Corporate Governance Issues at Primark: A Case Study Analysis

This case study analyzes the corporate governance issues faced by Primark, a global retailer. It examines key issues such as the Rana Plaza incident, ethical sourcing, labor practices, and the role of the board of directors. The analysis connects these issues to theoretical frameworks like stakeholder theory, resource dependence theory, and agency theory, providing insights into Primark's risk management strategies, auditing systems, and leadership approaches. The study highlights the importance of ethical considerations, particularly in the context of Primark's supply chain, and assesses the company's responses to ethical challenges, including its efforts to improve working conditions and ensure responsible business practices. The analysis also touches upon the UK Corporate Governance Code and Primark's initiatives related to environmental sustainability and ethical trading.

Case Study Analysis
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Table of Contents
What were the main corporate governance issues within this case?....................................................3
What does the theoretical, academic, professional or legal literature/regulation say on these
issues? Were such events or features of your case consistent with or in contrast to the theoretical,
academic, professional or legal literature/regulation?..........................................................................4
References...........................................................................................................................................10
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What were the main corporate governance issues within this case?
Corporate governance focuses on elevating the shareholders’ value thereby magnifying the
overall welfare corresponding to the stakeholders as well as the society. On the other hand,
business ethics refers to normative term that mainly focuses on the behavioural and the
ethical approach of the human beings. Nonetheless, ethics brings into discussion the question
about what is apt and what is incorrect concerning business scenarios and situations. The
assignment is a case study analysis where Primark has been selected as the chosen
organization. Significant corporate governance issues such as Rana Plaza incident,
procurement of cotton, use of cheap labour and human trafficking, child labour, auditing the
suppliers, the company’s board of directors relating to the company will be discussed thereby
linking the discussions with mainly the 4 issues such as ethics, risk management, auditing
system and leadership. Furthermore, the issues will be connected with the theories such as the
stakeholder theory, resource dependence theory and the agency theory (Council, 2012).
Risk Management
The international Organization for standardization states that the risk factor of the businesses
is the uncertain circumstances that affect the set objectives of the organization. In this case,
the uncertain impact thus caused is observed to be totally diverse from that of the outcome
which might be viewed either in positive or negative light. Therefore the risk that evolves
within the business entity is sought to manage through the application of risk management
which entails identification, evaluation as well as supervising the unwanted outcomes thereby
exploring the further opportunities within the system (De George, 2011).
There are certain risks concerning the aspect of modern slavery on which Primark has been
observed to incorporate risk management strategies. Trafficking of human labour and the
employment of forceful labour are something which is considered to be too unethical and
might pose as a risk to the organization (Brammer et al., 2007).
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What does the theoretical, academic, professional or legal
literature/regulation say on these issues? Were such events or
features of your case consistent with or in contrast to the theoretical,
academic, professional or legal literature/regulation?
Primark is a retailer that is based in Ireland. The company is the subsidiary to AB Foods.
Primark is known for its affordable clothing prices targeted towards the middle class
community of the global society. It got tied with the Rana Plaza incident which took lives of
several thousand of workers concerning ethical considerations (Velinova, 2014).
Risk analysis Model
(Vose, 2008)
Initiation of quality risk management process includes risk assessment, control as well as
review through risk communication. Primark implemented the process through suppliers’
audit, controlled through Primark “Code of Conduct” thereby conducting reviews on regular
intervals.
Ethics
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The Rana Plaza incident took place during 2013 which witnessed the collapse of an 8 storey
building in Bangladesh. It was during this incident that around 2500 workers got highly
injured and later were rescued from the location. This incident has been considered as a
historic accidental event pertaining to the clothing industry segment. Further while the
incident occurred, several questions were asked to the business enterprise on the grounds of
ethical considerations (Shah, 2014).
The consumers started boycotting the products of the business enterprises. The consumers
became aware regarding the working conditions that were provided to the workers by the
company. In fact the workers in some instances are even not allowed to go for their toilet
requirements and are instead asked to finish the work within the stipulated time given.
Primark is also seen related with the term ‘sweat shops’ where it has been traced that the
business organization hires child labour at very low wages (Salvioni & Astori, 2015).
It has been observed that the children falling within the age bracket of 11 years are sewing
sequins in the Primark t-shirts and that also in the poor working surroundings. Thus the
question regarding unethical fashioning that Primark caters to its consumers at paltry prices
extended towards the kinds of suppliers it possess agreements with. Hence Primark gradually
worked on magnifying its commitment in conducting ethical trade through the application of
a web-based contract in regards to supply chain network through frequent audits (Mizen et al.
2012).
This contract states that there will be auditors employed who will scrutinize the background
of the suppliers thereby putting up all sorts of information collected in the BSI management
process so that the managers are able to survey the suppliers’ background. The owner of the
enterprise, Associated British foods has further stressed on the aspects that this sort of
auditing will usher better global visibility as well as lead to control of information by the
management. Nonetheless, the association has been viewed to come under strict
scrutinization on the grounds of ethical considerations which has been followed by several
investigations (Lu, 2013).
Stakeholder Theory
This issue certainly calls for “The stakeholder Theory” that concentrates on the
organizational management aspects as well as business ethics that limelight the factors such
as managing morals as well as biasness values within the association. Hence Primark was no
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exception in implementing and linking “The stakeholder Theory” to the ethical issues that it
faced according to Bonazzi & Islam, (2007). The consumers, suppliers as well as the
employees are the significant stakeholders to any organization. Primark also concentrated on
bringing in certain amendments concerning the ethical issues relating to these stakeholders.
