Corporate Governance And Ethics Behavior In Fair Trade

Activities of Fair Trade

Discuss about the Corporate Government and Ethics Behavior.

Fair trade has emerged as a movement for supporting ethical behavior in consumer decision making. The gradual expansion of the fair trade markets has created substantial pitfalls for the business community in terms of realizing the ethical practices. The proliferation of demand for fair trade concept could be validated by the different factors such as the preference of companies to commit to a specific cause for a substantial period of time and acquiring a better image through attempts for contribution to the society. The larger part of fair trade agreements were therefore dependent on cause-based marketing which indicated references to the social responsibilities of organizations (Hoffman, Frederick & Schwartz, 2014). The use of fair-trade movement has been established as a commercial brand and is associated with the image which reflects that fair-trade consumers are liable to provide underlying contributions such as financial aid to poor farmers in the developing nations and providing a fair price to the producers. Basically, Fairtrade provides certification for products acquired from foreign sources such as coffee, bananas, gold and cotton and especially those which are associated with a particular cause (Matten, 2015). This example can be perceived in the case of African cotton which is helpful for obtaining financial assistance for the underpaid native cotton farmers. The contributions of fair-trade are noticed in the rescue of the farmers from the clutches of poverty. However debates pertaining to ethical consumerism have indicated that if the objective of Fairtrade is to provide assistance to the producer community then the premium for the producers must be increased by paying a fair price to the producers. Therefore, the ethical issues associated with fair-trade are found out to be largely associated with the concerns of consumers towards environmental and social causes and the increasing demand of modern concepts such as collaborative consumption (Nica, 2013). The profound ethical issues associated with fair-trade could be categorized into two sections which are unfair trading and the impact of diverting financial as well as physical resources from less developed nations to relatively affluent nations. The consideration of the ethical issues has also been referred in multiple contexts in various research works. For example, the ethical consideration pertaining to the additional money paid by customers for fair-trade products is indicative of the suggestion that whether the provision of additional price being acquired by fair-trade is viable. Furthermore, the probabilities of the additional money being used by fair-trade for the benefit of producers also comes under question as it attempts to realize another profound aspect of ethical behavior in the practices of fair-trade. The unfair trading component also needs to be reviewed in context of the dilemma pertaining to ethical concerns of business organizations and the use of fair-trade practices (Weber & Wasieleski, 2013). The ethical issues pertaining to the implementation of fair-trade on a global platform have been discussed in the following sections of the report along with clear indications to the recommendations which have been derived for catering the various requirements of the society as well as the industry standards.

Ethical Criteria for Fair Trade

The concept of Fairtrade has been favored by varying echelons of the society and it has the support of people from all facets of society ranging from the grassroots till bureaucratic levels. The validation of the brand of fair-trade on a global level has been considered from distinct facets of business environment which indicate contributions in the form of financial resources, time and provision of flexible opportunities for trading. Many private firms, individuals and government agencies are gradually becoming interested in the concept of fair-trade and hence the demand for the concept can be appropriately understood (Clarke & Bassell, 2013). The owners of the Fairtrade Foundation permit companies in affluent nations to utilize the brand name of the organization alongside their own brands in return for a certain amount of fee. Generally, the organization gathers maximum share of its revenue from this type of fee and the other aids are obtained from government donations and grants. Fair-trade is supposed to divert the additional license income acquired from brands to the producers in developing nations. However, the license income is largely utilized for promotion of the brand which could create substantial issues related to the ethical concerns of Fairtrade (Idowu, Capaldi & Zu, 2013). Derivation of higher margins and substantiating the image of retailers as supportive of global concerns could be assumed as profound elements included in the emphasis of the practices in fair-trade on organization and industry oriented benefits rather than realizing any promising outcomes for farmers and suppliers (Gao &Hafsi, 2015). The various routes through which money has to pass through in order to reach the final objective of benefiting farmers has been observed in fair-trade as the added costs of cooperatives, expenses on social projects and premiums for fair-trade producers and farmers. Therefore the necessity of apprehending ethical criteria for the activities of fair-trade has been established in context of organizations adopting association with fair-trade certification and the prospects for fair-trade to excel in future market environments (Knudsen, Moon & Slager, 2015). Ethical criteria have to be fulfilled in case of fair-trade because the key objective of the fair-trade concept is centered on the objective of providing a substantial advantage to producers in developing nations and increasing the market value propositions for products of native origin.

