Akash Miriyala

Sunday, November 2, 2014

BUS-L 375
Final Research Paper
Ethics of Apple, Inc.
Steve Jobs returned to Apple in 1997 ushering in a new era for the company. In
that year, Apples annual revenues were $7 Billion. Currently its revenues are $171
billion (for fiscal year 2013). Thats a stunning 25 times growth in revenues in 16 years.
This can be attributed to the revolutionary changes Steve Jobs made. In 2007, Jobs
renamed Apple Computer, Inc. to Apple, Inc. This underlined the shift of Apple from
being a computer manufacturing company to a global, consumer electronics powerhouse.
In 1997, Apples revenues were primarily from computers (Macs) and some software. It
barely sold a few million of those in that year. However, in 2013, Apple sold an
aggregate of 200 million iPhones, iPads, Macs and iPods! This is an explosive growth in
numbers that is bound to have some effect on the supply chain. In this article, I will get
into some depth into some of these supply chain issues, as well as the details behind the
ethical culture of Apple Inc.
In order to understand Apple from an ethical angle, it is important to understand
some of the history and the DNA of the company. One important aspect of Apple is its
secrecy, which was instilled by Steve Jobs. The good thing about secrecy is that it hides
new products from potential competitors, giving Apple a competitive edge. Such secrecy
to promote business is fair, from an ethical angle. However, secrecy can be a doubleedged sword. For example, when Steve Jobs fell sick, the company executives hid the
fatal illness of their CEO. This can be seen as misleading investors who might have sold
shares had they known that Steve Jobs didnt have much time to react to the news of his
death. In this sense one could say Apple has poor ethical values because of this lack of
transparency between high-level executives, however secrecy has not led to very serious
ethical issues. These issues arise from the sheer scale of operations and Apples
responsibility to deliver the expected results at all times.
The majority of people are drawn to Apple because of the superior quality of
products and a feeling of status and enjoyment from using Apple products. However, not
many people consider how Apple can provide a seemingly non-stop supply of products.
After Steve Jobs return in 1997, he flattened the organization has e was more involved
with employees and able to drive innovation and a collaborative effort towards its longterm views. In the mid to late 2000s when Apple supply chain issues surfaced, much of
the responsibility shifted to supply chain guru and current Apple CEO, Tim Cook. In
2007, Tim Cook also started tracking sustainability data reporting relating to issues
within the endless supply chain. While at that time, the problems were not as prominent,
it was helpful to track the trends related to various issues in supply chain. By starting this
work early, when publicity of Apple factory issues began to get worse in 2011, Apple was
ready prepared to tackle them.

Apple has monitored its factories in China since 2007. However, as sales of
Apple's gadgets have soared, it put intense pressures on the company's suppliers to ramp
up production, which led to a gradual increase in many different problems. Here are some
of the issues that have occurred:

Long overtimes
Low worker morale
Mistreatment of workers
Increased number of on the job miscues
Suicides and attempted suicides
Illegal child labor

"If you are a 16-year-old girl in a developing country, your best chance of
enjoying proper rights is if you get to work at a multinational company," said Mr. Van
Heerden. "The power of their contract is more powerful than the power of law". What
Mr. Van Heerden is hinting at is that its quite possible that these workers are living better
lives even though working conditions are tough. In that sense, the multinational company
is doing well for its workers. But at what point does that balance shift? In my opinion, it
is the responsibility of Apple to work with its suppliers to ensure their products are
produced in the correct way. I discuss below the steps Apple has taken to do just that.
Apple outsources its production to the Foxconn factory in China. Foxconn hired
young 16-18 year old kids under the disguise of an internship. However all they needed
were more hands on deck to meet production schedules. Technically, when word got out
that Foxconn was hiring interns, Apple could have just fell on the fact that they hired
Foxconn to do the work and it was not their concern how Foxconn met their obligations.
Apple could have turned their back to the issue, but being such a behemoth with so much
in monetary resources, it just makes sense to tackle the issue. As mentioned earlier, they
already had procedures in place to track the sustainability issues. Hiding it would be an
ethical issue and with all eyes on Apple Inc.s success. The topic of child labor is a
sensitive one, it makes sense for Apple to confront this issue, and that is exactly the goal
they set for themselves.
Apple now releases a yearly sustainability reports to track instances of child labor,
sustainable sourcing of materials, and labor hours. With the information at hand, Apple is
able to divert resources to solve their problems. For example, in last years report Apple
cited 11 factories with child laborers, with 107 active cases and 70 historical cases. In this
years report Apple cited 8 factories, with 11 active cases and 12 historical cases. This is a
blatant example of the response Apple had to its Foxconn child laborer incident. In
addition, long hours are a big problem in the electronics world, Apple has chosen to
instill a 60-hour workweek that requires every worker to have one day off per week.
Overtime needs to be voluntary. By performing this yearly audit, Apple is able to
compare yearly numbers. It can gain insights to answer certain questions: Are more
workers complying with a weekly day off? What is the average number of hours worked,
is overtime used? How can we schedule to decrease overtime?

