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Case 14: Apple Inc. Ethical Success and

1. Introduction

Headquartered in Cupertino, California, Apple Inc. has experienced many

challenges throughout its business history. From 1997 to 2011 many things had

happened but Apple’s share price still risen from $3.30 to $339.87. Before

becoming a mega corporation as it is today, Apple had some hardships when the

company first started. They went through a few CEO’s and some up and down

before truly succeeding. Many companies have tried to compete, copied and beat

Apple with their products, but none have succeeded in doing so. To millions of

consumers, the Apple brand embodies quality, prestige, and innovation. The brand

is valued at more than $153 billion, making it the most valuable brand worldwide

2. Apple’s History

Apple began with their first product, Apple I. Although it has some bugs and

lacked a few essential things like a graphic user interface (GUI) and buyers had to

add their own keyboard and display. Co-founder Steve Jobs convinced Wozniak

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that it could be sold as a commercial product. Jobs and Wozniak continued to

create innovative products. Soon their new company, Apple Computer Inc., had

surpassed $1 million in sales. However, the mid-1980s saw some difficult times for

Apple. In 1983 the company introduced the Apple Lisa for $10,000. The product

flopped. In 1985 Steve Jobs was ousted after internal conflicts with the Apple

CEO. Its computer products the Mac I and the Newton were not successful, and the

company underwent several CEO changes. With declining stock prices, the future

of Apple was in jeopardy.

Jobs returned in 1997 when the corporation was on the verge of bankrupt with new

ideas to save the company. When he returned, a major thing he changed was

Apple’s “closed door” policy. This was to ensure employees could not take Apple’s

ideas and inventions to another company.

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Today Apple continues to remain vigilant in protecting its technology and ensuring

that information remains proprietary. Jobs also created a more flattened

organizational structure; rather than go through layers of management to address

employees, he addressed them directly. Perhaps one of the most noticeable

changes, however, was Apple’s expansion into new product lines within the

electronics industry. The company began to make a comeback when they

introduced the iPod —a portable music player that forever changed the music

industry. The company also introduced iTunes, a type of “jukebox” software that

allowed users to upload songs from CDs onto their Macs and then organize and

manage their personalized song libraries. Two years later Apple introduced the

iTunes Store, in which users could download millions of their favorite songs for

$0.99 each online.

In 2007 Apple was renamed Apple Inc.,

since they were producing more than

computers but also a driver in consumer

electronics. Apple has begun to take

market share away from its top competitors

in the computer industry. Sales of desktops, laptops, and netbooks began to decline

after tablet computers were introduced. Analysts believe that tablet computers will

continue to grow at a rapidrate.

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3. Apple’s Corporate Culture.

Over the years, Apple make the transition from a computer to a consumer

electronics company which is unprecedented and hard to replace. This is based on

the fact that Apple owned highly skilled employees and its strong corporate culture

create evangelists who extensively promote the corporation products.

The concept of evangelism is an important component of Apple’s culture.

Corporate evangelists refer to people who extensively promote a corporation’s

products. Apple even had a chief evangelist whose job was to spread the message

about Apple and gain support for its products. However, as the name evangelism

implies, the role of evangelist takes on greater meaning. Evangelists believe

strongly in the company and will spread that belief to others, who in turn will

convince other people. Therefore, evangelists are not only employees but loyal

customers as well. In this way, Apple was able to form what it refers to as a “Mac

cult”—customers who are very loyal to Apple’s Mac computers and who will

spread a positive message about Macs to their friends and families.

When Jobs return 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

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that they were a part of something bigger than themselves, which creates loyalty

among many at Apple. The unique corporate culture is what Apple take pride on, it

ensures potential applicants that the organization has a flat structure, the layers of

bureaucracy of other corporations. Apple also emphasizes that it does not adhere to

normal work environments in which employees are at their stations from 9:00 a.m.

to 5:00 p.m. Instead, Apple markets itself as a fast-paced, innovative, and

collaborative environment committed toward doing things “the right way.”

By offering both challenges and benefits to applicants, Apple hopes to attract those

who fit best with its corporate culture. Apple is also looking for sales employees

who fit well into its culture. Apple wants retail employees to feel welcome to all

consumers. Inside Apple's retail stores, there are stations where customers can try

and experiment with his latest Apple products. Staff are trained to speak to

customers within two minutes of entering. To help keep retailers' employees

motivated, Apple provides extensive training, higher compensation than similar

store employees, and manager genies (employees trained to answer more difficult

customer questions). Or offer opportunities to be creatives (staff members who

train through individual customers or workshops). Apple also offers young people

the opportunity to intern at Apple or become a school student representative.

