RadioShack Ethics Audit
Executive Summary
The Electronic Industry Code of Conduct gives standards to ascertain that working conditions in the profitable electronics industry supply chain remain safe, that employees are treated with due respect and dignity, and that manufacturing processes are kept environmentally responsible. Section E of the Code addresses issues pertaining to business ethics (Ferell, 2012).
The process of ethics audit in a company begins with development of codes of conduct. This has variations such as code of ethics and statement of values. Lack of uniform policies and standards would leave employees without an understanding of the company’s acceptable conduct/behavior. The organizational ethics programs are monitored by a high-level committee or manager. The officials are tasked with the responsibility of assessing the needs of together with the risks to be captured in an organization-wide ethics program, their distribution, employee training among other responsibilities (Ferell, 2012). A company will be successful in this area if it ensures total compliance with its ethical code and standards. Assessment should be done through such practices as conducting of internal surveys and audits, observing employees, performing investigations, running reporting systems, together with inviting external audits as necessary.
Most companies fail to have successful implementation and compliance to ethics programs because their inability to respond to fundamental questions pertaining to goals of the program, and not setting realistic measurable objectives of the program. Also, there is always risk of failure when the senior management does not take ownership of the organization’s ethics program (Ferell, 2012). However, an functional ethics program must not be the sole focus of a company because there is also need to be a good corporate citizen through honoring of its corporate social responsibility.
In this paper, I shall perform an ethics audit of RadioShack Corporation. We shall delve into the ethics policy and programs of the company. Furthermore, I shall give recent court cases relating to RadioShack’s ethical issues and then evaluate their ethics programs based on the standards presented in Chapters 8 and 9.
Introduction
RadioShack Corporation is an American franchise consisting of a chain of electronics retail stores operating in the United States, parts of North America, Europe, South America, Central America and Africa (Hoover’s Incorporated, 2000).. The company was formerly referred to as Tandy Corporation and has its headquarters in Downtown Fort Worth, Texas.
At the moment, RadioShack’s proprietary brands range from RadioShack branded products include Gigaware (iPod/MP3 player and personal computer accessories), Enercell (power and batteries accessories), Kronus (tools), Presidian (audio and video equipments, flashlights, telephones, 2-way radios, and calculators), Optimus (initially audio & PA/DJ equipment; currently used for digital camera accessories), VoiceStar (wireless phone accessories). In addition, RadioShack’s discontinued brands include: Archer (writing and antennas), MyMusix (MP3 players, which are presently marketed under the well-performing Gigaware brand). Micronta (scientific & educational equipment), Duofone (telephone and accessories), and Realistic (sound equipment) (Hoover’s Incorporated, 2000)..
Business risks facing RadioShack Corp.
The troubles facing Radio Shack date back to year 2000 when it own branded products – Realistic, Presidian, Optimus, Enercell and Accurian label were rendered increasingly irrelevant leading to them weighing down heavily on its bottom line (Hoover’s Incorporated, 2000). Realistic and Optimus brands were discontinued as a result followed by the outdating of company’s contract to deal fading electronics manufacturer RCA’s products.
Following the rapid decline of sales in 2004, RadioShack initiated an overly controversial company wide inventory & profitability intervention plan referred to as Fix 1500. This was meant to be an assessment and isolation of its badly performing 1,500 managers to undergo retraining or termination altogether. The implication of that move was a demotion or expulsion of some 1,734 manager company-wide within a half a year period. In addition, the company did a cancellation of its employee stock purchase plan which in turn left employees out of the modest news-based prices surge that occurred after the restructuring.
However, it was clear by 2005 that the new strategy Fix 1500 did not do good to RadioShack. This is because the company’s stock price fell 31%. This made the company to desperately try to repurchase employee shares at a much lower price compared to the original purchase. The net result of this action was a decreased amount of its outstanding shares, more volume, slightly stayed up the stock price, but finally decreased the annual EPS. At the end 2005, RadioShack’s earnings had fallen 63% owing to an inventory increase and stock came to a three-year low. The following risk factors are attributable to the problems of RadioShack Corp.
