doing this, these businesses will find out the ethical malpractices that are perpetuated by RFG to benefit itself. For example, in the case study we are told that the Bankses which Donut giant before joining the RFG went bankrupt to extent of closing down after joining RFG. This means that there were some accounting ethical issues that happened to for Bannkses to go bankrupt and close down while its partner was still making profit. These type of issues can only be established by examining the financial report of both businesses (RFG and the Bankese) through auditing. According to the utilitarian ethical theories as proposed by Kumar & Steinmann, (2015, p.54) in
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CASE STUDY ANALYSIS5 their research, an action is only ethically right if it benefits the greatest number of people. From the case study, the main actions of RFG are supposed to benefit the Franchisees and also itself. The fact that RFG actions are only benefiting itself at the expense of the franchisees means that the company’s actions are ethically wrong and the only way for it to be accountable for its actions is through proper auditing. The best strategy that the franchisees can use to address the ethical issue of exploitation from RFG is getting to know the law. In every country, there are state and municipal laws governing the formation of franchise agreement (Ferrero & Sison, 2014, p.375). These laws exist to ensure that there is no party in agreement formation that will take advantage of the other by exploiting them by setting legal standards that each party must adhere to (Frederickson & Ghere, 2014, p.56). Therefore, all the franchisees that want to get into agreement with RFG and even those already in agreement should familiarize themselves with the laws governing the Franchise agreements henceforth. By doing this these franchise will be able to realize that all what RFG is doing to them, for example, acquiring a franchise and firing all of its staffs is against the law governing franchise agreement formation and that they are at liberty to take legal action against RFG for breaching the agreement. According to deontological theory as proposed by Goetsch & Davis, (2014, p.46) in their study a person or a party is said to ethically correct when he/she adheres to its duties. From the case study, the main duty of RFG is amalgamating with franchisees for the purpose of uplifting them financially as it also gains profits from doing that. The fact that RFG has decided to get profit at the expense of these franchisees means that it has not only gone against its main duty, but also the law and the deontological theory and is liable for legal action. Case study two; IOOF Holdings
CASE STUDY ANALYSIS6 Introduction This case study describes the growth of IOOF Company and the various scandals that hit the company afterwards. IOOF from the case study is said to have been a Grand Lodge when it started in 1846. The company has however, grown over the years and today, it is a 650, 000- customer listed company. Not only that, the company is also controlling $150 billion of investor funds and all its growth is attributed to successful acquisitions that the company has been able to make over the years. For example, the company bought bridges financial, Lonsdale among other companies. However, despite all this progress, the company has been hit by various scandals to the extent all its progress is now considered unethical. One of the major scandal that the company suffered is the misrepresentation of performance which according to the Australian Financial review has shown that some of the IOOF cash management trust had breaches and errors in unit pricing. Another significant scandal that the company suffered was firing the whistleblowers. IOOF has been on the receiving end for firing whistleblowers for their ethical stand against the unethical issues that the company has been perpetrating. The company has also been found to be obstructing justice when it was discovered that the company used to handle illegal matters illegally instead of reporting them to the police. Ethical issues From this case study, there are various ethical issues that can be deduced. First it is the issue of whistleblowing. From the case study, it is evident that whistleblowers had a hard time at IOOF. For example, equities analysts was punished by IOOF his whistleblowing role, who after speaking to the human resource department about the unethical practices of the company was sent on a stress leave and later on got fired for playing his whistleblowing role. This is contrary
CASE STUDY ANALYSIS7 to the way whistleblowers are supposed to be treated. According toSuryanto (2017, p.1727) a whistleblowing is prevents and reduces irregularities and fraud in an organization. Thus, it was unethical decision to fire an individual who disclosing unethical practices in an organization. Ethically, employees are required to report unethical operations within the organization for an appropriate action to be taken on. Whistleblowing in business ethics is allowed because it is one suitable way and organization can support ethical values like integrity and honesty. On the contrary,the issues that whistleblowers in the company raise were swept under the carpet even if they required the interventions of the national security. Governance and non-compliance was another ethical issue that arises from the case study. In view of the IOOF’s compliance report, the company was being investigated for front running, compliance cheating as well as misrepresentation of “out performance” numbers. This paints a grim picture of an organization that is directly acting in violation of legal and ethical standards. Good governance requires that managers and other authorities ensure that all employees comply with the law. Apart from complying with the law, good governance is required by all standards to uphold ethical practices.Oyewunmi, Osibanjo, Falola, and Olujobi (2017, p.265) insist that corporate governance should always respect the law and operate within the legal framework of a country. It is unfortunate that at IOOF, the company never wanted to operate under illegal and unethical environment.For example, one whistleblower raised the issue of the company’s non-compliance and training cheating that the company was being investigated against. These are very serious issues and normally, they require the interventions of national security. Unfortunately, the company decided to handle the matter internally ostensibly to hide the truth, which unacceptable ethically.
