Question

Narges is a store manager in the Vancouver location of Elysia Kim Fashion’s Inc. (“EKF”), a moderately profitable international women’s fashion store with over 100 locations in 65 countries around the world.

While EKF has struggled in the retail industry with flat sales and heavy competition from other women’s fashion retailers, for the first time in four years EKF showed a modest rise of four percent in its annual net profit from its worldwide store sales. This prompted the company to reinstate its Christmas bonus of $200 for full-time and $100 for part-time employees in the profitable stores, a practice EKF suspended during the non-profitable years.

Narges initially secured a position as a sales clerk with EKF Vancouver seven years ago. She was a very conscientious and diligent employee with a friendly personality that colleagues and customers loved. Her former store manager took notice of this and fast promoted Narges to an assistant manager position.

When the store manager decided to move to EKF’s Toronto, Ontario location, she recommended Narges to EKF’s Western District manager as her successor in the Vancouver store. The Western District manager met with Narges and immediately took a liking to her. She hired her on the spot to replace store manager.

While Narges’s promotion to the store manager position came with an increase in pay, it was only marginally more than the sales clerks’ she supervised made and certainly, not sufficient to allow her to comfortably support her family.

Narges resides in Vancouver, British Columbia with her disabled husband and their twin fifteen-year old daughters. She is the sole breadwinner in her family. Narges’s husband was injured at work in an industrial accident five years ago. He was permanently incapacitated and has been unemployed ever since. He receives a small disability pension, which partially pays for the family’s very modest two-bedroom rental apartment.

The twins, both grade 8 students in the local high school, have friends and classmates who frequently wear the trendiest teen fashions and gadgets supplied by their well-to-do parents. The girls often asked Narges to buy them expensive clothes, shoes and accessories but Narges was unable accede to their requests. As the sole breadwinner in the family, Narges has more pressing concerns to deal with such as unpaid bills for utilities, credit card debt and transportation costs for the family. Her income and her husband’s disability cheque did not cover all of the family’s costs and Narges almost never had any money left over at the end of the month. In fact, she often had a deficit that she covered by using her credit cards. She found herself with mounting credit card debt and no way to pay the balances when they were due.

Narges often had to rely on the charity of the local food bank and her friends and relatives to make ends meet. She received assistance from them in the form of non-perishable food items like canned goods, peanut butter, dry soups, pasta and the like. Her friends also gave her clothes their kids either grew out of or no longer wanted because they were out of style. The twins resented having to wear these ‘hand-me downs.’

As a store manager, Narges was privy to the store’s sales and knew that her store was doing very well relative to other EKF stores. She approached the Western District Manager and requested a 10% increase in her salary but she informed Narges that EKF’s head office set salaries and she had no discretion in the matter. The District Manager cautioned that it would be futile to ask the head office for a raise as past efforts by others had been met with swift rejection. As a result, Narges retracted her request for a raise.

While the retail clothing industry is known to pay their staff relatively low wages, EKF, in particular, has a deserved reputation for paying its staff the lowest salaries in the industry. Most of the employees at EKF stores were transient part-time workers between the ages of 18 and 25 years looking to make extra pocket money. They did not have serious objections to making minimum wage working at EKF because they did not carry the responsibilities of supporting a family like Narges did.

With mounting debt and family pressures, Narges was growing resentful. She felt that she had little to show after working for EKF for seven years. She believe her prospects were limited at EKF and felt unappreciated and undervalued. Desperate to earn more income to support her family, Narges came up with a fictitious refund scheme that involved processing a transaction as if a customer were returning merchandise, even though there was no actual return. She discovered a weakness in the automated payment system, which allowed her to process false returns and then credit herself using various pre-paid Visa cards.

After implementing the refund scheme for a couple of months and supplementing her income by $300 to $400, Narges realized that each time she processed a false refund she had to enter her employee identification code. She was concerned that EKF would find it suspicious that she processed a disproportionate number of refunds relative to other employees. As a result, she attempted to recruit three young and impressionable sales clerks, Sarvin, Medina and Jennifer, to join her scheme. Narges felt that their involvement would divert attention from her and enable her to share in the proceeds of their fraudulent transactions while keeping the refunds she processed independently of them. She picked these particular employees because she had mentored them at EKF. Sarvin, Medina and Jennifer viewed Narges as a mother figure and often confided in her about their personal problems. Moreover, Narges held firing and disciplinary authority over them and decided what shifts, if any, she would allocate them. Therefore, Narges felt she could trust them to participate and not blow the whistle.

