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James Hardie Industries Plc’s Managerial Ethics Case Study


Executive Summary

The current study intends to analyze the case of James Hardie Industries. The litigation that has been the result of this scandal lasts until the present day. The company is to resolve the existing legal issues, which are the aftermath of the scandal. The enterprise strived for maximizing its profits while putting the workforce in jeopardy of asbestos poisoning. As a consequence, 137 workers died, and other affected individuals developed severe illnesses. Apart from that, the company has provided misleading information regarding the fund responsible for paying compensation to the victims. The case study examines the managerial ethics employed in the case through an application of a utilitarian approach to handling business.

Introduction

James Hardie Industries is an industrial construction company. Its main activity lies in the elaboration of technologies and materials. Also, the enterprise develops various industrial processes. In order to improve its technology of fiber cement, the company relies on the studies conducted by its research and development center. The organization has quite a long history of existence. From the second half of the 20th century, the enterprise has strongly invested in silicate mines (Solaiman, 2013). Although such activities brought large revenues to the company, they have also led to a lengthy scandal that affected many people. The purpose of this paper is to study a severe ethical issue faced by the company and dwell upon the enterprise’s future perspectives.

Findings

It should be stressed that the ethical problem encountered by the company was related to the mainline of the business. The organization was engaged in the mining industry and invested in silicate mines that were located in 5 out of 6 Australian states. Natural asbestos, which the company was extracting and manufacturing, turned out to be highly toxic and carcinogenic, and the majority of workers had direct contact with it (Solaiman, 2013). As a result, approximately 40000 workers experienced asbestos poisoning; some of the affected individuals died or developed severe life-long illnesses (Solaiman, 2013). For 11 years, the company participated in the litigation with the engagement of the Supreme Court of the country.

Theory Definition and Application

One of the fundamental approaches to business ethics is the theory of utilitarianism. According to this concept, the basic principle that businesses should follow, as well as its stakeholders, is to reach the greatest happiness for the greatest number of individuals (Drover, Franczak, & Beltramini, 2012). Consequently, when private interests are satisfied, the morality of the act should be rationalized from a mathematical perspective (Zhou & Piramuthu, 2013). In particular, it is necessary to evaluate the balance between the pleasures experienced by one party and the sufferings of the other one.

Thus, moral and ethical assessment depends on the benefits and costs of business decisions. In the case when the benefits cover the costs effectively, the decision can be considered moral. However, when the costs dominate over the benefits, the solution should be regarded as immoral (Belak & Pevec Rozman, 2012). The company’s management in James Hardie Industries was guided by a similar approach since the company was financially responsible for its investors.

Therefore, it had to manage the business operations to obtain the maximum profit from its activities while the threat of poisoning was considered an ethically justified cost (Van Dijk, Van Engen, & Paauwe, 2012). The company believed that by accumulating its profits through the extraction of asbestos, it would balance the loss of health by the workers.

However, many companies are guided by similar principles, and these tenets are the basis of a capitalistic approach (Ferrero & Sison, 2014). The knowledge of the core principles of this theory reinforced by a basic understanding of the causes has allowed the leadership to ignore the moral assessment of their managerial decisions (Sison, Hartman, & Fontrodona, 2012). In addition, the criticism of the utilitarian theory should stem from the fact that the company’s decisions were made on an individual basis while the consequences of such activities had affected a wide range of people.

Stakeholder Groups

Due to the unethical conduct of the enterprise, multiple stakeholders have been affected and experienced the outcomes of the company’s performance. To be more precise, employees and their families have been strongly influenced by the unethical decision-making (Golding, 2012).

As stated earlier, almost 40000 employees have developed severe health conditions because of intoxication. According to experts in the field, approximately 25000 people belonging to this group will die within the next decades because of the decreased health status. In addition, since the worth of the company has fallen down significantly, the investors and partners have experienced severe financial losses (Golding, 2012). Furthermore, the lawsuit lasted for more than a decade, which required intense resource allocation from the side of the government.

Many stakeholder groups have experienced the consequences of the James Hardie Industries scandal. The Board of Directors and shareholders were the major groups. The company was accountable to these parties in terms of financial and legal implications (Moerman & Van der Laan, 2015). The victims of poisoning were affected by the economic, legal, ethical, and philanthropic standpoints since the accumulation of profit made by the company was considered more important compared to the health of the workers.