One could say that Apple would have been fine either way, but it was almost a
necessity that Apple do something about its issues, there is always the risk of the issues
blowing out of proportion, but by tackling the issues Apple shows that even a behemoth
can care. I found a certain quote from chapter 9 in the Fort book that I support, Ethical
behavior depends on employee ability to recognize ethical issues and this ability appears
to be a function of corporate culture, not personal attributes. I believe there truth to this,
in an article discussing how Apple culture has shaped, it said When Jobs returned to
Apple, he instituted two cultural changes: he encouraged debate on ideas, and he created
a vision that employees could believe in. By implementing these two changes, employees
felt that their input was important and that they were a part of something bigger than
themselves. By driving employees together, Apple became less about personal glory, and
more of a movement as a company to greater and more worldly goals.
I find Apples actions as sincere, not only are they acting ethically in the face of
this supply chain problem, but Apple has always made decisions keeping the good
interests of its followers, for example Apple provided free bumpers and cases for a
certain period of time that resolved the reception problems. This product issue did not
stop millions of consumers from purchasing the iPhone 4, but it does reiterate the great
care Apple must take regarding product quality. Consumers view product quality as
inseparable from Apple. Hence, a quality mishap could damage the Apples strength.
Apple understands this, and is always quick act on problems as early as they can.
Apple hits close to home for me. Ive admired Steve Jobs for as long as I could
remember, Ive admired how Apple operates on all levels. To be honest I wanted to
believe Apple is a perfect ethical company, which I had believed for a while, until I
realized that all large companies have their issues, but its how they handle issues that
differentiates the ethical and unethical companies. As I am an avid Apple user I
appreciate that Apple can act ethically, I would not like that my favorite company was
unethical, it may not stop me from purchasing something, but I would feel some guilt if I
had. What I take away from this situation is that no matter the size and success of the
company it is always beneficial to tackle your ethical issues. By doing so, it is much less
cowardly than having to turn your back to the issue and not take responsibility.
The Shareholder Theory discusses the duty of a company to maximize profits, it
also suggests the duty to enhance the reputation of the firm and take interest in the public
good. Milton Friedman states that a company is only responsible to use its resources and
engage in activities designed to increase its profits so long as it stays within the rules of
the game. Apple does take an interest in the public good, but based on the margins they
are making on their products it is hard to say that Apple isnt conforming to shareholder
theory. With the massive size of Apple, it is one of the few companies that can keep
shareholders in mind, while utilizing other resources to support stakeholders. As
customers, we would all happily pay a premium for Apple products because of their
longevity and appeal. If Apple was any other company I feel it would receive more
scrutiny for its pricing models. That is the magic of Apple, people dont feel they are
overpaying because they can get something that they cant get elsewhere.

