Kemix Ltd manufactures a chemical compound which is widely used in industrial cleaning. The compound is made from a small number of chemical products. One of these raw materials, Chemical X, is bought from a supplier in a developing country. Chemical X is scarce and is available from only a few global suppliers. In its untreated form, Chemical X is also toxic and can cause serious damage to the health of individuals who are exposed to it. It is also known that the local environment around factories that produce Chemical X are subject to extensive contamination. 

A few months ago Kemix Ltd renewed a long-term agreement with the supplier for the purchase of Chemical X. Senior management are aware of the health and environmental risks associated with Chemical X, but did not see that these had any relevance to its own business. The toxic effects of the chemical are eliminated by its treatment in the production process that Kemix uses to make its own chemical compound. Following a major industrial accident one week ago at the main manufacturing site of the supplier of Chemical X, there has been a widespread and intensive reporting campaign in the press and television.  

The dangers of Chemical X have become a matter of widespread public debate, and a television program has identified Kemix as a major user of the product. An action group has been formed that seeks to ban the import of Chemical X into the country and for the closure of Kemix manufacturing sites. The board of directors of Kemix Ltd believe that the public concern is excessive and unjustified, but the directors now recognize that they should have done much more to report on the risks from Chemical X, and the measures taken to deal with them, in their social and environmental report. 

Required:
Read the above case scenario and answer the questions that follow:
a) Kemix Ltd does not seem to include externalities in their corporate profits. Determine 2 examples of externalities created by the supplier of Chemical X.
b) In light of legitimacy theory, examine 4 alternative courses of action that Kemix Ltd can take to tackle the damaging media reports and save its reputation in the market.  
c) Discuss three reasons in favor of reporting social and environmental risks in a company's sustainability report.

Answer rating: 100% (QA)

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