Building regulator allowed Cullen Group to keep trading after it defaulted on debt
This article was obtained from ABC news and was dated the 28th November 2018. The article outlines that the Queensland Building and Construction Commission (QBCC) was advised of a default judgement against Cullen Group in March 2016. The QBCC had made no changes to the company’s licence and later that year Cullen Group was forced into insolvency.
In addition, the author outlines that QBCC felt that the default judgement was not significant enough to change the licencing conditions of Cullen Group. It is understood that just before the collapse of Cullen group, the operations manager was appointed director of a new company Onpoint Constructions Pty Ltd. The Building and construction industry have seen a significantincrease in phoenix activity and it is believed the increase is due to the regulation of the industry.
It is clear from reading the article that there is not one clear ethical issue. It was identified that the ethical issue consisted of corporatesocial responsibility, decision making issues and corporate culture within the organisation. Cullen group had made commitments to projects that they were not able to sustain andthat would be considered beyond their financial capacity. Cullen Group’s actions to “commit itself to 43 million worth of new projects with a bank overdraft of only 2 million” had no consideration of their impact on the creditors or the community.
Cullen Group’s actions were self-directed, and it appears they attempted to “trade out” of financial trouble, with no threat of liability for insolvent trading due to safe harbour provisions. In this instance, Cullen group was only concerned with their short-term financial gain at the expense and detriment of others. Directors of organisations have a positive duty to prevent and understand the clear signs of insolvency and company’s financial position. It is visible that the financial position of the company was questionable when they were unable to pay creditors six months before being forced into liquidation.
It is evident that Cullen group was trading whilst insolvent and continued to trade with knowledge that creditors wouldn’t be paid for work they were engaged to do. In addition, Cullen Group’s operation manager “being appointed as director of Onpoint construction” possess a question of illegal phoenix trading. Illegal Phoenix activity is the attempt to create a new company and continue the business of the previous company that have been liquidated to avoid paying the debts.Illegal phoenix activity is against all moral expectations of honesty, integrity and trust it also exhibits behaviour that is fraudulent in attempt to defraud creditors.
In conjunction, the regulating body QBCC had made no changes to the company’s licence and trading rights after being alerted about the default judgement, this consequentially had further financial impact on sub-contractors and companies working for Cullen Group. The QBCC had the obligation as a regulating body to further protect subcontractors and creditors from risk by establishing a thorough investigation into the matter. This was an opportunity for the QBCC to make an example of Cullen Group further deterring other construction companies from continuing to trade whilst insolvent. As it currently stands, the construction industry has a high number of corporate insolvency events, considering this, the QBCC should have greater insight to the warning signs within the industry.
It is clear that the company’s actions were self-directed to avoid liquidation with the hope to “trade out” of insolvency. These actions coincide with philosophy egoism, which defines right or acceptable actions to maximise a person’s self-interest.Debeljak (2008), states that egoism theory defines that an individual’s actions are “hard wired” to be selfish and act in ways that are self-serving. Cullen Group felt the financial pressure and continued to engage subcontractors with the hope to improve the financial position of the company and therefore the director withoutconsidering the financial impact and long-term consequences. This type of direction is based on the directors and employees within the company making unethical decisions. They clearly valued the short-term needs of the organisation overriding the lack of empathy and consideration for those who were never going to be paid.
Further to this, it is evident that Cullen group should adapt a deontology approach to ethics within the organisation. This theory focuses refers to rights of individuals and the intentions that are associated with a particular behaviour rather than on its consequences. Kocyigit and Karadag (2016), define this approach as presuming that there are duties that need to be fulfilled and people act in such a way that is reasonable and responsible. Unlike other theories, deontology approach to ethics are considered to have objectivity and intrinsic value. Kocyigit and Karadag (2016). Having this ethical approach would assist Cullen Group in taking further responsibly whilst acting in a reasonable, fair and equitable way.
Unfortunately, the actions of Cullen grouphave affected both the primary and secondary stakeholders. A stakeholder is a group, individual or organisation that has a stake or claim in some aspects of a organisations company, operations, markets or outcomes. In this article the stakeholders who would be considered to be impacted to the actions of Cullen Group would be the primary stakeholders this consists of the suppliers, customers, employees, shareholders and the QBCC. The relationship between Cullen group and their primary stakeholders should have mutual expectations built on trust and fair dealing. The impact on the stakeholders of Cullen Group would consist of loss of income, potential closure and uncertainty of job security.
