ACCG315 - Ethics of Profit: A Case Study of Australian Retail Industry

This case study examines the ethical challenges in the Australian retail industry, focusing on how retailers strive for profit in a competitive environment. It discusses issues such as exploitation of suppliers, poor working conditions, and the pressure to reduce costs. The study analyzes the Food and Grocery Code of Conduct and the importance of ethical decision-making for long-term sustainability. It also explores the role of management in balancing profit with stakeholder welfare and suggests strategies for improving ethical practices within the industry. The case study emphasizes the need for transparency, fair negotiations, and adherence to international labor standards to ensure ethical and sustainable business practices. Desklib provides students with access to this and other solved assignments.

ACCOUNTING CASE STUDY ASSIGNMENT
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Contents
ABSTRACT...............................................................................................................................3
INTRODUCTION......................................................................................................................4
RESPONSE TO THE CASE QUESTIONS..............................................................................6
CONCLUSION........................................................................................................................11
REFERENCES:........................................................................................................................12
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ABSTRACT
This case study has helped me to know about the ways in which the various retailers in
Australia exploit the weaker groups in their business just so they can survive in this intense
pressure which is hovering over the Australian retail industry. It was a surprise to me the that
in the RANA plaza disaster, many of the retailers didn’t even know if the victims were their
suppliers. This level ignorance and exploitation made me wonder what the future of
businesses hold for the world. This case study also enlightened me about how, even after the
audit processes, the managers manage to intimidate the workers which lead to false or
incomplete audit (Adelaja, 2015) .
The case study helped me know and understand one very important thing about how
corporate work. The major goal, all the managers assume is that of profit but in reality, this is
not the case as achieving profits is now considered as a short term goal. For any company or
organisation to survive in the long term, they need to operate with the intention of protecting
the welfare of all the stakeholders. They need to achieve profits ethically i.e. by taking care of
the interest of all the stakeholders (shareholders, employees, customers, suppliers,
government, etc)
Lastly, the most important thing that I have learnt while solving the questions of this case
study is that the ways in which industries manages to survive in the long run, keeping in mind
the interests of the stakeholders are extremely important for them to run successfully
(Bierman & Smidt, 2010) . This case study helped me in knowing the importance of ethics
and what consequences they might get for the companies that don’t follow it.
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INTRODUCTION
The Australian retail industry is compressing because of several forces which is leading to its
major fall in sales and hence the downtrend in profits. These forces, collectively are leading
to give the decision makers of such businesses a hard time to effectively think of ways to
survive in this intense pressure. The crux of this case study is to find what type of decisions
the management of such businesses are taking in order to increase their profitability and
hence survive in this industry for long. Along with the type of decisions taken, keen focus
will be given on how they are planning to retain their profitability levels and whether such
decisions have any ethical implications or are giving rise to certain behavioural issues which
may be of concern. Competitors to this industry are not only the international brands who are
entering the Australian retail industry but also the online space which is getting extremely
popular. They can retain their profitability levels only through cost reduction strategies. Now
to reduce the COGS, many retailers have sought to outsource the elements of this cost
particularly in the areas of distribution and information technology. They tend to outsource
these to nations where labour is comparatively cheaper. Now in case of the garment industry,
we saw how the big retailers outsource the production to overseas suppliers particularly to
countries like Bangladesh, India etc. These suppliers were affected tremendously due to poor
working conditions, low wages and other factors as seen in the RANA plaza disaster in
Bangladesh. And surprisingly, these big retailers didn’t even have the idea of whether those
labourers were supplying their products (Dayananda, Irons, Harrison, Herbohn, & Rowland,
2008). This isn’t the only thing; the suppliers were delayed payments just so that the retailers
could show increased cash positions in their financial statements. Hence, we see how the big
retailers over shadowed the suppliers taking advantage of the presumed power they have
thereby exploiting the suppliers. It was considered that the managers were seeking for short
term gains while ignoring the long term benefits to the company by using all the unethical
means just to ensure high levels of profit margins. Studies were conducted to know why the
managers tend to have this behaviour and in conclusion it was stated that the separation of
ownership from the managers incentives lead to such decisions. To solve this more integrated
remuneration system was adopted like the performance measurement system aiming at the
welfare of the stakeholders. Hence, for any manager to earn higher incentives, the company
as a whole had to perform well. Thus, this case study shows how the Australian Retail
Industry in facing the pressure and working on it to ensure their survival. In the case study,
we observe one very important thing, it’s not about achieving the ultimate goal, it’s about
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how one achieves such goals, the ways or measures used to achieve the goals. In this case
study there has been various analysis on how the big corporate in the retail industry are trying
to increase profits by various unethical means (Menifield, 2014)
.
