IKEA's Ethical Challenges: An Analysis in Australian Commercial Law

This report offers a detailed analysis of the ethical challenges faced by IKEA, a prominent furniture company. It explores issues such as child labor allegations, illegal logging, and the company's corporate social responsibility (CSR) initiatives. The report examines IKEA's core values, vision, mission, and code of conduct, highlighting their efforts to address ethical concerns. It investigates the company's stakeholder relationships, including customers, employees, and the environment. Furthermore, the report provides recommendations for IKEA's future, emphasizing the importance of sustainable practices and ethical business conduct. The analysis draws upon various sources, including academic research and company reports, to provide a comprehensive overview of IKEA's ethical landscape and its impact on the business world. The report also explores the company's response to ethical criticisms, including its stance on child labor and its efforts to promote sustainable forestry practices.

Running head: AUSTRALIAN COMMERCIAL LAW
Australian Commercial Law
Name of the student:
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Table of Contents
Introduction:...............................................................................................................................2
Analysis:.....................................................................................................................................2
Ethical issue of IKEA.............................................................................................................2
Addressing the ethical issue:..................................................................................................4
Vision, mission and code of practice of IKEA.......................................................................4
CSR action of IKEA...............................................................................................................7
Key relation attribution...........................................................................................................8
Stakeholders of IKEA.............................................................................................................9
Ethical treat regarding the stakeholders...............................................................................10
Recommendation for future of the company........................................................................11
Conclusion:..............................................................................................................................12
Reference..................................................................................................................................13

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Introduction:
The present case is evolved with the Swedish company named IKEA. Ingvar
Kamprad founds the company in the year 1943 and by the year 2008, the company has
become one of the largest furniture companies in the world (Lim, Pirsiavash and Torralba,
2013). The head quarter of the company is situated in Netherlands. The most significant
feature of the company is that it provide furniture with eco-friendly way and the company has
given special concentration on costing and operational perspective (Brown et al. 2016).
Despite of its popularity, the company is facing certain dilemmas regarding its structure and
tax related problems.
The main objective of the subject is based on the ethical dilemma regarding the
company and the measures are taken by the company to address the issues properly (Marston
et al. 2017).
Analysis:
Ethical issue of IKEA
IKEA is one of the brightest names in the history of Furniture industry. Popularity of
the company has been developed regarding the well-designed product with a low price. The
company has decided certain core values to deal with the problem regarding ethical issue.
The core values can be divided in to as follows:
 Create a suitable working atmosphere within the company;
 Meet the demands of the client;
 Deliver quality product to the customer with low price;

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 Chalk out the decision regarding the development of the standard of the
company and such decisions are based on the reality;
 Respect the customers as well as the co-workers;
 Promote the co-workers with certain potentiality.
 Adopt straight forward approaches to face the challenge; and
 Be modest to find new ideas and inspiration.
However, IKEA has been faced a number of ethical issue and these can be categorised
as follows:
One of the most discussed ethical issues confronted by the company is child labour. In
many of the branches of IKEA, the child labour issues have forced the company to face the
criticism. Under the core values, the company has stated certain morality, but the child labour
problem forced the company to face dilemma. It has been alleged that the company is
appointing children as labour to reduce the labour charge. It has also been stated that the
authority of the company had confessed that the allegations regarding the child labour is, to
certain extent true.
There should be a critical analysis regarding the ethical issues of the company. It was
stated by Anders Dahlvig, the CEO of IKEA that the allegation made against the company is
totally concocted and the company is not facing any problem regarding the child labour issue.
However, in the words of Stephen Sackur that the company seeks to recruit people with low
paying rate (Lee and Vachon 2016). It has been reported that the company has appointed
almost 11.3 million labours whose average age is under 15. The social responsibility action of
the company is quite lower in nature. It has also been alleged that the atmosphere of the
company are not green at all and the core details of the company is not real. Therefore, the
company is facing troubles or dilemmas regarding the social responsibility prospect.

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Another trumpeted issue regarding IKEA is that the company is a furniture based
company and therefore, it is no doubt that the company is engaging themselves in huge rate
of tree cutting. It has been alleged that the company is spoiling the greeneries (Brown et al.
2016).
Illegal logging system of the company has also become one of the most significant
ethical issues for the company. The maximum wood related business is depending on the
logging companies. One report has also been made in this respect, but later it was regarded as
false and the company has to face much criticism as the report had praised the work of IKEA
a lot.
Addressing the ethical issue:
The company has taken certain steps to address the ethical issues (Mansell 2015). It
has been stated by Senior IKEA staff that many of the employees of the company are
engaged in the child labour program and illegal logging system. The programmer of the BBC
news that the wood plucking process is not legal in this company has alleged it. However, it
has been stated by the officials of the company that the process is quite clear and certain
articles were published in the Washington Post that the wood collection process of the
company is legal. It is stated by the company that the company is working with the World
Wildlife and UNICEF and therefore, all the allegations made against the company are false
and need to be corrected (The-latest.com 2017). The IKEA has refused to admit any
engagement of the child labour in the manufacturing process in the branches of the
developing state. It had also been alleged that no working hours are maintained in the
factories of IKEA. However, the company had also denied the allegation and showed certain

