Discuss about the Management Theory and Decision Making.
In this paper we discuss the ethical dilemma faced by 7-Eleven Stores Pty Ltd and the effect of ethical dilemma. In Australia, there is one more dark side of labor market which has been uncovered by the activities of 7-Eleven from last 12 months. Franchisee stores of 7-Eleven pay less than $5 for an hour to their foreign workers. These workers are worked on student Visas and being bullied and threatened by store owners for breaching their visa conditions. Some franchises which are working as low volume shops were caught for having false payroll records and they are not paying sufficient amount to their workers for surviving. Other franchisees exploit their workers for their greed.
First we state the theoretical concepts of managerial ethics and relate that theories to the company, second part of the essay contains behavior guide by managerial ethics which leads to positive climate, and application of such positive climate to the company.
This paper also states the different leadership styles and their consequences, and how company can create workable ethical environment at their workplace. Subsequently this essay is concluded with brief conclusion.
7-Eleven Stores Pty Ltd is a private company in Australia, and the owners of this company are Withers and Barlow family. Company owned license to run franchisee of 7-eleven stores in Australia. In 1977, 7-Eleven opened its first store in Australia and now company operates 630 stores in Australia.
Almost 190 million transactions are conducted by 7-Eleven stores in Australia per year and they reserve on an average 6 customers per second. Sales generated by stores are approximately 3.6 billion dollars (7-Eleven, n.d.). The operations of the company are operated by Russell Withers and his sister Beverley Barlow and their spouses. In 1977, siblings brought this franchisee to Australia, and Mr. Withers also appointed as chairman of the company.
7-Eleven stores are open for 7 days in a week and 24 hours a day throughout the year and this policy of the company makes the wages of workers the most expensive item for the franchisees. Head office of 7-Eleven stores takes 57% profits from the franchisees and franchisees receive 43% from the profits which are considered as income of store. From their income franchisees also cover many expenses which include wages of workers. The data of company shows after meeting all the expenses very little amount of income was left for franchisee (Koft, Danckert, & Ferguson, 2015).
Thousands of people in Australia were working in 7-Eleven stores, run by franchisees holder. Workers of 7-Eleven stores revealed the systematic wage abuse they suffer while working at 7-Eleven stores. Some years back Payroll system of 7-Eleven stores allowed their franchisees to pay whatever rate they want to pay to their workers even if that rate was lower than the minimum rate.
Joint investigation conducted by Four Corners/Fairfax reveals that business model of 7-Eleven is depends on the exploitation of workforce. If they were not exploiting their employees then it’s not possible for them to run the business profitably (ABC, 2015). This investigation of 7-Eleven stores is an example of an ethical failure of leadership. Numbers of evidences are found which shows that staff are underpaid and forced to work for long hours. There is number of international student’s also whose visa allowed them to work only for 20 hours. Evidences also show that these issues were going on from last six years which includes many investigations and findings by Fair Work Australia (Workplace Ethics Advice, 2015).
Following two theories are applicable in the case of 7-Eleven:
Utilitarianism theory: this theory is an ethical theory which states that best action is that action which maximizes the utility. Jeremy Bentham was the founder of Utilitarianism theory, and he describes utility as the aggregate of all outcomes which result from the action. This theory states that consequences of any action can only measure on the standard of right or wrong.
Utilitarianism theory is a normative theory of ethics that mainly focus on the outcomes of action, and it choose the one action over other on the basis of its consequences whether right or wrong. It is necessary for business entities that they consider the interest of their stakeholders while choosing his actions. Following principles of utility was applied in case of 7-Eleven:
In the present case, Utilitarianism theory is directly applied and ethical dilemma faced by this company can be solved by using the question “which action will result in most good and less harm”. Headquarters of 7-Eleven retain the maximum profit for their shareholders and ignore the interest of their workers and other stakeholders. This situation occurs because only 43% profit is left for franchisee from which they have to pay all the expenses, and this is the only reason of wage scandal. Actions are considered good if they result in happiness of greatest people and they are considered bad if outcomes of action result in sadness of greatest people. In this case, action of company results in sadness of its employees as well as other stakeholders (Mehalu & Ababa, 2011).
This theory directly relates with the situation of 7-Eleven and ethical dilemma faced by the company. In 7-Eleven company mainly focus on the profits and ignore the welfare of its employees. As we stated above 57% of profits are taken by head quarter and only 43% are left for franchisees and they also meet the expenses from this 43% profit. Wages are the most expensive item for franchisee and because of less percentage of profit franchisee pay less amount to the workers even such amount was less than the minimum wage. According to Utilitarianism theory workers are not happy with the action of company and franchisee and it can be considered that actions of organizations are not ethical.