It would be appropriate to consider that Fair trade is a concept which is meant for the ethical well being of customers, industry, groups, individuals and organizations on a larger basis. The foundation for the fair-trade mode of certification of products and the increasing perception of business organizations towards the fair trade practice has created questions which pertain to the development of better returns for producers and thereby widening the scope for prospects of sustainability in complex changing environments. The study of distribution of the wealth among the producer communities belonging to the third world as per the fair trade practices would indicate a brief overview of the ethical criteria which are mandatory for the organizations adopting fair-trade practices (Swanson & Frederick, 2016). Fair-trade certification is a compulsory requirement for suppliers of fair-trade certified products and they are generally members of cooperative agencies or plantation firms in many cases. The different entities of the local producers have to comply with certain political requisites such as the involvement of farmers, assembly and processing opportunities facilitated by primary cooperatives and the secondary agencies which have the authorization to export on behalf of the producers. The exporting cooperatives are liable to obtain an additional amount of money which is termed as social premium and these cooperatives provide the incentive to farmers. While some cooperatives tend to provide favorable incentives to farmers, some others could rely on malicious activities and thereby limit the financial returns for farmers (Soltani & Maupetit, 2015). Therefore, the evaluation of ethical criteria with respect to the fair-trade practices has to be presented in context of the interplay between consumer, cooperatives, importers, retailers, cafes and packers. The fair-trade foundation has expanded its support and therefore the ethical issues have to be addressed first with reference to increase in probabilities of destitution and death in event of diversion of resources and finances from poorer nations to more developed nations. The ethical concerns associated with fair-trade are derived from a utilitarian approach which applies resources which are capable of rendering maximum marginal utility. In case of the benefits of fair-trade to farmers, the ethical implication points out to the point of reference which determines the influence of loss of a particular amount of money to different individuals (Ntim & Soobaroyen, 2013). For example, the loss of five dollars would be inconsequential in a supermarket store while the same amount could be a relief for an individual looking to save his family from starvation. Secondly, the scope for unfair trading can also be considered as a prominent indication in the domain of corporate ethics. Unfair trading is realized when the producers or the marketers do not provide genuine information to customers and hence issues related to wrong customer decisions could lead to maligning of the image of the organization. Therefore unfair trading is accountable for changes in perception of customers about a product as well as organization. In case of fair-trade products, the organizations should not suppress evidence related to financial aid provided to the farmers and the ambiguities pertaining to the expenditure of the additional cost paid by customers (Doh, Husted & Yang, 2013). Customers are more likely to lose trust in the fair-trade movement if they discover that the additional amount paid by them is not being used for the intended purposes and if they find any hints that they are not being informed of the evidence related to use of the additional income gathered from fair-trade initiatives (Subramaniam, Kansal & Babu, 2015).

Violation of Ethics

The first concern is addressed by evaluating the amount which is provided to the exporting cooperative. Fair-trade does not have any profound legislation for determining the prices charged by exporters and cooperatives. Fair-trade does not have any monitoring or control framework for determining the extra cost charged for fair-trade products. It has been observed that retailers do not offer any reasonable opportunity to compare costs of fair-trade products and hence this can be accounted as an unethical behavior on behalf of retailers (Long, 2016). Therefore the extra price paid by customers is generally deviated towards the higher profits for organizations which are obtaining profits already and hence the scope of death and destitution aspect of ethical violation can be considered in case of fair-trade products. Fair-trade has established certain indications for importers to pay premium price, establish contracts on a long-term basis, provision of credit for prefinance and payment of minimum price established by Fairtrade.

Majority of pitfalls in the ethical context of fair-trade certification have been associated with the inability of fair-trade foundation to ensure standard monitoring and control frameworks which can ensure that the additional price of fair-trade products is delivered to the farmers and suppliers for whom the amount is intended. The dependency of fair-trade product sales on the value based marketing of the products is indicative of the requirement of drastic measures to address the ethical issues (Hasnas, 2013). First of all, fair-trade has to reform the strategic implementation of costs in the company as the additional price obtained from customers is invested in administration costs, costs of collection and higher profits in affluent nations. The emphasis of the foundation must be shifted towards one-time investments in profound standards for classification of criteria for pricing fair-trade products which could provide a viable approach to distribution of profits to farmers. Since the profits are not being appropriately administered to the farmers, unconventional methods such as guidelines for publishing account details in public could be a reasonable approach for identifying the observation of ethical standards by fair-trade certified brands (Chen et al, 2016). The initiatives for identifying the ethical pitfalls in terms of customer perception regarding the cause related increase in prices have to be executed in unison with development of remedial measures to resolve ethical issues observed in case of fair-trade.

The report emphasized on two prominent indicators of ethical violations in case of fair-trade. The movement is centered on the proliferation of ethical activities among organizations and hence the influence of ethical compliance in the domain of fair-trade certified products is imperatively observed. Considerable research in the domain of fair-trade has facilitated diverse implications towards the intensity of impact of ethical violation and hence future measures for tackling any ethical pitfalls should be inferred from existing sources of literature.

