Organizations and businesses are much more than institutions made for the sake of profit. They directly affect the environment, community, co-founders, investors, employees, and customers. Reasonably, community expects that companies will live up to the laws and the highest ethical standards, and will function as a contributing society member. However, the media frequently report accounts of unethical business practices.
Apple realizes the high expectations of its stakeholders and tries to meet them. The company is committed to ensuring safe and fair working conditions, ethical competition, open relations and communication with its customers, and responsible environmental performance. Nonetheless, the company has received a plenty of criticism regarding treating its employees, suppliers, competitors, and consumers.
The following analysis looks at the history of Apple Inc. It focuses on the company’s business issues and unsavory practices in terms of its relations with stakeholders, including competitors, suppliers, employees, and customers. The major ethical concerns are discussed along with their effects on the business environment. Finally, the analysis looks at the opportunities for improvement of the Apple’s ethical performance.
A Short Overview of Apple Inc.
Headquartered in Cupertino, California, Apple Inc. is a multinational corporation which specialized in designing, manufacturing, and marketing software, hardware, and other consumer electronic products. Established on April 1st, 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne, the company has ignited a personal computer revolution by creating innovative products. However, in 1987-1997 the company experienced a great decline as several of its products, namely Lisa, Mac I and the Newton flopped. A continuous slide of market share and stock prices put the future of the company in jeopardy.
The deep changes in the company’s management and corporate culture driven by the then CEO Steve Jobs helped Apple to recover the harsh times. Global marketing initiatives enabled the company to retain profitability and gain more than tenfold market share growth in 2003-2006. Apple has outsourced most of its manufacturing to low cost countries and built overseas presence with 394 retail stores in 14 countries.
Today, Apple is the world’s second largest IT company by revenue with total net sales reaching $156,508 billion in 2012 fiscal year (Apple Inc., 2012). Moreover, the company has been at the top of Fortune magazine’s list of the world’s most admired companies since 2008. The brand is highly valued by millions of its loyal customers for quality, prestige, and innovation.
Ethical Issues in the Company
Despite recognition in the IT industry, Apple has experienced several ethical challenges throughout its history. The major ethical issues of the company deal with product quality, privacy, sustainability, intellectual property, and patents.
Intellectual property and patent protection have become serious ethical issues in the IT industry. Thus, Apple has faced some problems with patenting its products. The company has become concerned with protecting its technology from theft and keeping its proprietary information a secret. As a result, the company has been involved in a number of lawsuits, namely, a lawsuit against Franklin Computer Corporation, a trademark lawsuit from Cisco Systems, a suit against Samsung and HTC Corporation. The ethical issue is whether Apple abides by the principle of ethical leadership (Zimmerli, Richter, & Holzinger, 2007). Critics argue that the company might have been using allegations about their patent violations as a means of gaining a competitive edge.
Additionally, some challenges have risen in terms of Apple’s ethical commerce. For instance, the company has faced product quality problems with the iPhone 4. Apple failed to detect mistakes with the product before launching it, which resulted in numerous complaints from customers about perception problems caused by antenna interference.
Another concern with Apple is the threat of environmental contamination. Although the company has taken steps at reducing its environmental impact, it has been targeted as a violator of safe environmental practices. Additionally, Apple is considered to be laggard in terms of sustainability, including recycling programs and disclosure of environmental goals (Hawthorne, 2012).
Additionally, Apple is criticized for planned obsolescence while pushing people to replace or upgrade their technology whenever an updated version of its products comes up in the market. The company addressed the issue by making emphasis on its products recyclability. It has also created recycling programs for old versions of its products to encourage consumers to recycle. Nonetheless, e-waste is a significant issue while consumers continue to throw away their old electronics.
Supplier Responsibility Problem
In order to remain competitive and keep manufacturing costs low, Apple has moved production to areas with low labor costs. The company has outsourced most of its business; hence the potential for misconduct due to lax governmental regulation and less direct oversight has risen dramatically. What is more, it has failed to establish fair and honest relationships with its suppliers. The company is reported to be driving a hard bargain with its suppliers and, accordingly, forcing them to “cut ethical corners” (Denning, 2012).
Currently, Apple considers supplier non-compliance with the company’s ethical standards to be its core ethical problem. According to the company’s website, Apple is “committed to the highest standards of social responsibility across the worldwide supply chain” (Apple Inc., 2012). The company established a Code of Conduct of its suppliers, yet the latter fail to abide by the responsible business practices defined in the Code.
The mass media reported about frequent instances of labor and human right violations associated with Apple supply chain’s unethical business practices. Sweatshops are the greatest concern facing the company’s manufacturing. Facility audits discovered over-working practices in Apple’s China based factories with some employees working more than 72 hours more than 6 consecutive days (Duhigg & Barboza, 2012). Additionally, instances of unfair remuneration policy, overcharging of agency recruitment fees to employees, corruption, delayed wages, deductions from wages have been discovered in Apple’s facilities. Facility audits also reported about violations in terms of involuntary and underage labor.
Then, the incidents of improper disposal of hazardous waste and falsification of records related to underage labor and working hours were found in Apple’s facilities. What is more, explosions at two Foxconn’s facilities caused by safety violations took the lives of four employees and injured 77 others (Duhigg & Barboza, 2012). Foxconn’s Longhua factory has seen five suicide attempts and a death of a staff-member who killed himself after losing an iPhone prototype and being beaten by security staff (Duhigg & Barboza, 2012).
