Samsung’s Ethical Dilemma of Child Labor Case Study

Executive Summary

The paper has analyzed Samsung’s ethical dilemma of the reliance on child labor to retain a competitive edge. The company has repeatedly engaged in relationships with contractors and suppliers whose business behaviors are questionable from the ethical point of view. It has been argued that when analyzed in the framework of utilitarianism, Samsung’s unwillingness to enforce strict labor regulations on its partners is not justifiable and unethical. The company has been recommended to introduce changes to its corporate social responsibility (CSR) framework, severe ties with unconscionable business associates, and restore damages to involved workers.

Introduction

In the wake of the global financial crisis, business ethics scholars’ questioning of the moral dimension of a wide-range of organizational practices has gained more prominence (O’Sullivan, Smith, & Esposito, 2012). Considering that the scope and effects of unethical corporate practices continuously increase in their importance, it is necessary to understand the fundamental principles of business ethics.

This paper aims to outline a moral reflection on a case study in which a significant-tech manufacturer Samsung is implicated in conducting illegal work practices. The paper will critically analyze the ethical dimensions of the dilemma from the perspective of the utilitarian ethical theory. It will be argued that according to the fundamental principles of the theory, the company’s behavior can be construed as unethical since it fails to maximize the happiness of all involved stakeholders.

Findings

Theory Definition

Utilitarianism is an ethical theory under which an act with a moral dimension should be carried out after calculating its costs and benefits to most people (Frederiksen, 2012). The theory presupposes the ability to foresee the consequences of one’s actions and willingness to deliver the results based on a cost-benefit analysis. Utilitarianism is an outcome-oriented theory; therefore, the nature of action should not enter the calculation (Frederiksen, 2012).

Businessperson guided by utilitarian arguments regards the happiness of most individuals as a fundamental good. It follows that by aiming to maximize the net total of happiness, they can arrive at policies and regulations that are good and ethical. It has to be borne in mind that even though utilitarianism revolves around happiness, a mere increase of happiness over misery is insufficient to justify an action. Instead, it is necessary to aim at achieving the maximization of happiness to align one’s intentions and deeds with the theory.

From the utilitarian theory’s perspective, Samsung’s unwillingness to enforce just labor guidelines on its contractors can be regarded as unethical. Senior executives of the tech giant decided to disregard reports of illegal and immoral labor practices at HEG Electronics’ production facilities. Even if one supposes that the executives were driven by the desire to benefit Samsung’s shareholders by reducing the cost of production, it is clear that the results of their decision were detrimental to a large group of people employed at the contractor’s factories. Considering that workers’ families were inevitably influenced by the misery of their close ones, it is evident that the results of the moral calculus point to the impermissibility of Samsung’s actions.

The theory’s critical moral impulse is often criticized by appealing to the majority bias according to which no one should adhere to utilitarian principles because they do not favor minority rights (Eyal, 2014; Valentinov, 2017). However, critics such as Bowie and Hartman fail to recognize that the utilitarian theory supports the principle of liberty because it does not merely require happiness for the greater number of people but, rather, “the greatest overall happiness of the greatest number” of individuals (Gustafson, 2013, p. 342). Thus, the protection of minority rights is beneficial for the society that is not satisfied with some of its members’ misery. It means that Samsung’s executives were obliged to control the labor practices of their contractors.

Unfortunately, an annual report of Samsung shows that the company did not experience a reduction in sales or profits from 2012 to 2013 (“Samsung Electronics,” 2013). On the contrary, the period was characterized by historically high sales revenues of more than KRW 220 trillion, representing a 14 percent increase from the previous year (“Samsung Electronics,” 2013). The reason for this outcome will be discussed later in the paper.

Corporate History

Samsung was established in 1938 by Lee Byung-Chull, who had only 27 dollars at his disposal (Burris, 2017). Initially, the company specialized in the retail of exported fresh produce. However, in 1947, it diversified to the production of sugar, textiles, and wool (Burris, 2017). The company’s first electronics divisions started functioning in the early 1960s (“Samsung Group,” n.d.). Several decades later, the company expanded its product line from electronic components and television sets to washing machines and switchboards.

