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Students I.D. number: 22209565 Unit name Title of assignment Name of lecturer Name of tutor Tutorial day /time Due date: 30th April, 2012 Management Ethics and Corporate Governance

Individual Assignment-Assessment Task 2 Elizabeth Prior Jonson/ Anya Daly Friday, 2-3:30 p.m Date submitted: 30th April 2012

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Individual Assignment: The Australian Government is considering introducing regulations that require gamblers to nominate in advance how much they are prepared to lose before they start playing poker machines - "mandatory pre-commitment". ______________________________________________________________________________ To an everyday Australian, gambling is said to be an enjoyable recreational activity. The gambling industry in Australia is one that generates a large revenue stream. As of 2010, the revenue generated accounted to USD17.1 billion dollars. The major component of this expenditure comes through gaming machines or pokies accounting for 57.6% of the total revenue (Datamonitor, 2011). Gambling, albeit a potentially fun endeavour, has negative consequences. Problem gambling is an inherent problem in the Australian community and it accounts for nearly 1% of the Australian adult population (Banks, 2011). It is believed that one in five people who go seek public mental health service have a gambling problem and half of them had suicidal tendencies (Dowling, 2011). Pokies are considered the main gambling technique associated with problem gambling. In order to reduce this, the government intends to pass on a mandatory pre commitment on the amount an individual is willing to put in for a certain period of time (Banks, 2011). They would also be provided smart cards which serves as identification and inputs the various gambling activities undertaken by the individual on these pokies machine (Banks, 2011).The aim is to restrict the total losses and prevent the negative consequences associated with these machines (Wilkie, n.d.) Clubs Australia has lobbied against this proposal as they feel it would significantly reduce the revenues and also increase unemployment in the gambling industry. Problem gamblers accounted for 40% of the revenue generated from the gambling industry ("Submission for Social and Economic Impact Study of Gambling in Tasmania", 2011). This essay examines the costs and benefits associated with the implementation of mandatory pre commitments, outlines Club Australias approach to Corporate Social Responsibility, considers governments paternalistic approach to the legislation and if this notion is an unjustified interference to an individuals liberty.

Mandatory pre-commitment is an initiation aimed to dissolve, as what Community Services Minister Jenny Macklin said, the devastation that can affect individuals and families as a result of problem gambling'' (Wilson, 2010). Problem gambling occurs when an individual finds it difficult to limit the amount of money spent on gambling which leads to adverse consequences for the person involved, others or for even the community (Hing, Nuske & Gainsbury, 2011). If this is implemented, the pokies will be subject to several changes. Under this system, all the users of these machines will be identified to a national poker machine network through the use of a smart card or a USB key with the users themselves determining their daily, weekly, yearly limit that they are not allowed to exceed (Needham, 2010). This scheme also includes a reduction of the bet limit to $1 and also limits the cash withdrawals from club ATMs to $250 (Needham, 2010). The case for the proposal is that keeps a check on how much an average gambler loses. The excessive losses experienced as a result of gambling had cause negative impacts on problem gamblers relationships, work performance and well being (Banks, 2011). By limiting the amount of losses they aim to eradicate these problems. The pokies machines could yield a loss of up to $1050 an hour and with the implementation of the mandatory pre-commitment the value lost on these machines would be reduced (Banks, 2011). The pre-commitment also serves as another mechanism for problem gamblers to limit their gambling such as wearing thongs as they are not permitted in a casino (Banks, 2011). The reason behind the dollar bet limit was that these pokies involve high intensity play and that would increase overall losses (Banks, 2011). It was also found that only 12% of recreational gamblers placed a bet of more than $1 whereas 50% of the problem gamblers placed a bet greater than a dollar. It was also believed that recreational gamblers would be disheartened to gamble due to intrusive nature of the new requirements. This is not true as recreational gamblers will be provided low-cash cards and would not require a smart card (Banks, 2011). Another think to be taken into consideration is the cost of installing such equipment. It is believed to cost around $3 billion but one thing that is overlooked is that once it is set-up it provides coverage to the entire gambling network so it reduces the costs of obtaining information from any other source (Banks, 2011).

