Negative Influences on McDonald’s Reputation

Introduction

McDonald’s is one of the largest fast food restaurant chains with franchising more than 36,000 restaurants around the world. It was founded in 1955 by Ray Kroc in San Bernardino, California, the United States and currently keep expanding its restaurant to all areas in over 100 countries. McDonald’s offers various kinds of menu, depending on the staple food in a country. For example, in several Asian countries, such as China, Thailand and Indonesia, McDonald’s offers fried chicken and rice in order to draw the more potential buyer in those countries. However, the main menus that it provides in each country are hamburger, soft drinks and french fries which are the most famous because of the quality and low prices.

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Despite the success, McDonald’s is still facing issues that affect its business operation. The problems may adversely influence McDonald’s income and image, especially to the stakeholders. The first issue is related to McDonald’s sustainable supply chain, when food safety scandal happened in 2014 in China. The supplier was accused of supplying expired meat. The second issue is related to modern slavery in management. There are several articles discussed low wages for the workers and led a difficulty to find enough workers. The last issue is related to gender and sustainability when sexual harassment scandal and discrimination appeared within McDonald’s business operation.

The objectives of this essay are to elaborate the issues happened, as well as the company’s and the stakeholder’s reactions towards the problems. Another aim was to analyse the issues with relevant theories from journals or articles and finally would be able to recommend to avoid and overcome the obstacles in the future.

Analysis

Sustainable Global Supply Chain

In July 2014, there was a food safety scandal which damaged McDonald’s reputation in China. Shanghai Husi Food, Co., Ltd., who supplied chicken and beef to McDonald’s, Yum Brands, KFC, Burger King, Papa John’s, Starbucks and Pizza Hut, was accused due to re-labelling or re-packaging expiry date of chicken and beef. In fact, the meats were one-year expired and were still being sold to several restaurants, including McDonald’s (Filloon, 2016). Shanghai Husi Food was suspended by health authorities and had been fined more than $3.6 million (Reuters, 2016). Also, ten employees of Shanghai Husi Food, who was involved in selling the expired meats to restaurants, were handed down prison sentences of up to three years (Filloon, 2016).

This scandal damaged McDonald’s reputation not only regionally in China, but also globally. After the scandal, McDonald’s global monthly sales fell by 2.5% and became the worst performance of the hamburger’s chain in the past ten years (Chibber, 2014). The drop was led globally by Asia, the Middle East and Africa countries which contribute 23% of net revenue. Moreover, McDonald’s had been facing five temporary shutdowns by food safety watchdog in Russia (Forbes, 2014). Not only specifically in Russia, but the supply chain problem within the operation also happened in Japan and Hongkong. Since McDonald’s in Japan and Hongkong bought the chicken product from the similar supplier, Shanghai Husi Food, the management had difficulties to cover the demand from customers. McDonald’s in Japan decided to buy chicken from another supplier from Thailand, whereas McDonald’s in Hong Kong took the chicken nuggets and chicken burger off from the menu (The Guardian, 2014). Overall, this scandal led significant influences not only to McDonald’s but also to another fast food restaurant, so they had to decide to overcome the bad reputation.

One of the restaurants, Yum Brands, has discontinued its operation with Shanghai Husi Food. In contrast, McDonald’s in China decided to keep continuing its 50-year-long business by changing to another plant in Henan Province, which still owned by Shanghai Husi Food’s parent company, OSI. McDonald’s still believes that the quality of meat is better than the local suppliers and keeps striving to ensure the quality, especially about the expiry date (Forbes, 2014).

Based on the scandal, McDonald’s may fail to achieve a sustainable global supply chain, regarding the negative impact in several countries. Moreover, according to Pedersen (2009), company which operate in emerging Asia-Pacific economies such as China, India and Vietnam may have less certain supplier compliance. This also may lead to more supply chain risks than other developed countries. It is clear that McDonald’s should retain its sustainable supply chain. Sustainability means that a company has achieved “a triple bottom line”, such as economic prosperity, environmental quality and social quality. Yu and Tseng (2014) also define sustainable supply chain as the management of material, information and capital flows, by companies cooperating along the supply chain. Sustainability also may emphasise the objectives on social responsibilities to employees, customers, suppliers, and community (Pedersen, 2009).

