Communication in Business

Name: A Student
Student ID: 12345678
Student Email: a.student@student.curtin.edu.au
Name of TA:
Tutorial Day and
Time:
Company: Wesfarmers
Semester and
Campus:
Title: Wesfarmers – Kmart Social
Performance on Human Rights and
Employment

Word Count: 1,781

 Human Rights and Employment
Wesfarmers – Kmart’s Social Performance

Introduction
Societies expectations on companies to conduct business in a socially responsible and ethical
manner has increased rapidly as greater transparency is demanded through social network reviews
(Keevil 2014). Studies have shown that a company’s financial results are directly related to its social
performance, it has also been proven to directly affect stakeholders (Barnett & Salomon 2012).
Companies with clearly defined and practiced social contracts outperform those that do not in areas of
productivity and engagement (Barnett & Salomon 2012; Keevil 2014, 4; Waddock & Graves 1997).
Wesfarmers is Australia’s largest listed company with a vast array of businesses in industries as
diverse as supermarkets to coal production and export (UN Global Compact 2017). Kmart, one of
Wesfarmers businesses is amongst Australia’s largest leading retailers and has over 200 stores
across Australia and New Zealand that sell general merchandise and clothing. Kmart also has product
sourcing offices in several other countries including Hong Kong, China, Bangladesh and India
(Wesfarmers Limited 2017). The focus of this report is on the employment conditions for employees of
a key stakeholder that supply goods to the company. In April 2013 questions began to arise about
products and where they were supplied from after the much-publicised ‘Rana Plaza Garment Factory’
collapse in Bangladesh, killing over one thousand workers (Hoskins 2015). This report will discuss the
company’s social performance in relation to human rights and employment and review the impact on
stakeholders including; employees of suppliers, employees of Kmart, suppliers, and consumers. This
report will present facts and information that highlight the company’s track record and current efforts
to rectify previous deficiencies in its standards and quality control procedures.

Case against Wesfarmers (Kmart)

Resulting investigations into the April 2013 ‘Rana Plaza Garment Factory’ disaster in the Bangladesh
capital Dhaka, uncovered a series of international employment standards the manufacturer did not
comply with including minimum age, minimum wages, occupational health and safety to name a few
(Ryan 2013). Damning reports found Kmart guilty of its obligation and duty to maintain quality and
safety standards from all of its suppliers and stakeholders (Ryan 2013). The manufacturer was found
to be guilty of engaging child labour and threatening and physically abusing workers under appalling
conditions (Australian retailers 2013). Workers were forced to work long hours for as little as AUD $3
per day when the minimum wage for a machinist is AUD $17.49 per hour (Castle 2014). Broader
investigations into other Kmart suppliers in Bangladesh discovered that they too did not meet
minimum International Standards for the factories (Australian retailers 2013).

The investigations began to highlight the unfortunate situation and position of the Bangladeshi
Garment Industry workers (Australian retailers 2013). There is evidence to suggest large Australian
companies including Kmart, are among an increasing number of globalised retailers who have been
exploiting the remoteness of Bangladesh and the lack of corporate transparency to produce cheap
clothing for retail stores across the world (Australian retailers 2013).

The Australian Fashion Report by Baptist World Aid Australia, independently grades companies in the
fashion industry in order to educate consumers so they can make ethical purchasing choices while
encouraging companies to protect workers that produce their products (Nimbalker, Cremen and
Wrinkle 2013). The grading system ranges from the top grade of an A down to the bottom grade of an
F. In 2013, Kmart had a disappointing overall grade of a D, this was comprised of several individual
grades including Workers Rights Grade F and Transparency and Traceability Grade D (Nimbalker,
Cremen and Wrinkle 2013). Kmart received a ‘non-compliance’ rating in the area of Workers Rights
including, “Does the brand guarantee that workers make a living wage?” “Does the brand have a
system for basing sourcing decisions on supplier labour conditions?” “If child labour is discovered
does the brand find a way to provide for the child’s education and replace the lost income to the
family?” (Nimbalker, Cremen and Wrinkle 2013, 25).

Stakeholders are either groups or individuals who have an interest in an organisation and can affect
or are affected by the decisions of an organisation (Franch, Martini and Buffa 2010; Freeman 1984,
46; Gupta and Pirsch 2008), primary stakeholders are those stakeholders who have the greatest
impact and interest on an organisation (Gupta and Pirsch 2008; Schraeder, Mike and Dennis 2010).
The employees of the suppliers are primary stakeholders to Kmart, they were treated highly
unethically, physically and verbally abused, and paid well below the minimum wage which doesn’t
cover basic living costs (Castle 2014). Stakeholder theory suggests that companies should
understand the stakeholder’s interests and respond to them, the more the company is engaged with
the stakeholders the longer they will contribute to the company and therefore increase the
performance of the company (Keevil 2014, 19). In relation to employees in the factories, Kmart wasn’t
interested in stakeholder theory, underpaying and overworking employees can lead to a shortage of
supply causing the business to fail because employees will leave and suppliers will not have the
resources to maintain the level of supply Kmart demands.

