Case Study Analysis: Business Ethics, Profit, and Retail Industry

This case study analyzes ethical challenges within the Australian retail industry, focusing on the tension between profit maximization and ethical standards. It examines the Food and Grocery Code of Conduct, the role of the ACCC, and the meaning of "good faith" in business practices. The analysis explores decision-making by senior managers and CFOs, including the ethical implications of delaying payments to suppliers. The study also addresses the applicability of developed country employment standards in less developed countries and the legitimacy of cost leadership models. Further topics include handling audit fraud, the purpose of integrated reporting, and the importance of stakeholder relationships in ethical behavior. The case study emphasizes the need for ethical strategies that benefit all stakeholders for long-term sustainability within the industry.

Case Study analysis

Table of Contents
Abstract:...........................................................................................................................................2
Introduction:.....................................................................................................................................2
Description of the questions:...........................................................................................................2
The meaning of the term “good faith” in the context of Food and Grocery Code of Conduct for
Australian supermarket industry regulated by ACCC [Australian Competition and consumer
Commission]................................................................................................................................2
2. Why Food and Grocery Code of Conduct and ACCC has not taken the move to transform
that code in to a law?...................................................................................................................2
3. Legitimate use of decision making power as a senior manager and/or group.............................2
4. Legitimate response of Chief Financial Officer [CFO] who is approached by the CEO or
other senior manager to deliberately delay the payment to the supplier to improve company’s
cash position:...............................................................................................................................2
5. To what extent the developed country standards of employment conditions can be applied
less developed countries? What information and/or frameworks can you use to determine what
is appropriate?..............................................................................................................................3
6........................................................................................................................................................3
Legitimacy of following a cost (price) leadership model for maintaining the ethics of Profit........3
7. Handling of the audit fraud problem done by the suppliers who are being audited................3
8. Purpose and use of integrated reporting:.................................................................................3
9. Desccription of “at risk” component of the remuneration of CEOs and senior management. 3
10. Stake holders of the supermarket company and their importance in the context of ethical
behaviour......................................................................................................................................3
Conclusion:......................................................................................................................................3
References........................................................................................................................................4

Abstract:
The analysis of this case study has helped me to understand that maintenance of the ethical
standard is essential for any industry for its long term survival. The current case study describes
that most of the brands of Australian retail industry is in dire need of cost reduction for the
attainment of the profit. Thus big brands of the industry are acquiring their products at a minimal
cost as much as possible. In such a situation the brands trying to apply price leadership model for
setting a high price standard that will reduce the exploitation of the workers as well as suppliers
who fails to get the legitimate payment for their weak bargaining capacity. This revelation help
me to understand if I work in a senior management position of an organization then it will be my
duty to develop such strategies that will bring benefit for the organization as well as for each of
the players and stakeholders of the industry as only a win situation will lengthen the life of my
organization as well as the sustainability of the industry.
Introduction:
The case study is all about describing the dilemma of maintaining the ethical standard while
making the required profit margin in the Australian retail industry. In recent years some of the
major brands of the retail industry has badly failed as they are failing to earn the required
revenue that is needed for keeping them ruining (Burchielli et al.,2009). The most of the brands
have discovered that cost reduction is the only option for attaining the required profit target. The
case study also describes that how the major players of the industry are applying the strategies of
corporate governance as well as auditing and the accounting process for the maintenance of the
business ethics while practicing cost reduction. As per the case study the leaders of Australian
garment retail industry are trying to impose a price leadership model where the leaders of the
industry will set a high price for the products so that the suppliers of the industry from the
different Asian countries can get a legitimate payment (Benson et al.,2011) . Thus the leaders
of Australian garment retail industry are trying to maintain the business ethics while maintaining
the profit margin as an initiative of reducing the exploitation of the suppliers of the world

