Puma Company’s Business Conduct and Ethics Research Paper

Company Overview

Puma is a German multinational brand involved in the production of high-quality sportswear, which is recognized by a wide number of people and sports organizations worldwide. The company is headquartered in Herzogenaurach, Bavaria, and is known to have been operating since 1948 (Corner 2017). An entire period of the organization’s operation has been accompanied by both ups and downs in the matters of business performance. As stated in the company’s annual report, 2014 turned out to be the year of the rapid growth of the brand’s sales rates (Puma 2015). The reason for such a streaming increase in sales volumes lies in the introduction of a new business program called “Forever Faster”. This program is based on the principles that consider all the existing ethical theories of business conduct and set forward the norms of both the United Nations Global Compact (UNGC) and the Global Reporting Initiative (GRI) (Epstein & Buhovac 2014). As it is evident from the report, Puma has currently succeeded in achieving the title of an ‘ethical company.’

Company’s Sustainability

Definition of the Term

According to the definition, business sustainability or corporate sustainability is the coordination of social, environmental, and financial concerns, the main task of which is to ensure ethical, responsible, and ongoing success (Beckmann, Hielscher, & Pies 2014). These concerns or demands are known to be called the three pillars of sustainability. As referred to corporate cultures, social and environmental demands are considered to conflict with financial concerns. The goal of corporate sustainability in this case is to stimulate the return of investments. Once the investments have been returned (the way it happened with Puma in 2014), a company may experience a significant increase in profitability (Cortes 2017). It is quite obvious that investments might initially cost an organization a lot of money. Nevertheless, they are needed for improving the situation in a long run.

Global Reporting Initiative

The first reference made in the report regarding the standards of the Global Reporting Initiative and their observation is the assertion that the company has been following these recognized guidelines on sustainability reporting since 2005 when its report “Momentum” first received its “in accordance” status. Since that time on, all the reports have been developed following the given standards (at Application Level A+). Also, it is stated that PUMA is aimed to elaborate its reporting system for it to correspond to the fourth, latest generation of guidelines (Puma 2015). This would allow the organization to report at the Core Application Level focusing on the so-called Materiality Disclosures. The major benefit of this is that the approach makes it possible to identify business issues that are critical for Puma’s operation and define sustainability goals based on the most important success factors and stakeholders involved. The idea is that the very formation of the list of Materiality Factors relies on the feedback collected from the key players (Cohen, McKay & Wolfe 2017).

UNGC Principles

Puma’s annual report states that the company has made a significant improvement in its working conditions in both social and environmental spheres. As Puma’s CEO specialists point out, “the concept of sustainability and sustainable business practices have become a strategic priority and an important part of our DNA” (Puma 2015, p. 36). By the research findings of Beckmann, Hielscher, and Pies (2014), GRI guides organizations in matters of human rights observance and helps them adapt to climate change faster. Furthermore, managers of the company strictly monitor the process of production to ensure that people work in decent workplace conditions, and their rights are respected.

Notably, Puma’s corporate responsibility does not end at maintaining business within national borders. The company pays close attention to the well-being of its distant branches that are involved in the production of Puma sportswear. Conducting a sustainable and socially responsible policy is the concept that the UN Global Compact stands for. Puma’s manager’s highlight that their understanding of just future is based on the UNGC principles and their “three pillars: State Duty to Protect, Corporate Responsibility to Respect and Access to Remedy” (Puma 2015, p. 36). To add more, the policy of the corporation is guided by internationally accepted labor standards that also contribute to the faster integration of sustainability into the business functions. Thus, the good health of employees and their satisfaction with the working conditions appear to be the goals to aim at for the known brand.

Social Sustainability

In 1993, the company developed and introduced its own Code of Conduct (CoC), which is currently applied to all its supply chain factories and partnering organizations. The document offers a minimum set of standards to adhere to. The ability of branches to comply with CoC is regularly checked both internally (by the auditing team) and externally (by the Fair Labor Association) (Du, Yalcinkaya & Bstieler 2016).

