ASSIGNMENT 7

A CASE STUDY OF ETHICAL ISSUE AT GUCCI

IN SHENZHEN, CHINA
The employees’ complaints
On 8 October 2011, an open letter—<A Public Letter to the Top Management of
Gucci from Former Employees who resigned collectively> was spread on the
Internet. This letter was written by five former employees of the Gucci Shenzhen
Flagship Store. In the letter, they alleged that employees caught an occupational
disease, that there was one miscarriage attributable to excessive working hours
and that there was no compensation for these hardships. Moreover, they stated
that there were excessive restrictions on employees’ behavior, including the need
to obtain permission before getting a drink or a snack, and strict limitations on
toilet time. They stated that, while the restrictions were applied strictly to all
frontline employees, including one who was pregnant, they were not applied to
the managers. The letter also claimed that the employees had to pay
compensation for any product that was stolen or went missing, even though
these luxury products had already been insured. They also criticized Gucci’s goods
exchange policies which appeared to be arbitrary and dependent on the
manager’s mood. All in all, they accused Gucci of lacking systematic and humane
management and complained that their rights and dignity were being violated.

Once revealed online, this report aroused widespread discussion among Internet
users. Further information emerged, suggesting that the case also involved
falsification of records about working hours, and the imposition of forced, unpaid
overtime work. Gucci implemented a system of working one full day, followed by
a day off. Officially, 1 day’s work was about 10 h. But the workers complained
that, on their working days, they were required to clock off at a certain time to
establish a false electronic record, and then continue their work, counting goods
until two or three o’clock in the morning without compensation.
Some netizens labeled Gucci as a “sweatshop.” Many opined that the labor
management practices of some multinational companies and brand owners failed
to match their international status. Several days later, the Gucci headquarters in
China issued a statement, saying that “Gucci does not and will not endorse or
tolerate the alleged malpractices.” Gucci also stated that that the company had
conducted thorough investigations and had implemented a series of measures,
including the replacement of the store manager and assistant store manager.
Meanwhile, the Human Resources Bureau within the Legal Department of
Shenzhen’s Luohu District said they would further investigate the case. On 26
October 2011, Gucci and the former employees eventually arrived at a settlement
in conjunction with Shenzhen Federation of Trade Unions.

LEGAL CONSIDERATIONS
One legal consideration is that, although the labor dispatch system has been
officially adopted as way of arranging temporary employment only, Gucci used
the system to employ people for durations of more than 2 years. Another is that
many of the Gucci store employees are female and that pregnant employees
legally enjoy special labor protection. According to the “Labor Contract Law,”
female workers during their pregnancy should not participate in the state’s third-
grade physical intensive work. Such work is deemed not suitable for female
workers; for female workers who are more than 7 months pregnant, there should
be no overtime work, and they should not be required to join night shifts.
Furthermore, it is a legal requirement that sufficient rest periods should be
arranged for such employees.
 A CASE STUDY OF SIEMENS’ VIOLATION OF
BUSINESS ETHICS IN ARGENTINE BASED ON
STAKEHOLDER THEORY
Siemens AG is a German multinational conglomerate company headquartered in
Munich, Germany. Siemens and its subsidiaries employ approximately 420,800
people across nearly 190 countries. It is the largest Europe-based electronics and
electrical engineering company with activities in the fields of industry, energy and
healthcare. It is organized into six main divisions: Industry, Energy, Healthcare,
Equity Investments, Siemens IT Solutions and Services and Siemens Financial
Services (SFS).
On Dec. 13, 2011, The Securities and Exchange Commission charged seven former
Siemens executives with violating the Foreign Corrupt Practices Act (FCPA) for
their involvement in the company's decade-long bribery scheme in Argentina to
retain a $1 billion government contract to produce national identity cards for
Argentine citizens.
According to the SEC's complaint filed in U.S. District Court in Manhattan, the
scheme lasted from approximately 1996 to early 2007. Initially, in the 1990s，
Menem government planned to implement all national electronic ID cards, known
as Documents Nationals de Identidad (DNI) for every Argentine citizen. In order to
obtain the contract which is total of
1.26 billion U.S. dollars, Siemens bribed Argentine government officials with 70
million U.S. dollars through intermediary. Menem government finally signed the
contract with Siemens in 1998.
But a change in Argentine political administrations foiled the contract: after the
next President Fernando De La Rua came into office, some officials questioned the
contract on the ground that the cost of each electronic ID reported by siemens
was twice what the government estimated. Therefore, the government
announced the suspension and cancellation of the contract. In a political change
and economic crisis, Duhalde succeeded De La Rua as the president. During his
term of office, Simens was told by the intermediary that a 27 million U.S. dollars
bribery could “resurrect the contract”. In order to revive the contract, Siemens
paid additional bribes in a failed effort to Kirchner government until 2004. When
the company later instituted an arbitration proceeding to recover its costs and
expected profits from the canceled contract, Siemens paid additional bribes to
suppress evidence that the contract originally had been obtained through
corruption.