To be sustainable, in terms of economic prosperity, a company has to retain its supply chain process to produce a good quality product as well as sustainable income. Supplier selection plays a significant role to achieve a sustainable supply chain, also supported with quality audits, sustainability standards, and evaluation process. In the same vein, Luthra et al. (2017) also argue that managing supplier selection and proper implementation is significant to support a company’s validity and public image in an industry (Bai and Sarkins, 2010). Thus, if a company should manage the supplier selection properly which could help its business to achieve maximum economic benefits or economically sustainable (Kannan et al., 2014).

Based on literature reviews above, McDonald’s should more pay attention in evaluating and controlling the supplier process. For example, McDonald’s could settle sustainable global standards for its suppliers around the world. Regarding more supplier risks in Asia countries, the company could conduct regular evaluation and audit to control the quality of meats which the suppliers sell. These alternatives would avoid the scandal in the future as well as retain good cooperation with the current suppliers.

Furthermore, since the scandal adversely influenced McDonald’s reputation globally, the company should take a transparent action to get the trust back from customer or public about the meat quality. Even though reputational problems do not recover easily, McDonald’s should keep sending messages to the public that it would guarantee the meat quality, of course with the proper procedures (New, 2015). It may need a long time to mend the image, but as long as McDonald’s is consistent to be transparent, the public would notice and change their minds regarding the scandal.

Modern Slavery in Management

The second issue which McDonald’s faces is the low pay workers in England. The workers voted to strike a higher pay and zero-hours concerns (The Guardian, 2017). They were demanding at least GBP10 an hour and more secure working hours. Currently, the UK national living wage is GBP7.5 an hour, but it is lower than McDonald’s wage rate in the US which is USD15 or equals GBP11.65. In responding to the protest, McDonald’s in the UK announced in April 2017 that workers would be offered a choice of flexible or fixed contracts with the hourly pay increase 17%.

Unfortunately, the situation in the UK was not the same as it happened in the United States. Demonstrations also occurred by the 100 cooks and cashiers at the headquarters of McDonald’s in Chicago, the United States. They fought for the higher wages that the company had already promised in 2015. The promise is to pay the workers at least one dollar more than local minimum wages. However, that promise is not fulfilled until this year. In April 2018, several workers revealed pay rates are much lower than the company’s one-dollar-above promise (Madrid, 2018). Furthermore, only workers at corporate-owned locations obtained the raise, whereas the workers at franchisees were not required the rise of wages. As a matter of fact, there are just 10% of 14,000 McDonald’s locations in the United States that are owned by the corporation and the rest of restaurants are a franchise that they have their own worker problems and can make their own decision to solve the problems.

According to Madrid (2018), from the annual meeting, shareholders, as well as executives, fail to deal with the workers’ pay. Also, at the annual shareholder’s meeting 2018, there was no agenda to respond to the demonstrations. The schedule just discussed the elections of the board of directors, approval of new executive compensation packages, and votes on other shareholder proposals (Madrid, 2018).

It is clear that McDonald’s executives and shareholders in the United States have not concerned yet about the workers’ demand. According to UBS analyst, Dennis Geiger argued that labour is one of the most important concerns for the restaurant industry (Taylor, 2018). According to Craver (2016), this low wage issue, which is common in larger companies in the US, was caused by two factors: economics and politics. In terms of the economic factor, US unemployment rate has declined 4.1% in 2018; fast-food chains are struggling to hire and retain workers (Taylor, 2018). Craver (2016) mentioned that low national unemployment rate in the US leads employers to find it harder to recruit and workers with low pay. This also means that workers have choices to move to other companies that well-suited for them or could offer higher wages and benefits. Moreover, according to Glassdoor (2018), McDonald’s employee satisfaction was poorly rated, followed by other fast food companies, such as Dunkin’ Donuts, Wendy’s and KFC.