In 2014, the system of auditing was improved via the introduction of a new rating tool. The new system is based on the use of the A, B+, B-, C, and B grades for assessing the general performance of the factory, judging by its ability to align with the standards prescribed by CoC. The system involves two major steps: the assessment of the current state-of-art and re-auditing after a certain period. The length of the interval between the two assessment procedures is directly dependent on the grade received by the factory as a result of the initial audit. The lower the grade is–the less time is given to the facility to improve the situation. In the most problematic non-compliance cases, a re-audit maybe even scheduled in less than half a year. If the system of continuous improvement is successfully implemented by the unit, its efforts are rewarded (Puma 2015). However, there is no chance for a second mistake: In case the factory is still rated low, the partnership with it is typically terminated for good.

Although the company does its best to elaborate on the approach to auditing, there is still a lot of room for improvement. First and foremost, it is important to address the number of auditing teams and the length of time it is required for them to assess each factory. During one year, Puma managed to cover only 23.7% of the whole chain, staying unaware of what was going on in the factories that were not assessed (Puma 2015). Another problem is that, if the time for auditing is cut, the risk of deriving wrong conclusions about the unit increases significantly. Other limitations that will have to be considered include (Corner 2017):

• Extra costs. If auditing costs quite a lot, re-auditing adds new expenses, which can be a burden if the performance of the factory leaves much to be desired. Besides, during the process, the work has to be stopped. Such disruptions of the manufacturing process lead to financial losses.
• Differences in evidence. In some auditing reports, the evidence is not conclusive but pervasive. The reports of the two auditors may vary significantly, which makes ratings non-objective.
• Harassment of employees. Since the factories that underperform are given very little time to correct their mistakes, they have to put employees under the pressure of quick adaptation to changes caused by the results of the audit. In such circumstances, their opinion is rarely asked as there is a threat of partnership termination.
• Inappropriate changes. As the supply chain members are willing to comply with the requirements posed by CoC, they may introduce a lot of changes that are not suitable for their working environment only because the rules must apply to all members of the manufacturing system. Their eagerness to comply sometimes brings about alterations that produce a negative impact on the performance.
• Fraud possibility. When the audit is over and the factory is faced with low rating scores and a limited period for improvement, it may be forced to commit fraud to stay afloat. Therefore, the company may not even discover during the next audit that no real transformations took place.
• The absence of remedial recommendations. Although Puma is rather diligent in ensuring social sustainability and monitoring quality, it does not provide any recommendations for supply chain members with low grades as remedial measures are not supposed to be included in the program of auditing. Such factories have to decide for themselves what solutions will be the most optimal in this or that case.
• No guarantees. There is no guarantee that the accuracy of the audit will be sufficient to reflect the real state of things. If the company makes wrong conclusions about this or that supply chain member, it may arrive at wrong conclusions and lose a valuable partner.

Another problem that requires attention in connection with social sustainability is the bulk of the red flag incidence (complaints that are connected with low or zero tolerance problems and those that cannot be resolved for more than three months since they are discovered). There are numerous complaints on behalf of workers (69 from 43 facilities), which are mostly concerned with wages, safety, schedule, benefits, and labor conditions. Besides, the problem is aggravated by the fact that the majority of these complaints are typically filed after the audit period is over, which undermines the reliability of audit outcomes. As a result of these employee-related problems, 14 facilities had to be downgraded (Puma 2015). This proves that the system of auditing (no matter how meticulously the company currently approaches it) cannot guarantee sustainable improvement and only captures the situation at a particular moment.

The human rights of the company’s employees are not properly supported either (although being an integral part of CoC). This is proved by the fact that Puma was forced to review its Codes to be able to manage risks connected with violations (since CoC cites directly only 13 of 35 Universal Human Rights) (Puma 2015). This implies that another weak point in the sustainability policy of the organization is its current inability to comply with the UN Guiding Principles on Business and Human Rights, which prevents it from properly addressing labor concerns that are not infrequent in all its facilities.

This problem is pressing indeed and revealed itself several times during 2014. Unforeseen labor issues produced such a negative impact upon all operations that urgent measures were required. Even earlier, in 2013, there were nationwide protests it Cambodia which arose owing to unsatisfactory labor conditions, which resulted in the death of one of the workers. Some of the leaders of trade union groups were arrested; yet, the protests resulted in substantial financial losses for the organization since manufacturing came to a standstill and could not be renewed for several months. It required the assistance of all stakeholders to overcome this crisis and to catch up with the delays (Puma 2015). This came not only as a result of the unfair treatment of employees and low wages but also because the company was not prepared for this kind of emergency, which indicates the flaw of the risk and emergency response protocol implemented by Puma.