Another advantage Apple offers is connecting employee concerns with

environmental concerns. To reduce the overall environmental impact, Apple offers

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incentives, such as public transit subsidies, to employees who choose to use public

transit. The Cupertino facility offers an employee shuttle that includes a free bus

service between Apple headquarters and the train station. Apple's free buses run on

biodiesel. These incentives reduce employee fuel costs while reducing emissions to

the environment

4. Apple Ethics

Apple produces many of their products in other countries where labor costs are

cheaper. They make their suppliers sign a “Supplier Code of Conduct” in order to

keep doing business with Apple. This ensures that employees are being treated

correctly, not being over worked, and being paid for their time. Apple will then

release an annual report stating how their suppliers are doing to prove that they are

an ethical company. Apple has run into some ethical issues such as product quality,

privacy, sustainability, intellectual property, and patents. Apple has also taken

action to become a green company. They wish to reduce the gases being released,

and design their products around environmental factors. Apple has also started a

recycling program for old electronics.

5. Apple’s Ethical Problems

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Despite the effort they put on to improve the work environment, Apple still faces

many ethical issues. These issues could have a profound effect on Apple’s sterling

reputation could easily be damaged by serious misconduct or a failure to address

risks appropriately. These issues include:

 Privacy

Apple in the past had gone through consumer tracking controversy. With the

increase in social networking, mobile devices, and Internet use, the ability for

companies to track customers is greater than ever before. For Apple more customer

information can help it better market its product and understand its customers.

However, the firm must still show respect for consumer privacy, and a breach in

privacy is likely to result in a backlash against the company.

In 2011 Apple experienced just such backlash, Apple and Google Certain features

of the cell phones they sell collect data about the location of the phone. Consumers

and government officials saw this as a violation of user privacy. These companies

have announced that users will have the option to disable these features on their

phones, as some phones continued to collect location information even after users

disabled the feature. , which was not entirely true for Apple. Apple attributes this to

a bug they fixed in their new software. Both Google and Apple defend their data

collection mechanisms, but many government officials disagree. The government

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is considering passing a law on mobile privacy. This is a move that could have

significant effects on Apple and other electronics companies.

 Sustainability

Although Apple has taken step to become an environmental friendly company like

reducing the environmental impact of the facility. However, the company admits

that the majority of emissions come from its products. In 2009, Apple said its

activities contributed to his 9.6 million tons of gas emissions. 3% come from the

facility, while 97% come from the product lifecycle. Because Apple's success

depends on the constant development and introduction of new products, the

environmental impact of its products is a serious concern.

One practice some consumers criticize Apple for is planned obsolescence. It

encourages people to replace or upgrade their technology when Apple releases

updated versions. Apple is constantly releasing new products, so older technology

can be thrown away. Apple has taken several approaches to this problem. The

company builds its products from recyclable materials to make them last longer.

To encourage customers to recycle, Apple has established a recycling program for

old iPods, mobile phones and Macs in stores. Consumers who trade in their old

iPod can purchase the new version at a 10% discount. Consumers who recycle old

Macs that still have value can receive gift cards. Apple works with local recyclers

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that comply with applicable laws. Despite this recycling program, many consumers

find it more convenient to dispose of older products, especially those that have lost

their value. E-waste will continue to be a significant problem as long as consumers

discard old electronic devices.

Apple also publicizes its track record of reducing toxic chemicals in its products.

According to Steve Jobs, Apple has eliminated lead-containing cathode ray tubes

from its products. The company's iPod uses light-emitting diodes (LEDs) instead

of mercury-free fluorescent lamps. The company has also eliminated the use of two

of his toxic chemicals, polyvinyl chloride and brominated flame retardants, from

its products.

 Intellectual Property

Intellectual property theft is a major concern for Apple, and an issue the company

is actively pursuing. Apple is serious about keeping proprietary information

confidential to prevent other companies from stealing its ideas. This has resulted in

a number of lawsuits between Apple and other technology companies.