Fairtrade has emerged as a promising contributor to the domain of business development as it has integrated the concept of ethics in business. The use of fair-trade has enabled a wider perception of the ethical implications associated with customers, farmers, suppliers, producers and other contributors in the supply chain. Customers have started to appreciate products which can provide a support for the global environmental concerns and could account for a viable contribution to the society (Carroll & Buchholtz, 2014). The use of fair-trade for certification and change in pricing of products could be considered as a turnaround in case of business. However the prospects of money laundering can be noticed in case of the fair-trade model as it could not be able to monitor the distribution of wealth. The following report classifies various setbacks observed in case of fair-trade practices followed by consenting organizations and the ethical consequences of the activities.

Majority of the criticism which has been drawn against fair-trade have been based on the sustainability of fair trade practices and the authenticity of the objectives of fair-trade certification. While the initial objective of fair-trade was to provide an ethical environment for business by acquisition of products from developing countries generally plagued by some kind of issues and thus the ethical purpose can be realized by a form of business transaction with the producers in the developing countries and thus providing them with a formidable platform for expanding their economic prospects (Cooper & Morgan, 2013). The consideration of individual factors which influence the sustainability of ethical practices in the fair-trade practices could enable a clear apprehension of the broad ethical issues also and thus derive a reasonable opinion on measures to address the issues. The derivation of ethical issues bothering fair-trade products has to be validated through references to the generic perception of values and ethics in the industrial context. Various organizations have adopted the model of fair-trade since it offers a reasonable platform for realizing a brand image as an organization which provides profound contributions to the producer communities and is also supportive of initiatives to benefit environmental causes. These claims or strategic modifications are introduced as a measure to acquire customer attention or to realize the wider aspects of sustainable practices. However, the effectiveness of these measures has to be evaluated from a critical perspective since their implementation has to deliver outcomes according to the standards of fair-trade and the desired strategic objectives (Schmitz & Schrader, 2015). This would help in deriving a functional reference to the causes which could degrade the perception of fair-trade products and the overall brand image of the foundation. The model of the organization is based on a model for certification which indicates that products certified by the model would be liable for compliance from the suppliers, exporters and producers as well. Customers can gain a prolific impression of the different products since they could associate the value of providing additional prices to fulfill the requirements of destitute individuals in developing countries (Habakus & Holland, 2013). Therefore a comprehensive evaluation of criticisms in the domain of fair-trade movement has to be presented in order to understand the larger ethical issues which can be inferred from the criticisms.

The basis driver behind the fair-trade movement is the emphasis on value based marketing or cause based marketing. The initiative can be perceived by enthusiasts as a profound contributor to the domain of economic stability of developing and underdeveloped nations which are capable of producing natural resources such as bananas, coffee, gold etc. The fair-trade model assumes certification of suppliers, producers and products which could be nominally priced at a higher margin in lieu of additional benefits for underprivileged farmers and supply chain constituents. This belief is the reason for which majority of sales are derived in case of fair-trade products and hence the criticism for fair-trade can be presented in the form of minimal requirement of standards and controls to determine the distribution of benefits to needy individuals i.e. suppliers, farmers and other contributors (Kelly & White, 2015). Organizations which are opting for fair-trade certification are leveraging the brand image of fair-trade to garner additional marketing advantage for their products. Other profound indications which can be noticed in case of fair-trade criticism include the suppression of relevant information and depiction of lies as the acceptable truth. These activities can be considered as mutually interdependent as one is indicative of the other i.e. suppression of facts amounts to a lie and lies related to product and pricing information result in negligence for relevant facts such as portion of additional price delivered to farmers. While fair-trade could realize such setbacks in case of many instances, the foremost violation is observed in the use of license income and government aids for administrative costs and other purposes (Sahut et al, 2014). Therefore, organizations which adopt fair-trade practices must apprehend the factors that the provision of leakage of confidential information pertaining to the distribution of additional profits in the higher profit margins in organizations of developing countries could lead to deterioration brand image for organization. The profound implications for criticism of fair-trade movement in this context can be described as the inability of fair-trade to inculcate apt standards and regulations for enhancing the flexibility of allocating the additional financial resources to appropriate entities for which they are intended.

