IKEA Ethical Analysis
Instructions:
case study of ikea
Article 1 -“Ikea profits up 8% in 2012”bySimon Neville, 24 January 2013
Article 2 -“Ikea row shines light on role of founder”by Richard Milne, 29 January 2013
Article 3 -“IKEA set up a model of a \’typical Syrian home\’ in its flagship store”by Leanna Garfield, 12 November 2016
Solution.
IKEA Ethical Analysis
Introduction and Background to the study
IKEA has its origin in Sweden. Ingvar Komprad, a seventeen year old boy, was the sole proprietor. The Company name is an acronym that stands for the founder’s name, the farm and home town where he grew (Elmtaryd farm at Agunnaryd town). This study has taken into consideration the ethical issues in the IKEA group of companies as well as what the firm has done to redress them. The IKEA vision and mission statement and the code of practice in various jurisdictions and their implications from an ethical perspective have been highlighted. The IKEA groups of companies’ key stakeholders have been noted. The study has evaluated the employees, environmental and society sustainability. The study has provided a number of recommendations for the organization’s communication and practice ethics for it to be a more ethical company in the future.
Ethical Issues facing IKEA and their redress
The organization’s values are expressed through the expression of the company’s organizational ethics to the employees as well as a reflection in all functional business areas. There are four elements that lead to certain ethical behaviors within an organization. They include; employees, managers and executives’ ethics training; A written code of standards and ethics; advise on ethical situations availability; and availability of systems for reporting confidentially.
According to Smith (2015), frequently ethical issues arise in international business due to business regulation differences from one country to another. Smith identifies IKEA as one of the multinational companies facing ethical issues in the global market. The controversial issues in IKEA are stemming from human rights (Germany), spying on employees (France), environmental issue in Russia, product quality in Europe, and child labour in developing countries.
IKEA runs an ethics program that entails training of employees and policies and codes that guide the ethical conduct in the organization. The main code of conduct is the suppliers’ code of conduct. Since much of the IKEA businesses entail products purchasing, materials and services, the firm has adopted the IKEA way also known as IWAY which is a string code of conduct that outlines the expectations from the company suppliers. The code violators are dropped as suppliers. One of the requirements for suppliers under IWAY is non-use of child labor or forced labor. Suppliers are required to agree on annually internal audit compliance. Although IKEA is popular among furniture enthusiasts, it has faced a number of ethical lapses.
The human rights record of the IKEA has been tainted in relation to questionable dealings involving the communist regimes spanning back to 30 years. IKEA admittedly used political prisoners in East Germany to manufacture some furniture components. A punishment was passed on all prisoners that refused to work. The revelation tainted IKEA’s respect for human rights. The human rights record in the firm is aggravated by a Harvard University report that shows IKEA outsources rugs from India that are manufactured using child labor.
In France, a document was published in relation to a court case that brought to light the use of private investigators to spy on private lives of certain employees. Further investigation revealed that IKEA used to spy on employee misconducts, consumer complaints, and potential job applicants. For instance an employee was fired due to an extended sick-leave; IKEA had investigated on the employee and found that she was actually not sick. The employee filled a court case when the spying evidence came to light.
The IKEA firm had to withdraw all Swedish meatballs from all European stores due to product quality. The organization was allegedly selling meatballs that contained horsemeat. The Czech Republic official had detected horse DNA in meat balls from Sweden. IKEA blamed the unfortunate instance on the supplier. The firm filled criminal charges against the supplier and also dropped the supplier from the suppliers list.
The corporate structure in IKEA is quite complicated complex and cited by critics as ethically incorrect. The IKEA corporate structure is handled by a private company that is also run by a nonprofit company based in Netherlands. The structure is termed highly hierarchical and opaque. The involvement of a nonprofit entity in the management is a ploy to avoid tax remittance that would apply to a profit making firm. IKEA promised to be publishing their financial information to enhance transparency and accountability.
IKEA vision, mission and code of practice
A company’s vision, mission and code of practice provide the greatest pillars upon which the company is grow on and its success is dependant hugely on how the three are integrated and developed to yield the expected results for all stakeholders. IKEA vision states “to create a better everyday life for the many people.” Code of ethics is put in place to govern business and individuals and prevent any action driven by an opportunistic motive. As it can be seen clearly from the vision, IKEA has chosen the ethical path of improving the life of people by each day and it’s the same vision that is behind the designs of the products offered by the company; they are simple with no complexity as compared to their competitors. The main economic goal f any business entity is to make profit, but the IKEA group company view their goals as that of improving the state of living of people and as a result of pursuing that goal, great profits become inevitable as more people want to be involved with company.