Stakeholders of the company not only include shareholders but they also include workers and employees of the company. Decision made by 7-Eleven for retaining the profit of 53% increase the profitability of shareholders but it badly affects the workers of the company because franchisees are not able to provide proper wages to workers.
Deontology Theory: this theory states that organizations must fulfill their duty and obligations while taking decisions. In other words an organization must follow its obligations it owes towards other persons or society because fulfilling the responsibility towards other person is considered as ethically correct. For example a deontologist always fulfills his duties towards society and follows the law. Deontology theory consist number of positive attributes but it also contains some negative attributes also. One negative attribute is that there is no logical basis is described to decide the duties of individual. For example a businessman decided that it is his duty to be on time for every meeting but this appears as good habit not as duty (Chonko, n.d.).
There are number of different reasons for which this theory is considered as ethical theory. According to Kantian action is morally right if people act as per their duty, and Kantian also stated outcomes of the action does not make the action right or wrong but the motive of the person make the action right or wrong. An action is good if motive of person conducting the action is good (Syracuse University, n.d.).
This theory is directly relates with the situation of 7-Eleven because payroll policy of the company allowed the franchisee to pay the arte for wages as they want to pay no matter whether such rate is less than the minimum wage. According to deontology theory action of organization is good if company follows its obligations towards society and adheres with the law. In this case, company allows the franchisee to break the law by not paying the minimum wages to workers and does not fulfill its obligations towards the society also because workers and employees are the part of society.
From stakeholder point of view society and workers are the most important stakeholders of the company, and 7-Eleven breach its duties towards both society and workers. Workers of the company directly affected from the decision of the company while society affected indirect way from the decision. Payroll policy of 7-Eleven directly affects the workers and makes their situation worse. Therefore, action of company is not ethical from the point of view of deontology theory (Newman, 2013).
Management ethics is usually based on social responsibility of firm. It deals with the rules related to good and bad, and it sets standards of behavior for the guidance of managers. In other words management ethics is the set of moral principles that regulates the actions conducted by organizations or individual. Whereas, business ethics are application of principles related to ethics on business relationships and activities. When managers or organizations fulfill its social responsibility then it is considered that they are working ethically and they know what is right and wrong (Tanuja, n.d.).
Managers at all level required to act ethically at all standards of business because every day they take key decisions which not only affect the company but also affect its shareholders and other stakeholders which include society also. Therefore, it is necessary for individual who was acting as manager to understand and fulfill his legal as well as ethical obligations towards company and stakeholders.
Organizations trusted their management and there is fiduciary relationship between the management and stakeholders. Managers of the company are responsible for their own behavior as well as for the behavior of their subordinates also and they must ensure that their action are ethical and must fulfill the duty towards both primary and secondary stakeholders. It is considered as prime responsibility of manager to recognize and conduct ethical actions to meet the expectations of the company and stakeholders, for set an example of ethical behavior, and reduce the confusion related to ethical decision making (Nelson, n.d.; Paine, 1994).
There is confusion between ethical and unethical in some cases and this is known as ethical dilemma. In other words, when it is difficult to decide whether action conducted by person is ethical or not is then it is considered as ethical dilemma. Now a day ethical dilemma is common at workplaces. A study shows that managers face these dilemmas on continuous basis with competitors, workers, employees, etc. Managers can set framework for achieving the positive environment at workplace and this framework includes three elements that is the human rights, justice, and utilitarian methods.
In human rights method decisions are based on the moral rights of human beings, and this method includes adherence of basic rights such as freedom, health, life, privacy, and property rights and infringement of these rights to anyone, anywhere, is considered as unethical.
In utilitarian method decisions are based on the outcome of the action conducted by organization. Decision is considered as ethical if overall impact of decision is good and it considered unethical if overall impact of decision is bad.
Last method is justice method and this method is based on equal and fair distribution of cost and benefits among all stakeholders of the company. It is the responsibility of managers that their employees and workers get fair pay and benefits for their work (Lattel, 2005).
It is necessary that leaders and employees of the company must follow the code of ethics which result in creation of positive and ethical environment in the company. Management of the company can create ethical culture by following the ethical conduct and encourage the employees for behaving ethically. Organization can encourage the ethical behavior by different means such as by rewarding the employees who behave ethically and meet the ethical standards stated by the company, and company can also penalize those employees who infringe the ethical rules of the company.
