Introduction

Apple is ranked as the most valuable company in the world by Forbes and their net

worth is about half a trillion. In year 2014, Apple recorded a net sales of $ 182.8 billion. In

recent years, globalisation of world economy has allowed businesses to expand or relocate

their manufacturing plant to countries with lower labour costs and search for suppliers from

all over the world. Globalisation is widely used to described a variety of cultural, economical,

social and political changes that have shaped the world from much celebrated revolution in

information technology to the diminishing of national and geo-political boundaries in an ever

expanding, transnational movement of goods, services and capitals (Guttal, 2007). This has

allowed Apple to build up a supply chain starting from raw material supply to manufacturing

of finished goods in many different countries such as China, Japan and Taiwan. However,

BBC Panorama recently conducted an undercover investigation on Apple’s manufacturers

Pegatron in China and tin suppliers in Indonesia and the results are compiled into a video that

bring shocks to the world. Apple’s manufacturers are found exploiting the workers, providing

poor living conditions and forced to work long hours. While Apple’s tin suppliers in

Indonesia are found to buy tin from illegal mine. These findings have dampened the image of

Apple as what their suppliers and manufacturers did were not complying the supplier code of

conduct of Apple. This has lead to people’s perception that although Apple has put in effort

in ensuring ethical code in supply chain, what they did is insufficient or there is probability

that Apple did not enforce their supplier code of conduct unlike what they told the public.

This essay includes the justification of Apple’s behaviours using shareholders and

stakeholders theories and whether people should continue to buy Apple products. In the end

the essay will look into whether company should be held to a higher, lower, or the same

standard of behaviour as individual consumers

1.0 Can Apple justify their behaviour? Use the shareholder and stakeholder theories of

corporate social responsibility to evaluate Apples behaviour and frame your answer

Corporate social responsibility (CSR) generally refers to actions taken by firms with respect

to their employees, communities and the environment that go beyond what is legally required

of a firm (Barnea & Rubin, 2010). It is one of the most significant corporate trends and

companies are allocating more resources to meet public expectations. In the video, it is

mentioned that Apple has made enormous profit over the past few years through their

products. Despite Apple mentioned that they have put in effort in ensuring suppliers

complying with their ethical codes and helped set up non-government organisations to reduce

the number of illegal mining, the results showed that Apple’s suppliers have violated the

ethical codes set up by Apple. Although Apple are not directly in both of the situations, it is

debatable whether can Apple justify their behaviour and whether should Apple be

accountable for these issues.

Shareholder theory is proposed by Milton Friedman and considered as ‘narrow’ view

of CSR. In this theory, Friedman (1962) mentioned that the one and only social responsibility

of a business is to use its resources engage in activities designed to increase its profits so long

as it stays within the rules of the game, which is to say, engages in open and free competition

without deception and fraud. The corporate has no duty to exercise social responsibility, and

the exercise of social responsibility would often deviate from the maximization of profits

(Schaerf, 2007). The corporate executive would be spending someone else’s money for a

general social interest (Friedman, 1970). .Only individual can be said to have social

responsibilities as the free choice of the individual is at the basis of his moral principles

(Mansell, 2013).

Apple can justify their behaviours under shareholder theory. The fundamental of

shareholder theory is that shareholder should be the priority of the corporation and their profit

must be maximised as long as it is within the law. Over the years Apple’s sales have been

increasing every year and this lead to higher net profit available for distribution to the

shareholders. It is in line with the one and only social responsibility mentioned by Friedman.

Although Pegatron did not treat the workers in accordance to the suppliers code of ethics of

Apple, there is no prove that they had violated any laws neither in China nor other countries.

In Indonesia despite Apple’s suppliers may have bought illegal tins, there is no evidence to

link Apple to the behaviour of their suppliers, which mean that Apple is still operating and

maximising profit of shareholders within the law.

However under stakeholder theory Apple’s behaviour is unjustifiable. Stakeholder

theory is considered as the wide view of CSR advocated by Edward Freeman. Unlike

shareholder theory which only take into account the interest of shareholders, stakeholder

theory takes into account the interest of a much wider range of stakeholders. Stakeholders are

persons or groups that are impacted or have impact on the organisation (Frost, 1995). For

example stakeholders can be employees of the organisation, customers, employees from the

supply chains of organisation, environmental organisations and general public. Stakeholder

theory' is the doctrine that businesses should be run not for the financial benefit of their

owners, but for the benefit of all their stakeholders (Sternberg, 1997) . Under stakeholder

theory corporation is required to redistribute benefits to stakeholder and redistribute

important decision making power to stakeholders (Stieb, 2009).