The mission of IKEA which communicates the objectives of a company to all stakeholders inclusive of employees and customers and its mission state that ‘providing quality home furnishing products at affordable prices.’ The reasoning behind this mission is that homes are in need of products which are of good quality and whose cost can be managed without straining. No legal requirement that is in place on the prices to be charged or the designs to made, but ethically, IKEA recognizes that the expectation of society on their products is based on quality and price. In pursuit of this ethical responsibility , IKEA has come up with various strategies ad policies that can help advance its mission and they are inclusive: the furnishing products made by the company are simple and modern and their interior designs are specifically unique and by a virtue of this qualities they always stand out in the market and it also important to note that, the company is widely known for unending product development and cost control measures where it prices its products by an average of two to three percent lower.
IKEA code of practice serves as benchmark upon which its operations are measured against. The code of conduct the relationships existing between IKEA and its stakeholders. The values and measures stated in the code of practice are ethically developed and the society’s expectation also plays a major factor. For example the code of practice for IKEA has the clause that it is corruption free and therefore their award of tenders to suppliers is purely based on merit and fairness and any form of corruption whether direct or indirect is not acceptable, the code also has the no child labor clause where it states clearly that all employees must be above minimum age required by law and also other virtues stated therein are aimed at making sure the employees of the company have the society interest heart for example waking up early than legally required to serve them.
IKEA corporate Social Responsibility based on Carroll’s four part model
Carroll developed an organization’s corporate social responsibilities using a framework with a pyramid model that has got four layers. He argued that a company’s social responsibilities in a corporate structure fall within economic, philanthropic ethical and legal. According to him the pyramid should be seen as a whole and should not be any way viewed in sections. The economic responsibilities are aimed at making sure the business survives to perpetuity, the legal responsibilities ensures that a company is operating within the framework stated by government in form of policies developed to govern the business industry, the ethical responsibilities goes beyond what is required to what is expected and lastly the philanthropic perspective which is at the apex of the pyramid encourages a business to be a good citizen as a corporate. Therefore we can analyze IKEA as per the four perspectives developed by Carroll as follows:
First IKEA has an economic responsibility which to present, has been carried out by all of its stakeholders successfully; this responsibility is based on minimizing costs and maximizing profits. The operational costs are kept in check through efficient use of resources and employing opportunity cost in choosing of resources to use. For example in setting of stores throughout the 48 countries it currently operates in; the location is strategically selected primarily based on land cost and traffic access in attempt to ensure that they are easily reachable to the customers.
Secondly, on the legal responsibilities, IKEA has always strived to have their products reach the quality expected by the quality assurance bodies and the most stands out quality is their simplicity which makes them so likeable to the customers. In designing of the buildings, IKEA has made sure the buildings for their stores are built as per the stipulated guidelines of construction authorities and most importantly IKEA has a good record of tax compliance; it pays the required tax without fail or evasion.
Thirdly, the ethical responsibilities are a section that has well advanced by IKEA and one can argue that it is one of the leading companies in ethical considerations. The activities undertaken by IKEA are solely driven by the company’s vision of making life better for society. For example, they have food markets which usually open before any other store has opened and they sell their meals at affordable rates which are manageable and affordable by the majority. It also important to note that each and every store has got a playground open to all members of society and parents allowed to bring and pick their children at their suitable with no charges and lastly on philanthropic responsibilities, IKEA has in each year given a substantial amount funds to fund various society projects and it has put in place self non- profit foundations which provide funds to less fortunate in society and they include but not limited to INGKA foundation.
IKEA’s key stakeholders (power, legitimacy and urgency)
The stakeholders’ capacity in line with their claims to attract the managers’ attention in terms of legitimacy, urgency and power is highlighted by Agle, Mitchel, and Donna (1997). According to Mitcehel et al (1997), legitimacy, power, and urgency are the primary relationships attributed to the management groups that act interactively or independently in business scenario. In a case where the firm does not take the responsibility for the interested parties’ well being, constant dialogue practice, and the group will stake their claims, morally and legally in line with their importance criteria. The stakeholders are the firm’s first investors. Each investor is a representative of a circle of interest thus requiring the managers’ monitoring (Sitaru, 2009).
Mitchel et al’s first tribute is power which is essential in the theory of interested party relation management. The complexity perception is not contributed by power itself but demands the knowledge of what or who is important to the management team. The legitimacy of leaders’ domination power or charisma when exerted in extrapolates standards, extraordinary way and rules; a deeper analysis is therefore needed for the subjective implications brought by these implications.
Based on material and financial resources, apart from normative power, in line with the use of physical strength, restriction or violence power can manifest in many forms. Utilitarian power based on material and financial resources apart from normative power which according to Etzioni (1964) is based on symbolic resources. However Mitchel et al asserts that power when isolated from urgency and legitimacy attributes cannot guarantee social group importance over another.
Legitimacy identifies stakeholders that require the manager’s attention. Mitchel et al (1997) argues that there are stakeholders that are legitimate but despite their legitimacy they do not have any influence in the firm. According to Schuman (1995) legitimacy may indicate the actions of the firm that are appropriate in the system of values, beliefs, standards, and definitions. In the IKEA firm, the legitimacy attribute is addressed in the organizational manner.
