BUSE201 Corporate Governance and Business Ethics Case Study

Introduction: Ethical Practices and Directors’ Duties in RFG Operations

Ethics are the set of moral principles which guide the people behaviours. These morals are enhanced by the cultural practices, social standards as well as religious influences (Shaw et al, 2020). Business ethics is referred as moral policies, principles as well as values which govern the way in which organizations as well as people engage in the business activities. The aim of this report is to analyse the procedures and operations including in the Retail Food Group (RFG), an organization, which located in Australia. This will further emphasize on the actions which the organization will ethically conduct business practices in order to implement the sustainable practices.

Background

Retail food group (RFG) is an international food retail firm which headquartered in the Australia. They are the major multi brand retail food franchise owner which supply high quality coffee products (Retail Food Group, 2024). The firm communicate with the 170 million people and has around 70 million customer transactions. The organization mainly offers high quality products to the customers under the category of coffee, bakery as well as dairy. They also have international licences for the companies in the overseas market which are supported by the partnership with the top most organizations like UAE based firms for the coffee facilities. The firm’s core focus is on the franchise partners to be very efficient as well as successful to achieve the high profitability. In the recent years, RFG has faced the publicized business scandals which have stressed on the public confidence in the integrity of the business world. An ethical breach includes the violation of established ethical standards or principles within the specific fields.

Analysis

Description of the Incident

In 2017, RFG has engaged in the unconscionable conduct as well as made false misleading interpretations in the dealing with the franchisees within Australia. The firm manages as well as operated the range of franchises such as Brumby’s Bakery, Michel’s Patisserie, Gloria Jean’s Coffee as well as Donut King. The firm has acted the unconscionably as well as involved in the misleading, false as well as deceiving conduct when it licensed 42 loss making commercial stores in the year of 2019 (RFG to pay certain franchisees, 2022). This has been alleged that RFG major financial information from the franchisees who were buying the loss making corporate stores has misleading representation about profitability. RFG had fully agreed with the payment to affected franchise with the outstanding vendor finance loans. These payments will avoid the continuous as well as costly legal proceedings being pursued by the distressed franchisees. RFG has also paid the 5 million to the franchises of the Michel Patisserie stores who paid the charges in that franchise marketing fund in 2017. The parties have agreed with the processing’s which the ACCC has commenced against the RFG in the year of 2020. This unacceptable misleading depiction made in its trade with the franchisees. The action has alleged the franchise firm to engage in the unconscionable conduct as well as made the misleading representation in their dealing with the franchisees.

Breach of Directors' Duties

Section 180 sets the specific rule in which the firm’s officeholder has exercised their discharge as well as powers their duties with the diligence as well as care. The responsibility is subjected with the business judgement rule which needs a director to make the judgement in good faith as well as for the specific purpose. This section also informs about the subject matter of the judgement with the extend duties of the director as well as other firm officers (Lipton et al, 2021). They should be act in the faith of firm’s interest as well as proper aims. They are also prohibited from the position to gain the benefit for cause detriment to the firm. The Australian securities and investment commission (ASIC) is accountable for the court against the firm officers who has breached these provisions. Section 184 makes it the criminal offence for the directors to act dishonest in the failure to discharge their duties in the good faith of the firm (General Duties of Directors - Corporations Act 2001 (Cth), 2024). RFG has accepted these allegations by agreeing to make the payments which affect franchisees on the basis of price paid for the franchise less than the amount of the vendor finance loans.

Ethical Analysis

Utilitarianism implies for the ethical theory which analyses the right from wrong by emphasizing on the specific outcomes. This theory emphasizes on maximizing the overall good of society in which the firm operates. For RFG operating their business according to the processes set forth by the franchisor in the franchisee agreement is challenging. These restrictions include the products and services can be offered at different price within varied geographical territory. RFG actions can cause major harm to the franchise organizations. This can also lead to unrealistic expectations, disputes, legal actions as well as dissatisfaction.