Secondly, in terms of political factor, there is no strict wage regulation control in every cities or state in the US. For instance, even though the national government has stated the minimum wage as high as USD15, there are still several areas or cities operating under the minimum wage (Craver, 2016). Larger companies would surely intend to set their own wage rates in those areas before the local governments are noticed and convinced by the national government to establish a higher rate. The companies could see the opportunities to pay the workers with low pay when the political environment is not strict to the regulation.

According to stakeholder theory by Freeman (2012), workers are one of the most critical stakeholders who directly impact a company’s business operation. To be able to achieve a successful business, maintaining a good relationship with workers is essential because business operation depends on the worker’s performance and contribution. Besides, Calnan (2016) mentioned that it is going to be difficult for employers to engage with the employee if the pay is too low. It is clear that companies should concern about the worker’s welfare to get their best performance that helps them to achieve business goals. Thus, maintaining workers’ satisfaction and ensuring workers’ welfare are crucial, obviously through the wage packages; otherwise McDonald’s could struggle to find enough workers to help McDonald’s keep serving good services to its customers. In the context of the issue in the United States, McDonald’s could be fair to pay workers with national minimum wage rate or give other benefits that could maximise their welfare as well. It could be any benefits such as health or vouchers, as long as can make employees feel valued and appreciated.

Gender and Ethics

The protest from the workers reflects McDonald’s last issue due to sexual harassment. The protest is led by the experience of ten current and former female McDonald’s employees from nine different cities in the United States who have taken legal action for the harassment by other workers and managers. The workers sent messages about an atmosphere of sexual harassment within McDonald’s activity should not be tolerated. They moved the protest to speak out that McDonald’s is not doing enough to prevent harassment (Elsesser, 2018). Since 2016, more than 20 McDonald’s workers have filed complaints with the US National Labor Relations Board, giving reports of harassment were ignored, mocked, or met with retaliation (BBC News, 2018). One of the victims is a 15-year-old girl who explained her experience of sexual harassment in the restaurant by another older male worker. Then she reported the incident to the manager, and she got no response from him.

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Moreover, most of the female workers described that they tend to be silent about the sexual harassing behaviour than report it to the manager because they are afraid to be ignored and even lose their jobs (Elsesser, 2018). The female workers feel that they do not have much power to speak up as well as do not feel secure in working in the restaurants. Responding to these protest and complaints, McDonald’s spokeswoman, Andrea Abate, confirmed that the company have policies, procedures and training in place that are specifically designed to prevent sexual harassment (BBC News, 2018). However, until now, there is no announcement or clarification by McDonald’s to respond and solve the sexual harassment incidents that came up from the demonstration.

The common issue in several larger companies that similarly happened in McDonald’s is men do something sexually harassing, either in verbal or physic. According to Dawson (1995) in his research, females will be more ethical in the workplace. Women may more concern about morality and ethics compared to men. This is caused by men’s more significant interest in a competitive success that may cause them to be less ethical. On the other hand, women’s concern for relationships with people leads to more ethical behaviour. However, this different behaviour should not be an excuse for men can do anything harassing to women, especially at the workplace. The company has the primary role to prevent the harassment as well as to guarantee securities for all female workers.

Training about ethics and gender equality should be fully delivered to all workers, either male or female workers, also managers or workers. It could reduce the different ethical behaviour between male or female workers so that McDonald’s could create a respectful environment and ethical culture at all restaurants. Roxas and Stoneback (2004) argue that the more understanding about the relationship between gender and ethics, the better chance of education and training programs will be designed to improve ethical awareness and sensitivity. This means that the people in all positions of McDonald’s have to comprehend ethical behaviour in business, principally the people who are responsible for designing the training. As a result, they could ensure the ethical behaviour, mainly about gender and equality, could be understood and implemented by all workers. McCabe et al. (2006) suggested recommendations about building an ethical organisational culture. The main point of the training is not the difference between ethical or unethical behaviour, but it is a commitment to respect each other and sense of fairness.