The first area that the directors of Cullen group would need to address would be its ability to have an effective corporate social responsibility program and risk management strategy. Corporate social responsibility covers the relationship between organisations and the society which they both interact (Kuriyan, 2012). It is perceived to be the responsibilities that are inherent on both sides of the relationship, guiding an organisation to operate both ethically and responsibly. It is important for organisations to continually devote their resources and time to corporate social responsibility. This includes going above the legal requirements and determining an appropriate level of CSR investment within the organisation.
Corporate culture is also identified as an area that needs to be assessed within Cullen group. With the clear unethical decisions that had been made within the group the corporate culture has had significant influence on employees and their ethical conscience. Corporate culture is defined as the set of values, beliefs and behaviour in which an organisation perpetuates themselves (Wilhelm, 1992). Cullen group would need to create a culture that defines clear expectations on ethical decision making with the reinforcement of behaviour and desired results, this would assist the organisation in rebuilding the ethical standards. The purpose of implementing a corporate culture that reflects the ethical standards of the organisation is to rebuild the relationships with stakeholders and to help change the current views of the organisation.
The organization is facing an ethical issue while considering the Utilitarian ethical theory as the model focuses more on the activities that produce greater wellbeing for huge number of people. The ethical theory justified the activities that might be undertaken by the organization in relation to the understanding of the common good. As per the case, Cullen Group could have utilized the theory in order to respond to the welfare of the creditors and the different stakeholders through making the same aware of the financial state. The identification of the ethical theory would be helping the organization in upholding the proficiency of the operations that are undertaken by the same. The thorough understanding of the utilitarian ethics would have helped the organization in undertaking suitable decision making models in order to facilitate the sustenance of the enterprise.
The organization was well aware that they would not be able to pay the stakeholders for the labour they invested on the firm’s operations. However, the organization kept the financial position confidential in order to maintain the smooth functioning of the same with enhanced profitability. Therefore, it affected the CSR initiatives of the business, which resulted to a degradation of its brand image. On the other hand, the activities of the organization also portrayed a disobedience to the utilitarian theory of ethics that focused on the common good of the people associated with the organization. Therefore, the organization could have taken steps to enclose all information with the stakeholders and thereby motivate the same in order to undertake the smooth functioning of the processes. The smooth functioning of the motivated workforce would have helped the business in upholding the social, economic and environmental sustenance through the ethical considerations.
The different changes in the corporate culture of the organization affected the business model of the same while operating on the varied objectives. The identification of the ethical considerations would have helped the organization in boosting the sustenance of the same. The identification of the ethical consideration would have helped the concerned organization in maintaining the efficacy of their operations as per the ethical considerations of the same.The CSR of organizations imply the responsibilities and commitment that are held by the same towards the stakeholders. In this regards, the identification of the utilitarian theory could have helped the management in judging the different activities and thereby support the decision making functions of the same.
The organization could have undertaken an effective communication with the stakeholders of the same in order to maximize the engagement of the stakeholders in the sustainable approach of the business. On the other hand, the management of the business could have undertaken a long term planning initiative in order to enhance the operations of the same as per the supportive needs of the stakeholders. The Utilitarian concept would have helped the organization in understanding the stakeholder- related view in order to facilitate ethical functioning of the enterprise. Organizations design the operations of the same correlating to the needs of the stakeholders. The stakeholder related approach of the organization helps the same in maintaining the efficacy of the operations of the same while operating in diverse international markets.