Urgency attribute takes the group relations from static to dynamic and suggests further influence in the audiences’ claim. The urgency attribute highlights the imperative stakeholders’ power for the sensibility, pressure and criticality with an intention of getting the attention company manager (Mitchel et al, 1997).
The attributes legitimacy, urgency and power generated in company interrelations and the interested parties maybe intentionally and consciously present in the company management and stakeholders relations 5 IKEA and sustainability
A sustainable society or business environment is founded on access to nutrition, healthcare, shelter, clean water, economic opportunities, energy, education, and employment. A new paradigm is sweeping through the business world. Businesses are required to come up with long term practices that respect the environment, the future prospects and employee well-being. At the same time the business entities are expected to ensure profitability, market share increase and innovation funding. IKEA has a number of ventures in place aimed at ensuring society, employee and environment sustainability.
The IKEA environmental sustainability department has more than 342,000 solar installations atop its stores. The firm has further pledged to only sell cheap LED bulbs and the conversion of in-store lighting in the year 2016. The company was the first to implement the use of disposable shopping bags. The IKEA Company through its people and planet positive plan is striving to ensure energy independence by the year 2020. Through the wind and solar energy harnessing the company will get 70 % of its energy requirement from renewable sources. IKEA firm owns wind firms that for instance produced 152 gigawatt electricity in 2011. The produced power in the European wind farms offer 12 % of the company’s power needs to power the distribution centres and retailer stores.
The company’s non-energy targets in the sustainability plan include getting half of the required company wood supply through FSC-certified forests by 2017 boosting waste-reduction and recycling schemes, the workers and customers being engaged through eco-minded initiatives, helping in the reduction of carbon emissions from suppliers by 20 % and other transport related carbon emissions, promoting clean water initiatives, and sourcing of cotton through better cotton initiative. Additionally the company aims at using furnishing materials including packaging made of recycled and renewable materials.
IKEA ensures children safety through producing children facilities that are of good quality with safety measures put in place. Children facilities are tested in consideration to international and national safety measures through third-party laboratory tastes (ikea.com). The tests are done before productions are launched and therefore safety is guaranteed regularly.
IKEA insists that the chemicals used in the firms are environmental friendly with surface and material treatments as well as production techniques aimed at lowest possible emissions. Technicians, product developers, and internal stakeholders take part in training modules on energy, water, and waste issues. The IKEA cafeterias offer at least one variety of food that s is fully organic ingredients.
IKEA communication Ethics and practice
The principle of corporate responsibility cannot e limited to the firms’ management behavior in line with external stakeholders. According to D’Orazio (2013), identification is required for planning carefully to provide ethical judgment integration in the firm’s daily business decisions.
Assessment of ethics cite dare consistently placed in the management of a business. The Kantian respect principles for persons; bias removal under which individuals are seen as functional means to achieve laid down purposes. According to Smith (2015), frequently ethical issues arise in international business due to business regulation differences from one country to another. Smith identifies IKEA as one of the multinational companies facing ethical issues in the global market. The controversial issues in IKEA are stemming from human rights (Germany), spying on employees (France), environmental issue in Russia, product quality in Europe, and child labor in developing countries.
The corporate structure in IKEA is quite complicated complex and cited by critics as ethically incorrect. The IKEA corporate structure is handled by a private company that is also run by a nonprofit company based in Netherlands. The structure is termed highly hierarchical and opaque. The involvement of a nonprofit entity in the management is a ploy to avoid tax remittance that would apply to a profit making firm. IKEA promised to be publishing their financial information to enhance transparency and accountability.
Conclusion
IKEA
has grown with time from serving the domestic market in Sweden to other
European markets and now United States of America, Latin America, Australia and
the largest outlets in China and Korea. However, the growth has been marred
with ethical issues at various stages as highlighted above. The company’s
vision and mission and their implications in the ethical perspective of the
IKEA Company; the power, legitimacy and urgency relationship in the company in
line with the company stakeholders; and the sustainability perspective of the
company as well as the communication and practices of the company in line with
business ethics. The IKEA company has put in place ensure to ensure ethical
practices and environmental and business sustainability. However, a number of
cases involving the unethical practices like spying on the employees have also
been reported against the company.
References
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Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts. Academy of management review, 22(4), 853-886.
Alves, E. R., Gomes, E. R., & Corsini, L. F. THE CHARACTERISTICS OF POWER, LEGITIMACY AND URGENCY OF STAKEHOLDERS AND THE ACTIONS OF CORPORATE SOCIAL RESPONSIBILITY OF COMPANIES.
Clarkson, M. E. (1995). A stakeholder framework for analyzing and evaluating corporate social performance. Academy of management review, 20(1), 92-117.
Kahneman, D., Diener, E., & Schwarz, N. (Eds.). (1999). Well-being: Foundations of hedonic psychology. Russell Sage Foundation.
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Neville, B. A., & Menguc, B. (2006). Stakeholder multiplicity: Toward an understanding of the interactions between stakeholders. Journal of Business Ethics, 66(4), 377-391.
