I am asked to assess how McDonalds could improve their operations ethically.

AS and A Level Business Studies

Name: Mirwais Haidari

BND Business Studies Year 2 Group 1

Unit 38 – M1

Lecturer: Rose Ajani

Task 1b) I am asked to assess how McDonald’s could improve their operations ethically.

[P2]

Definitions:

Stakeholder: A stakeholder is an individual or a group affected by or has an effect on, the business. It can include internal stakeholders such as employees and managers and external stakeholders such as shareholders, banks, customers, suppliers, competitors.

Impact on the business and stakeholders of the way the business operates

A business is a separate entity from its owners that is made up of an interlinked system where the way the system is run and operated affects all the external areas as well as external stakeholders that are part of this system. The way McDonalds operate has a direct impact on the business itself and its stakeholders as they are influenced by the business’s performance, position, reputation and size. As far as the business is concerned, unethical behaviour would have implications on the business such as lack of revenue, bad image, deterioration of reputation and profitability, whereas good ethical behaviour would help McDonalds expand and grow profitably while improving on its existing reputation. The stakeholders would flourish if the business’s performance is positive in an ethical manner. For instance, shareholders of McDonalds would get good long lasting returns in the form of dividends if the business is ethically friendly as the business will benefit from long term business relationship with its customers and suppliers, hence allowing long term profits for the business.

Implications of operating ethically

Adapting business behaviour

We live in a world which is inter-linked and the availability of state-of-the-art communication systems have made the act of instantaneous interaction possible. The rumour of an incident spreads so fast that if McDonalds do something unethical in its London restaurant, the whole world would know about it within minutes. Therefore, a large-scale business like McDonalds today takes their ethical responsibilities very seriously. They are therefore prepared to adapt their behaviour to avoid accusations of doing wrong, as McDonalds’ corporate governance statement shows; “McDonald’s success is built on a foundation of personal and professional integrity. Hundreds of millions of people around the world trust McDonald’s. We earn that trust everyday by serving safe food, respecting our customers and employees and delivering outstanding Quality, Service, Cleanliness and Value. We build on this trust by being ethical, truthful and dependable.” In order to avoid consequences due to unethical behaviour, they must address ethical issues to make sure the company’s employees and stakeholders know about it.

Responding to ethical pressures

This is one of the implications of operating ethically. There is growing pressure placed on McDonald’s management to take account of ethical concerns. Human right activists and environmental pressure groups are examples of groups exerting pressure on McDonalds. The company in return exert pressure on their own trading partners such as suppliers, farmers, employees to follow socially responsible policies.

Implementing ethical practices

In order to operate ethically, many businesses including McDonalds have begun to implement ethical practices in their operational activities. McDonald’s fast food chains increasingly work to offer healthy options. ...

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Responding to ethical pressures

Implementing ethical practices

Influence of stakeholders and pressure groups

Many businesses in pursuit of their primary goals cause damage to the planet. Environmental issues are the focus of many pressure groups such as Greenpeace and Friends of the Earth; whose work attracts much media attention and government always considers the voice of public opinion. A business such as McDonalds must take care of its public image so to ensure long term business and survival. This is why McDonalds have CSR policies outlined clearly.

Complying with relevant legislation and codes of practice

In the UK, McDonalds must comply with a large range of legislative regulations such as those relating to health and safety, employment, environmental and pollution.

European Union law

As the UK is part of the European Union, the EU law therefore applies to the business operating in the UK. The EU law addresses issues such as environmental pollution and employment. McDonalds must meet these requirements in order to be an ethically friendly business.

Conflicts of interest between stakeholder groups

It is vital for McDonalds to identify its stakeholders. All the stakeholders have different sometimes conflicting interests and priorities. The business must try as far as possible to take into account these various stakeholder interests whenever a decision needs to be made. Within McDonalds, conflicts of interest can take place at all times. One example of such conflict of interest is that McDonalds’ shareholders want good dividends which require high profits. This interest collides with the company workers who want high wages which increases costs and lower profit. Shareholder’s interest of higher profits also collides with suppliers who want higher profits which increase the cost of sales and thus lower the profit.

The managers of McDonalds always want to reduce the costs; however, customers want good quality products which mean higher costs of raw material and therefore higher expenses for the business. Such conflicts of interest could be overcome if McDonalds compromise and take on a balanced approach to meet everyone’s interests.

McDonalds’ aims and objectives could also have a possible conflict with certain stakeholders’ interests. For instance, if McDonalds aims to maximise profit for the sake of shareholders; their objectives to meet this aim might be things such as reduced labour costs by redundancies which would see some employees out of their job as well as causing the government increased costs from unemployment claims. Even the local residents’ livelihood could be affected as redundant employees would mean less spending power and less money.

Benefits to the business on the way in which it is operating

Benefits to the business

The benefits of ethical business behaviour to McDonalds is that the business would get potential gains of acting ethically. The business would have increased revenues from its trading activities as more customers will be attracted to the company and lured away from competitors; seeing that McDonalds treat animals kindly, take part in improving the community, treats international suppliers good, offers decent remuneration to its employees and offers products that are healthy and does not have an impact on the consumers’ personal health and environment. Ethical behaviour would enable McDonalds to establish a long lasting profitable relationship with its partners such as consumers, suppliers and the government. They would also be able to expand and grow as they are more likely to get secure finance from financial investors as the company with good ethical reputation would do good on the stock exchange in terms of its share prices.

McDonalds is a multi national company serving over 46 million customers daily in its restaurants. Ethical behaviour would help them to retain and motivate their employees. Ethical behaviour would mean that the business would pay decent wages to its employees as well as providing them with good working conditions. This would contribute towards their job satisfaction and create an emotional barrier to stop them from leaving the organisation.

Benefits to internal stakeholders

Internal stakeholders such as employees and owners benefit from the business operating ethically. Employees are interested in good working conditions, good wages, training opportunities and job satisfaction which McDonalds behaving ethically would provide them with. The company would also offer them with job security as the business under the ethical laws would have to issue a contract of employment and meet the employment rights.

The owners of McDonalds such as Shareholders and directors owning shares in the business have invested their money in the business and expect good returns in the form of dividends; hence they want the business to make higher profits. They will also want to be sure that the business does not take any unnecessary risks and that its activities do not break any laws.

Benefits to external stakeholders

External stakeholders such as customers, suppliers, the local community and press groups benefit from ethical behaviour of McDonalds.

a) Customers are interested in things such as value for money, good quality products, prompt delivery and excellent customer service. McDonald’s meetings ethical standards would make sure that the consumer’s rights are met and that satisfactory quality products and customers service is provided to customers.

b) Suppliers have business concerns such as the availability of regular orders and prompt payments for credit sales. McDonalds would meet the requirements of the suppliers if they behave ethically.

c) The local community is interested in the impact the business has on the value of their houses or their quality of life. The quality of life can be anything from the amount of traffic, or parked cars in the area, to any factory emissions. McDonalds would avoid any anything that may affect the local community negatively. This would only happen if McDonalds behave ethically.

Drawbacks to the business on the way in which it is operating

McDonalds as a multinational company is always under the spotlights and is under pressure from pressure groups. If the organisation would not meet ethical behaviour; it could have serious consequences for the overall success and reputation of the business. A few drawbacks for McDonalds of not operating ethically; could be loss of customers and therefore lower profits. The company’s reputation and brand image could also be deteriorated if they are accused of any wrong doing.