Employment ethics at Britishstores PETER ACKERS
Introduction Britishstores is a chain of department stores selling clothes, food and hardware. It employs 10,000 UK workers in retail, distribution and office positions, mostly on permanent, full-time contracts. In addition, around 1,000 manufacturing workers, employed by its main subcontractor, are highly dependent on Britishstores’ success and employment policy. This case study presents an opportunity to assess the ethics of the business at all stages in its development (was it doing the ‘right thing’ towards employees?), and to address a major contemporary dilemma between remaining competitive as a business and retaining a reputation as an ethical employer. It allows you to explore various ethical theories and to consider this business dilemma as a choice between different ethical frames of reference. In the beginning Britishstores was founded in 1900 as a small store in a medium-sized Scottish town by an austere, very religious Presbyterian (with his elder brother as a ‘sleeping partner’). In the early days, the founder knew all his employees by their first name and exercised a strong ‘fatherly’ influence over their lives in and out of work. This had both benign and harsh aspects. The paternalist company was generous at times of family sickness, with the founder often visiting in person,

though sometimes employees wondered if he was really checking up on them. And any employees who were caught with the smell of alcohol on their breath at work, or even drunk outside work, were summarily dismissed. The founder also promoted a strong sense of family values, organising (alcohol-free) works picnics and providing a free hamper every Christmas and at the birth of any child (up to two in number) and 200 cigarettes to the ‘employee of the month’. Christian prayers were compulsory before each morning’s work began. He also initiated and contributed towards various ‘self-help’ savings and mortgage schemes. Wages were generally slightly above the industry norm, according to the discretion of the founder, who liked to quote the parable of ‘The Workers in the Vineyard’ and reward those whom he thought deserved and needed most. Women employees who married were required to leave, in order to fulfil their family duties, and all managerial positions were reserved for men with families. The firm promised lifetime job security for male employees and encouraged children to follow their parents into the trade. For many years, jobs were only rarely advertised externally. Growth The founder died in 1940 and ownership and control passed completely into the hands of his two sons. The boys had been educated at an English public school and lived in the Home Counties. But the founder’s personal control had declined long before, as the company grew first into a British chain in the interwar years. The founder had always strongly opposed trade unions as inimical to the family atmosphere of the firm, and in 1923 the firm fought off an organising campaign by the shop workers’ union which was already well established in the stores of the strong Scottish cooperative movement.

As a result, 20 ‘ringleaders’ were dismissed. During the economic depression of the ‘hungry’ 1930s, Britishstores gained a good reputation for maintaining employment when other businesses were laying people off. This was partly because of good business performance, but it was also widely believed that the owning family accepted lower profits in order to continue both to keep the loyal workforce and invest in the expansion of the firm. The workforce was now counted in thousands rather than tens, so it was impossible for senior managers to retain personal, face-to-face contact – though local store managers were encouraged to do so. In response, the company developed a professional personnel department to create a more systematic set of provisions and policies. These included a non-union, representative company council that operated monthly at store level, and biannually across the whole company. Representatives were elected from every work group, and both negotiated with management over wages and consulted over any issues affecting the welfare of the workforce.

There was also a welfare and sports society, which was heavily subsidised by the company and provided local Britishstores social clubs – initially on a strict temperance basis. These organised competitions for football, cricket, ballroom dancing and so on. Company developments and these social activities were reported in Voice of Britishstores, a monthly company newspaper produced by the personnel department. The firm also pioneered a number of other welfare benefits, including a contributory pension scheme for all employees, and a seniority and promotion system called ‘Growing our own’, which meant that nearly all middle and senior managers were recruited from the shop floor. Following one year’s service, all employees joined the company profit-sharing scheme, which, in most years, added a further 10 per cent to their income. Public limited company In 1965, Britishstores became a public limited company (PLC), and within a few years family shareholdings had been dwarfed by those of pension funds and other outside investors.