Unfair contact terms can result in franchisee feeling resentful, exploited as well powerless. This in turn impacts their performance, motivation as well as loyalty. A RFG might need the franchisee but the supplies from them at the inflated prices from transferring their franchise without the consent. Lack of support happens when the RFG fails to offer the timely assistance and feedback the other party like marketing, training as well as resolving the issues related to complaints. To overcome this, both the parties need to maintain the open communication and maintain the regular flow, collaborate to accomplish the goals as well as share information (Yahiaoui and Ezzine, 2020). Unethical business practices can erode the morale, trust as well as motivation of the workers which lead to high turnover, low productivity as well as rising conflicts. This can also harm the suppliers, customers, competitors as well as communities operating in the violating interests and rights. Compliance risk includes the violation of regulations, laws, codes and standards which govern the RFG activities as well as operations.

Virtue ethics is a major term for the theories which focuses on the role of virtue and character in moral philosophy by acting in order to bring the better outcomes. The main challenge faced by the RFG is the inherent conflict among the financial success as well as ethical values. While RFG strives to accomplish the financial development are expected to adhere with the ethical standards. On the other hand, the pursuit of the financial growth can lead organizations to overlook the ethical consideration as well as focus on the short-term gains over the long term success (Naciti et al, 2022). RFG engaged in the unethical practices like ignoring environmental regulations, exploits employees and also misleading customers. This conflict among the financial success as well as ethical values can arise from the stress to meet the financial goals, lack of clear ethical guidelines as well as competition in the sector.

RFG prioritizes on the financial growth at the expense of ethical values which might harm their brand reputation as well as lose the trust of the loyal customer which various regulatory obligations. However, finding the right balance in the moral responsibility as well as profitability is complicated issue which needs careful decision-making as well as commitment to uphold the ethical standards (Haneesha, 2023). The major goal for RFG is to create profit as well as ensure financial success. On the other hand, pursuit of the financial gain has created the clash with ethical responsibilities as well as values. However, by integrating the ethical considerations in the business operations, RFG can create the culture of accountability which permeates all level. By promoting the ethical behaviours, leaders can ensure long term profitability which helps in mitigating the risk linked with unethical practices.

Carroll's pyramid of the CSR is a structure which depicts the significance of 4 dimensions such as legal, economic, ethical as well as philanthropic. This has shifted towards developing the shared values, focusing societal and economic value. RFG can generate the shared value which benefits their society and bottom line by including the social factors within business plan. Ethical governance is vital for RFG which emphasises on conducting affairs with transparency, integrity as well as accountability (Nadeem, 2021). By adhering with ethical standards, maintaining transparent policies as well as motivating fair treatment to the employees contributes in financial reporting. Transparency is significant for creating trust with stakeholder through the open communication regarding the performance, corporate techniques as well as social influences.

Accountability measures such as stakeholders’ engagement as well as independent overview ensure that companies fulfil their ethical responsibilities which act in the way that benefit society (Gurayah, 2024). By embracing the ethical standards, promoting transparency as well as emphasizing long term values, RFG can strike the balance among ethical practices and profit. The firm by focusing on CSR activities can promote the positive values which enhances the customer traffic as well organization profits. Social responsibility initiatives can enhance employees’ morale at the workplace which lead to productivity and boost profits.

Edward Freeman’s stakeholder theory signifies that stress the interconnected relations among the business, employees, suppliers as well as communities stake in the firm. The theory suggests that the main responsibility of the RFG is to maximize the profits for the shareholders. Marketing initiatives led by RFG plays a vital role in accomplishing the franchisees reputation as well as customer experience in all the locations. RFG is expected to offer accurate and comprehensive information to the specific franchisees. On the other hand, the temptation to exaggerate particular facts makes the franchise opportunities more tempting to ethical consequence (Mercur, 2023). Contracts among RFG and franchisees need to support the firm with the rights of the franchisee. Ethical issue emerges when franchisee, under stress to reduce expense which harm the image of the franchise.