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documents regarding the working program of the company in the workshop (Morsing and
Roepstorff 2015).
Vision, mission and code of practice of IKEA
There are certain structures applicable for the new made company. There are four
types of company exist such as sole proprietorship, partnership, corporation and limited
liability company. After choosing the right structure, it becomes necessary to decide the aim
and object of the company. It is important to chalk out certain code of conduct so that the aim
and object of the company can be achieved properly. Therefore, it is important to decide the
vision, mission and code of conduct of a company. Almost every company has their own
vision and mission to achieve certain goal (Stefanska and Nestorowicz 2015).
Being a popular name in the furniture-based industry in the globe, IKEA has
also certain visions regarding the future of the company (Schlegelmilch 2016). The company
has decided its future goal to provide excellent furniture at a cheap rate. The main motto of
the company is to set up certain rules regarding the betterment of the company and to secure
the interest of the stakeholders of the company. The main objective of the company is to
create a better life for the people, who are directly or indirectly influenced by the business
(Jurevicius, 2017). The company had set up its structure to deal with the problems and
explore the strategy relating to its vision and mission.
The mission of a company states about the existence of the company, and the reason
behind the same. The mission of a company helps to identify the customers and the
production report and statement and it is also mentioned under the mission of the company to
point out the location of the company. Geographical location means the place where the
company is being incorporated and the place from where the business will be processed.
There are certain missions present regarding the company IKEA (Ikea.com, 2017). In

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the year 2013, the mission of the company has been rated and it scored 2 out of 4.5. It is an
indication towards the fact that the company has failed to look into the matter and failed to
keep regularity regarding the mission of the company. However, it can be stated that the
mission of the company has been reached in a highest peak in the year 2008. The company
was incorporated in the year 1943 and since then, it has prescribed certain missions regarding
the development of the company. the main aim of the company is to provide high quality
product in a low price and therefore, it had set up all the necessary steps regarding the same.
The company was become one of the most successful furniture-based company and the
market standard of the company become high. From years, the company become successful
by satisfying its customers with all possible helps and also given cheap but durable products.
Therefore, it can be said that the mission of the company is quite customer-oriented and the
mission of the company helps to increase the potential growth of the company.
Code of conduct is a set of rules that helps to achieve the mission and vision of the
company. IKEA has set up its code of conduct in the year 2000 to achieve all the
requirements regarding the development of the company (Ikea.com, 2017). The code of
conduct of the company helps to settle the customer related matters and it also provides
certain steps regarding the products and services of the goods. It is to be stated in this case
that IKEA had opened many store house and wood factory in separate places of the world to
provide cheap rated furniture to the people. Apart from the furniture, IKEA has start up
businesses like shopping mall and food centre to entertain the people at large.
CSR action of IKEA
The word CSR or the corporate social responsibility denotes liabilities of the
company towards the society. A self-regulatory mechanism ensures certain spirit of law to

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maintain the ethical standard. Action regarding the CSR policy is taken to do certain things
for the society where the interest or profit is or will be absent. A study regarding the same
had been made over the issue of the corporate social responsibility and it revealed that the
effect of the CSR can be positive, negative or neutral. Investment is an important thing
regarding the development of the society and therefore, the econometric study report is much
important in that place.
There are certain criticisms taking place regarding the CSR issue. It has been stated
by many sociologist that the policy regarding the same is a sort of capitalist legitimacy. It is
an ethical principle that provides necessary steps regarding the society. Either almost every
company affects the society directly or indirectly or therefore, the company has to take
certain reciprocal duties regarding the same. The ethical issue regarding the policy has been
developed day today and the terms of the company has been extended in the year 1991.
Customer satisfaction is also an important thing regarding the case. It has been opined
by many customers that it is the ethical issue of the company to dedicate certain duties
towards the society and therefore, the term is become more important to the companies. The
term CSR is based on the ethical facts and therefore, certain efforts are taking by tthe
companies for the development of the society.
IKEA is a home improvement chain and deals with the furniture and the interior
substances. It is a well known company and according to the Chief Sustainability Officer of
the company, many initiatives have been taken by the company for the development of the
society. The company has contributed certain things to the under privileged children and
spread the idea of equality among the minorities. The company has taken certain steps for the
development of their own employees also. Further, the company has engaged their mind to
reduce the energy consumption and adopted certain measures regarding the same.