Management
Ethical issues have bedeviled RadioShack especially in the area of management. The company has several instances where its managers had to resign for different unethical-related reasons. In 2006, the company was haunted by a CEO resume scandal where David Edmondson was discovered to have falsified his academic credentials. The resume of the CEO wrongly stated that he had earned degrees in psychology and theology from Heartland Baptist Bible College. In an action that was morally and ethically wrong, the company’s board of directors put up a defense for their CEO, but the embattled Edmondson admitted to the mistakes and reassigned. The newcomer Claire Babrowski succeeded Edmondson as CEO for Radio Shack. However, the company was once unable to keep a dedicated leadership as Claire Babrowski left the company less than half a year since her appointment for top job.
The plummeting stock prices of RadioShack in an otherwise booming market, forced the company’s management to cut its workforce by approximately 400 to 500 positions in its various support functions. Nearly 1 out of 5 positions were struck out affecting all levels of the company. The company officials defended the action terming it as a necessary evil to lower overhead expense and boost its long-term competitive standing in the marketplace while keeping a significantly modest number of stores. However, it was the manner in which the company’s management team chose to execute the corporate layoffs that was unethical. Employees whose positions had effectively been terminated were informed through an email notification sent on the published day and time. They were allowed just half an hour to pick their personal effects, bid bye to colleagues and then convene for a final meeting with their senior supervisors. Thereafter, the employees met with the human resource official where they were handed their respective packages. The dismissing of hundreds of employees by RadioShack management was a rather insensitive move which the public considered as dehumanizing.
The risks of RadioShack have continued to present day evidenced by the unimpressive first-quarter 2012 financial results. The company is currently facing bottom-line pressure relating to its lucrative wireless platform which has resulted to a decline of its net income in the recent years. In addition, the company faces weak bottom line as a result of costs linked to transition from the initial adverse product mix into low-margin smart phones, T-Mobile toward Verizon Wireless partnership, as well as underperformance of its business operations with Sprint Nextel. Things are not expected to improve for the wireless division revenue in 2012. While management exhumes optimism that it will achieve future business from Verizon, it is evident that more consumer awareness and thus increased spending on marketing in needed.
RadioShack also faces the risk of a continued free fall of its core retail businesses particularly consumer electronics. This is a dangerous state of affair considering that core businesses have significant material effect on the company’s wireless business. Essentially, the core business indirectly influences wireless sales through increased footfall (Zacks, 2012). Majority of customers who walk into RadioShack stores with the aim of buying core products are often drawn toward the company’s latest wireless offerings. This translates the continued survival of RadioShack’s core business is increasingly coming under threat.
Another significant near-term concern affecting RadioShack is the major decline in its gross margin. For instance, the company’s gross margin for the first-quarter of 2012 was a meager 39.1% compared with 44.7% in the same quarter the previous year. This was contributed by unfavorable sales mix on lower margin smartphones as well other mobiles. Similarly, there is higher percentage of mobility sales as a result of kiosks located within Target store (Zacks, 2012). According to RadioShack itself, this unfavorable trend is bound to persist in the near future because of revamping of its core retail electronics segment and launch of wireless kiosks within Target stores. Evidently, RadioShack has lost its market leadership position as a high-margin retailer as it is fast becoming a low-cost and low-margin device supplier.
Of greater significance is the fact that RadioShack currently faces stiff competition from larger competitors such as Best Buy and Wal-Mart. Best Buy is slowly but surely introducing small sized mobile stores within the next 5 years, a move which is poised to have a negative bearing on RadioShack’s market shares. The small format mobile shops are strategically located in shopping malls where RadioShack is most pronounced. In the same vein, Wal-Mart has joined forces with TracFone and came up with a low-price pre-paid wireless offering while increasing its mobile phone sales operations (Zacks, 2012). Another related risk that RadioShack is currently fighting is stiff competition from the online giant retailer Amazon.com. Thanks to increased technological advancement, modern customers increasingly favor online purchase as opposed to visiting physical retail stores such as those of RadioShack.