Stakeholder Theory refers to any individual who have stake in the company and is
affected by the success or failure of the organization (employee, customer, suppliers,
anything but shareholder). Apple Inc., in 2011, was accused of treating their employees
inhumanly and like machines. To cut costs and increase profits, Apple hired roughly
500,000 employees and started to manufacture their products at two factories in southern
China. Before an employee can work for Apple, they must sign an anti-suicide contract
pledging that they will not attempt to commit suicide due to the large number of deaths in
2011. As you might already know, Apple has many products around the world and
because of that, there's a constant demand for iPhones, iPads, iPods, and Macs.
Just days before the first iPhone was released, executives called in to change
iPhone screens from plastic to glass. The workers were woken up at 3 a.m., given brief
instructions on how to use glass cleaning chemicals and other procedures, and began
mass production of the phones. Situations like these have been triggers for workers to
commit suicide. This obviously sheds poor light on Apples operations. Thus, in response
Apple installed anti-suicide nets on the outside of all the dorm windows. Lets not forget
that Foxconn also produces other gadgets for technology companies like Sony. I believe
that Apple was able to escape the issue in good light, as it was the one of the many
companies that Foxconn works with that had taken serious action. Apple recognized the
need to protect its workers, although they are technically Foxconn and not Apple
employees, Apple ethics reach down to all inputs for its products and it felt the need to
monitor them all.
Since the publicity of Apples suppliers has gotten out, Apple, Inc. has taken steps
to decrease the amount of the issues associated with the factory employees (here
stakeholders). Apple had tracked weekly work hours for over one million workers
throughout their supply chain since 2007. By having this data Apple can make sure the
trends are moving in the direction they need. Apple reports that it has driven suppliers to
support the 60-hour-workweek. Thus far, about 95% compliance has been achieved.
Another area of improvement is more time off for workers. Apple has seen a 97%
compliance with this rule. With focused efforts on the stakeholders, Apple is able to make
the work/life balance more manageable. I believe this stems from Apples stressing of
equity in the workplace. This attitude can be attributed to the influences of Steve Job and
the change to a flatter organization. This means there is more transparency in the
company and more workers feel their work having impacts.
Kantian Theory states that one should act rationally while making business
decisions, respect people and help them make rational decisions, and to do these good
things for the fact that it is the right thing to do. Before the stories of the events at Apple
factories leaked, no one knew of the horrible events that were taking place. Opposition to
Apple could say that they began this operation behind closed doors and as long as the
public had no idea, they continued to operate in this manner. Opposition would say that
Apple disrespected the employees and ran these plants unfairly for their own. In
response, I would say that Apple has been aware of these issues since the start if their
factory audits. They saw the potential issues and clearly noted need for improvement,

Things got out of hand in 2011 as production was at an all time high. I would assume
ramped up production changed the layout of Apples issues, no longer is secrecy an issues
(as stories leaked) but a clear change in guidelines and operations was needed. As supply
chain issues came, Apple created a new Supplier Guidelines Contract. It stated the needed
worker hours, the guidelines on how to treat workers, and strict rules that must be
followed, otherwise Apple would fire the supplies. If I put myself in Apples shoes, I
would not know the point at which the issues would become too much. I feel that the
same sort if thing happened, with good intentions Apple carried on from 2007-2011, not
knowing when and where to enforce new policy. Perhaps they may have been late, but
the actions Apple took shows its compliance with the Kantian theory, again as stated
before Apple is a very unique case, and rarely can a company comply with as many
ethical frameworks as does Apple (balancing shareholder vs. stakeholder, etc)
Utilitarianism is the view that one should do things to maximize happiness for
themselves and for others. The majority of the people who work in the plants feel upset
and are depressed because of the conditions. When this story broke out, it somewhat
stained the reputation of the Apple brand. Some loyal customers might view Apple now
as a terrible and unethical company and therefore buy other brands of computers, phones,
and so on. This means less money for the owners, and less money in the pockets of
shareholders as well. What this shows is the need to not just maximize the happiness of
some stakeholders, but of all of them: customers, suppliers, employees, etc.
As mentioned earlier, Apple is very quick to solve the problem of their products
without any convenience to their stakeholders (here customers). For example, when iOS
8.0 was released, customers were angered with the slow download speeds and glitches of
the software. Within the next 24 hours Apple had updated their software and the
download speeds improved dramatically. This is a simple example but shows the level to
which Apple maintains positive relations with their stakeholder, in this case perhaps their
most important.
Virtue Theory deals with the dialectic between community and individual, certain
behaviors are championed others disappointing, humans are social beings thus have to
practice ethics, Apple may have let the problems at Foxconn fester for too long, which
led to losing trust from some Apple customers. This is to show that Apple stands upon a
few key virtues. The first virtue is keeping the trust of customers. Since the inception of
Apple, Inc. the company has been bent on producing the highest quality products. But
what differentiates Apple is their ability to provide a product that is enjoyable to use. As
customers we have expectations. Apple knows they must provide a solution to satisfy the
customers, and with their stressing of the virtue of customer trust, they have always been
able to deliver. The second virtue is transparency. In response to outside pressure, Apple
this year published a list of its 156 suppliers, representing almost all its supply chain, for
the first time. It also joined the Fair Labor Association, becoming the first technology
company to do so. Apple has also worked with Chinese labor rights advocates,
environmental groups, and has agreed to allow outside monitors into its suppliers'
factories. I feel this decision was a difficult one for Apple to make, considering its prior
stressing of secrecy in company dealings. However, in this case, transparency makes

