The meaning of the term “good faith” in the context of Food and Grocery Code of Conduct for Australian supermarket industry regulated by ACCC [Australian Competition and Consumer Commission]
Discuss about the Governance In Australian Superannuation Industry.
The case study is all about describing the dilemma of maintaining the ethical standard while making the required profit margin in the Australian retail industry. In recent years some of the major brands of the retail industry has badly failed as they are failing to earn the required revenue that is needed for keeping them ruining (Burchielli et al.,2009). The most of the brands have discovered that cost reduction is the only option for attaining the required profit target. The case study also describes that how the major players of the industry are applying the strategies of corporate governance as well as auditing and the accounting process for the maintenance of the business ethics while practicing cost reduction. As per the case study the leaders of Australian garment retail industry are trying to impose a price leadership model where the leaders of the industry will set a high price for the products so that the suppliers of the industry from the different Asian countries can get a legitimate payment (Benson et al.,2011) . Thus the leaders of Australian garment retail industry are trying to maintain the business ethics while maintaining the profit margin as an initiative of reducing the exploitation of the suppliers of the world garment industry. Most of these suppliers and the workers are working in the informal sector and are often subjected to exploitation in terms of low wage offerings.
The code has been developed by regulating the conduct of the retailers and who sellers of the grocery industry who are working in Australia with their suppliers. The code generally describes the norms that should be followed by the retailers and whole sellers when they are closing a deal or agreement with the suppliers’ for the purpose of taking the supply of groceries for a specific period of time. The code is voluntary in general however the code is binding on those retailers as well as whole sellers who are being elected to be bound by giving a written notice to ACCC. The code has been developed as a part of enforcing the Competition and Consumer Act 2010 and the Australian Consumer Law.
As per the code the retailers as well as whole sellers[on whom the code is binding] has the obligation to operate in good faith during the stage of bargaining , during the period of agreement and during the handling of disputes with the suppliers. Here a retailer is considered as a corporation who carries a business in the grocery super market and the whole seller is another corporation who purchase the groceries from the suppliers to resupply them in the super market and the supplier is the person who is engaged in the process of carrying a business of supplying products to another person who is engaged in making retail sales (Hughes et al., 2013).
Why Food and Grocery Code of Conduct and ACCC has not taken the move to transform that code into a law?
The term “good faith” here requires that the retailers or wholesalers should apply their power for reasonable purposes only. The lack of good faith will be identified by the Australian court as well as the ACCC when retailers as well as whole sellers have acted dishonestly for the fulfilment of some ulterior motive and deliberately have undermined the benefit of the other party of the contract (suppliers) (Australian Competition and Consumer Commission, 2018).
The Food and Grocery Code of Conduct is voluntary code, which means that the code is not binding upon the every other retailer and whole sellers who are operating in the Australian grocery industry unless and until the retailer and whole sellers send a notice to the ACCC which is the administrating organization of the code of conduct and has the power to enforce the compliance of the contract only in case of those retailers and whole sellers who have voluntarily made them obliged to the code by sending a notification to ACCC. When the whole sellers and retailers are sending notification by themselves to ACCC then they are displaying the interest that they are ready by themselves to follow the code and same is expected from them by ACCC.
The code requires that the retailer and whole sellers should act in good faith while perusing a contract with the suppliers and it is only possible when the retailer and whole sellers voluntarily ready to act as a honest party to the contract made between the retailer and whole sellers & the suppliers of the grocery industry. Mere enforcement of the code by using legal force will not ensure the proper application of the code of conduct and that is why ACCC ,has not taken the move to transform the voluntary code of conduct inn to a law which will be binding on every other retailer and whole sellers who are operating in the grocery industry and a forcibly imposed code of conduct may not give the required results as expected and that is why the acceptance of the code has been kept voluntary.(Kelly et al.,2009).