Environmental Sustainability

As far as the environmental sustainability of Puma is concerned, the strategy the organization uses heavily relied on the implementation of the Restricted Substances List (RSL) and Manufacturing RSL. Also, Puma uses Environmental Key Performance Indicators (E-KPIs) to control its waste management programs as well as those related to the use of water and energy in manufacturing (Puma 2015).

Even though Puma’s Environmental Profit & Loss Account (E-P&L) has given substantial results in the reduction of dangerous chemicals, there are still some environmental concerns that the company has to address in the future. The major improvement that the current strategy requires is to revise the company’s Detox commitment since the company is still unable to find adequate substitutions to the most hazardous groups of chemical elements (per- and poly-fluorinated ones) with less dangerous components (Puma 2015). Until this problem is resolved the Greenpeace Detox Campaign is unlikely to encourage other companies across the globe to make their contribution to the protection of wildlife, land, and water and to improve the quality of natural resources (Environmental ethics 2015).

However, chemical management and replacement are far from being the only concern. The report indicates that the consumption of energy increased by 5.8% in 2014, mostly owing to the expansion of production. However, at the same time, the amount of energy obtained from renewable sources grew by up to 14% (Puma 2015). Thus, the goal is to continue moving in this direction to achieve higher energy efficiency and cost savings.

The first audits of E-P&L also showed that greenhouse gas emissions are still very high, especially in raw material production. Moreover, Puma’s whole supply chain consumes a lot of water and paper (only half of it is derived from recyclable sources). Using these findings, the company must develop innovative solutions to minimize the detrimental effect its manufacturing produces upon nature (Voegtlin & Pless 2014).

Not Reported GRI Issues

The report indicated the issues from GRI guidelines that have been intentionally omitted or only partially covered for various reasons. They include (Puma 2015):

• G4-9 and G4-10 from the Organizational Profile. The first point is the quantity of product. It has not been included in the report since this information is confidential and may undermine the competitiveness of the organization. The second issue concerns employees as the numbers provided only by gender and production type, in which they are involved. The reason for this omission is that all other details are considered to be redundant.
• G4-20, G4-21, and G4-22 from the Identified Material Aspects and Boundaries section. The first and the second points related to materiality analysis are covered partially as the company claims that more information can be found on their website, thus, it is unnecessary in the report. The third point is excluded because there were no restatements during the period covered by the document.
• G4-EC2 from the Specific Standard Disclosures is not fully covered as more data can be obtained from the organization’s response to Carbon Disclosure Project.
• G4-DMA, G4-EC7, G4-EC8 points from the Indirect Economic Impacts subsection are partially disclosed since Puma is unwilling to discuss its investments into communities. Moreover, the company admits that it did not conduct a community needs assessment for this part of the report.
• G4-DMA and G4-EC9 from the Procurement Practices aspect are not fully covered as Puma claims that selective information disclosure is protected by the right of property.
• G4-EN2 from the Materials aspect of the Specific Standard Disclosures is discussed briefly, in general terms (with specific metrics only for leather, cotton, and polyester. As for recycling, total figures are given for paper and wastes. The reason cited is that the company uses input materials for manufacturing its goods. This means that the whole data about these materials should be provided by its suppliers.
• G4-EN3, G4-EN5, G4-EN6, G4-EN7 points from the Energy aspect are covered partially. The first one–because energy consumption is reported using general statistics, regardless of the fuel type (which is irrelevant for the goals of the report). The second point is not fully reported the energy intensity is not divided into subcategories (for the same reason). The third one summarizes energy savings as a part of the general consumption figures. The fourth point cannot be reported fully since the organization outsources its production. Thus, Puma saves time on providing extensive statistic sheets that are not necessary to understand the state-of-art.
• G4-DMA and G4-EN8 from the Water aspect. Partially omitting the first point, the company shows that it is not material for its organizational operations. The second point cannot be fully covered since Puma uses water only for its local purposes, which implies that it cannot provide detailed information on its sources, collection methods, or further processes happening after discharge.
• G4-DMA, G4-EN11, and 4-EN12 points from the Biodiversity subsection are partially omitted as the organization clearly states that this aspect is not material to its operations.
• G4-EN15, G4-EN17, G4-EN21 points from the Emission aspect are covered partially since it does not serve the goals of the company to calculate the emissions of different origins separately.
• G4-DMA, G4-EN22, and G4-EN23 form the Effluents and Waste subsection are converted incompletely for the same reason of being not material for the operations of the organization. The same is true about points G4-EN27, G4-DMA (Compliance), G4-DMA, and G4-DMA (Transport), G4-EN33 (Environmental Assessment), G4-LA1 (Employment), G4-LA6 (Occupational Health and Safety). All the enumerated aspects are more significant for suppliers than for Puma; that is why general information is enough to understand the situation.
• G4-DMA, G4-LA9, G4-LA10, and G4-LA11 from Training and Education Aspect. These points are not fully considered not because the company is not interested in them but rather because general training and development are in place and detailed categorizing of employees are redundant. The same can be applied to G4-DMA, G4-LA12 (Diversity and Equal Opportunity), and G4-HR2 (Human Rights) as the importance of maintaining diversity and observe human rights does not directly rely on numbers of minority representatives or meeting on human rights discussions.