Moreover, ASIC (Australian Securities and Investments Commission) and ASX (Australian Securities Exchange) had also been influenced due to their engagement in the lawsuit (Canning, 2016). The company’s performance had an impact on the customers and community in general. Many individuals used to build their premises using fibro sheeting. In addition, the effect of the enterprise’s activities on the environment had pushed the activism of multiple activist associations.

Brand Damage (Reputation)

The reputation of the company was thoroughly undermined, and this effect was intensified as the trial proceeded. During the investigation, it was revealed that the company had changed its jurisdiction to the Netherlands and then to Ireland in order to mislead the court and society regarding the company’s opportunities to pay compensation to the victims (O’Connell, De Lange, Stoner, & Sangster, 2016). For these reasons, in addition to financial losses, the company’s reputation was completely destroyed, and the company’s shares rapidly fell together with customer loyalty.

A significant aspect that has affected the brand reputation of the enterprise was the fact that the leadership had comprehended the negative consequences of asbestos use that led to severe poisoning. Nonetheless, no preventive measures were taken to protect the workers (Canning, 2016). Such poor ethical values encouraged by the utilitarian approach to moral responsibility implied that the company had completely ruined its image (Demuijnck, 2015). The leadership of the company did not outline its efforts aimed at money capitalization with the social performance of the enterprise.

Previous Case Study

It should be noted that several studies have already been conducted to decompose James Hardie Industries’ situation. In one of the comprehensive researches, the issue of CSR (corporate social responsibility) has been investigated. The researcher had assessed the way the enterprise was fulfilling its economic, legal, ethical, and philanthropic liability (Thirarungrueang, 2013). It was revealed that the company had placed a particular emphasis on its economic responsibility to maximize profits while decreasing the expenditures.

In addition, it turned out that the enterprise had implemented its legal liability partially since it tried to mislead certain stakeholder groups regarding its capability to compensate for the damage caused. By publishing the deceiving information and data, the company has violated the existing state regulations (Redmond, 2012). Moreover, the enterprise did no exhibit ethical practice, which also ruined its brand image and undermined public trust in the company.

Furthermore, from the philanthropic perspective, the organization did not meet the expectations imposed on it by society. The company was incapable of covering the health losses experienced by people (Thirarungrueang, 2013). The leadership was aware of the fact that the fund responsible for paying off the compensations was almost bankrupt; nevertheless, the company resorted to misleading accounting practices to persuade the victims in its financial capabilities (Moerman & Van der Laan, 2012). Thus, the previous case study has justified the fact that the CSR framework employed by the companies was a failure.

Future Issues

One of the future issues the company has to face is the provision of sustainable reports in accordance with the updated regulation. The enterprise will have to prove and justify the fact that the corporate performance of James Hardie Industries has a minimal effect on the environment. Therefore, the company will have to perform full cost accounting (O’Connell et al., 2016). Despite the difficulties that the company is likely to face, this approach will help the organization to regain its attractiveness to investors. Sustainability disclosures will allow achieving transparency and accuracy in operations and activities.

By applying this method, the company will be able to reveal its accountability for the impacts it has on the environment (Thirarungrueang, 2013). Apart from the benefits to the company and greater transparency, society will take advantage of this strategy as well. By employing the new method, the enterprise will assist in constructing a cohesive society.

Legal Issues

Despite the lengthy litigation, the company still has to overcome a legal issue. Several years ago, the Court of Appeal in New South Wales canceled the decision made by the Supreme Court (Canning, 2016). Some of the defendants made an appeal to be freed from the penalty appointed earlier. At present, the Court of Appeal is reconsidering the case to determine whether the appellants have acted honestly. If the litigation proves so, the defendants will be excused for the contravention. Therefore, the case is to be closed in the future after all the proceedings have been finalized.

Conclusion

Thus, it can be concluded that James Hardie Industries is a company that has undermined its reputation and brand image significantly through certain disruptive practices. It has been oriented at accumulating profits while damaging the health of the workers. Such practices have resulted in severe consequences for the well-being of employees, lengthy litigation, and financial losses for all the parties involved. According to the utilitarian theory, the costs of decision-making can be considered ethical if the received benefits cover them fully. However, in the case of James Hardie Industries, the profits gained by the business should have never been equated with the health damage caused to the workforce.