Not only the company initiated a change process within the supply chain network thereby
making it web based but also, it started compensating for the lives lost of its workers or the
families that lost their earning heads due to Rana Plaza incident. The company promised to
spend around £1 million towards short term compensation (Kor et al., 2008).
Resource Dependence Theory
This instance of the company can also be linked with “The Resource Dependence Theory”.
This theory revolves around the study that in what ways the external resources pertaining to
the company might influence its behaviour. Moreover according to this theory it is very vital
for the business enterprise to procure external resources that helps in strategically managing
the organization. In this instance, Primark concentrated on gaining its external resources
such as establishing an effective relationship with its suppliers, establishing its brand
channels, economy, and the consumer base and so on. Hence, in order to strengthen its
branding and external resources, it concentrated on boosting its corporate social responsibility
(Littler, 2011).
This is because the company is considered as a global business enterprise which posses an
international supply chain network and also a fast developing retail base that prompted the
company to act responsibly as well as conduct ethical trade. The business that it owns
employs almost 700,000 employees. Therefore, Primark nurtures a vision to render protection
towards its employees (Manners-Bell, 2014).
Agency theory
Agency theory supposes about settling issues that might exist corresponding to official/
agency connections due to non-intersecting objectives. A company as an ethical agent might
be examined through two standards in particular, which are the legally binding and
partnership models. Moreover the enterprise can go about as an ethical operator to the degree
pertaining to the internal front that it involves the workers into an undertaking which is
something beyond a financial endeavour; however, on the outer front it collaborates with
various stakeholders in light of a legitimate concern for the benefit of all (Carrigan & De
Pelsmacker, 2009).
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Similarly, Primark can be noticed aiding its diverse stakeholders with extensive training
facilities as well as monetary help including its suppliers though the concerning aspect might
not be a legal consideration for the company. There is a certain Primark code of conduct that
is followed by the company which ensures the safety, rules relating to employment and others
are being listed. However, the set standards are structured on the basis of Ethical Trading
initiative (ETI) which in turn is excerpts from International labour Organization (ILO)
(Fienhold, 2014).
UK Corporate Governance Code
Primark being a responsible player concerning its relations with its suppliers has
implemented labour laws pertaining to UN guiding principles based upon Human rights as
well as focuses on OECD Guidance corresponding to affairs of Due diligence. There is also
risk concerning the external resources such as the raw materials. For example, the cotton
clothes that Primark sells is not manufactured directly by the business entity, however, this
cotton is bought by the suppliers that the company is in agreement with. Therefore, the
suppliers might use such processes in the manufacturing system that causes environmental
hazards (Council, 2012).
The company will not be able to trace this hazard which might pose as a risk factor that calls
for effective management. Hence, Primark took part in an environmental initiative which is
the SCAP (Sustainable Clothing Action Plan). The SCAP strategizes in bringing down the
waste that causes landfill problems. In fact, the above instance might also be considered as a
risk management pertaining to agency theory. It is known that the agency theory focuses on
settling the issues that the entity might face in having the relationships with different
suppliers within the supply chain network. Especially the supply chain network of cotton is
obnoxiously complicated. Hence, Primark aims at sourcing its raw materials through the
implementation of sustainable and ethical strategies (Crane & Matten, 2016).
Primark and its auditing system
There is a specific group that works under the ethical trading group of Primark thereby
safeguarding the supplier production units pertaining to Tier 1, so that the factories abide by
Primark’s “Code of Conduct”. Continuous audits are schemed through the ethical trading
group of the Company while the suppliers are briefed beforehand. On the basis of the audit
reports, corrective measures are incorporated through audit action plans. Certainly, Primark’s
auditing system complies with the Stakeholder theory as the auditing system is formulated to
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maintain ethics. Again on the contrary, it is also connected with the Resource Dependence
theory as it ultimately influences the ethical procurement of labour as well as raw materials
for external resources (Shah, 2014).
Leadership or Board of directors
According to Solomon, (2010) the definition of a successful enterprise lies in governing the
enterprise effectively while recognizing the enterprise’s board as the heart of the company.
The board plays a significant part in executing effective leadership, setting strategies,
determining the main stakeholders and aligning the firm’s objectives to that of the workers.
On the contrary, the Agency Theory of Jensen and Meckling (1976), is based upon two key
factors which are the principal and the agent. In this context, the shareholders are the
principal whereas the directors or the management is the agent. The shareholders are known
to invest money while the directors utilize the money in conducting the operational activities
of the firm. There are also places where certain discrepancies might arise such as the actions
incorporated by the management at the cost of the shareholders pertaining to aspects such as
increment of payment, meeting targets, promotion and others. Nonetheless it leads to 3
significant problems which are the separation of control, and ownership, differences in the
goals set by the management as well as the shareholders and the flow of asymmetric
information (Salvioni & Astori, 2015).
It is noted that Primark employs a handful of board of directors. There is chairman, finance
director, chief executive, non-executive director there are also independent non-executive
directors while the main shareholder of the company is AB Foods. Primark’s chairman,
Charles Sinclair states that he looks forward in instilling great corporate governance to ensure
the sustainability and the success of the firm (Fienhold, 2014). He further added effective
corporate governance requires great leadership skills which can be traced within the structure
and the formation of the board as mostly all the directors do possess an international work
background. During May, 2014 certain changes were introduced by the Financial Conduct
Authority concerning the listing regime in order to boost and magnify the “minority
shareholder protection”. Therefore all the above aspects indicate the successful applications
of the agency theory pertaining to corporate governance and the board of directors (Littler,
2011).
The above issues to the case exhibits that Primark tried to maintain ethical consistency with
the theories and the legal standards.
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References
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Salvioni, D. M., & Astori, R. (2015). Sustainable development and global responsibility in
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