ShafferFashion is a publicly traded company that sells clothing in stores located in low-income communities. In an effort to keep prices low, Shaffer Fashion contracts with factories in developing countries to assemble the garments that Shaffer Fashion’s designers create.
ShafferFashion’s mission statement is:
ShafferFashion’s goal is to ensure that every community has access to affordable, high quality, stylish fashion. We focus on providing jobs and clothing to those who have been disadvantaged by systemic inequities.
The CEO of ShafferFashion has recently become aware of reports that workers in the overseas factories work in unsafe, unhealthy conditions, without adequate compensation.A workers rights NGO has purchased shares of ShafferFashion stock and has introduced a shareholder resolution to the Board of Directors demanding a response to the situation, insisting that ShafferFashion treat all workers in the whole supply chain responsibly. The Board of Directors tasked the CEO to come back with an action plan to address these concerns.
ShafferFashion hired a consultant to provide an analysis of the situation. The report said that since the overseas factories are owned and operated by independent companies, and because oversight is so weak in those countries, even if ShafferFashion was willing to pay more for the garments, there is no assurance that the extra money would go to safer working conditions or higher pay. The consultant identified a US company that has the capacity to make ShafferFashion’s clothing. However, using this company and paying “living wages” under US labor requirements such as overtime and safety, would add approximately 25% to the cost of the goods. If ShafferFashion moved to natural or recycled fibers and not petroleum-based synthetics, it would add another 25% to the cost.
You have been hired as the Director of Ethics, Corporate Social Responsibility, and Government Relations for ShafferFashion. The CEO has asked you to come up with an action plan to respond to the Board.
Can you think of a way to continue to use overseas factories, but under improved working conditions? Are there other entities you might work with to make this happen?
Is there a way to expand or change our business strategy to make up for the increased cost of better working conditions (whether overseas or domestically) to be able to continue serving the low-income communities?
If you can’t find a win-win-win solution that satisfies all the key stakeholders, who do you think deserves priority, and what message would you recommend for those whose interests might not be satisfied in the plan you propose?
ShafferFashion’s Recommendations
Ladies and gentlemen, I would like to share my observation and recommendations for ShafferFashion to continue its use of overseas factories, but under improved working conditions. First, I have observed that abandoning the overseas operations will have a high cost for the company. The company has the option of using the US firm that can make ShafferFashion’s clothing to ensure corporate social responsibility and ethical business. However, while the company will observe labor laws by paying “living wages” under US labor requirements, it will increase the operation cost for ShafferFashion. The decision will increase the cost of the goods by about 25% and another 25% to the cost if the management decides to move to natural or recycled fibers and not petroleum-based synthetics. The decision will have detrimental effects on ShafferFashion since it requires low-cost production to continue selling its products to low-income communities. Increasing the production cost means that it will not maintain low prices for its products which could also affect the target market’s ability to buy.
However, we also realize that the company could continue aiding unethical practices and violation of labor laws in the overseas companies if it continues to work with them in the current environment. The factories in the developing countries capitalize on the demand from companies, such as ShafferFashion, for their sales revenue. However, due to the laxity of labor laws in most developing countries, they disregard the need for employees’ safe environment. Thus, employees work in unsafe, unhealthy conditions without adequate compensation. Under the current environment, ShafferFashion will be aiding unethical practice and disregard for corporate social responsibility. While the overseas operations belong to independent firms, they are part of the company’s supply chain, making it responsible for their negative behavior towards workers. Therefore, the company needs to make an immediate decision to ensure social responsibility across its supply chain.
Ladies and gentlemen, I have conducted a cost-benefit analysis and come up with a recommendation that will benefit all stakeholders in ShafferFashion’s business model. The management should act on the shareholder resolution to the Board of Directors demanding a solution to the ethical problem. I recommend that ShafferFashion work with overseas firms but require significant changes in their labor practices. Since they are owned and operated by independent companies, ShafferFashion might not directly decide in their operations. However, the management can use an alternative means to pressure them to comply with labor laws and corporate social responsibility policy. The management should send a memo to all firms that supply their materials from overseas. The memo should communicate that ShafferFashion will only work with companies that are willing to comply with labor laws and meet international standards. Thus, firms that fail to comply will terminate their business relationship with ShafferFashion. The company will also reward firms that comply with the law and policy after a specific period to motivate them to keep following the laws. The cost of losing business relationship with ShafferFashion will increase compliance. The company could use local activist groups or NGOs protecting employee rights to provide oversight regarding compliance with the new policy and report any violation.
While it might be possible for ShafferFashion to change the business strategy to make up for the increased cost of better working conditions, it might be hard to compensate for the increased cost because of the target consumers. We all understand that when the operating cost increases, the final price is borne by the consumer. However, ShafferFashion’s business model might not compensate for the increase in the cost of production since the target market cannot afford an increase in prices. Unless the management can find an alternative way to compensate for the cost, an increase in prices is not a viable option. We all know that the decision to work with firms in developing countries is to keep the products’ prices low and achieve the mission of ensuring that every community has access to affordable, high-quality, stylish fashion. Thus, changing the model to one would increase the prices and create a further disadvantage in the target market.
However, we all know that it might be impossible to find a win-win-win solution that satisfies all the key stakeholders. In such a situation, I would prefer to prioritize the customer since they are among the most important groups. Without the customer, ShafferFashion would not be in existence. Therefore, to have revenue for the company and meet other stakeholders’ needs, such as shareholders, it is necessary to keep the customer happy. Furthermore, the company could bear a higher cost by changing the business model entirely, such as targeting another market that will pay more for the products. I will send the message to those whose interests might not be satisfied with the plan, informing them that the final decision is in the company’s best interest. The firm needs to continue working and should make the decision that will ensure its sustainability. Therefore, all stakeholders should support the decision to protect ShafferFashion’s future and business model. After all, the company’s success will benefit all stakeholders in the long-term.
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