In 1982, Apple filed a lawsuit against the Franklin Computer Corporation, which

had a major impact on intellectual property law. Apple claimed Franklin's illegally

formatted copy of the Apple II operating system and ROM could run on a Franklin

computer. Franklin's attorney argued that some of the computer programs were not

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copyrightable. The court initially sided with Franklin, but later overturned the

ruling. The court ultimately ruled that the code and programs are copyrighted. The

law gives technology companies broad intellectual property protection

Another notable case was Apple's lawsuit against Microsoft after Apple licensed its

technology to Microsoft. When Microsoft released Windows 2.0, Apple claimed

that the license agreement only applied to Windows 1.0 and that Microsoft's

Windows had the "look and feel" of Apple's Macintosh graphical interface system

"GUI". The court ruled in Microsoft's favor and determined that the license did not

cover the "look and feel" of Apple's Macintosh GUI. Although the two had

similarities, the court ruled that Windows did not infringe any copyright or license

agreement simply because it resembled the Macintosh system.

The other two lawsuits involved more serious ethical issues on Apple's part. One

circled around Apple's use of the domain name iTunes.co.uk. This domain name

was registered by Ben Cohen in 2000. Ben Cohen used this name to redirect users

to other of his websites. Cohen eventually used this domain name to redirect users

to Napster, a direct competitor of Apple. Apple tried to buy Cohen's domain name,

but after negotiations fell through, the company appealed to UK registrar, Nomi

net. The first person to register a domain name usually acquires the rights to that

name. However, the mediator in the case found that Cohen had abused his

registration rights and unfairly exploited Apple. Apple was granted the right to use
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the domain name, leading to complaints that large companies (Apple) were being

favored at the expense of smaller companies.

Cisco claimed that Apple had infringed its iPhone trademark. Cisco has owned this

brand since 2000. Apple and Cisco were debating whether Apple would allow the

use of the trademark. However, Apple withdrew from the discussion. The company

has since opened a front organization, Ocean Telecom Services, and registered the

iPhone trademark in the United States, according to Cisco. Some stakeholders

viewed Apple's actions as an unfair way to circumvent the negotiated proceedings.

The lawsuit ended with both parties agreeing to use the iPhone name. However, his

Apple response to the situation remains controversial.

 Rioting

In early 2012 Apple stopped selling the iPhone 4s at retail stores in China. This

resulted in massive crowds waiting for 48 hours outside of the flagship store in

Beijing began to riot. The estimated crowd was upwards of 2000 people.

Customers waiting for the iPhone starting throwing eggs and harassed the

employees.

 Price Fixing

In July of 2013 a judge ruled that Apple had conspired to fix prices on electronics

books (e-books) in conjunction with five major book publishers. A federal judge

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ruled that Apple was part of a deal that required publishers to give Apple’s iTunes

store the best deals in the marketplace for e-book prices for iPad, and Apple

received 30% of the proceeds (known as the “agency model”). Apple denies any

wrongdoing and association with this deal and plans to appeal the decision.

 Threats to Other Companies

A document suggests that in 2007 former CEO Steve Jobs allegedly threated

former CEO of Palm Edward Colligan with patent litigation if Palm did not cease

and desist poaching valuable Apple employees. Jobs suggested each company

should respectively comply with the idea of not taking valuable employees away

from other companies. This “unspoken agreement” seems to have also included

companies such as Adobe, Google, Intel, Intuit, Pixar.

 Supply Chain Management Issues

Apple makes each supplier sign its supplier code of conduct and perform factory

audits to ensure compliance. In addition, Apple says it has trained over 1 million

workers about their rights, increased the number of suppliers it audits by 80 %, and

allows outside organization to evaluate its labor practices. However, in the last few

years serious supply chain issues threaten to undermine Apple’s status as a highly

admired and ethical company.

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To meet the continuous demand of Apple consumers, products from the company

must be readily available. For Apple, most of these products are produced

throughout Asia, but more specifically within Foxconn factories in China. In the

past, multiple accusations pertaining to improper working conditions, underage

labor disputes, and worker abuse (which resulted in suicide) have come into

question.

Additionally, despite its attempt to audit its factories and enforce strong supplier

compliance standards, over 50% of suppliers audited by Apple violated at least one

part of its supplier code of conduct every year since 2007. Suppliers claim that

Apple’s manufacturing standards are hard to achieve because suppliers are allowed

to keep more slim profit margin. Also they claim that Apple’s focus on the bottom

line forces them to find other ways to cut costs, usually by requiring employees to

work longer hours and using less expensive but more dangerous chemicals.

Because of this, mistakes and safety issues become more common, according to

the company’s own audits, 62% of Apple’s suppliers did not comply with working-

hour limits, 35% failed to meet Apple’s standards to prevent worker injuries and

32% do not follow hazardous-substance management policies. Under page

workers, falsified records, overcrowded worker dormitories, and other labor

violations. Apple claims it is significantly improving supplier condition and

becoming more transparent about its labor processes

Apple appears optimistic about its future. The company has created a cult

following of consumers who are intensely loyal to Apple products. Apple’s

products or services are meant to offer superior solutions to those of competitors.