The social costs of problem gambling is estimated to be $4.7 billion a year (Ackland, 2010) . CEO Toby Hall of has mentioned that gambling destroys relationships, causes family breakups, leads to depression, and causes homelessness and even suicide ("Submission for Social and Economic Impact Study of Gambling in Tasmania", 2011). It also leads to negative effects on other people. It is said that one problem gambler causes problems to 5-10 other people, which leads to grief and emotional stress to the spouses and children and it also cause increase in Crime (Public Health Association Australia, 2008). For instance, in Castlemaine, pokies are only second to drug trade in terms of the cause of crime (OBrien, 2011). It also leads to poorer health, increase in alcohol and tobacco consumption and psychological distress (Marshall, 2009). Although there are an array reasons for the case, quite a few opposing arguments have been cast on the proposition. Professor Alex Blaszczynski, leading academic in problem gambling is also against the notion (Newell, 2011). The main issue that serves as a major disadvantage for the implementation of the mandatory pre-commitment is the huge loss in revenue. The tax revenue obtained from gambling is between $12.1 billion to $15.8 billion a year (Berkovic, 2010). Poker machine revenue accounts for 7.17% of the state revenue (Hopkins, 2012). This would be adversely affected with the new policy as it is estimated that the revenue would drop by 40% (Newell, 2011). The loss in revenue would then lead to businesses, hotels, clubs shutting down. Mr. Macey of the Australian Hotels Association said that their revenue is highly based on the amount obtained on gaming (Hopkins, 2012). He also stated that along with the drop in revenue, the cost of implementing the new policy was extremely high and it would be hard to complete it by the due date. The cost of installing these are also extremely high as it was suggested that they need to take 99,000 machines and the cost would total to $3 billion. (Hopkins, 2012). Another major downfall is the loss of jobs as a result of this implementation. It is said that the gambling industry has an employee base of around 86,000 (Hopkins, 2012), the numbers indicate that as a result of this implementation a total of 11,500 jobs would be lost in NSW alone (Collier, 2011). The hospitality sector would also be affected as suggested by a study undertaken by PriceWaterhouseCoopers as roughly 89% of Australian hotels would be forced to let go of their staff (Collier, 2011).

According to Peter Newell, president of Clubs Australia, has the reforms will not reduce problem gamblers overall gambling budget (Newell, 2011). He has argued that these gamblers would look for other alternatives to compensate for the loss of pokies. These alternatives could involve online gambling or betting. Newell also believes that this implementation is part of political method by Gillards government to attain votes. The effects of the withdrawal of Pokies in Norway further support Club Australias stance on the implementation. The machines were removed for one year and were to be re-instated with the ability include pre-set levels as set by the government. During this one year gap, it was observed that the amount of gambling undertaken by the problems gamblers had not decreased as they switched to alternatives, mainly online gaming (Newell, 2011). Club Australias responses to the proposed implementation were based on their approaches and their beliefs and the benefits to its shareholders. One of the main debates in business ethics is whether businesses should solely focus on the interests of shareholder or whether there should be a balance between the interests of a larger group of stakeholder comprising the consumers, suppliers, employees and other non-shareholders affected by the business (Agle & Mitchell, 2008). Milton Friedmans Shareholder Theory, mentioned that the sole social responsibility of any business should be to increase profits within the allowed rules (Ronnegard & Smith, 2011). It then becomes the managers legal duty on behalf of the business to improve the returns to shareholders. A major argument against Friedmans theory is that it does not wholly comply with the Corporate Social Responsibility (CSR) as managers do not consider the benefits of its other stakeholders (Campbell, 2007). CSR is a broad term that also inculcates corporate citizenship, corporate social involvement or community, corporate philanthropy (Crisan & Borza, 2012). The aim of CSR is to ensure social welfare through economic and social measures. Buchholz and Rosenthal (2002) have stated that the responsibilities of the corporation go beyond the sole attainment of profit and that they have to consider other stakeholders. CSR contain policies that use business practices that aim to improve the society (Kotler & Lee, 2005). The stakeholder approach was formulated in 1984 by R. Edward Freeman in order to encapsulate the interests of not only the shareholders but its stakeholders as well and to also align itself with