sense, showing that Apple has nothing to hide and is focused on regaining the trust of
doubters.
There are reasons why Apples ethical culture is where it is. Apple applies the
principles of Hard Trust, Real Trust and Good Trust to promote their culture. Apple has
built Hard Trust, for example, by requiring factories to sign contracts that guarantee that
they adhere to the guidelines set in place. There are no exceptions. This transparency is
one aspect of Hard Trust implemented by Apple towards building of an ethical culture.
Here is an example that illustrates that there are no exceptions. In a supplier report, Apple
had divulged that they had fired a supplier in Guangdong, China, because they had
employed 74 workers under the age of 16, with fake papers. Apple caught this by not
simply having a contract in place with this supplier, but also by having regular audits to
enforce compliance.
Apple has instilled Real Trust since its inception. Apple has always been
associated with excellent product quality and good reputation to uphold. Any slip in
quality now would show up as a bad thing for Apple. I remember the day I got my first
iPhone. I waited for a month for it to arrive because there was such a high demand for it.
When I opened it, I felt it was perfect. It lived up to my expectations: the ease of use,
beauty of the product, and the status that it gave me as its owner. Now lets fast-forward
to current day iPhone. Apple recently released the iPhone 6 and iPhone 6 Plus. Some
people who own the iPhone 6 Plus found, to their consternation, which the device bent if
they put it in their pockets. This happened in a very small percentage of the units
shipped. Even then, the public outcry was so immediate and so huge that the Apple stock
price fell by 3% in one day. This translates to over $15 Billion of loss in market
capitalization!
When companies lead, and not react, the trust is truly there. This last point deals
directly with Good Trust. This means that the company cares about ethics and builds a
culture where ethical problems are identified early and solved. For example, in June
2014, Apple found that iPhone chargers in 37 European countries were overheating. So
they decided to exchange the affected power adapter for a new one. Clearly such a recall
means Apple incurred a significant cost in terms of time, money and resources. However,
for Apple, this meant caring about the quality of the product and meeting the expectations
of the users.
Considering the actions Apple has taken when facing ethical dilemmas, it has
handled the situations in the correct way. Being a leader in the tech industry, they are
setting a good example by considering ethics from an early point. By tracking supplier
data, they found problems proactively and fixed them. Executives have created an
organization that is collaborative and innovative. This has allowed more freedom in the
company and a greater collaboration towards the end goal.

While Apple has done much to stay at the forefront, there are still issues at the company:

Conditions in factories still needs to improve: number of hours of work, age of

workers, hazardous conditions in factories and so on
Focus on quality needs to improve as well.
Disposal of used and discarded products and industrial waste at the factories
Reducing carbon footprint
Ethical water and raw materials sourcing

One thing that surprises me is that the people who criticize Apple, do not take its
size into account. To put things in perspective, let us analyze the size of Apple and look
for a more objective way to evaluate ethical practices at Apple. If we assume that
average revenues of a public company in the US is approximately $100 to $200 million
per year, then Apple is equal to about a 1000 such companies. Can you imagine the
degree of complexity involved in managing 1000 publicly listed companies? How many
things can go wrong, in spite of best intentions and best practices, out of sheer
randomness? So I think it is much fairer to ask of Apple: Does Apple have more ethical
challenges than the cumulative number of such challenges in a 1000 publicly listed
companies? I doubt if anyone knows the answer to this question because no one is
interested in those 1000 companies. Apple has a big brand name and any journalist that
criticizes or exposes practices at Apple is likely to get more attention. This makes it a bit
harder to analyze Apples ethics in a fair and ethical way!

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