The majority of Australian consumers are well known to have a conscience when making purchases
and base their decisions primarily on emotion, of which the ethical standards and social performance
of a company has a strong influence (Castle 2014). Therefore, when consumers are presented with
garments that are priced at $3, questions are raised regarding the cost of manufacture and the
possible employment conditions of the workforce required to support the supply of these products
(Bagshaw 2016; Castle 2014).

The ultimate demise of low tier manufacturers is inevitable if companies such as Kmart continue to
condone the appalling conditions that some manufacturers employ their staff under, by purchasing
their products (Australian retailers 2013). Kmart has failed in their duty of corporate citizenship by
consciously letting their social performance be well below the acceptable levels for any company. If
Kmart does not make immediate significant changes to their processes and systems, they can expect
to witness a consumer boycott of their stores and products, this will have catastrophic consequences
to all stakeholders of the company.

Case for Wesfarmers (Kmart)

Kmart acted swiftly in the aftermath of the April 2013 ‘Rana Plaza Garment Factory’ disaster, by
becoming a signatory of the Bangladesh Accord, which among other things, commits each signatory
to disclose the location of their manufacturing factories, for the purpose of third party independent
auditing and provide funding for the continual improvements to safety (Victory for Bangladeshi 2013;
Castle 2014).

In a conscious move towards acting with greater corporate citizenship, the Wesfarmers department
store, Kmart has developed an Ethical Sourcing Code which they must adhere to, in order to act in a
socially acceptable manner. The ethical sourcing code forms part of the contract between Kmart and
the supplier and states that suppliers will have no employee under the age of 15. Suppliers are
required to provide the local legal minimum wage to employees, employees will not be over worked,
benefits shall be granted to employees and forced labour will never be tolerated. The employees of
suppliers must be respected and treated with dignity and the facilities of the factories are to be safe,
clean and apply with all laws and regulations (Kmart Australia 2017). To ensure the suppliers are
complying with the Ethical Sourcing Code the factories will have planned and random audits by
Wesfarmers trained third party auditors (Wesfarmers Limited 2016a), if the factory fails to meet
standards, measurable action plans are provided to improve all areas. In 2016 Kmart conducted 1,120
audits, in the case of factories not meeting the standards, audits are rescheduled to ensure they
rectify the defects and then adhere to the code (Our Sustainability Performance 2017).

Companies should consider stakeholders wants and needs in order to be more socially responsible, if
companies are socially responsible and listen to stakeholders, stakeholders will directly impact the
company (Gupta and Pirsch 2008). By Kmart sourcing ethically, stakeholder theory is recognised, the
employees of the suppliers, primary and external stakeholders, are positively impacted because they
are being treated fairly and working in approved environments by the Core Labour Standards which
have been enforced by the International Labour Organisation (Sourcing Ethically 2017).

In order for companies to build trust with the public and build their socially responsible profile, they
should be fully transparent, respectfully acknowledging and supporting their suppliers. In the 2016
Australian Fashion Report, Kmart received a B+ grade for “Knowing your supplier”, by making a public
list of the location and name of their suppliers (Nimbalker, Mawson and Harris 2016). In the same
report, Kmart received an overall rating of a B, an enormous improvement on its results in the 2013
Australian Fashion Report. (Nimbalker, Mawson and Harris 2016).
Kmart’s in store team members are educated to respond to consumer questions regarding where the
stock is supplied from, the employees are continuously being educated and updated so the
information they are providing to consumers is current and ethical (Kmart Australia 2017b).
Consumers are more willing to pay increased prices for garments if it means the price they have paid
covers the fair treatment of workers and the conditions of the factory are ethical (Killalea 2017).

Kmart is taking active steps to join initiatives and partnerships to increase the company’s
transparency in wages and workers’ rights. The 2016 Wesfarmers Sustainability report, outlines Kmart
has joined ‘Action, Collaboration, Transformation’ an initiative for stakeholders to the garment and
textile industry to discuss living wages (Wesfarmers Limited 2016b).

Conclusion
In conclusion, this report has presented facts and information that highlights Wesfarmers retail
company Kmart’s track record and current efforts to rectify the human rights and employment
deficiencies in its standards and quality control procedures. Prior to the ‘Rana Plaza Garment Factory’
Collapse, Kmart failed in their duty of corporate citizenship by consciously letting their social
performance slip well below the acceptable levels for any company. Since then Kmart has been
making positive improvements to their social performance, in regard to the Ethical Sourcing Code that
forms part of the contract between themselves and the supplier to ensure employees are treated
ethically and in a socially acceptable manner. Although Kmart has made tremendous improvements to
their ethical sourcing, according to the 2016 Australian Fashion Report they are on an overall B grade
(Nimbalker, Mawson and Harris 2016), still leaving room to continually increase the standards and
conditions of workers. As Economist Milton Friedman said, “the business of business is business”, the
purpose of a business is to be profitable, but the financial status of the company positively correlates
to the company’s social performance, therefore if a company is profitable and socially responsible it
receives more support from and positively affects stakeholders.
References

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