There are several other points in the report that are discussed in most general terms or only briefly touched upon. The major reasons, as it is evident from the analysis above are 1) the company’s unwillingness to disclose confidential information; 2) the irrelevance of details to the company’s operations; 4) the desire to spend time on reporting the data that can be easily obtained from other sources.

Ethical Aspect

It has been already discussed in the introductory section of the report that Puma has managed to achieve the status of an ethical company as it successfully aligns its business practices with the standards set forward by the United Nations Global Compact and the Global Reporting Initiative.

However, these guidelines are still more focused on the sustainability of the organization. Ethical behavior is another pillar on which every company must carry its operations since it directly identifies its responsibility and commitment to serve customers (Crane & Matten 2016). The first charter concerning ethics was signed by Puma in 1996. Since then, the organization has been doing its best to enhance its ethical pledge. This claim is evidenced by the fact that the company took several practical steps to bring its ethical standards to a new level (Puma 2015).

For instance, in 2005 and 2009 Puma published and updated its code of ethics (Puma 2015). The leaders of the organization promoted deontology as the key ethical theory Puma was going to follow. The theory states that any action can be termed right (good) or wrong (bad) only based on a duty it serves, which should be dictated by reason. Since the company not only created its new code but also made new standards transparent for its employees, it can be claimed that its actions were initiated by the sense of duty (Trevino & Nelson 2016). This behavior corresponds to the post-conventional stage of moral development according to Kohlberg’s theory as the company differentiates between what is right according to the rules and what is right according to morals (Shaw & Barry 2015).

Another argument in favor of Puma’s ethics is that the organization established the Kering Foundation, the major goal of which is to protect the labor rights of women and to struggle against discrimination and violence. This demonstrates how determined the company is to develop its organizational culture based on high moral and ethical principles (Spence 2016).

The code of ethics elaborated by Puma is a comprehensive set of standards encompassing such issues as gender equality, child labor, environmental concerns, fights against corruption and discrimination on any basis, respect for workers, civil rights, and community issues. Not only the code but also an ethics organization was created to analyze any claims on behalf of employees regarding ethical principles and their violation (Greenwood 2013). This again supports the deontological theory as the company views moral obligations as intrinsic and self-evident, not requiring any argumentation to be implemented, especially when the issue concerns vulnerable groups of employees (Melden 2013).

However, there are also several claims that Puma cannot be called an ethical company because it does not provide decent compensation to its workers for harsh working conditions in the factories. Neither does it adhere to social standards, being more concentrated on increasing product turnover. Yet, the company provided evidence to prove that there is no clause in contracts that requires employees to work overtime for the same money (Puma 2015). Another controversial point is child labor, which is attributed to the organization, especially to the clothes manufacturing sector. However, there is no proof that factories employ children, even in developing countries, where such practices are quite widespread in the sportswear manufacturing.

There were also complaints that Puma does not provide due safety standards, owing to which some workers get injured being forced to operate in harmful and hazardous conditions. The company does not take responsibility for these accusations since it is the responsibility of the factories to guarantee safety (Greenwood 2013).

In this case, the theory of utilitarianism can be applied, which states that any action can be estimated by the number of people it benefits in the outcome (Melden 2013). In Puma’s case, the number of affected people is incomparably smaller than the number of those who benefit from their activities daily.

Thus, even though there are numerous claims against some of Puma’s practices, policies, and decisions, all the cited arguments are sufficient to allow calling it an ethical company.

Reference List

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