|Type of paper:||Case study|
|Categories:||Leadership analysis Problem solving Business ethics Employment law|
RFG and franchisees all have serious ethical issues that require attention. Issues of ethical misconduct are rampant, ranging from corruption, churn and burn business practices, and exploitation. RFG needs strong corporate responsibility and governance structures.
Here is a summary of the ethical issues committed by franchisees.
- Gouging and underpayment of employees
- Hiring illegal employees
- Manipulating sales
Franchisees are committing several ethical malpractices. Some are engaged in unfair labour relations. Offering sham employment contracts to their staff hurts the overall fortunes of the franchises. Modern human resource principles recommend fair labour practices including fair compensation, fair workplace environment, and good working relations (Barrena-Martinez, Lopez-Fernandez & Romero-Fernandez 2017). Employees should feel valued in the workplace. Franchisees also engage in hiring illegal employees. Hiring tourists is illegal in Australia is illegal, which also exposes the franchises to legal, ethical concerns. Franchisees are doing so citing high labour costs. Manipulating sales is a serious violation of accounting principles. It is also a serious ethical concern, as it gives a false outlook of the franchise (Accounting Professional and Ethical Standards Board (APESB) 2019). When it comes to the valuation of the franchise, it will give a false valuation figure to the intended buyer.
RFG itself is the source of ethical problems. Here is a summary of the top ethical issues that must be addressed to salvage an impending corporate crash.
- Churn and burn practices
- Unsustainable business model
- Valuation misconduct
- Exploitative business practices
Buying failing franchises and selling them at a profit is a classic case of conflict of interest. There is no motivation for RFG to ensure the profitability of a franchise since its failure is also a business opportunity. Ethical issues surrounding conflicts of interest are everywhere in the firm's conduct. For example, they develop a course internally that apparently should help franchisees run their franchises. Further, they negotiate contracts with suppliers for the supply of raw materials with complete disregard of the welfare of the franchises. The low valuation of failing franchises is unethical, too.
Today's most crucial business responsibility is to run a sustainable business model (Joyce & Paquin 2016). Sustainability ensures that shareholders can rest assured that their investments are safe. It also ensures that the whole business ecosystem has a future. Employees can rest assured knowing that their employment contracts, social security, and incomes are secured. RFG runs an unsustainable business that sabotages the franchisees, engages in corrupt practices, does not invest in research and innovation, refuses to invest in marketing, and continues to hurt the franchisees. Even after an alarming number of failing franchises, they do not respond. Instead, they continue to push every cost to the franchises. They charge administrative fees and continue to reduce support to the franchises. They offer low-quality raw materials to the franchises, which sabotages the growth and sustainability of the franchises.
It is running an exploitative business with a partner apparently whom the business wants to have a long-term relationship is unethical, creating a culture of mistrust. Every business partner should be an ambassador for the business. Currently, RFG is running a business that franchisees would not encourage their friends or family to venture in, killing its prospects.
Corrupt business practices have a history of drowning even the biggest businesses in the world. Receiving kickbacks from suppliers is unethical, and reduces RFG's moral authority to demand quality from these suppliers. They also use outdated accounting standards in a bid to hide financial improprieties.
Strategies and recommendation
Businesses operate in an ecosystem of stakeholders. All stakeholders have a role they play in it. The first strategy that RFG should try to implement is a change of company philosophy to reflect this modern thinking. The stakeholder theory of management of business posits that the strength of business depends on the interrelationships between and among stakeholders (Celikdemir & Tukel 2015). RFG has several stakeholders that it must consider when making a decision. The focus on one stakeholder-the investor-is misplaced since it jeopardizes other stakeholders. The key stakeholders that RFG must consider before making any decision are suppliers, franchisees, employees, investors, communities, and governments. Top on that list are shareholders, franchisees, suppliers and employees. Every stakeholder must feel part of the greater ecosystem of the business. For example, suppliers will want to engage with companies that provide a sense of sustenance. Further, RFG must respond to the demands of the modern moral economy that demands a deliberate investment in social embeddedness (Kaptein 2017). The idea is to ensure that the company strengthens its relationships.
Secondly, RFG must recognize that franchisees are the most critical players in their ecosystem. Presently, they are unaware of the role of franchisees. The core business model of franchising relies on a shared brand, culture, standardized product, support, and shared marketing (Krueger 2019). Failing to do enough franchise support creates a vacuum. Support ensures that franchisees are always aware of brand value, standards, and company culture. RFG must commit more to deliver this, as franchise growth translates to their growth. Training, branding, and ensuring that franchisees receive high-quality raw materials is an essential role for any franchiser. Trying to make a profit from these core franchiser duties defeats the spirit of franchising.
Thirdly, RFG needs a robust and responsive corporate governance mechanism. In the past, the kind of ethical malpractices happening at RFG as reported in the case study reflect of past failure in corporate governance roles of setting rules, standards, relationships, systems, and controls (den Nieuwenboer, Cunha & Trevino 2017). RFG responds to shareholder concerns such as being cheated out of royalties by cornered franchisees but is not responsive to the massive failure rates of their franchises. Weak corporate governance will continue to hurt RFG in future. In agency theory, there are possibilities of information asymmetry between the agency and the principal. RFG is an archetype of a failed agency relationship in which the agent continues to do things that hurt the principal while misrepresenting facts about the principal's investment.
Businesses must focus on a sustainable model. RFG has weak governance and sustainability mechanisms, which exposes it to business risk. If it does not rectify these two main challenges, it will most likely face a backlash from stakeholders and even customers.
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