CSR (Freeman, 1984). It feels that profitability should not be overlooked but it should be mainly considered as a vehicle to manage stakeholder interests (Ronnegard & Smith, 2011). Through this approach consumers are happy, suppliers want to remain in business with you and employees want to work for you and the community has a good perception about your firm (Freeman, Velamuri & Moriarty, 2006). This can also be classified as Multifiduciary stakeholder model. The business, under this model, have to consider what will improve stakeholder value, the current environment and have an ethical leader at the helm (Freeman, Velamuri & Moriarty, 2006). Another stakeholder model is the Strategic Stakeholder Model. This model considers other stakeholder values but its main aim is to minimize costs and maximize profit margins. Some argue that this is a shareholder view in disguise and that they just aim to win the public as a result of their stakeholder approach. As a not-for-profit organization, Clubs Australia aims to provide their local communities with employment opportunities and training, they offer social contributions through cash or in-kind, they also provide affordable services, facilities and goods for their customers. They are also entrusted with the responsibility of Australias 4,000 licensed clubs (Clubs Australia, n.d). They constantly need to address the needs of their members, guests and community in order to align with their goals. The sheer fact that they are a not-for-profit organization and that they are aimed at improving the welfare of the community rules out the possibility that they follow a Shareholder approach. The main concern that they expressed in relation to the Mandatory Pre-commitment was not on the profitability for shareholders but the severe impact it would have on its stakeholders. They argued that the government would lose valuable revenue which could help develop the economy, there would be a significant increase in unemployment and also affect the hotel industry. They were concerned with the job losses and how it would negatively affect the local community. KPMG stated that 11,500 jobs would be lost only in NSW as a result of this legislation. Unemployment can cause severe problems to not only the individual but the overall aura of the community. It would depict a gloomy economical outcome which could have adverse affects. It was not only the gambling industry that had to cut off employees but also hotels.

Studies showed that 89% of Australian hotels would need to downsize in order to conform with the MPC. The reason they feel that the policy is an unreliable change is due to what happened in Norway. It didnt decrease problem gambling but instead shifted these problem gamblers from pokies to other forms such as online gambling and TABS. This could really hamper the government as there are no taxes returned for online gambling which would dwindle their resources (Newell, 2011). Clubs Australia does not overlook the problems associated with gambling. They do feel that they have to undertake sufficient steps to raise awareness to such problems and overcome them. One way they did so was by not allowing customers to withdraw on credit. They have also initiated a voluntary pre-commitment which provides the gamblers with the option to restrict their overall spending and thereby protecting the smaller clubs as this would not drive them away (Newell, 2011). They feel that the mandatory system are personally intrusive and is a method to inconvenience players which would then hamper the entertainment aspect of these machines and reduce their customer satisfaction (Newell, 2011). These steps taken by Club Australia encourage individuals to believe that the organization is following a Multifiduciary Stakeholder model. However certain figures stated by Clubs Australia have been exaggerated by them in order to win public support so as to not hamper their revenues. Newell stated that the problem gamblers have reduced significantly due to the decline of calls to helplines. The truth is the general awareness of professional sources of gambling help is low and that only 39% were aware of the gambling helplines (Hing, Nuske & Gainsbury, 2011). The loss accumulated as a result of social costs has also been left out by Clubs Australia. This amount totaled $4.7 billion amongst problem gamblers and also that around 5 million Australians are potentially affected due to problem gambling (Australian Government, n.d). By not mentioning Recommendation 36 from the Joint Select Committee on Gambling Reform's report on mandatory pre-commitment which states that low intensity machines that limit the loss to $120 an hour need not be part of the legislation indicates that Club Australia are trying to set the agenda for the media to support them (Cummings, 2011). They do not disclose the information that the government will pay them a fee for the trial including paying the training fees and