The delineation of the ethical theory could have helped the organization in framing the activities of the same as per the understanding of the concerns of the stakeholders. The concerned organization did not reveal the financial position of the same, which affected the interests of the stakeholders along with the insolvency of the enterprise. It has affected the ethical considerations that should have been undertaken by organizations while operating in diverse international markets. The enhancements in the decision making models of the organization would have helped the sam4e in maintaining the efficacy of the operations while upholding the concerns of safeguarding the interests of the people. The organizations are responsible for the design of the processes as it helps the same in integrating the operations of the stakeholders as per the objectives of upholding sustenance. However, due to lack of suitable communication with the stakeholders the organizational operations were affected through inefficient collaborative practices. On the other hand, the lack of suitable communication with the stakeholders on the financial position of the business affected the trustworthiness and brand image of the business. Therefore, the organization could have taken steps to build on the communicability of the same in order to avoid the insolvency and thereby promote a collaborative approach in the workforce. It would have helped the organization in establishing ethical practices to support the sustenance of the same. On the other hand, the organization could have undertaken meetings with the stakeholders in order to strengthen the decision making capabilities of the same in order to support the contingency that is faced by the same.
This article was obtained from ABC news and was dated the 22nd November 2018. The article outlines a class action between ISGM, a workforce management company and the subcontractors who were engaged by the company. The subcontractors engaged by ISGM should have been legally treated as employees, therefore being entitled to a wage, annual leave, long-service leave and other allowances. Consequentially, many of the workers feel exploited and both financially and personally devasted by the events.
The author advises that ISGM had an annual turnover of $650 million last year and this was due to the exploitation of their workers. The article also outlines that ISGM took advantage of young workers and their vulnerability. When employees are expected to accept less money and entitlements than they are rightfully owed then they are clearly vulnerable to the coercive power used by ISGM. This has not only involved disadvantage, but unfair disadvantage to each individual employee and the workers who had been exploited for the advantage of the company.
The rights and entitlements of employees and subcontractors are very different and there are a number of factors to distinguish the difference between the two. ISGM had the obligation to determine the real nature of the employment relationship and the various rights of the employees that had been engaged. The Fair Work Act (2009), protects genuine employees from what would be considered an independent contract agreement, this act clearly stipulates the employer’s obligations when establishing an employment relationship. The actions of ISGM pose an ethical issue in regard to labour rights and sham contracting.
Sham contracting is becoming increasingly common, representing someone as an independent contractor when they should be an employee is unlawful and therefore unethical business practice. In this case ISGM has failed to make the proper assessment and the comprehensive analysis when engaging the workers. It is understood that ISGM exercised total control over the employment of the workers, this included where they worked, the clothes they wore, the branding on their privately-owned vehicles and the methods of work they were required to follow. In addition, the hours were also controlled by ISGM and a computer dictated to the employees when to start and finish for the day.
It is equally important for organisations to maintain corporate social responsibility to act ethically and responsibly within the community. Corporate Social responsibility plays a significant role in an organisation to ensure businesses ultimately respond to business pressures ethically. In addition, the notion of human development as corporate social responsibility is becoming increasingly important to act responsibly towards the vulnerable (Renouard&Ezvan,2018). CSR processes within the organisation should produce and positive impact on both employees and the local community at large. As people trust in business and its processes it is important that they maintain the highest standards of ethical conduct.
It is evident that the employee’s basic entitlements and rights were avoided in attempt to cut costs and raise profits for the organisation.ISGM’s actions would be considered self-directed whereby profits came at the expense of exploiting vulnerable and young employees.
When ISGM acted in an unethical way, they risked stakeholders interests. A stakeholder is any group or individual who is affected by the achievement of organisational objectives.
Renouard&Ezvan (2018), state that organisations have powers that are pertinent to the allocation of responsibilities, this power should be controlled to ensure that organisations protect and contribute positively to stakeholders quality of life.
In order to reconcile the ethical issues outline in the article ISGM should adopt an risk management process when engaging workers through what would be considered a non-traditional arrangement. Initially, it would be recommended that ISGM identify the source of the unethical behaviour and understand why the decisions were made in the first place.
As it is universally known that businesses must be ethically correct in order to be accepted by the targeted customer base, yet entrepreneurs, most of the time gives more priority to profitability and increased revenue. In this due course they do not pay serious attention to employee wellbeing through benefits and compensation packages. As per the recorded complaint by employees, the telecommunication company of Australia, ISGM, has not been fair to the subcontractors as they have been exploited for generating profit without any real financial or personal benefit.
The company tried to work for their business goals and for that they have been appreciated highly. However, a protesting workforce reveals their unethical practices. Businesses needs to maintain ethical boundaries to comply with corporate sustainability norms as well. Investigation suggests violation of ethics happened when the company engaged itself in cutting cost and raising profit by avoiding deserving amount and agreement which was supposed to be given to the workers. After all, without their effort company would have never achieve such a benefit.
