Ethics/Risk Management/Stakeholder: Gmart

The more than 10,000 global employees of the business, the 20 members of the board of directors, and the CEO of Gmart are all internal stakeholders. The interest of the employees in the business is to continue working there and making money. Profit maximization is the board of directors' interest in the company, whereas the CEO's interest is in the company's success.
The government, the company's creditors, the company's suppliers, including Chinese furniture suppliers, the community (including the media and special interest groups), and the company's investors are among the external stakeholders of the company. The government’s stakes in the company include tax revenues, job opportunities, ensuring adherence to the law and company’s accurate financial reports. Customers of Gmart are interested in affordability of the products and high quality of the commodities. Suppliers want the company to continue buying from them while the community is concerned with the positive contribution of the company to the local population and environment.

How/What priority should we place on the stakeholders?

Activities of companies directly and indirectly affect its stakeholders. In prioritizing the stakeholders, Gmart Company may employ three different classifications. The first set of the rating is the primary (directly affected by operations of the company) and secondary stakeholders (indirectly affected by the company’s operations). Next classification may be based on impact: key stakeholders are those critical for the operation of the business; strategic stakeholders are those who present challenges to the organization, and environment comprising of those unclassified as either key or strategic stakeholders. Lastly, the stakeholders may be categorized on urgency (time conscious), power (ability to influence decision making within the organization), and legitimacy (legal or moral authority to affect the organization's activities)

Prioritizing stakeholders follow three steps. First is obtaining information and views of the stakeholders. The second step involves analyzing what the company undertakes and redesigning. Third level and last step entail altering the perceptions of the stakeholders about the organization. The situation at Gmart represents a crisis in which the employees' morale is low, community has negative attitude towards the firm, investors are bound to have little confidence and trust in the business, the customers are considerably dissatisfied, and the general public image of the company is tainted.

Gmart is dealing with a crisis in which case the expectations of the stakeholders remain key to the company’s survival. Taking up responsibility and reviving the confidence must be executed using step by step. Responsibility avoidance must be an exempted alternative. Under the specified classifications of the stakeholders, Gmart must prioritize reconstruction of employees’ morale so as to direct their efforts to building the company. Interests of other stakeholders would then follow.

How should we deal with ATN? Should we take a defensive or proactive approach?

Role of the media in the corporate management is vital in ensuring failure or success of a company. ATN’s decision to run an expose presents an opportunity for the company to redeem itself in the eyes of the public by taking responsibility. Future of Gmart Company can be best sorted by taking a proactive stance. Rather than taking a reactive approach, which involves reacting to the current situation, the proactive approach focuses on the future of the organization. Taking up responsibility can immensely help restore customers’ trust in the company. Gmart should adopt a proactive stance in the ATN's commentary as it will be understood as a change in the organization's management to a more customer-centered firm. Adopting a proactive stance has an advantage of pointing towards averting future problems.

Should any of the above be characterized as an Issue, Risk, and Crisis? Why?

The protests waged by the factory workers represents a crisis as it needs immediate action to solve. Failure to adequately address the concern of the workers would negatively affect Gmart’s production. Furniture returning by customers is an issue since it can be handled within the organization. However, all the court cases should be treated as crisis as they need the company’s immediate response. FF case is a risk as its findings would prompt legal action and threaten the revenues of Gmart. Negative public opinion is a risk to the organization since it has a potential or ruining the company’s customer base.

Board Composition

Having Mr. John Smith serving both as the chief executive officer and the chairman of the board of directors of Gmart may compromise his effectiveness. Conflict of interest may arise when the CEO who is expected to represent the interest of shareholders in the board votes for hefty salaries for the executive (since he is a member of the executive). Also, the integrity of the company’s external audit may be compromised when the CEO doubles up as the chairman; the CEO joins the audit committee and reports to chairman (himself).

Another conflict of interest in Gmart Company board of directors may occur as a result of having six family members sitting on the board. The board decisions can easily be influenced the interests of the family. Conflicts relating to remuneration and gifts awarded by the company to an individual in the family may pose conflict of interest among other family members.

Ethical Issues and the Proper Alternatives

It is unethical for Gmart to have continued selling low-quality furniture, with the management's complete knowledge, to benefit from the massive profit margins of 500%. Even though cost reduction leads to increased profit margins, it remains unethical for Gmart to compromise on quality of furniture. The company should realize that the future success of the business lies in the trust and brand name. Gmart should have stuck to procuring standard quality lumber and produce quality furniture. This ethical practice would have enabled the company build a stronger brand name and guarantee future growth.

Back charging of customers’ credit card after purchase of extended warranties is unethical business practice. Instead of the company pressuring their employees to indulge in the malpractice, they should desist from back charging as it defrauds customers of the company. The company should remain morally obligated to act in the best interest of its customers.

It is unethical, illegal and wrong for Mr. Fletcher to dismiss Mr. Rakus following his filing of a complaint against the organization. Such retaliation acts demoralize other employees remaining in the company. Instead, the situation could have been contained by launching an investigation into Mr. Rakus’ complaint on back charging of customers’ credit cards for the warranty. Consequently, the management would have evaluated the impacts of the complaint and developed ways to settle the complaint internally.

Gmart’s failure to disclose $10,000,000 Ted Sanders severance package to the investors and the Wall Street defies business ethics. Sharing financial information between the company and the investors is provided for under the business law. Investors’ confidence in the company's financial management may result in a legal battle. Gmart’s management should have presented the proposed severance package to Mr. Ted Sanders for consent of the investors. Investors’ stake in the company is the management of their investment, and their approval is essential.

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