To ensure the transparency, it is significant for the RFG to disclose all the specific information to the potential franchisees. This includes details about the financial projections, business model as well as risk included. By offering comprehensive information, stakeholder to take informed decisions as well as avoid misinterpretations. RFG should focus on providing accurate and timely reports to the franchisees which allow them to access the health of the operations as well as make informed decisions. To promote the equity and fairness, RFG needs to strive on creating the inclusive environment which promotes equal opportunities for franchisees. Further, this includes incorporation of the practices and policies which prevent bias as well as discrimination. This in turns ensure that franchisees are evaluated on the basis of capabilities.

Recomendations

1. Transparency: RFG needs to provide the clear documentation as well as ensure that all the financial dealing is transparent. They also need to disclose all the personal interest which might impact the decision making (Xue and Basioudis, 2022). RFG should focus on fairness, transparency and honesty in the dealing with licensees, franchisees as well as customers.
2. Ethical decision making: by focusing on ethics, RFG can build trust, retain top talent, attract employees, manage risk efficiently and make positive impact on society as well as long term profitability. Ethical decision making will assist RFG to avoid the legal issues as well as scandals which can damage their brand image. Ethical practices also enjoy the better financial performance in the long term.

Conclusion

By summing up, it has been concluded that RFG needs to engage with the stakeholder by understanding their aspirations as well as requirements. Open and transparent communication plays a vital role in resolving the ethical issues. RFG should make the clear guidelines which ensure that all the franchisees are aware of the ethical practices as well as standards. Regular communication channels must be created to handle concerns as well as offer guidance when ethical issues take place. By equipping the people with the necessary skills and knowledge can allow the RFG to navigate the ethical dilemmas more efficiently. RFG must also motivate reporting of unethical behaviour as well as offer channel for the whistleblowing.

References

Books and Journals

1. Gurayah, J. R. (2024). Entrepreneurial Business Ethics and Good Governance. In Research Anthology on Business Law, Policy, and Social Responsibility (pp. 503-519). IGI Global.
2. Haneesha, K. (2023). Business ethics and corporate Governance in India.
3. Lipton, P., Herzberg, A., and Welsh, M. (2021). Understanding Company Law. 21st ed. Thomson Reuters.
4. Mercur, S. A. (2023). Corporate Governance and Ethics for Sustainability. Handbook of Research on Solving Societal Challenges Through Sustainability-Oriented Innovation, 215.
5. Naciti, V., Cesaroni, F., & Pulejo, L. (2022). Corporate governance and sustainability: A review of the existing literature. Journal of Management and Governance, 1-20.
6. Nadeem, M. (2021). Corporate governance and supplemental environmental projects: A restorative justice approach. Journal of Business Ethics, 173(2), 261-280.
7. Shaw, W. H., Barry, V., Muntean, D., Issa, T., Ilott, G., & Catley, B. (2020) Moral Issues in Business. 4th ed. Cengage Learning.
8. Xue, B., & Basioudis, I. (2022). Teaching corporate governance and business ethics in an international context. In Embedding Sustainability, Corporate Social Responsibility and Ethics in Business Education (pp. 172-184). Edward Elgar Publishing.
9. Yahiaoui, N. E. H., & Ezzine, A. (2020). Corporate governance and business ethics: Evidence from a sample of Algerian corporations. Corporate Governance and Organizational Behavior Review, 4(1), 15-29.

Online

1. Retail Food Group, 2024. Online. Available through. :<https://www.rfg.com.au/ >.
2. RFG to pay certain franchisees, 2022. Online. Available through. :<https://www.accc.gov.au/media-release/rfg-to-pay-certain-franchisees-as-accc-settles-legal-action >.
3. General Duties of Directors - Corporations Act 2001 (Cth), 2024. Online. Available through. :< https://www.lawhandbook.sa.gov.au/ch05s04s03.php>.