As shown in the video, Apple’s suppliers in China are mistreating their workers by

disallowing leave application and providing low quality living conditions. Under stakeholder

theory, Apple should have solved these problems by communicating with their suppliers and

ensuring that they comply with their supplier ethical codes. Apple cannot defend themselves

by saying that they have done their best or these issues are none of their business because

they are not directly involved in the operation of their suppliers. As mentioned above Apple

should take care of the interests of all stakeholders including the workers in their supply

chain by ensuring the workers are not exploited. Furthermore, Apple’s suppliers in Indonesia

are buying raw materials from illegal sources. Again Apple’s behaviour is not justifiable

under stakeholder theory as they are responsible to ensure that their suppliers comply with the

rules of the industry. Therefore, Apple cannot justify its behaviours under stakeholder theory,

but justifiable under shareholder theory as they are maximising the profit of their

shareholders.

2.0 Will YOU continue to purchase Apple products? ( Please answer HONESTLY) If so

why? If not why not?

Ever since their introduction of Ipod, Apple had attracted numerous customers from

all over the world due to their elegant design, high performance and strong reputation. These

are the few reasons why Apple still remains as one of the best selling company among many

competitors. Despite Apple’s suppliers are involved in controversy such as mistreating the

workers and buying from illegal sources, Apple can argue that their acts are justifiable under

utilitarian. According to Utilitarian the morally correct action is that action with most good

consequences and least bad consequences where all of the consequences on all of those

affected by action are taken into account. The presence of Apple has brought income sources

for the residents around the mining sites, legal or illegal and workers working in the

manufacturing plants. Without Apple, these stakeholders’ welfare may be worse off.

Maitland (1997) indicated that the standards of wages and labours of a country may follow its

classic liberal standard. According to this standard a practice is ethically acceptable if it is

freely chosen by informed workers. Therefore Apple’s tin suppliers in Indonesia cannot be

held responsible for the usage of child labour and dangerous work conditions because the

workers including the child are well informed about the risks of working in an illegal mine.

However, after evaluating the arguments against Apple’s behaviours, I decided not to

continue to buy Apple products. Fundamentally it is because of their immoral treatment of

their workers in the manufacturing plants. Santoro (2000) argued that multinational

corporations are morally responsible for the way their suppliers and subcontractors treat their

workers. Although Apple are not directly in charge of Pegatron, they are ethically responsible

to ensure workers in Pegatron are treated fairly and not exploited. At minimum MNEs have a

duty to ensure that their offshore factories, and those of their suppliers and subcontractors, are

in full compliance with local laws (Arnold & Bowie, 2003). In fact Apple’s tin suppliers were

buying resources from illegal mine, which has violated the law of Indonesia, though it is not

enforced. Indeed Apple has failed to comply with the OECD guidelines. As mentioned in

OECD (2014), multinational companies should contribute to the elimination of all forms of

forced or compulsory labour effective and abolition of child labour. This is shown in the

video when child labours are used at the illegal mine and workers are forced to work

overtime and disallow to take leave. Although OECD guidelines are pure recommendations

and not legally enforceable, Apple is expected to follow them since they are the leading

company in the world. Apple’s behaviours are unacceptable under both views of

multinational obligation. As mentioned by Bowie in Relativism and the Moral Obligations of

MNCs, MNCs are obligated to follow the moral minimum and the morality of the market

place. Market-place morality requires MNCs to honour their contracts and must not free-load

on the rules of the market. Therefore Apple should have ensured that their suppliers fully

comply with their ethical codes and local laws, instead of letting them exploit the workers

and buying illegal tin. Apple’s behaviours are also criticised under the human rights approach

by Arnold (Arnold, Beauchamp & Bowie, 2013). Arnold argues that human rights should be

the foundation for minimum ethical obligation to which MNCs should adhere. MNCs should

respect the right to freedom of movement and fair treatment. Thus in accordance to this

Apple should ensure their suppliers do not violate the human rights of workers in the plant

which they failed as in the video workers were not allowed to take leave and forced to work

overtime.

3.0 Should companies be held to a higher, lower, or the same standard of behaviour as

individual consumers? Use your answer to 2. to reflect upon and critique your answer

to 1. In framing your answer consider the arguments for and against self-regulation

presented in lectures.

Companies should be held at a higher standard of behaviour as individual consumers.

Companies used to have a sole purpose of maximising profit of shareholders in the past.

However in recent years the call for companies to take up social responsibility has increased

as consumers and investors are demonstrating increased interest in supporting responsible

business practices and are demanding more information as to how companies address risks

and opportunities relating to social and environmental issues (Kercher, 2007). As mentioned

by Clarke (2005), in 1932 E Merrick Dodd argued ‘companies, like individuals, should strive

to be good corporate citizens by contributing to the community to a greater extent than is

generally required’ and therefore the corporation as an economic institution has a social

service as well as a profit making function.

The reason why companies like Apple should be held at a higher standard of

behaviour is every company has vast amount of stakeholders which may be affected by every

decisions made by the company. A company has an evolving set of obligations to its

customers, neighbours, employees, shareholders and other investor (Casey, 1972). For

example, investors depend on the information provided by the company to make investment

decisions. Employees depend on the company’s performance for their salaries. Company’s

operation may affect the living condition of general public around its manufacturing plant.