Recommendations

According to the evidence, the shares of the company have started to grow. Therefore, it has become more attractive to partners and investors (Edwards & Kirkham, 2014). Nevertheless, the enterprise has a long path to take before it pays off all the compensations. The company should be recommended the following strategies to ensure that it can regain its competitive edge and can build on the reputation:

  • The leadership should encourage liability in decision-making and employ an ethical approach to management that responds to the current social request (Thirarungrueang, 2013);
  • The enterprise should ensure integrity and accuracy in financial reporting (Canning, 2016);
  • All the employees should be remunerated duly;
  • The company should develop a strategy for effective risk management.

James Hardie Industries should strive for effective stakeholder management while following the ethical guidelines in decision-making. In addition, it is recommended to reach such a level of corporate social responsibility that will envision the company’s values. Moreover, the company should endorse sustainable value chain activities to be able to rebuild its image (Shaw, Barry, Issa, & Catley, 2013). Furthermore, it is advisable that the organization develops a crisis management strategy to attain the desired results within the changing environment (O’Connell et al., 2016). Overall, the company should concentrate on implementing corporate public policies to the fullest degree. This way, the organization will secure its stakeholder groups and exhibit its ethical approach to business practices.

References

Belak, J., & Pevec Rozman, M. (2012). Business ethics from Aristotle, Kant and Mill’s perspective. Kybernetes, 41(10), 1607-1624.

Canning, S. (2016). . Web.

Demuijnck, G. (2015). Universal values and virtues in management versus cross-cultural moral relativism: An educational strategy to clear the ground for business ethics. Journal of Business Ethics, 128(4), 817-835.

Drover, W., Franczak, J., & Beltramini, R. F. (2012). A 30-year historical examination of ethical concerns regarding business ethics: Who’s concerned? Journal of Business Ethics, 111(4), 431-438.

Edwards, M. G., & Kirkham, N. (2014). Situating ‘Giving Voice to Values’: A metatheoretical evaluation of a new approach to business ethics. Journal of Business Ethics, 121(3), 477-495.

Ferrero, I., & Sison, A. J. G. (2014). A quantitative analysis of authors, schools and themes in virtue ethics articles in business ethics and management journals (1980-2011). Business Ethics: A European Review, 23(4), 375-400.

Golding, G. (2012). Tightening the screws on directors: Care, delegation and reliance. UNSW Law Journal, 35(1), 266-290.

Moerman, L. C., & Van der Laan, S. L. (2012). Risky business: Socializing asbestos risk and the hybridization of accounting. Critical Perspectives on Accounting, 23(2), 107-116.

Moerman, L. C., & Van der Laan, S. L. (2015). Exploring shadow accountability: The case of James Hardie and asbestos. Social and Environmental Accountability Journal, 35(1), 32-48.

O’Connell, B., De Lange, P., Stoner, G., & Sangster, A. (2016). Strategic manoeuvres and impression management: Communication approaches in the case of a crisis event. Business History, 58(6), 903-924.

Redmond, P. (2012). Directors’ duties and corporate social responsiveness. UNSW Law Journal, 35(1), 317-340.

Shaw, W. H., Barry, V., Issa, T., & Catley, T. (2013). Moral issues in business (2nd ed.). Melbourne, Australia: Cengage.

Sison, A. J. G., Hartman, E. M., & Fontrodona, J. (2012). Guest editors’ introduction reviving tradition: Virtue and the common good in business and management. Business Ethics Quarterly, 22(2), 207-210.

Solaiman, S. M. (2013). The landmark James Hardie case in Australia: A wakeup call for non-executive directors. Company Lawyer, 34(6), 178-189.

Thirarungrueang, K. (2013). Rethinking CSR in Australia: Time for binding regulation? International Journal of Law and Management, 55(3), 173-200.

Van Dijk, H., Van Engen, M., & Paauwe, J. (2012). Reframing the business case for diversity: A values and virtues perspective. Journal of Business Ethics, 111(1), 73-84.

Zhou, W., & Piramuthu, S. (2013). Technology regulation policy for business ethics: An example of RFID in supply chain management. Journal of Business Ethics, 116(2), 327-340.

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