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CASE STUDY ANALYSIS8 Another ethical issue is dishonesty/deception. Also, this can be considered as a breach of contract, since the agreement between superannuation members did not state that they should be paid from their retirement savings. From the case, IOOF in 2018 paid its superannuation members their compensations out of their own retirement savings. As a result, the managing director together with other four senior executives are now facing legal actions for failing to act on the best interest of the members. It was dishonest of IOOF to award its superannuation members compensation from their own retirement savings.Wells, and Molina (2017, p.292) indicate that ethically people, organizations and other institutions are supposed to act honestly. Further, they indicate being honest means being truthful and sincere, free of deceit, morally virtuous and correct. However, looking at the case of IOOF, the company was not morally correct or virtuous when it used the retirement savings to pay its superannuation members. Solutions and recommendations The main strategy for whistleblowers in this scenario is the law. The law on the rights of whistleblowers in developed countries like Australia is very clear as asserted by Kolk (2016, p.23). According to the study by Menzel (2014, p. 45) there are employment, federal, municipal and state laws that protect the whistleblowers from being sacked or even being suspended in connection with whistleblowing. Quarshie, Salmi, & Leuschner (2016, p.82) established in their research that the same laws protecting whistleblowers also provide the rewards for whistleblowers and also the security that these whistleblowers should be accorded. In another research carried out by Quinlan, Babin, Carr & Griffin (2019, p.78) it was established that in Texas, the Texas whistleblower act gives any employee who in good faith has filed a complaint relating to workplace ethics entitlements to damages if an employer engages in retaliatory actions. In addition, the same act gives any employee who was terminated, suspended or wrongly
CASE STUDY ANALYSIS9 treated for playing his role of whistleblowing a right to take legal action against that company Reiche, et al, (2016, p.83). Therefore, the whistleblowers in this case study should seek legal action against the IOOF for illegally terminating them in connection with whistleblowing. Also, they should ensure that the court orders the company rewards them as per the whistleblowing laws as well provide them with security. Since the company (IOOF) did not report the matters that required the action of national security to the police after the whistleblowers had raised the issues of non-compliance in the company. The whistleblowers can also take legal action against the company for obstructing justice. Similarly on second ethical issue where the contract was breached, still the best strategy will to follow the law. According to the study done by Weiss (2014, p.5) a breach of contract happens when one party involved in the contract fails to perform the promises that form the contract without legal excuse. From the case, it is clear that by paying the superannuation members their compensations out of their own retirement money was against the contract and legal proceedings should be initiated against the company. This breach of contract was an act of dishonesty, which should be punished. Besides, it is recommended that IOOF puts emphasis on good corporate governance and compliance. This is the only way the company can comply with the laws that govern its operations. In view of the deontological theory according to Baron (2017, p.145) institutions, people or society is governed by laws. Hence, IOOF should be deontological in all its activities to avoid instances of non-compliance with legal requirements. Case study three; Bupa Seaford Introduction
CASE STUDY ANALYSIS10 Bupa is private health insurance group based in Australia that started as a non-profit organization in 1947. Currently, the company has more than 3.98 million lives covered under it and it has also entered in partnership with companies like mutual community and HBA. However, despite this tremendous growth, the company has been hit by various scandals. For example, the federal government has suspended its funding to the company due to its poor performance. There are also issues that have been raised regarding the harassment and discrimination of the patients with many patients coming out to testify the same. In some other cases, the company has come out publicly to apologize for the behavior of its employees who have been indicted for assaulting the patients. The company has also been accused of non- compliance when it was discovered that its northern beaches did not meet more than 30 of the 44 basic care standards, clinical care, and even pain management. This was considered a severe risk to health and well-being of the patients by the government. The company has also been found to have regularly failed the audit and ended up being closed for some time. Ethical issues From this scenario, there are some ethical issues that can be deduced. First, it is the issue of mistreatment, discrimination and harassment of the patients. This is a major issue in this case because many patients came out to boldly speak and testify the same. For example, Greg Stokley who had his mother living the home described the conditions of the home as “horrendous” because his mother was often given the medication from other patients and bad food. Ayda in the case study also indicated that her father had not taken a shower for some days and she had to beg for one of staffs for a week to have her father’s nails cut. In relation to the reasoning ofOrtiz, Baeza-Rivera, Salinas-Onate, Flynn, and Betancourt (2016, p. 1270) healthcare mistreatment is discriminatory and abuse of patients’ rights. Similarly, this mistreatment of patients by Bupa can
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CASE STUDY ANALYSIS11 be looked into from the deontological ethics which requires people to act as per the law (Baron 2017, p.146). Australian law does not condone actions that discriminate and dehumanize other people. Another ethical issue that arises from this case study is non-compliance, which violates the moral philosophy of deontology.According toBaron (2017, p.145)an action is considered moral based on rules or laws. Therefore, failing to comply with laws was an immoral action which in all probability requires punishments. Similarly, the utilitarianism argues that the consequences of any action set the standard of what is right and wrong (Mill, 2016, p. 337). Therefore, non-compliance was a wrong action because it led to consequences such as the government stopping to fund Bupa Seafordafter it was established that it had not complied with the health and safety standards of operations. In addition, the northern beaches of the facility did not meet the basic care standards based on the scenario. It is because of this non-compliance that the government established that the care recipients in the facility were in severe health risk and closed the facility for some time. Solutions/ recommendations (strategies) The best strategy that the owner of this facility can use to address the issue of client harassment, discrimination and mistreatments is training employees on how to treat clients. According to the study byWheelen, Hunger, Hoffman, and Bamford(2017, p.55) clients are the most important asset in any organization because the business exist to get profit by serving the clients. Therefore, it is paramount for every business to meet the needs of the clients for it to be successful (Wallace & Sheldon, 2015, p.267). However, in every business, the clients are handled by employees, hence the need to ensure that employees in every business have the
CASE STUDY ANALYSIS12 capacity to adequately handle the clients. From the case study, the Bupa Seaford facility employees did have the capacity to handle the employees well which led to the facility not being able to meet the needs of the patients. The main reason that leads to unprofessionalism at work is lack of adequate training (Wallace & Sheldon, 2015, p.267). That is why it is important for Bupa Seaford to provide training for its employees to equip them with skills that are necessary for handling the clients. Finally, regarding the ethical issue of non-compliance, the best strategy would be to act deontologically or follow the law of health and safety which also provides the standards to be met by all care providers like Bupa Seaford.