CASE ANALYSIS
Stakeholders of Siemens
Bribery has been defined as “the offering, giving, receiving, or soliciting of
something of value for the purpose of influencing the action of an official in the
discharge of his or her public or legal duties.” (Fritzsche, 1998). The bribe is the
gift bestowed to influence the recipient's conduct and the outcomes of decisions
wherein the nature and extent of the influence are not made public. The item of
value may be direct payments of money or property. It may also be in the form of
a kickback after a deal has been completed. It may be
any money, good, right in action, property, preferment, privilege, emolument,
object of value, advantage, or merely a promise or undertaking to induce or
influence the action, vote, or influence of a person in an official or public capacity.
Based on Freeman’s stakeholder theory, the first step in the analysis of this case is
to identify the relevant stakeholders and determine the positive and negative
impacts on the stakeholders. The stakeholders affected by Siemens’ bribery in this
case include Simens’ stockholders; Siemens’ employees; Siemens’ supplier; Local
community; the Argentine government; Argentine community; Simens’
competitor; Siemens’ competitors’ employees and stockholders.

a) Impact on stakeholders
For Siemens’ stockholders, the contract with the Argentine government would
increase profit and gain market share for them. Even though bribery was needed
to win the contract, the profit yielded in the contract can not only cover the
2012

bribery but also trigger more.

 Volume XII Issue XI
For Siemens’ employees, the profit yielded from the contract would also benefit

Year
Global Journal of Management and Business Research
themselves a lot. It is likely that their pay got increase, bonus and allowance met a
growth, working environment had much improvement etc.
For Siemens’ suppliers, the growth of Siemens means the growth of themselves as
long as they are in a cooperative business relationship. The increase of Siemens’
business would lead to more orders to Siemens and more profit for them.
For the local community, the contract would bring cascade effect: it would create
more jobs for local people. The local community would benefit from the
employment of its citizens which would bring money into the community and
provide additional tax revenues. The prosper of Simens’ business can also cast a
positive influence to relative industries.
For government,
Firstly, the bribery would reduce freedom of choice by altering the conditions
under which a decision is made. Its appeal of additional gains for some
government officials would lure them to select the less attractive alternative
which provides less total satisfaction. By doing so, it adversely would disrupt the
official’s decision and undermined fair competition among the industry. If the De
La Rua administration’s doubt that the cost of each electronic ID reported by
Siemens was twice what the government estimated is true, then the government
has to pay the price for the hidden payment with more governmental
expenditure, which leads to a greater loss of money of the government.
Secondly, it would damage the authority, prestige and force of laws and
regulations. The bribery circumvented the legal system and obtained illegal
interest, which is a contempt against laws and is detrimental to the
implementation of laws.
Thirdly, it would undermines attempts by governments to improve the overall
wealth of the nation, diminish the image of government and governing party, and
further lose people’s trust.