Therefore, it can be stated in this context that while taking decision in the first place, the company must have been acknowledged the deontological theory of ethics. According to this concept, “human beings should be treated with dignity and respected because they have rights”. This means every individual on this planet irrespective of any situation must treat people and their rights with respect. In this case of ISGM, they have ignored the stakeholders’ interest and exploited their rights. In this course, they may have generated increased profit yet their relationship with employees deteriorated and questions the sustainability of business in future. As directed by the theories this would lead to workplace conflict like it has raised in real situation as well as there were no such employee principals regarding work pressure and non-flexible shift timings were there. The consequences in terms of profit was good yet a result of unethical decision and it has been achieved through exploitation. This theory does not address the areas of where decisions must be made in a situation of conflict.
However, in spite of these challenges it can be said that if the organisation has consulted this ethical theory before treating wrongly with the workforce, they might be able to learn the concept of developing a healthy public relations maintaining both the profitability and sustainability of business. Based on this theory business practitioners can explore the areas of justification for the decisions they take every day. This theory can help to improve moral behaviour while taking such decisions. The organisation must have realized in the first place that employees are more important resource than financial strength. The profitability is not about one year, it is an increasing process, if employees are not satisfied with the company morale, and then in future there will be lack of resources to sustain the revenue. Identifying the individual duty managers must have been acted accordingly based on this theory to achieve successful consequences in terms of respecting employee rights. This has been proved as the most reliable ethical model for maintaining public relations. However, while applying this theory disagreement may happen among managers as organisations’ profitability always has been considered as first priority. By considering this theory if employees were treated rightfully may be the desired organisational goals were not achieved as per marketers’ perception.
As a result of employee dissatisfaction, the organisation may face high rate of voluntary employee turnover which will be huge risk for the companies dealing with large financial figures. Therefore, the company must have aim of developing themselves as exemplary, which is they must maintain high ethical standard and low employee turnover or less occurrence of conflict. Acknowledging the ongoing ethical issue related conflict, the company must maintain regular communication with employees and contractors or sub-contractors; to make them aware of ethical standard and perceived workplace environment to retain skilled employees. Employees should be provided with adequate policy papers, deserved salary and respect in order to establish relationship of mutual trust and dependency.
In case, management processes are faulty, employees can initiate practicing unethical activities as well. A company must help employees to achieve their desired place and respect in order to gain positive results from their efforts. On the contrary, it can be argued ISGM has exploited to achieve the desired outcome. Under such a situation, employees believe to leave the organisation if they face misbehaviour from immediate supervisor. Even as it has been observed in this case too, relationship with direct managers regarding agreement non-flexibility of working hour and low wages have made the employee dissatisfied and exploited. At first, managers must acknowledge their effort and appreciate them for achieving the desired outcome. Without delivering the sense of exploitation the same result can be accomplished if the relationship is healthy and motivating. Therefore, suggestion is to create a better workplace environment, addressing employee rights before intentions of profit if the [purpose is to sustain longer in such a competitive business environment.
References
Building regulator allowed Cullen Group to keep trading after it defaulted on debt. (n.d.). ABC Premium News.
Debeljak, J (2008). “Me, myself & I”: practical egoism, selfishness, self-interest and business ethics. Social Responsibility Journal, (1/2), 217. https://doi.org/10.1108/17471110810856974
Koçyigit, M., & Karadag E. (2016). Developing an Ethical Tendencies Scale Based on the Theories of Ethics. Turkish Journal of Business Ethics, 9(2), 297–307. https://doi.org/10.12711/tjbe.2016.9.0016
Kuriyan, G. (2012). Social Responsibility of Business, Business Ethics and Corporate Governance – Need for a Unified Approach. Rajagiri Journal of Social Development, 4(1), 11–30.
Renouard, C., &Ezvan, C. (2018). Corporate Social Responsibility towards Human Development: A Capabilities Framework. Business Ethics: A European Review, 27(2), 144–155.
Wilhelm, W. (1992). Changing Corporate Culture: Or Corporate Behavior? How to Change Your Company. The Executive, (4), 72
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