A senior manger will make the legitimate use of the decision making power when he is making the decisions in such a way so that it will bring benefit for his subordinates as well as the organization as whole and if he is making a decision that involves any other party other than the organization then the legitimate use of the decision making power will take place if the decision taken is bringing benefit for all the parties to the contract.
Legitimate use of decision making power as a senior manager and/or group
In case of the grocery industry the suppliers are mainly dependent over the wholesalers and retailers who act as the distribution channel for the suppliers for selling their goods in the grocery market. So the wholesalers and retailers group have the better barraging power in making the price decision and therefore should take the price decision in such a way so that profit margin of the suppliers as well as wholesalers and retailers remains ensured and such decision making can be described as the legitimate use of the strong bargaining power of the wholesalers and retailers group (Jensen, 2010).
Chief Financial Officer of an organization has the burden to maintain a very high ethical standard and as per ethics he should not act any way that leads to the violation of the Food and Grocery Code of Conduct. Now if he acts as per the request of the CEO or the senior manager of the company then it will be bad kind of violation of the code of conduct has he is deliberately undermining the interest of the suppliers. But if he goes against the request of the CEO then he will be going against the interest of the company. Therefore in such a situation to fulfil the dual need of maintaining the ethical standard and fulfilling the interest of the company the CFO should honestly ask for some extension of the credit period by giving the legitimate reason of weak cash position of the company to the suppliers and the final date of payment should be decided by the supplier so that his interest can be maintained to some extent (Gordon et al.,2009).
In the developed countries like UK the minimum per hour wage is £7.38 pound in USA it is $7.25 and in Australia it is $17.70 (BBC News, 2018). So the above rates are the legitimate rates that will be paid to the workers in the respective countries for each hour they are devoting for work. But according to the Fairfax journalist Adele Ferguson there are numerous cases of wage fraud that has taken place in franchise businesses, in 7-Eleven convenience stores, Pizza Hut outlets, Domino’s outlets where the workers were forced to work at a rate as low as $5 per hour (The New Daily, 2018). The employment condition of the workers improves with the rise of the bargaining power of the workers State minimum wage rates in the United States as of January 1, 2018. A strong bargaining condition allows a worker to bargain for a legitimate wage and good working environment. If in a developed country like Australia the workers of the, unorganised sectors [whose cash receipt is not recorded in government earnings recording] are facing such in- justice then it is very difficult to implement the employment standard of the developed countries in the under developed countries where the workers are having a very weak bargaining power (ABC News,2018).
Legitimate response of Chief Financial Officer [CFO] who is approached by the CEO or other senior manager to deliberately delay the payment to the supplier to improve company’s cash position
Price leadership model is said to followed in the market when a firm take the leading position in determination of the price of the product in the market and all other firms in the market has no other option other than following the price set by the leader as the leader is holding the dominant share of the market.
As per the Oxfam Australia survey the Australian consumers are willing to pay higher prices for the garments if the weak suppliers [from Asian countries, especially Bangladesh] who are under paid get a better payment for their supplies for the fulfilment of the profit ethics of the Australian wholesalers and suppliers. On the basis of the survey findings it is the duty of the senior manger of a big company playing a leadership role in the garment industry to convince the CEO as well as CMO to acquire the garments at a higher price so that in one hand the weak Asian suppliers get a good wage and in the other hand the other retailers and wholesalers of the Australian garment industry are forced to follow the higher price of the garments set by the leader and thus the ethics in profit making will be maintained to some extent (Dobija,2011).
Looking at the wage exploitation of the garment suppliers’ of the different Asian countries especially Bangladesh the Garment retailing and wholesaling companies of Australia are making the audit of the suppliers of the garment in order to asses that how the workers working under the suppliers are being paid and treated. The suppliers audit has been done for the fulfilment of the ethical concern but still the retailing and wholesaling companies are facing it difficult to prevent the audit fraud when the suppliers are forcing the workers to tell wrong facts regarding the wage they receive and the condition under they work (Trotman & Wright, 2012). In such a situation the retailing and wholesaling companies can collect the truth by employing agents who will personally interview the workers in absence of the suppliers who is the employer of the suppliers]and the facts will be collected from them with evidence of wage payments and working condition so that the suppliers can be confronted with the event at the event when they are making audit fraud by forcing the workers to tell wrong facts to the auditor and thus audit fraud can be minimised.