McDonald’s still needs to respond to harassing incidents by action, not only at its own restaurants but also at its franchises. First, McDonald’s should send a message about gender equality and ethics to all workers that reducing harassment is the company’s main commitment and involve all the employees at the restaurants. After sending messages, strategies, such as training or workshops, to prevent sexual harassment should be established and addressed to all franchises which are 90% of total restaurants in the United States.

Conversely, McDonald’s may face difficulties in building ethical behaviour to reduce sexual harassment, such as time and costs. To address values through the training or workshops to all McDonald’s workers in the US is surely not that simple. It surely needs extra costs and a longer time. However, it would also generate economic benefits in the future. As already explained before, workers are one of the direct stakeholders in a business, so their contribution could significantly affect the company’s performances. If all the female workers feel secure to work in McDonald’s restaurants, they will perform well to serve the customers and finally, McDonald’s can get customer satisfaction based on the workers’ performances.

Conclusion

McDonald’s is one of the fast food larger companies from the United States. It has been growing since 1955 until now and keep expanding its restaurants to all areas worldwide. Despite the success, McDonald’s is still facing several problems within the business process. The first problem is related to a sustainable global supply chain, which happened in 2013. There was a food safety scandal in China because of the supplier’s misguided. The supplier, Shanghai Husi Food, was accused due to relabeling or repackaging the chicken and beef to a new expiry date. In fact, the meats were one-year expired, and the supplier kept selling them to several fast food restaurants, such as McDonald’s, KFC, and Starbucks. In the end, the supplier was fined by health authorities and the employees, who have involved the scandal, were handed down prison sentences of up to three years.

As a consequence, McDonald’s had a bad reputation, not only in China but also to several countries such as Russia, Japan and Hong Kong. Moreover, the monthly sales dropped after the incidents and became the worst performance in the last decade. From the scandal, McDonald’s fail to manage its sustainable supply chain. Pedersen (2009) describes sustainability as an achievement of “triple bottom line”, such as economic prosperity, environmental quality and social quality. McDonald’s did not succeed the economic sustainability due to lack of meat control from the supplier. McDonald’s should consider the process of supplier selection that helps to manage a sustainable supply chain. Also, McDonald’s could conduct regular evaluation and audit to control the quality of meats which the suppliers sell. Finally, McDonald’s has to overcome the bad reputation through the transparent action to get the trust back from the public around the world.

The second issue is related to modern slavery in management, which happened recently in the UK and US. The demonstration occurred by the workers to strike their demands of a higher wage rate. In the UK, workers wanted to get paid as high as the worker in the US. McDonald’s in the UK responded and finally announced that the workers would be paid with 17% above the current rate.

However, this unlikely happened in the US because the executive and shareholders did not seem aware and respond to the demonstration. The increasing rate might occur in several restaurants that company own. Therefore, for most restaurants that are owned by franchisees, has not increased the wage rate. If the workers are not satisfied with the pay and walk out of the restaurant, McDonald’s could face another problem, which is a difficulty to get enough workers. Since the national unemployment rate in the US was declining, workers have chances to find another company that can offer a higher rate. McDonald’s should consider a higher rate or another benefit that could support workers’ welfare as well as make them feel more appreciated. As a result, McDonald’s would be able to retain the workers and get the excellent performance from the workers.

The last issue is related to gender and ethics, which also happened in the US. The workers held a demonstration and insisted McDonald’s respond the sexual harassment incident at several restaurants. They thought that McDonald’s had not done much to solve the incident. A 15-year-old female worker confirmed that she was ignored by her manager when she reported the sexual harassment by another older male worker. McDonald’s should respond to this incident by building a more ethical behaviour in the business in every restaurant in the US, especially at the franchise restaurants. The ethical behaviour should be delivered to all employees or workers in every position within the McDonald’s. It is crucial for the social as well as economic sustainability of McDonald’s business in the future.

 

References

 

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