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RESPONSE TO THE CASE QUESTIONS
(1)
Australian Business Ethics is a little different from the traditional ethics since it does not only
include concerns whether a company treats it’s consumers fairly or are honest about their
business practices but rather also considers honest negotiations and respect for one’s privacy
and individuality (Peterson & Fabozzi, 2012) .
‘Good Faith’ in the given case study is underlying this aspect of Australian Business Ethics.
The retailers and wholesalers are expected to act in good faith. Since already stated how the
big retailers are spoiling the suppliers, The ACCC came up with The Food and Grocery Code
of Conduct which gives several guidelines for the Australian super market industry. Good
faith means the retailers and wholesalers should be honest about their negotiations with
suppliers. The contracts between the two parties should not contain any provisions that might
not be in the interest of the supplier (Rivenbark, Vogt, & Marlowe, 2009) .
(2)
The Food and Grocery Code of Conduct is a voluntary code because there already exists
various laws in this space of protecting the interests of the suppliers namely, Competition and
Consumer Act 2010. The code doesn’t wish to override the existing laws. Also by making the
code voluntary, it can honestly be checked about the integrity of the big retailers or
wholesalers i.e. those who voluntarily adopt to these codes are considered to be concerned
about the welfare of the suppliers, thus giving such retailers a competitive edge in the eyes of
the consumers. Another reason why the code was made voluntary could be that it would help
the retailers to customise their agreements or contracts with the suppliers as all the provisions
may not hold true in general. Also, considering the fact that this code necessarily emphasises
on protecting the interests of the suppliers, if made a law, might get distress from the retailers
end (Seitz & Ellison, 2009)
.
(3)
Purchasing or pricing power of retailers in general means the extent to which a retailer has
funds to make purchases from the supplier. Now these are the powers which give the big
retailers the edge and hence the presumed right to exploit the suppliers. For instance, a big
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retailer should use this power to ensure that the purchases from the suppliers are of the
required standard (Fridson & Alvarez, 2012). Hence the purchasing power of the retailers can
be used appropriately to set standards on the quality of purchases they make from the
suppliers. Hence the suppliers would clearly be aware of what are the quality expectations
from the end of the retailers. Thus using any such power which gives an edge to the retailers
over the suppliers would be appropriate to the extent it is ethical and does not involve
exploitation of the interests of the suppliers.
Now whether this decision making power as a senior manager is legitimate or not can be truly
justified with the need of the situation. If the situation demands the senior management to
exercise the power, the decision making power might be considered legitimate. Also, such
decision making power can only be legitimate when they are exercised to the extent it is
ethical and doesn’t lead to any sort of exploitation of any other stakeholder and in turn leads
to achieving of desired objectives (McLaney & Adril, 2016).
(4)
Had I been the CFO and the CEO expected me to do something unfair or something which
my knowledge of integrity doesn’t allow, to disagree or a say no to the senior management is
really not simple. Hence, given the situation, I would firstly make the CEO sit and talk and
explain to him the long term consequences his decision might have on the company. To delay
the payments to the suppliers in order to increase the cash positions is unfair. As the CFO, I
would suggest ethical ways the cash positions can be improved (Girard, 2014). For example,
by having honest terms of credits with the suppliers, these credit terms could be made more
stringent, Or the creditors to my company could be given discounts if they agreed to clear
their dues earlier (Zyla, 2013) .
As the CFO, I would try to convince the CEO to take decisions that prefer long term
sustainable growth over short-term gains. Giving examples of companies who were penalised
for taking such decisions would help me give the CEO a look at the consequences which
might be faced by the company given that the decision of delaying the payments to the
suppliers is taken (Piper, 2015)
.