To what extent the developed country standards of employment conditions can be applied less developed countries? What information and/or frameworks can you use to determine what is appropriate?
Integrated reporting is a process of communication used in a business organization for the purpose of the generation of the periodic integrated report that will describe the value created by the organization through the application of the different corporate strategies and the corporate governance within that particular period which may be a short or along period. The generation and the presentation of the integrated reporting will help the management to understand that how much value has been generated and added to the business by the different designated persons and therefore remuneration for the each designation will be adjusted as per the value added by the designation as reflected in the report.
As a part of measuring and rewarding the performance of the CEO and other senior managers the business often takes the decision that a part of the remuneration of the CEOS and the senior managers will come from the share holder’s return. Therefore this part of the remuneration of the senior mangers is “at risk” as the part of the remuneration will be achieved if share holder’s return is generated (Core & Guay, 2010).
The core level workers, suppliers, wholesalers, retailers, buyers, society, government and employees of the wholesaling and retailing companies and share holders of such companies are the major stake holders of a super market company and the company should develop and employ corporate strategies that will be ethically correct and bring legitimate benefits for all the stake holders of the company (Karpyn et al.,2010) .
Conclusion:
The discussion of the above questions on the basis of the given case study reveals the fact that it is essential for the players of an industry to operate on the basis of ethics so that every stake holders of the industry get benefitted in legitimate way (Richards et al., 2012). The sustainability of an industry depends upon the proper functioning of all the stake holders of the industry who are connected with each other and operates in a chain. So if the unethical behaviour of one group of stakeholder or player of the industry prevents the other weak players of the industry to gain their legitimate benefit then it will be difficult for the industry to operate in a transparent fashion and exploitation will destroy the long term sustainability of the industry.
References
ABC News. (2018). How does Australia’s minimum wage compare?. [online] Available at: https://www.abc.net.au/news/2016-05-31/minimum-wage-how-does-australia-compare/7461794 [Accessed 14 May 2018].
Australian Competition and Consumer Commission. (2018). Food and Grocery Code of Conduct. [online] Available at: https://www.accc.gov.au/business/industry-codes/food-and-grocery-code-of-conduct#good-faith [Accessed 14 May 2018].
BBC News. (2018). What is the living wage?. [online] Available at: https://www.bbc.com/news/business-20204594 [Accessed 14 May 2018].
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Burchielli, R., Delaney, A., Tate, J., & Coventry, K. (2009). The FairWear campaign: An ethical network in the Australian garment industry. Journal of Business Ethics, 90(4), 575-588.
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Dobija, M. (2011). Labor productivity vs. minimum wage level. Modern Economy, 2(05), 780.
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Jensen, M. C. (2010). Value maximization, stakeholder theory, and the corporate objective function. Journal of applied corporate finance, 22(1), 32-42.
Karpyn, A., Manon, M., Treuhaft, S., Giang, T., Harries, C., & McCoubrey, K. (2010). Policy solutions to the ‘grocery gap’. Health Affairs, 29(3), 473-480.
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State minimum wage rates in the United States as of January 1, s. (2018). Minimum wages in the United States 2018, by state | Statistic. [online] Statista. Available at: https://www.statista.com/statistics/238997/minimum-wage-by-us-state/ [Accessed 14 May 2018].
The New Daily. (2018). This is the new face of creeping underemployment | The New Daily. [online] Available at: https://thenewdaily.com.au/money/work/2017/02/19/wage-rise-award/ [Accessed 14 May 2018].
Trotman, K. T., & Wright, W. F. (2012). Triangulation of audit evidence in fraud risk assessments. Accounting, Organizations and Society, 37(1), 41-53.
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