garment industry. Most of these suppliers and the workers are working in the informal sector and
are often subjected to exploitation in terms of low wage offerings.
Description of the questions:
The meaning of the term “good faith” in the context of Food and Grocery Code
of Conduct for Australian supermarket industry regulated by ACCC [Australian
Competition and consumer Commission]
The code has been developed by regulating the conduct of the retailers and who sellers of the
grocery industry who are working in Australia with their suppliers. The code generally describes
the norms that should be followed by the retailers and whole sellers when they are closing a deal
or agreement with the suppliers’ for the purpose of taking the supply of groceries for a specific
period of time. The code is voluntary in general however the code is binding on those retailers as
well as whole sellers who are being elected to be bound by giving a written notice to ACCC. The
code has been developed as a part of enforcing the Competition and Consumer Act 2010 and the
Australian Consumer Law.
As per the code the retailers as well as whole sellers[on whom the code is binding] has the
obligation to operate in good faith during the stage of bargaining , during the period of
agreement and during the handling of disputes with the suppliers. Here a retailer is considered as
a corporation who carries a business in the grocery super market and the whole seller is another
corporation who purchase the groceries from the suppliers to resupply them in the super market
and the supplier is the person who is engaged in the process of carrying a business of supplying
products to another person who is engaged in making retail sales (Hughes et al., 2013).
The term “good faith” here requires that the retailers or wholesalers should apply their power for
reasonable purposes only. The lack of good faith will be identified by the Australian court as
well as the ACCC when retailers as well as whole sellers have acted dishonestly for the
fulfilment of some ulterior motive and deliberately have undermined the benefit of the other
party of the contract (suppliers) (Australian Competition and Consumer Commission, 2018).

2. Why Food and Grocery Code of Conduct and ACCC has not taken the move to
transform that code in to a law?
The Food and Grocery Code of Conduct is voluntary code, which means that the code is not
binding upon the every other retailer and whole sellers who are operating in the Australian
grocery industry unless and until the retailer and whole sellers send a notice to the ACCC which
is the administrating organization of the code of conduct and has the power to enforce the
compliance of the contract only in case of those retailers and whole sellers who have voluntarily
made them obliged to the code by sending a notification to ACCC. When the whole sellers and
retailers are sending notification by themselves to ACCC then they are displaying the interest
that they are ready by themselves to follow the code and same is expected from them by ACCC.
The code requires that the retailer and whole sellers should act in good faith while perusing a
contract with the suppliers and it is only possible when the retailer and whole sellers voluntarily
ready to act as a honest party to the contract made between the retailer and whole sellers & the
suppliers of the grocery industry. Mere enforcement of the code by using legal force will not
ensure the proper application of the code of conduct and that is why ACCC ,has not taken the
move to transform the voluntary code of conduct inn to a law which will be binding on every
other retailer and whole sellers who are operating in the grocery industry and a forcibly imposed
code of conduct may not give the required results as expected and that is why the acceptance of
the code has been kept voluntary.(Kelly et al.,2009).
3. Legitimate use of decision making power as a senior manager and/or
group
A senior manger will make the legitimate use of the decision making power when he is making
the decisions in such a way so that it will bring benefit for his subordinates as well as the

organization as whole and if he is making a decision that involves any other party other than the
organization then the legitimate use of the decision making power will take place if the decision
taken is bringing benefit for all the parties to the contract.
In case of the grocery industry the suppliers are mainly dependent over the wholesalers and
retailers who act as the distribution channel for the suppliers for selling their goods in the grocery
market. So the wholesalers and retailers group have the better barraging power in making the
price decision and therefore should take the price decision in such a way so that profit margin of
the suppliers as well as wholesalers and retailers remains ensured and such decision making can
be described as the legitimate use of the strong bargaining power of the wholesalers and retailers
group (Jensen, 2010).
4. Legitimate response of Chief Financial Officer [CFO] who is approached by
the CEO or other senior manager to deliberately delay the payment to the
supplier to improve company’s cash position:
Chief Financial Officer of an organization has the burden to maintain a very high ethical
standard and as per ethics he should not act any way that leads to the violation of the Food and
Grocery Code of Conduct. Now if he acts as per the request of the CEO or the senior manager of
the company then it will be bad kind of violation of the code of conduct has he is deliberately
undermining the interest of the suppliers. But if he goes against the request of the CEO then he
will be going against the interest of the company. Therefore in such a situation to fulfil the dual
need of maintaining the ethical standard and fulfilling the interest of the company the CFO
should honestly ask for some extension of the credit period by giving the legitimate reason of
weak cash position of the company to the suppliers and the final date of payment should be
decided by the supplier so that his interest can be maintained to some extent (Gordon et
al.,2009).