(5)
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In developed countries, the working conditions for the employees are way better because the
organisations tend to follow the standards of employment as stated the International Labour
Organisation (ILO). Now, following these standards usually tends to increase the cost of
doing business for them. As we have seen in the case given how the international brands are
outsourcing the productions to the less developed nations in order reduce costs. Now the
labour costs are way less in these nations also very low investments are required for the
working conditions in such nations. This gives rise to the question whether same standards
apply to organisations in developed and less developed nations. In my opinion, the
employment conditions need to be uniform in all the nations or else the bigger retailers tend
to take advantage of this because all they really care about is increasing profits, be whatever.
But obviously the extent to which such standards are uniform will vary. Firstly, the
populations as well as the employment rates in the less developed nations. Secondly, because
the less developed nations necessarily depend on the industries at the developed nations for
employment opportunities for their vast unemployed or under employed population (Zack,
2009) .
(6)
Taking into consideration the fact that the survey shows that 89% of the people in Australia
are willing to pay more if that means protecting the employees. Being a part of the senior
management team, I would convince the CEO and the Chief Marketing Officer to adapt to the
cost leadership model. The advantages of this model is basically that it gives the organisation
or company a competitive advantage as our’s would probably be the only company
considering the welfare of the employees. Also, there is a common perception among the
consumers that cheap or low priced garments are not of a standard quality. There’s a section
of the society which believes that expensive garments have better quality. Also taking into
consideration the fact that in today’s world Corporate Governance plays vital role in retaining
the customers and making them loyal towards our brand using the increasedpricing to protect
the employees against exploitation could play an important role. Hence, the reasons above
justify why the cost leadership model should be used (Taillard, 2013).
(7)
The only way to make sure that the workers are truthful in the entire audit process is to have a
one on one interview with each worker, where there won’t be anyone from the management
present to intimidate the workers, forcing them to say the right thing. Also, as an independent
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auditor, I can make the worker trust me, by making them confide in the conversations and
assure them that this wouldn’t lead to any sort of loss from their part. Also, another important
measure to ensure that the workers say the truth is by showing them the various statutes and
laws which clearly prescribe the protection of the interests of such workers and the penalties
towards the company, in case any unfair means are adopted. Another important measure that
can be taken in order to ensure that the workers say the truth is by making them aware of the
laws that have been created for their protection, stating the benefits of the law and how they
can use them in their favour. Thus, all the workers are scared about is losing their jobs, once
the internal auditor ensures that their jobs will be protected, it might be easy to make the
workers say the truth (Mattessich, 2016) .
(8)
Integrated reporting is a framework for long term investment decisions for businesses which
aims at reporting how the organisation’s strategies and performance lead to value creation.
These integrated reports will not be taking the place of financial reports. The motive of these
reports is to find a relationship between the financial measures and how such measures affect
the stakeholders. As we know, now a day, we are shifting from the concept of shareholders to
stakeholders. Hence, Integrated Reporting (IR) focusses on communicating to its providers of
capital how they are creating value for them by interlinking the financial statements with the
Integrated Reports (Paul, 2014) .
This system is going to the change the performance and remuneration system design from the
view point that the remuneration of the Key Manager Personnel, will now depend on to what
extent they are providing their services to help the company create value for all the
stakeholders. This necessarily is including two components, i.e. LTIP (for the long term) and
STIP (for the short term).
(9)
The remuneration currently is a combination of three elements i.e. a fixed pay, Short Term
Incentive Plan (STIP) and a Long Term Incentive Plan (LTIP). The latter two elements are
what is being considered as the ‘at risk’ component of remuneration. STIP includes the cash
bonuses which are based on Net Profit after Tax (NPAT), Gross Profit or other measures of
profits. LTIP includes those payments made in the form of equity shares based on the
performance in the long term (usually 3-4 years) and are measured through the Total
Shareholders Return (TSR) and the Earnings per Share (EPS). Since these two components
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are based on variables dependent on the performance of the company as a whole, there exists
the uncertainty element or the ‘at risk’ element (Pratt, 2009) .
Now, a company which has a higher market share or higher market cap will have a larger ‘at
risk’ element in their remuneration structure because this risk element necessarily depends on
the welfare of all the stakeholders and having a higher market share means more number of
stakeholders. Thus, in all the big companies the risk element is higher because of the very
basic foundation that big companies incorporate more from the society and so they have look
for the welfare of all those. Thus their remuneration will depend on how well they are
keeping their huge stakeholder base.