Narges felt particularly confident that Sarvin would be a willing participant. She had mentioned to Sarvin, on more than a couple of occasions, an assistant manager position might soon be available to her along with an associated pay increase. However, while Medina and Jennifer, without any hesitation, joined Narges in making false returns, Sarvin felt conflicted and told Narges that she needed to think about it.

Sarvin very much liked Narges and valued her mentorship, but she was brought up to respect others’ property rights. She often remembered the great hardship her parents experienced in uprooting the family from East Africa to immigrate to Canada with a view to providing her and her older sister safer and better lives and a good education. She did not want to disappoint her family.

Although Narges assured Sarvin that there was no risk in participating in the refund scheme, Sarvin feared the likelihood of being caught and losing her job. She had greater aspirations than working for EKF for her entire career. She wanted to go to university and eventually to law school and make her parents very proud of her. Working at EKF was a means to that end, as she was saving tuition money from every pay cheque she received from EKF. Sarvin did not want to jeopardize her job, future plans and potential career in law if she was caught, fired and received a criminal record.

Narges, Medina and Jennifer are growing impatient. They are pressuring Sarvin to process the false returns, too.

Questions

1. What are the ethical issues? List 4-5 issues.

2. Who are all the stakeholders? And what are the (vested) interests of each stakeholder? (i.e. what do they stand to gain or lose). List 6-7 stakeholders and the vested interest.

The answer should be related to business ethics topics.

Answer 1

1)Ethical issues related to this case:

On the part of Management

a)The minimum pay that Narges was getting even after spending so much year with the store. It is clearly stated in the case that retail clothing sector pay their staff relatively low wages ,which is demotivating and their wage structure was such that the difference between the wage of sales clerk and store manager was minimum.

b)The store believe in hiring part-time workers between the ages of 18 and 25 years looking to make extra pocket money having no serious objections to making minimum wage working at EKF,hence employees like  Narges have to suffer because of this behaviour.If there was the pay raise as other industry the situation would have been something else.The whole hiring process is based on this fact of part time hence the employees like her has to suffer.There must be separate policies regarding this system of hiring.

On the part of Narges:

a)Fraudulent activities relating to refund scheme.This was purely unethical on her part.

b)Hiring three young and impressionable sales clerks just to  join her scheme,is again unethical as she was not only herself doing unethical job but was hired them with a wrong intention.

c)Pressurizing Sarvin to do the same was purely enthical.Forcing someone to do wrong is against any sort of ethical principles.

2)Here the stakeholders are all those who are impacted by the stores activities.The brand EKF, employees, employers,investors,and yes of course the customers.

Brand EKF:EKF brand is dependent on the performance of its store.Any unethical news can damage its brand value in the market and any image boosting activity can increase its goodwill in the market.The brand interest is big here and long term till the organization survive.

Employees:The people who work there are always the biggest resources of any organization.Employees are having the direct stake in the company in that they earn an income to support themselve.Any unethical activity by any one of the employees effect each of them.

Customers:The relationship of buyer and seller is based on trust.Customers can be said as the actual stakeholders of a business,they are the one impacted by the quality of service/products and their value.Any unethical behaviour directly impact the brand value of the product as well as the breach of trust can lead to loss of potential buyers.

Investors:An investor never put their money in any unethical organization.Investent is based on organization performance and the brand.Investement of capital will be doubtful in case of if any unethical practices is being followed in organization.

Suppliers and vendors:The unethical activity has impact on the suppliers and vendors also as Suppliers and vendors sell goods or services to a business and any unethical activity can break the trust which can lead to disrupted service.Both the party loose business due to unethical practices.

Community:The community is said to be the surrounding.Unethical activity hampers the atmosphere too.A wide range of impact can be seen on the community related to job,economic development,trade association.Here community include social,financial as well as trade communities.

Owners:They are those who own the business and has built the brand.Ethical principles as working as per them enhances the brand value thereby increasing their goodwill and profit but unethical practices can lead to even closure of the business.It is customer oriented business which is based on trust and once the breach of trust occur it lead to loss of potential customer and will eventually lead to loss.