payment for infrastructural development ("Pokies reform trial for ACT", 2012). Due to the nondisclosure of such information I feel that they are trying to defend their revenue and provide more benefits to its shareholders which lead me to believe that they follow a Strategic Stakeholder Approach. Inspite Club Australia undertaking an approach that is aimed at safeguarding the shareholder interest and overlooking other stakeholders, is the governments paternalistic approach justified or is it an interference with an individuals liberty? To answer this question an understanding of paternalism is required. Thomas and Buckmaster (2010) have stated that paternalism is the notion that people who possess power have the right to overrule the decisions of an individual or group of individuals in order to protect their interests. This encompasses public policies, interventions in private decision-making and so on. Paternalistic policies are done without the consent off the public, they seek to improve the welfare of the people involved (Thomas & Buckmaster, 2010). The low level of awareness toward professional gambling help coupled with the increasing social costs as a result of the activities fueled the government to formulate such a policy (Banks, 2011). A lot of problem gamblers arent able to recognize when they do start having problems and this leads to their deterioration. The problem with paternalism according to scholars is that takes away an individuals liberty. They feel that in order to cope with todays liberal society, it is necessary that they are the judges of their own fate (Thomas & Buckmaster, 2010). So a suitable paternalistic policy would be one that strikes a fine balance between individual freedom and government intervention. The mandatory pre-commitment according to my perspective, does just that. The mandatory precommitment allows customers to set their own limits indicates a sense of freedom, they are able to exercise self-responsibility (Thomas & Buckmaster, 2010). The system installed, requiring the gamblers to possess a smart card help keep a check on their spending. All these procedures help minimize the losses that an individual can incur. I believe that this approach, if undertaken, would help the overall community and that the government intervention is justified. One of the main concerns for problem gamblers is that they are either unaware of the professional gambling help services or that they are too ashamed to actually ask for help. With the advent of this policy, many more individuals would be aware of

the problems affiliated with gambling and their losses would be restricted. It is also important to reach out to the youth as the increased exposure to online gambling could lead to problems at a young age. Government intervention had become necessary due to evidence that showed that it is difficult for them to control their actions once they start paying the machine, this could lead to adverse social effects (Slutske, et. al, 2011). Social costs dont only affect the government financially but also hamper their image. Increase in problem gambling leads to increase in crime rates, suicides and other illnesses. The policy not only helps the individual but the entire community. It has also garnered a lot of support with almost 70% of the Australians support mandatory pre-commitment or $1 bet limits as a method of tackling problem gambling (Solid support for pokies reform: survey on gambling, 2012). Mandatory pre-commitment has been a hugely debated topic. It does have its fair share of difficulties but all in all it provides a brighter picture for welfare of the society. Club Australias ethical stance towards CSR is inefficient due to non-disclosure of important information and further enhances the prospects of this policy. The above analysis leads me to believe that this system will lead to positive changes. It is also clear as proved by Jonson, Lindorf and McGuire (2011) that benefits to problem gamblers is significant and the costs to recreational gamblers is minimal. The benefits of this system outweigh the costs. Due to the inability of the problem gamblers, the governments paternalistic approach is well and truly justified as they provide a fine balance between government intervention and individual responsibility.

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Solid support for pokies reform: survey on gambling. (2012, April 24). News, Retrieved from Submission for Social and Economic Impact Study of Gambling in Tasmania. (2011, March 19). Retrieved April 27, 2012, from$file/CluneRo berts.pdf Thomas, M. & Buckmaster, L. (2010), Paternalism in Social Policy When is it Justifiable? Parliamentary Library Research Paper no. 8, 2010-11, 15 December, (Parliament of Australia), Retrieved from Wilkie, A. (n.d.). Poker Machines. Andrew Wilkie: Your Independent In Canberra. Retrieved from Wilson, L. (2010, September 30). No back down on gambling reform. The Australian, Retrieved from Factiva.