(10)
Stakeholders of a company are those set of people or organisations that either directly or
indirectly participate in the operations of the company. These can be classified into two
categories, namely, Internal and External stakeholders. Internal Stakeholders are those which
are directly responsible for the operations of the company (Rayman, 2009) . For e.g.
Management, Employees, etc. External stakeholders are those which are not directly
responsible for the operations of the company. For e.g. Government, Banks, etc.
The stakeholders of a large supermarket company would be
a. Customers
b. Suppliers
c. Shareholders
d. Creditors
e. Government
f. Employees
g. Commercial Banks, etc.
With the fact that the big retailers have the pressure of public as they can easily be seen to be
criticised, it is important for such retailers to be careful with every step they take. The
accountants can help such retailers in all their strategic decision making in order to ensure
that they are ethical to the stakeholders. Stakeholders are the people whose welfare the
company has to ultimately take care of, if they plan to survive in the long term. Hence, with
the long term perspective, every big retailer has a responsibility towards the stakeholders
regarding their ethical behaviour.
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CONCLUSION
The above case study gives us an insight of how the Australian Retail Industry is
compressing. The big retailers need to work on this and know for the fact that with the
increased use of social media, the customers have immense power. Hence, it is very
important of the retailers to work according to the welfare of all the stakeholders. It is also
been noticed that the key managerial personnel needs to be trained in a way that they
understand the need of working for the welfare of the stakeholders, thereby having a long
term perspective. Also, it is to be noted that the employees indeed form a part of the
stakeholder’s concept (Rosenfield, 2009) .
Other instances state how a company can only survive in the short run if they focus on profit
maximisation. In today’s world, more focus is given to wealth maximisation which means
maximising wealth of the stakeholders of the company. Hence, by just reducing the costs and
thereby increasing the profits a company cannot survive in the long run. Major concern needs
to be shown for the needs of the suppliers in the less developed countries and the presumed
powers of the big retailers in the context that cost reductions aren’t everything (Schroeder,
2014) .
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REFERENCES:
Adelaja, T. (2015). Capital Budgeting: Investment Appraisal Techniques Under Certainty.
Chicago: CreateSpace Independent Publishing Platform .
Bierman, H., & Smidt, S. (2010). The Capital Budgeting Decision. Boston: Routledge.
Dayananda, D., Irons, R., Harrison, S., Herbohn, J., & Rowland, P. (2008). Capital
Budgeting: Financial Appraisal of Investment Projects. Cambridge: Cambridge University
Press.
Fridson, M., & Alvarez, F. (2012). Financial Statement Analysis: A Practitioner's Guide.
New York: John Wiley & Sons.
Girard, S. L. (2014). Business finance basics. Pompton Plains, NJ: Career Press.
McLaney, E., & Adril, D. P. (2016). Accounting and Finance: An Introduction. United
Kingdom: Pearson.
Mattessich, R. (2016). Reality and accounting. [S.I.]: Routledge.
Menifield, C. E. (2014). The Basics of Public Budgeting and Financial Management: A
Handbook for Academics and Practitioners. Lanham, Md.: University Press of America.
Piper, M. (2015). Accounting made simple. United States: CreateSpace Pub.
Pratt, J. (2009). Financial Reporting for Managers: A Value-Creation Perspective. Hoboken:
John Wiley & Sons, Inc.
Paul, K. (2014). Managing extreme financial risk. Oxford: Academic Press, Elsevier.
Peterson, P. P., & Fabozzi, F. J. (2012). Capital Budgeting. New York, NY: Wiley.
Rayman, A. (2009). Accounting Standards: True or False? . New York (Estados Unidos):
Routledge.
Rosenfield, P. (2009). Contemporary Issues in Financial Reporting: A User-Oriented
Approach (Routledge New Works in Accounting History). [S.I.]: Wiley.
Rivenbark, W. C., Vogt, J., & Marlowe, J. (2009). Capital Budgeting and Finance: A Guide
for Local Governments. Washington, D.C.: ICMA Press.
Seitz, N., & Ellison, M. (2009). Capital Budgeting and Long-Term Financing Decisions.
New York: Thomson Learning.
Schroeder, R. G. (2014). Financial Accounting Theory and Analysis: Text and Cases.
Hoboken: John Wiley & Sons.
Taillard, M. (2013). Corporate finance for dummies. Hoboken, N.J.: Wiley.
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