Ethical violations draw a major share of criticism in context of fair-trade and their classification could be validated by the individual perception reference followed in countries. The critical reflection could enable a profound influence on the realization of possible strategies to limit the ethical issues which are responsible for degrading the image of fair-trade foundation. The objectives of fair-trade foundation are further inflicted with the integration of unfair trading which is observed in the various disparities depicted in context of the regulatory frameworks. Differences in the approach for realizing fair-trade practices could be realized in the lack of a standard monitoring system for including a fair price for customers as well as producers. Hence the criticism in this case can be directed towards the role of fair-trade foundation in creating pricing standards which is not existent presently. Even if fair-trade foundation accounts for benefits to the financial, environmental and social aspects of a business environment, the application of the practices accounts for limited benefits such as limitations on the profits acquired by farmers. Other prominent references account the lack of a specific route for directing the additional prices towards the benefit of supply chain attributes rather than on the internal costs of the foundation (Kelly & White, 2015). The sustainability of the fair-trade phenomenon has been favored by enthusiasts on the basis of contribution to the social benefits. However, the long term feasibility of the practices is based on the apprehension of the factors in real time environments and the social as well as environmental changes which are derived with respect to ethical issues. Ethical setbacks account for major share of criticism and it can be observed that the gradual rise in support for fair-trade practices has to be reformed with integration of reliable facets such as consistent monitoring of accounts, transparency of documents and distribution of income to concerned stakeholders. The fair-trade model has created prominent implications which are related to the validation of brands on a global level on the basis of their association with a specific cause beneficial for the society. Hence the criticism for fair-trade can be aptly directed towards the quantification of benefits generated from the fair trade certified products. Fair-trade certified products are also accountable for quality and long term negligence for producers could result in degradation of product quality and hence the commercial brand could face risks of failure. Pricing of the fair-trade products also deserve a linear discussion with the product quality as unique elements of marketing mix and thus complying with the inherent requirements of business (Schmitz & Schrader, 2015). The gradual increment in support for fair-trade practices could be evaluated on a critical frame of reference in order to validate the reasons for which enthusiasm for fair-trade practices has been increasing. While the contribution of fair trade practices to social and financial benefits have been argued upon by enthusiasts, the criticism states ambiguity in terms of contributions. The previous section of the report has presented insights to the existence of flawed infrastructure in fair-trade to distribute the additional returns among the various stakeholders and supply chain members. The gradually mounting pressure on the global supply chains has also emerged as a potential criticism of the fair-trade movement. Global supply chains have been neglected which failed to conform to the guidelines of fair-trade. The supply chain members who were not associated with the fair-trade fiasco were liable to be exposed to the detrimental effects in terms of limited preference from fair-trade associated customers. Furthermore, it accounted for unrequited maligning of the reputation of non-fair-trade products which were predicted as detrimental elements for the environment and were negatively depicted as irresponsible towards social contributions. This could lead to an unwarranted decrease in the popularity of organizations which do not assume sales of fair-trade products. Therefore, it does not necessarily indicate that organizations and retailers which sell non fair-trade products are not capable of providing value to customers as well as the environment and society.

Ethical standards in case of fair-trade products have to be maintained with respect to the use of fair trading methods. The majority of additional income in case of fair trade organizations is being utilized for interest benefits rather than community benefits. Hence, the requirement of criticism is validated as suppliers and producers face major losses owing to the lack of efficiency in delivery of premium to the farmers as per the claims made for increasing the prices. The justification of validating the fair-trade certification and the provision of value based benefits for customers can be considered only from an intangible perspective. On the contrary, the fair-trade practices could be replaced with the initiatives of third party charity agencies and non-governmental organizations which could provide the additional amount to farmers in appropriate measures. Contracting the job of allocating the financial resources among the farmers or the producer community to a NGO or a charitable institution has to be dependent on the performance of the agency and the scope for transparency (Cooper & Morgan, 2013). However, the distribution of additional profits would not be sufficient to realize the maximum potential of the value based marketing which can facilitate returns favored by the organization. Customers should not be subjected to unfair trading practices and the criticism associated with fair-trade activities refers to the use of measures such as non-disclosure of information and the requirement of unrecognizable strategies to identify the provisions of remunerations added for each stage of the supply chain of fair-trade products. On one hand, the implications of fair-trade indicate communication of all details related to the product and the way in which the organization utilizes the additional price of fair-trade products to benefit the producer community. Such types of initiatives are generally responsible for creation of ambiguities in mind of customers as they would not be able to identify the exact application of their additional investment in the intended purpose. Possible recommendations for improvising such scenarios could be presented in accordance with the changes in communication of the profit statements. Fair-trade organizations should utilize flexible reporting formats for conveying the information related to the use of license income and additional money gathered from government aids and other external agencies through fair-trade regulations (Cooper & Morgan, 2013). Appropriate communication of data related to the ways in which organizations use the money acquired in the name of fair trade for the benefits of producer community and other underprivileged individuals in the supply chain.

Conclusion:

The report conclusively identifies criticisms of the fair-trade phenomenon and has reflected on the pitfalls encountered by the activities especially in context of financial and social influence. It has been observed that the sustainability of fair-trade as an accepted form of business methodology is inflicted by the various instances of criticisms which are drawn especially with respect to the scope of unfair trading practices and the use of illicit measures for limiting the benefits to the farmers.

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