Following its originator’s death, Samsung entered into the mobile telephony industry and separated into separate divisions. In the 1990s, the company became incorporated and changed its focus to two spheres of economic activity: electronics and engineering (Burris, 2017). Currently, the tech giant is the largest player in the mobile phone market.

Corporate Social Responsibility

Companies driven by corporate social responsibility (CSR) principles steer clear from questionable behaviors (Rodgers, Soderbom, & Guiral, 2015). CSR’s concept is characterized by a high degree of obscurity; however, its general principle is to “take responsibility beyond the level of legal compliance for environmental, sociocultural, and economic concerns” (Heikkurinen & Ketola, 2012, p. 327).

From CSR’s perspective, the controversial practice of Samsung and the policy regime that facilitated its continuation is socially irresponsible (Windsor, 2013). By opting for economically viable yet immoral actions, the company’s executives disregarded its societal obligations. It has to be borne in mind that even though moral obligations cannot be based on legal obligations, its actions cannot be squared with the Chinese legal framework (Eabrasu, 2012). It means that Samsung’s performance-oriented culture is not aligned with the current moral consensus that underpins the global CSR agenda.

Stakeholders

Under the utilitarian framework of ethics, Samsung’s senior executives should strive to achieve an equitable balance of the shareholders-stakeholders equation. That is, shareholder wealth maximization, which is a crucial driver in the business world, should not come at the expense of overall social welfare. The moral soundness of Samsung’s decision to disregard HEG Electronics’ workers’ wellbeing is questionable from the utilitarian perspective.

Under normative stakeholder theory, which is closely aligned with utilitarianism, “corporate managers should consider the interests of constituent groups who contribute to the firm’s existence in their decision-making processes” (Jones & Felps, 2013, p. 351). It follows that stakeholder happiness enhancement should be deeply embedded in all business strategies of the company.

By focusing on the promotion of happiness for all stakeholders, instead of concentrating on the shareholders’ utility, Samsung can restore its image of a company whose actions are morally justified. To act in accordance with utilitarian principles, the tech manufacturer has to identify opportunities for the maximization of stakeholder happiness. A corollary is that the tech giant should strive to minimize the total unhappiness of all parties involved in the production of its products. The most immediate action that has to be applied to the issue under discussion is the permanent severance of ties with the unconscionable contractor, followed by other business partners’ scrutiny. Also, the company should generate policies that prevent future contractors and suppliers from exploiting their workforce.

Working Conditions

In 2012, an independent advocacy organization, China Labor Watch, issued a report that pointed to Samsung’s entanglement in numerous violations of the labor law (Arthur, 2012). The report detailed the results of three investigations on hiring and labor practices of a major Samsung’s contractor—HEG Electronics (“Investigative report,” 2012). The findings presented in the document suggest that the company’s factories commonly utilize child labor. China Labor Watch’s undercover investigators discovered that seven kids were involved in operations on HEG Electronics’ factory floors during two months of 2012 (“Investigative report,” 2012). The company’s production lines also relied heavily on student laborers that comprised approximately 80 percent of the factory’s total personnel (“Investigative report,” 2012).

The series of investigations helped to shed light on discriminatory hiring policies of Samsung’s contractors that were based on sex and age. Also, hiring managers of the company were prejudiced against disabled applicants and those with tattoos and long hairstyles, which is individuality-based discrimination. The report showed that excessive overtime was a prevalent feature in all production settings of HEG Electronics (Thomson, 2012).

Even though, according to the company’s rules, the production lines adhered to a “five-day workweek, eight-hour workday” schedule, the workforce at the factories had to “work standing for more than 11 hours per day” (“Investigative report,” 2012). In addition to the exhausting schedule, employees at HEG Electronics’ facilities were mandated to work overtime for up to five hours per day (“Investigative report,” 2012).

The investigative report described unjust punishment systems and embezzlement of workers’ wages at the company’s production facilities. For instance, HEG Electronics faced termination for minor lapses of judgment, such as scanning mistakes (“Investigative report,” 2012). Poor living conditions at dormitories and extremely short meal breaks were other violations discovered by the independent investigators. Moreover, a lack of safety training and medical protection measures exposed the workforce to numerous physical hazards.