Positive climate not only increase profitability of the company but also encourages and motivate the works which led to increase in productivity and employee retention. Higher level of productivity ultimately results in increasing efficiency of the company and it also reduces the wastage cost (Kelncher, n.d.).
Ethical decisions are difficult because they directly affect the profitability, employment or even in some cases personal relations. In current working culture it is difficult for organization to take ethical decision sand it takes courage to be ethical. Ethical decisions are not popular because they impact the company as well as employees. Courage to take ethical decisions is come from values and beliefs supported by organization and encouragement of organization while doing right thing (Bednarz, 2012).
Managers play important role in ensuring whether employees complying with the ethical values of the company or not. In case, managers or leaders of the company does not complying with the ethical values then workers or employees lose their trust in the management, and study shows that if management ignore the ethical concerns of the company then employees of the company solve their concerns at their own level (Butts, n.d.; Guide star, 2008).
In 7-Eleven leaders and management of the company does not complying with the ethical standards of the company which result in wage fraud of $170 billion. Corporate head quarters are also involved in the practice of employee exploitation. Joint investigation of four corners and Fairfax reveals that corporate headquarters review the pay roll policy of 225 stores but no action was taken by the company. All these evidences clearly show that company also involve in the exploitation of workers for earning profits (Danckert & Ferguson, 2016).
Autocratic leadership- this leadership style is centralized and focuses only on top management of the company or boss, and leader of the company holds complete authority and responsibility in the company. In autocratic leadership leaders made their own decision without consulting their employees, and communicate the decision to subordinates and expect implementation of decision. Following are the consequences of autocratic leadership:
In 7-Eleven company follows the autocratic leadership style because payroll system and profit sharing policy of the company clearly shows that top management take all the decision s without consulting with their employees which result in unfairness with employees. Top management takes all the decision in the favor of company or shareholders which exploit the employees of the company.
Democratic leadership- in this style of leadership employees of the company are -involved in decision making progress. 7-Eleven can apply this style of leadership in their organization which can help the top management in understanding the view of their employees. This style of leadership is centered on employees of the company which result in motivated employees because employees feel that they are also an important part of the company and final responsibility of the decision is ultimately in the hands of democratic leader. Through this style top management of the company directly connected with their employees and this helps the management to understand the situation of its employees because communication is at both sides upward as well as downward. Following are the consequences of democratic leadership:
After evaluate the advantages and disadvantages of this theory we can state that 7-Eleven can apply this theory in their management for understanding the situation of their employees and prevent the exploitation of their employees.
Strategic leadership: In this decisions are taken on the basis of strategic thinking which ignore many other important elements and ethical dilemma faced by 7-Eleven clearly show that company follows the leader with strategic thinking who only thinks about the shareholders and their profits and ignore the interest of other stakeholders. Power of decision making is in one hand which results in wrong decisions and unethical decision making. Therefore, this theory is not suitable for 7-Eleven because it increase the chances of unethical practices.
Laissez-faire Leadership- in this leadership authority of organization is in the hands of employees. This leadership allow the employees or departments as per their choice and there is very less or no interference in their working. This kind of leadership is very less effective and less satisfying. Franchisee of 7-Eleven already operates the business and payroll system on their own choice which result in wage scandal (Raza, n.d.).
Following are the ways through which organizations can create environment which help in avoiding ethical dilemma:
Conclusion:
In this essay we discuss the ethical dilemma faced by 7-Eleven, and importance of ethics in business. In 7-Eleven there is wage fraud and exploitation of employees by not paying them fair wages and forcing them to work for more hours. In this essay importance of ethical environment is discussed and role of managerial ethics in making the ethical environment is also stated. 7-Eleven usually follows autocratic style of leadership which put the complete power in the hands of top management of the company and management of the company only consider the interest of their shareholders and ignore the interest of their employees. Management of the company takes all the decision without consulting with their employees which result in unfairness with employees. It is necessary for the company to understand the values and needs of its workers which are the most important part of their organization. Therefore, it is necessary for company to adopt democratic leadership style.
Complying with ethical standards not only increases the wealth and reputation of the company but it also impacts the employees in very positive way such as increase in production and prevents the retention of employees. Therefore, it is necessary that organizations must comply with the ethical standards and take ethical decisions to avoid such ethical dilemmas in future.
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