Chapter-Opening Case: Guccis Code of Ethics

You are about to read a short case exploring the efforts of Italian fashion house, Gucci, to build and act on its reputation for being an ethical, diverse company that is focused on protecting the environment as well as promoting its fashion. Gucci has had a code of ethics in place for nearly two decades and requires its suppliers to follow a code of conduct. In addition, Gucci is committed to sustainability both in terms of its efforts to reduce its carbon footprint and its preference for buying fibers from sustainably managed forests. The goal of this activity is to demonstrate your understanding of ethical and sustainability issues as they relate to business. This activity is important because international managers need to be aware of ethics and differences in accepted business practices as well as sustainability issues as they conduct business across borders.

Read the case and answer the questions that follow.

The Italian fashion house Gucci is one of the most famous and venerable luxury brands in the world. Best known for its handbags, clothes, shoes, accessories, makeup, and fragrances, the Florence-based company designs its products and sells them through a global network of 487 company-owned stores. As is normal in the fashion industry, manufacturing is contracted out to third-party suppliers. Unlike many other fashion houses, however, the majority of those supplierssome 95 percentare based in Italy rather than Southeast Asia. In 2019, the company generated 9.63 billion in sales and had 17,157 employees. Since 1999, Gucci has been owned by Kering, a French-based multinational enterprise that specializes in luxury goods.

Over the last two decades, Gucci and its corporate parent have worked hard to establish a reputation for ethics, diversity, and environmental sustainability. The company has had a code of ethics in place since 2005. The code prohibits the company or its employees from engaging in any kind of corruption, including influence peddling and facilitation payments (often called "speedmoney") aimed at "facilitating, guaranteeing, or speeding up the execution of administrative payments." Suppliers are also required to abide by a strict code of conduct that, among other things, prohibits (1) work by children under 15 years of age; (2) human trafficking, debt bondage, and the use of forced or compulsory labor; (3) discrimination on the basis of race, ethnicity, or gender; and (4) all forms of psychological harassment, including notably sexual harassment.

With regard to environmental sustainability, the company has a goal of reducing CO₂ emissions by 50 percent by 2025, not just in its company-owned operations, but throughout its supply chain. Gucci is also committed to sourcing all cellulosic fibers from sustainably managed forests. In 2018, the company went "fur free," no longer using animal fur in its products. The company is also committed to the precautionary principle, putting protective measures in place if, in the current state of scientific knowledge, potential damage from its activities could affect the environment in a serious and irreversible way.

To give these principles teeth and ensure compliance, Gucci has a formal monitoring system in place. For example, suppliers are trained in Gucci's principles and are subject to regular audits from a special group at Kering and from independent third parties. If any breaches of compliance are identified, corrective action plans are put together following audits. Follow-up audits are then conducted to ensure any non-conformance has been rectified. The company also uses Environmental Profit and Loss accounting to measure the monetary impact of its activities on the environment. This information is published by the company and used as a tool to identify areas for environmental improvement, which are aimed at reducing the impact of externalities such as CO₂ emissions and the use of plastics.

All of this sounds well and good, and indeed in many ways, Gucci has become a model of ethical business practices. However, in a sign of just how difficult it can be to ensure compliance, in 2011, five former employees of a flagship Gucci store in Shenzhen, China, lodged complaints against "inhumane" working conditions in the store. In an open letter, the five revealed that the store imposed about 100 rules that regulated employee behavior, many of which seemed harsh and in violation of Gucci's own code of conduct. The complaints included being pressured to work extra hours without payment (the employees complained that they were required to work 12-hour days and then take inventory afterward), having to ask permission before drinking water or using the toilet, and not being allowed to spend more than 5 minutes in the restroom. A former manager at Gucci's Beijing office told a reporter that mistreatment of employees was widespread at all levels in Gucci's Chinese stores and that the problems were not caused by the brand, but by "mismanagement of Gucci's China branch."

A detailed analysis of this case came to the conclusion that the problem was caused by the "labor dispatch" system widely used in China in which a company (such as Gucci China) leases workers from an employee leasing company, which then dispatches them to the leasing entity. Under this system, the workers' labor contract was with the leasing company, not Gucci, and it was the leasing company that was setting terms of employment. For its part, Gucci reacted quickly, stating that Gucci does not and will not endorse or tolerate the alleged malpractices. Gucci also stated that the company had conducted thorough investigations and had implemented a series of measures, including the replacement of the store manager and assistant store manager.

Guccis code of ethics and requirement that suppliers also follow an ethical code of conduct:

A. indicate that Gucci always acts in an ethical manner.

B. allow managers to disregard most ethical issues.

C. suggest that Gucci is striving to create an ethical organizational culture.

D. is a violation of human rights.

E. indicate that Gucci is not taking the hard steps toward becoming an ethical company.

The company that contracted workers to Guccis store in China required employees to follow 100 rules not required by Gucci. Some of the rules were later found to violate Guccis own ethics of conduct. What explains this situation?

A. Chinese company violated its own code of ethics.

B. Guccis code of ethics is too lax.

C. Guccis code of ethics is too harsh.

D. Ethical laws in Italy are too lax relative to China.

E. Accepted business practices in one country may not be acceptable in another.