CASE STUDY ANALYSIS13 References Baron, J., 2017. Utilitarian vs. deontological reasoning: method, results, and theory. InMoral inferences(pp. 145-160). Psychology Press. Carroll, A.B. and Buchholtz, A.K., 2014.Business and society: Ethics, sustainability, and stakeholder management. Nelson Education. Ferrero, I. and Sison, A.J.G., 2014. A quantitative analysis of authors, schools and themes in virtue ethics articles in business ethics and management journals (1980–2011).Business Ethics: A European Review,23(4), pp.375-400. Frederickson, H.G. and Ghere, R.K., 2014.Ethics in public management. Routledge. pp.1-408. Goetsch, D.L. and Davis, S.B., 2014.Quality management for organizational excellence. Upper Saddle River, NJ: pearson. pp. 1-34. http://www.m5zn.com/newuploads/2015/03/06/pdf/5de5a3408f57150.pdf [Accessed May 30, 2019] Kenny, B., 2015. Food culture, preferences and ethics in dysphagia management.Bioethics,29(9), pp.646-652. Laasch, O. and Conaway, R., 2014.Principles of responsible management: Glocal sustainability, responsibility, and ethics. Nelson Education.
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CASE STUDY ANALYSIS14 Kumar, B.N. and Steinmann, H. eds., 2015.Ethics in international management(Vol. 84). Walter de Gruyter GmbH & Co KG. Kolk, A., 2016. The social responsibility of international business: From ethics and the environment to CSR and sustainable development.Journal of World Business,51(1), pp.23-34. Menzel, D.C., 2014.Ethics management for public administrators: Building organizations of integrity. Routledge. Mill, J.S., 2016. Utilitarianism. InSeven masterpieces of philosophy(pp. 337-383). Routledge. Oyewunmi, O.A., Osibanjo, O.A., Falola, H.O. and Olujobi, O.J., 2017. Optimization by Integration: A corporate governance and human resource management dimension.International Review of Management and Marketing,7(1), pp.265-272. Ortiz, M.S., Baeza-Rivera, M.J., Salinas-Onate, N., Flynn, P. and Betancourt, H., 2016. Healthcare mistreatment attributed to discrimination among mapuche patients and discontinuation of diabetes care.Revista medica de Chile,144(10), pp.1270-1276. Quarshie, A.M., Salmi, A. and Leuschner, R., 2016. Sustainability and corporate social responsibility in supply chains: The state of research in supply chain management and business ethics journals.Journal of Purchasing and Supply Management,22(2), pp.82-97. Quinlan, C., Babin, B., Carr, J. and Griffin, M., 2019.Business research methods. South Western Cengage.
CASE STUDY ANALYSIS15 Suryanto, T., 2017. Cultural Ethics and Consequences in Whistle-Blowing Among Professional Accountants: An Empirical Analysis.Journal of Applied Economic Sciences,12(6). Pp. 1725- 1731. Reiche, B.S., Stahl, G.K., Mendenhall, M.E. and Oddou, G.R. eds., 2016.Readings and cases in international human resource management. Taylor & Francis. Weiss, J.W., 2014.Business ethics: A stakeholder and issues management approach. Berrett- Koehler Publishers. Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017.Strategic management and business policy(p. 55). Boston: pearson. Wallace, M. and Sheldon, N., 2015. Business research ethics: Participant observer perspectives.Journal of Business Ethics,128(2), pp.267-277. Wells, D.D. and Molina, A.D., 2017. The truth about honesty.Journal of Public and Nonprofit Affairs,3(3), pp.292-308.