Due to these situations hence companies are required to take up more responsibility than

individuals. Any failure of the company to behave responsibly may have serious effects on

the stakeholders. If a company fails to provide correct financial information for both

shareholders and investors, it is difficult for shareholders and investors to make investment

decisions and may lose money. If a company bankrupts and shut down, all its employers will

lose their income sources and will lower their living conditions. If a company did not operate

according to the environmental demands, the environment around the plants may be

destroyed temporary or permanently, affecting living conditions of public living around.

Therefore it is important to ensure that companies behave according to the standards and laws

and do not put the benefits of stakeholders in stake.

Companies, simply due to their size, have the ability to significantly influence

domestic and international policy and the communities in which they operate (Kercher,

2007). They have more resources, financial and non-financial and more influential compared

to individuals. As their revenues are generally derived from the public and they are allowed

to do business under the law of the country, they are expected to take more responsibility

compared to individuals. For example Apple should involve in promoting human rights in

China especially when their suppliers have huge number of employees working under them.

With Apple should utilise their influence and power on their suppliers to follow the ethical

codes published by Apple. Should suppliers fail to comply Apple should take action by

imposing fine or reducing business with the suppliers. This is in line with the stakeholder

theory where employees in supply chain are one of the stakeholders. With its influences

Apple can also set up non-governmental organisations to convert those illegal mine in

Indonesia to legal or encourage people from the illegal mine to work in legal mine. They

should also introduce new mining technology and provide training at the legal mine to

improve safety of workers and reduce workplace accidents.

In the effort of regulating involvement of companies in social responsibility, self

regulation is normally used. For example, OECD provides guidelines for MNCs to follow

when operating in foreign countries. There are mere guidelines and not legally enforceable.

Self regulation is defined as regulatory process whereby an industry-level, as opposed to a

governmental- or firm-level, organization (such as a trade association or a professional

society) sets and enforces rules and standards relating to the conduct of firms in the industry

(Gupta & Lad, 1983). There are several benefits which self regulation can bring to both

companies and stakeholders. Self regulation reduces risk of over regulation in the industry

(Castro, 2011). Unnecessary rules and regulations will increase cost of production which in

the end is borne by the consumers. As regulations proposed under self regulation do not

require agreement from the parliament which takes a lot of time, the process of rulemaking,

monitoring, enforcement and remediation can be faster. With self regulation, Apple knows

clearly which part of the company and the supply chains require regulations and able to

propose and implement it faster as they as the players in the market have more information

than government regulators. Self regulation also provides a more flexible regulatory

environment than is typically found with state regulation (Caste, 2011). For example OECD

guidelines are developed by experts after detailed research and the guidelines continue to

evolve over time in response to feedback from industry leaders. This may allow firms to

operate more efficiently and minimizes compliance costs. Self regulation avoids sovereignty

problems while still propagating rules beyond national borders (Bernstein & Cashore, 2007).

However, the limitation of self regulation can be seen in this case of Apple. As self

regulation provides guidelines rather than legal rules, companies can choose whether to

follow or not, but the guidelines are set for the whole industry, including companies that do

not follow the guidelines. This lead to free-rider problem (Maitland, 1985) where these

‘outsider’ firms obtain all of the benefits of the regulatory regime without paying any of the

costs (Castro, 2011). Therefore when Apple produced their supplier code of ethics, there are

still suppliers who do not bother about violating the codes. Under self regulation, competitive

pressures may prevent firms from acting responsibly even where it would be in their

economic interest to do so (Maitland, 1985). If the firms are not assured that other

competitors will commit the same amount in social responsibility, they may not follow the

guidelines as they fear they may lose their market share. Self regulation may also lead to an

outcome where companies are not acting on behalf of the society’s interest but mainly to

protect their own interests.

Conclusion

As seen in the video, Apple’s suppliers have been mistreating the employees and

involved in illegal tin buying. It is hard for Apple to say they should not be any responsible

on them. Apple may be able to justify their behaviours during the past where shareholder

theory is the main trend. This is due to both the issues in the video are involved in

maximising the profit of shareholder of Apple without violating any law, despite their

Indonesia suppliers had breached the law, they may argue that their suppliers are different

entities from them. However in recent years the demand for companies to improve their

social responsibility has increased. This is in line with the trend of upholding stakeholder

theory where companies are required to take care of the welfare of stakeholder instead of just

shareholder. If Apple continues to neglect the facts that their suppliers are misbehaving, they

may risk losing some of their loyal customers who take social responsibility of firms into

account when buying their products. Self regulation may have various benefits when

regulating the social responsibility of companies. However as companies are required to have

higher standard of behaviour compared to individuals, self regulation is exposed to

limitations and it is suggested that although self regulation should be continued, government

need to monitor the companies strictly to ensure they are complying with the guidelines. 　

(2906 words including citations)

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