The working time policy of Samsung’s contractor is at odds with standards outlined by the International Labor Organization (ILO) (“Working time,” n.d.). The limitation of working hours to 48 per week has been adopted during the organization’s first convention in 1919 (“Coo1,” n.d.). The aim of articles and provisions adopted by the ILO was to “promote higher productivity while safeguarding workers’ physical and mental health” (“Working time,” n.d., para. 2).

Brand Image

After the publication of the China Labor Watch’s report, Samsung has entered into a damage control mode to recover its positive brand image (Amit, 2014). In response to the investigative report, Samsung admitted that although it had evidenced several instances of workers working beyond legal time limits, “it found no evidence of child laborers, having carried out face-to-face checks on all staff aged under 18” (Arthur, 2012, para. 2). The response was followed by audits of 144 company’s contractors in China (Arthur, 2012). Upon conducting the audits, Samsung publicly stated that no instances of child labor had been discovered (“Samsung’s audits,” 2012).

The decision to take active measures was essential for the company’s long-term success since ethical consumerism has been gaining more prominence during recent years (Singh, Iglesias, & Batista-Foguet, 2012). Numerous studies point to the fact that the company’s behavior directly connects to its perception by the public. For example, a study on the consumer perceived ethicality (CPE) showed that, on average, a brand image of a firm is congruent with its actions in the ethical domain (Brunk, 2012). Therefore, if Samsung is willing to retain its competitive standing in the market or gain a competitive advantage, it should pay close attention to the ethical facet of its decision-making framework.

Ever-increasing levels of public scrutiny with respect to corporate ethicality partially stem from emotional attachments that people have to their brands of choice. A study conducted by Smalz and Orth (2012) shows that “attachment attenuates judgments of unethical behavior, contributes to emotional ambivalence, and affects purchase intentions” (p. 869). The findings of the study can be used to explain a lack of strong societal backlash over the ethical scandal. However, if Samsung continues to engage in immoral business practices, public perception of its brand image will substantially deteriorate.

The repeated unethical behavior will find a reflection in the company’s bottom line, which will raise the objections of its shareholders. According to Singh et al. (2012), 70 percent of consumers place a high value on the CSR dimension of a company’s brand. From an economic standpoint, while seemingly beneficial in the short term, Samsung’s labor policies are untenable in the long term. Therefore, the company should adhere to ethical business practices to strengthen its brand.

Although Samsung had informed the public about its lack of tolerance for child labor, the use of the unethical working practice at factory floors supplying parts for the tech giant persisted. The results of another series of investigations conducted by China Labor Watch in 2012 suggested that an electronics parts manufacturer HTNS Shenzhen Co. employed child labor (“Samsung’s audits,” 2012). Other labor violations included but were not limited to, a lack of safety training and equipment, excessive overtime, harsh punishments, and discriminatory hiring (“Samsung’s audits,” 2012).

The investigations helped to unearth solid evidence of the use of child labor. Therefore, the tech giant temporarily severed ties with HEG Electronics. When discussing the issue, Samsung’s spokesperson stated that the company “routinely conducts an inspection to monitor its suppliers in China to ensure they follow the commitment, and has provided necessary support” (Hernando, 2014, para. 4). It should be mentioned that evidence of Samsung’s unwillingness to enforce equitable and legal labor practices at the manufacturing facilities of its contractors emerged again in 2014 (“Another Samsung,” 2014).

Conclusion and Recommendations

The paper has provided the results of the analysis of Samsung’s ethical dilemma. It has been argued that in the pursuit of shareholders’ value maximization, the company’s senior executives disregarded the interests of a larger group of stakeholders; therefore, their actions can be construed as unethical. Also, the disregard of the moral dimension of employment practices shows that the CSR model of Samsung is substandard. Therefore, the organization is recommended to:

• conduct a thorough investigation;
• severe ties with all contractors that do not follow international labor standards;
• revise its strategic CSR framework;
• restore damages to all affected parties.

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