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The women on maximum cases do the core processes of the company and the
management of the company are done by near about 48% of women. The first energy
consuming models are adopted in the year 2008 and it can be stated that a noticeable change
can be observed in the year 2015 regarding the case. Apart from these all, IKEA has been
donating money for the development of the society and for the education of the children.
Initials have been taken to stop the curse of child labour (Boersma, Lynch and Schofield
2014).
It is a fact that the business of IKEA is largely based on wood. Therefore, it is
important to save the deforestation and adopt certain policies to maintain the sustainability in
this case. The company has given special concentration regarding the plastic banning and the
company has been able to reduce its usage by 20%. It has been stated by Jakob Rehme, a
professor of Sweden that if the companies will not concentrate on the resources, there will be
a scarcity take place.
Key relation attribution
In the year 1997, Ronald K. Mitchell had, in the article named Theory of Stakeholders
identification and Salience, stated about the concept of stakeholder salience. It has been
stated by them regarding the importance of the stakeholders that the stakeholders of the
company determine crisis response strategies. The term stakeholders are defined by Freeman
as the group that are directly affected by the achievement of the organisation. It has been
stated by them that the stakeholders are playing an important role in the matters of the
company and therefore, they should be treated with special cordial. Mitchell, Agle and Wood
had classified the attribution regarding the stakeholders and stated the three key relations
such as- power, legitimacy and urgency. It is no doubt to state that the stakeholders possess
certain power that can influence the works and affairs of the company. The relation between
the stakeholders and the company should be based on the legal standard. It is the right of the

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stakeholders to claim certain urgent relief from the company. Therefore, these are the three
key components relating to the stakeholders relation.
The writers were made a step to identify different types of stakeholders and connect
them towards the internal affairs of the company. They had suggested that it is important to
pay attention by the managers to the different groups of Stakeholders in order to maintain a
systematic approach during the crisis of the company. The writers of the book had attempted
to redefine the status of the stakeholders and nature of the same. Mitchell has stated that there
are certain other attributes present apart from this. One of the restrictive terms of attribution is
stakeholder theorists.
Stakeholders of IKEA
The word stakeholders are one of the most important thing regarding the composition
of the company. the term stakeholders include the employees, employer, director, union and
all. Therefore, it can be stated that without the help of the stakeholders, it is not possible to
run a company successfully. Stakeholders are the persons who are related with the affairs of
the company in the way of direct or indirect procedure (Lili and Jiaqi 2017).
In IKEA, the stakeholders are divided into four classes- higher power, higher
interest, lower power, and lower interest. Power means the stakes. The holder of the highest
stakes is known as higher power. The stakeholders who have certain high power are known
as shareholders (Ikea.com, 2017). The interest of the stakeholders is entangled with the
process of the company very much and the company takes certain measures to secure the
interest of the stakeholders (Stigter and Cooper 2015).

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It is the duty of the managers to take high concern regarding the interest of the
stakeholders. They should be deal with highest priority. It has been stated under the rules of
the stakeholders is that the higher power stakeholders include shareholders, employees,
government, suppliers and customers (Anitsal, Anitsal and Girard 2013).
Ethical treat regarding the stakeholders
The stakeholders of the company has divided into six parts such as
 Shareholders,
 Employees;
 Government;
 Competitors;
 Suppliers; and
 Customers.
The stakeholders, who have invested money in a great quantity and shared the profits
at large, are known as the shareholders. They are the most important part of the stakeholders.
In the internal affairs of the company, they are playing important role. The manager or the
Chief Executive Officer of the company has taken certain steps to secure the interest of the
shareholders. Shareholders invest their money to buy the shares of the company and that act
help to strengthen the economic back bone of the company. the directors of the company are
appointed by the voting system and the shareholders are taking participation in that process
too. Even the shareholders attend the meeting named as Annual General Meeting. Therefore,
IKEA always tries to give them benefit.
There are certain persons who are working in the company and trying to make profit.
They are directly engage in the affairs of the company and entangled with the interest of the

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company. They are one of the important characters who are responsible for the growth of the
company.
Customers are one of the most attractive and important stakeholders of the company.
the product and the quality of the product is depending on the demand of the customers. The
company is taking and implementing policies with the interest of the company. The
popularity of the company is also vehemently affected by the acts of the customers. As per
the objective of the company, the company wanted to deliver world-class product to the
customer at low price. The company become one of the popular name in the furniture world
and therefore, it can be stated that the company has taken certain steps for the security of the
customers (Blecher 2016).
Recommendation for future of the company
It is no doubt that the company is one of the large brand in the home development
industry and it can be stated that the company has succeed to retain the reputation for many
years. The vision and mission of the company, the importance of the stakeholders and the
process or structure of the company are the main reason for the development of the company
(Khazaei, Elliot and Joppe 2015). Therefore, it can be stated that the company has certain
appropriate ambiance. However, for the last 3 years, the company has been facing problem
regarding its structure, process of the manufacture, environmental degradation and lower
waging rate. The officials of the company have confessed even the matter of the child labour.
It has been stated that the company had scored down regarding the child labour issue and
missionary achievements. It is therefore, recommended that the company has to give
concentration on the process to avoid the issues and set up new mission to avoid the
complexity in the internal affairs of the company (Leipziger 2015).