With other threats of new and existing companies coming out with new and

improved products, they still have their loyal customers. These customers have

always and will always buy Apple products. In one of Apple's newest products,

Apple continues its foray into the music industry. The company struck deals with

record labels to introduce his iCloud, a service that allows consumers to create and

listen to their own music collections without having to upload individual songs.

Google and Amazon offer similar music storage services, but Apple has more

songs available in her iTunes and deals with its record labels. Seize these

opportunities to increase Apple's share of the music and consumer electronics

markets. They are constantly working on producing a new product to benefit their

customers and to stay ahead of the game of evolving technology. In the last decade,

Apple has excelled at keeping pace with the quickly evolving industry of

computers and consumer electronics. Its diversification, collaborative corporate

culture, and product evangelism propelled it to heights that could not have been

envisioned when Jobs and Wozniak sold their first computer kit in 1976. The
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company shows no signs of stopping its momentum, while consumers have shown

no signs of reducing their admiration for Apple.

II. Question

1. Explain how Apple’s philosophy and organizational culture have

Apple is an innovating company, though not as innovating as before, they credit

they’re company by practicing high form on integrity throughout their business

endeavors and they seem to try to handle ethical issues how it is best for the

company as a whole. For example, being a green company is very important to

some customers, and it may be the decision of whether or not to support that

company. In response, Apple began measures to become a greener company by

reducing gasses that are released and introducing an electronic recycling program.

Apple keeps up to date on any threats on the company itself from companies like

HTC, Microsoft, and most recently Kodak. The company prides itself on having

quality products. In order to keep up with this reputation, they try their best to stay

ahead of glitches, and they are fixed as soon as they are found. Many believe that

a big part of Apple’s success is because of the CEO, Steve Jobs’, work ethic.

When the CEO of one of the biggest companies in the world like company sits

down and listens to your idea while you’re just a customer service representative or

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even an intern, that makes you feel that you can achieve things beyond your

capabilities, and that is what Steve jobs has imbedded in the roots of the company

and till this day because in the past no matter how many times he failed or a

product failed, he always came back to try again. This shows the rest of the

employees at Apple that mistakes are OK, and they can be corrected and come

back stronger.

2. Why is Apple’s industry so

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Apple’s industry is so competitive because there are always companies coming out

with a newer, better product. Customers want the best and newest technology. If

one company such as Apple doesn’t come out with a new cell phone for every two

years, and Samsung does, some customers may switch over to Samsung to get the

newer device. This could affect the ethical risk in Apple’s operations in a few

ways. First, Apple could “lose sight” of their out of country operations. They could

have them sign the Supplier Code of Conduct, but they may stop enforcing it so

much. The case states that Apple does random audits to make sure their suppliers

are working under the correct and legal working conditions, but they could skip

that step and just assume since the agreement is signed, it is happening. Apple

could also push their suppliers to work faster to produce their products. The

suppliers could begin taking short cuts to make the product quicker, which could

decrease the value of them. The product may not last as long, or have more bugs in

it. In turn, this could affect the customers. If they receive a new phone that still has

kinks that need to be worked out, they may not be a happy customer and may leave

the Apple name for another brand.

3. How do you think Apple has handled the various ethical issues
that it has faced in the past?

I think Apple could do a better job handling the ethical issues they have

encountered. For example, they have their suppliers sign a Supplier Code of
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Conduct, but do they really enforce it how they say they do? How can Apple be

constantly sending their employees to other countries to make sure the suppliers

are fulfilling their end of the deal? Does Apple really care? Probably not. The

company seems to be more focused on producing the newer product whether it be

a cell phone or iPad quicker than their competitors rather than focusing on their

suppliers and how they treat their laborers. Another example of Apple not

handling ethical issues to the best of their ability is the privacy issue they had in

2011. On some cell phones, location data was collected without the user’s consent.

They did not know this was happening. In response to the issue, Apple included a

button for the user to turn off the location services. I think Apple should have

issues an apology and an explanation as to why the data was being collected. I

think this information should have been disclosed before the product launched and

customers started buying them. Apple seems to act quickly when other companies

are not being ethical, but when the situation is turned around, the situation seems to

be different. There was a law suit between Microsoft and Apple because of a

licensing issue. They also had a law suit against HTC because of a patent problem.

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