Apple’s CEO Tim Cook claimed that the company is the most proactive in the industry in terms of improving working conditions (Simon, 2012). A series of articles in the New York Times has shown how little the company has done to improve the widespread and deeply rooted deplorable conditions in its Chinese supply chain so far. Moreover, they witness Apple’s consistent lack of responsiveness and transparency (Duhigg & Barboza, 2012).
Lack of Transparency
The communication of social and environmental effects of a company's practices should be an important element of business ethics. Companies must be fully accountable to the stakeholders in order to be able to take responsibility for their actions. However, Apple has been hiding its company data under the veil of secrecy and refused to communicate its business practices for a long time. As a result, it has gained a reputation of a rather secret company.
Many critics consider secrecy, which has become one of the key elements of Apple’s corporate culture, to be the major ethical concern of the company. Apple’s obsession with secrecy has led to harsh sanctions, numerous suits for disclosing confidential data, as well as a deluge of criticism (Hawthorne, 2012). Critics opine that such strict insistence on “don’t ask, don’t tell” policy is morally and ethically untenable while the lack of transparency and accountability might mislead stakeholders and hinder them from the making adequate judgment about the company’s business performance.
The company has also adopted a policy of secrecy to its suppliers. Even though Apple knew about violations of ethical standards in its Chinese supply chain, it turned a blind eye to the issue in order to optimize margins and assure profits. The concern is not that such unethical practices go on in regions with lax governmental regulation but that Apple took a hands-off approach to the problem. Apple failed to act responsibly towards its stakeholders while it silenced deplorable conditions in the Chinese supply chain for years and took no strong action to change them.
Currently, Apple has taken action to improve relationships with its employee stakeholders. Thus, the company raised wages up to 25 per cent at Foxconn, one of the Apple’s main contractors. However, critics claim that rising wages and improving working conditions for Chinese manufacturing workers were driven the laws of economic development rather than by ethics (Warstall, 2012).
In addition, the company teamed up with the Fair Labor Association to reinforce effective monitoring of supplier compliance with the ethical standards and local laws. The audit data are displayed in the supplier responsibility progress reports. However, until Apple turns information transparency and accountability into the most important ethical issues of its corporate culture, there will be a room for improvement of its business practices.
Learning from Apple
The issue with the Chinese based factories taught a lesson to the business world. Apple's outsourcing experiences have shown that expanding business to a foreign country involves some threats including unacceptable ethical practices. Even though they might not be addressed by the local lows, competitors and activist groups are capable of making these unsavory practices visible. Therefore companies should consider the risks of cooperating with low cost suppliers and take efforts to deal with them proactively.
Incompliance with ethical standards can pose a great threat to a global business while they can cause a substantial damage to the company’s brand and products. Thus, the constant reports of appalling working conditions at Foxconn factories have caused damage to the Apple’s brand image. The caution is that if one of the most image-conscious and powerful firms on the planet, has ethical problems with suppliers, most likely that other firms using outside suppliers suffer similar problems, as well. So far other companies who use Foxconn’s facilities, such as Hewlett-Packard, Microsoft and Dell, refused to comment on the situation (Sherman, 2012).
Recommendations for Improvement of Business Ethics
Recent media scrutiny has witnessed that Apple lacks responsible business practices in the areas of ethical relations and control. What the company should do for improvement of its business practices is to take a systemic managerial approach and turn corporate responsibility into its competitive strength (Denning, 2012). Apple should gain reputation not only as a leading innovator in the sphere of IT, but also as a leading socially responsible corporate citizen. It should build a bridge between its private interests and overall public good.
The company has to enforce its code of conduct effectively to avoid similar misconduct in the future. It seems fairly reasonable that having quarterly revenue of $36.0 billion Apple could fix this problem with ease by investing in ethical code enforcement (Apple Inc., 2012). The company should initiate ways in which it can reward employees who uphold the code of conduct as they do their duties. In addition, the consequences of unethical behavior should be clearly indicated so as to raise the risk for non-compliance unacceptably high.
In addition, Apple should also implement programs to ensure that all the products and services that it is offering to the customers are up to the required standards. The reputation of the company should be the priority of Apple Company. All the products should be certified as of high standards before they are released to the customer.
Finally, Apple should put aside its “don’t ask, don’t tell” practices and provide relevant data to its stakeholders. Although openness increases the risks of intellectual property theft, it also allows for innovation to occur more rapidly due to additional collaboration. Moreover, accountability might give an opportunity for its stakeholders to witness how responsible the business practices are. Apple may eventually need to re-examine whether its closed door policy is the best way to compete.
Having good business ethics is beneficial for companies as it determines their reputation. However, when it comes to making money, some companies may not view business ethics as their top priority. The emphasis on profit in Apple has resulted in some ethical issues in the company’s relations with competitors, suppliers, employees, and customers. Thus, despite taking efforts to adopt high ethical standards in its facilities, the company fails to manage the ethical risks in its supply chain. The obsession with secrecy is even the greater concern for the company.
The unsavory business practices of Apple have recently gained much media criticism which has tarnished the company’s reputation significantly. Currently, Apple is being perceived as irresponsible and unethical by many of its stakeholders. Despite the fact that its products are still in high demand, customers will soon look for “socially responsible” products.
Undoubtedly, Apple provides wonderful goods to millions of people, yet it should not be done by cutting ethical corners and behaving irresponsibly. The company should think its priorities over and take efforts to ensure fair ethical relations with its shareholders.