5. To what extent the developed country standards of employment conditions
can be applied less developed countries? What information and/or
frameworks can you use to determine what is appropriate?
In the developed countries like UK the minimum per hour wage is £7.38 pound in USA it is
$7.25 and in Australia it is $17.70 (BBC News, 2018). So the above rates are the legitimate rates
that will be paid to the workers in the respective countries for each hour they are devoting for
work. But according to the Fairfax journalist Adele Ferguson there are numerous cases of wage
fraud that has taken place in franchise businesses, in 7-Eleven convenience stores, Pizza Hut
outlets, Domino’s outlets where the workers were forced to work at a rate as low as $5 per hour
(The New Daily, 2018). The employment condition of the workers improves with the rise of the
bargaining power of the workers State minimum wage rates in the United States as of January 1,
2018. A strong bargaining condition allows a worker to bargain for a legitimate wage and good
working environment. If in a developed country like Australia the workers of the, unorganised
sectors [whose cash receipt is not recorded in government earnings recording] are facing such in-
justice then it is very difficult to implement the employment standard of the developed countries
in the under developed countries where the workers are having a very weak bargaining power
(ABC News,2018).
6.
Legitimacy of following a cost (price) leadership model for maintaining
the ethics of Profit
Price leadership model is said to followed in the market when a firm take the leading position in
determination of the price of the product in the market and all other firms in the market has no
other option other than following the price set by the leader as the leader is holding the dominant
share of the market.
As per the Oxfam Australia survey the Australian consumers are willing to pay higher prices for
the garments if the weak suppliers [from Asian countries, especially Bangladesh] who are under

paid get a better payment for their supplies for the fulfilment of the profit ethics of the Australian
wholesalers and suppliers. On the basis of the survey findings it is the duty of the senior manger
of a big company playing a leadership role in the garment industry to convince the CEO as well
as CMO to acquire the garments at a higher price so that in one hand the weak Asian suppliers
get a good wage and in the other hand the other retailers and wholesalers of the Australian
garment industry are forced to follow the higher price of the garments set by the leader and thus
the ethics in profit making will be maintained to some extent (Dobija,2011).
7. Handling of the audit fraud problem done by the suppliers who are being
audited
Looking at the wage exploitation of the garment suppliers’ of the different Asian countries
especially Bangladesh the Garment retailing and wholesaling companies of Australia are making
the audit of the suppliers of the garment in order to asses that how the workers working under the
suppliers are being paid and treated. The suppliers audit has been done for the fulfilment of the
ethical concern but still the retailing and wholesaling companies are facing it difficult to prevent
the audit fraud when the suppliers are forcing the workers to tell wrong facts regarding the wage
they receive and the condition under they work (Trotman & Wright, 2012). In such a situation
the retailing and wholesaling companies can collect the truth by employing agents who will
personally interview the workers in absence of the suppliers who is the employer of the
suppliers]and the facts will be collected from them with evidence of wage payments and
working condition so that the suppliers can be confronted with the event at the event when they
are making audit fraud by forcing the workers to tell wrong facts to the auditor and thus audit
fraud can be minimised.
8. Purpose and use of integrated reporting:
Integrated reporting is a process of communication used in a business organization for the
purpose of the generation of the periodic integrated report that will describe the value created by
the organization through the application of the different corporate strategies and the corporate
governance within that particular period which may be a short or along period. The generation
and the presentation of the integrated reporting will help the management to understand that how
much value has been generated and added to the business by the different designated persons and

therefore remuneration for the each designation will be adjusted as per the value added by the
designation as reflected in the report.
9. Desccription of “at risk” component of the remuneration of CEOs and senior
management
As a part of measuring and rewarding the performance of the CEO and other senior managers the
business often takes the decision that a part of the remuneration of the CEOS and the senior
managers will come from the share holder’s return. Therefore this part of the remuneration of the
senior mangers is “at risk” as the part of the remuneration will be achieved if share holder’s
return is generated (Core & Guay, 2010).
10. Stake holders of the supermarket company and their importance in the
context of ethical behaviour
The core level workers, suppliers, wholesalers, retailers, buyers, society, government and
employees of the wholesaling and retailing companies and share holders of such companies are
the major stake holders of a super market company and the company should develop and employ
corporate strategies that will be ethically correct and bring legitimate benefits for all the stake
holders of the company (Karpyn et al.,2010) .
Conclusion:
The discussion of the above questions on the basis of the given case study reveals the fact that it
is essential for the players of an industry to operate on the basis of ethics so that every stake
holders of the industry get benefitted in legitimate way (Richards et al., 2012). The sustainability
of an industry depends upon the proper functioning of all the stake holders of the industry who
are connected with each other and operates in a chain. So if the unethical behaviour of one group
of stakeholder or player of the industry prevents the other weak players of the industry to gain
their legitimate benefit then it will be difficult for the industry to operate in a transparent fashion
and exploitation will destroy the long term sustainability of the industry.

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