As a major player in the consumer electronics retail industry, RadioShack is bound to be greatly affected by the never-ceasing macro-economic fluctuations in the U.S. (Zacks, 2012). The company anticipates further decline of its net income for the rest of 2012.
Opportunities for RadioShack
RadioShack has the advantage of experience over many of its rivals due to its long time of doing business in the industry. It is also among the few most trusted retailers that specialize in consumer electronics in the United States. In addition, RadioShack Corp. remains strategically positioned largely because of its better locations, small size and large footprint, which renders the company more visible to its customers (Zacks, 2012). More opportunities are also likely to rise due to the important move by management to open Kiosks dealing in wireless products is some 1,490 discount stores of Target Corp. Furthermore, the company is on the path to make a positive turnaround if the recent increased sequential sales of RadioShack’s high-margin Signature business.
In the same light, RadioShack has opportunities to reap well from recently move to offer both prepaid and postpaid products of Verizon Wireless countrywide. Verizon is by far the largest wireless operator in the United States, 2.6 times larger than T-Mobile of which RadioShack recently terminated its business contract with. It is highly possible that Verizon will afford RadioShack the opportunity to access more premium phones and ultimately expand its existing market share (Zacks, 2012). It is also worth noting that the company has re-launched “The Shack” brand and put focus in wireless technology so as to stay at par with the future trends.
In addition, RadioShack has adopted a global expansion strategy, opening additional 50 stores in Mexico in 2012. The company has also sealed a franchise deal with a Malaysian conglomerate Berjaya. This would enhance RadioShack’s opportunities in the profitable wireless businesses as Berjaya targets to roll out 1,000 stores in several South-East nations in the course of the next decade.
RadioShack Statement of Ethics
RadioShack Corporation commits to the California Transparency in Supply Chains Act of 2010. The company also holds that it has a longstanding corporate Code of Ethics where it strives to ensure high moral, ethical & legal standards in the conduct of its business. In compliance with the Vendor’s Guide of Ethics, the company requires its vendors to treat its employees with much respect and dignity. As such, no employee should be subjected to any physical or other kind of abuse (RSH, 2012). Furthermore, there should be fair and reasonable conduct pertaining to hiring, working conditions, training, wages and benefits, discipline, termination, retirement in line with local standards as well as applicable law.
RadioShack conducts periodic visits to manufacturing facilities where its vendors operates from and contracts third-party auditing firms to not only verify but also evaluate vendor compliance as required by the Vendor Agreement, Vendor Guide and Code of Ethics (RSH, 2012). RadioShack enhances internal accountability by demanding that vendors found with deficiencies instantly take corrective measures.
The company conducts annual training sessions where employees are informed on aspects relating to the RadioShack’s policies and prohibitions, reporting responsibilities relating to common illegal labor activities, forced labor, and human trafficking. RadioShack requires all its vendors to act in accordance to these standards so as to meet the company’s goals of corporate social responsibility (RSH, 2012).
However, there is need for RadioShack Corporation to put into place an effective ethics program which will server to help sensitize its employees to likely legal and ethical issues that may arise within their respective work environments (Ferell, 2012). The corporation needs to revise its ethics programs which best represent its industry, history, culture and operating environment. By implementing an effective ethics program, RadioShack will reduce the risks of legal penalties along with undesired public reaction to the company’s misconduct. RadioShack Corporation should strive to assess its risks and thereafter self-monitor and direct energy at deterring further unethical acts besides taking punitive measures against unethical employees (Ferell, 2012).
References:
Ferell, O.C. (2011). Business Ethics: Ethical Decision Making and Ethics. Connecticut, Cengage Learning.
Hoover’s Incorporated. (2000). Hoover’s Handbook of American Business, Volume 1. Texas, Hoover’s, Incorporated.
RadioShack Corporation. (2012). Code of Ethics. Retrieved from: https://secure.ethicspoint.com/domain/media/en/gui/26705/code.pdf.
Zacks Investment Research. (2012). RadioShack Corporation (RSH-NYSE). Retrieved from: http://www.zacks.com/mediaroom/zer_get_pdf.php?r=Z867838