No senior managers now belonged to the original family, and many were being recruited from outside the business, rather than rising through its lower ranks as they had in the past. A new graduate recruitment programme had short-circuited the old seniority systems, though most middle managers had still risen from below. The business had also had to adapt to outside social trends, such as legislation for sexual and racial equality, and relaxed social mores – leading, among other things, to the serving of alcohol in Britishstores clubs. Britishstores was still perceived by workers, customers and the general public as a family-run paternalist business with a strong ethical commitment to fair play. This was reflected in the trust and loyalty of long-service employees (and very low labour turnover), and of customers who repeatedly told surveys that they would not buy their clothes anywhere else. Britishstores continued to play a high-profile public charitable role, both in the town of its origin, where the head office remains, and in the wider community. In the latter case, the company sponsored a City Technology College in inner-city Glasgow during the 1980s and actively supported ‘Business in the Community’.

It also funded a professorship in Business Ethics at a leading British business school. Britishstores now has a global supply chain, with 40 per cent of its output sourced abroad. However, the company had developed another long-term business relationship since its first major expansion in 1920, with a large high-quality clothing manufacturing firm based in the town where the founder was born and Britishstores originated. Although Makeit & Co. is an independent firm, 70 per cent of its output is contracted to Britishstores – whose letters also prefix the name of the local football team. The Britishstores founder had presented to the town a park and art gallery, as well as a row of cottages for long-service company pensioners, while his wife played a prominent charitable role in the interwar town, including organising youth clubs and holidays for children of the local poor and unemployed. Still today Britishstores and Makeit & Co. together employ 800 people in the town, equally divided between them. Britishstores’ personnel policy has remained fairly stable since the main structures were set in place in the 1930s. In line with 1960s and 1970s labour law and ‘best practice’, however, the company council system has been supplemented by a more formal (but still non-union) grievance and disciplinary procedure. Employees have shown no further interest in union membership, partly because wages and conditions are as good as those of most comparable unionised firms, and partly because they know Britishstores senior management are strongly anti-union and fear they might lose existing benefits if they push the issue. A new company interest in equal opportunities for women was partly inspired by the national policy mood, but also by labour shortages and recruitment difficulties in the post-war retail labour market. As a result, there has been a small influx of women graduates into managerial and supervisory roles, and the old distinction between ‘men’s’ and ‘women’s’ jobs has been replaced by a formally non-discriminatory, A–G grading system. Equally, criticism that internal recruitment reproduced an ‘all white’ workforce, even in cities with large ethnic minorities, has led the company to advertise all vacancies in job centres and local newspapers, followed by a formal interview.

Once again, outside policy influences have dovetailed with business concerns that its workforce should reflect the stores’ potential customer base. Notwithstanding these developments, personnel policy still cultivates a long-term relationship with both the directly employed workforce and the manufacturing subcontractor. In the latter case, Britishstores has insisted on exercising substantial ‘quality control’ over the subcontractor’s production process, while offering Makeit & Co. employees access to its social clubs and welfare provisions (though wages and conditions are handled separately). The company’s long-standing commitment to high-quality British-made products has been a major attraction for its traditional customer base. Until recently, Britishstores has interpreted the new wave of HRM thinking as largely an extension of its existing personnel practices. For instance, it has added team briefings, quality circles and a modest element of performance-related pay to its existing communications, consultation and reward structures. In some respects, like profit sharing, the firm was already a pioneer. Today, however, major changes in the retail market are forcing the company to reassess all elements of its activities. After years as a market leader, with steadily rising profits, Britishstores is now in some commercial difficulty. In particular, it faces competition from a new generation of fashion shops, which threaten its core clothing market. These firms source their products entirely from low-cost Third World suppliers and are happy to switch these where and when the market justifies. They also employ a raw,

if enthusiastic UK workforce of students and young people, almost entirely on zero-hour contracts. Their wages are close to the national minimum, often about 25 per cent less than Britishstores, and they spend far less on training and welfare. Britishstores has already responded to this threat by shedding 10 per cent of its workforce through natural wastage, early retirement and voluntary redundancy, while terminating one major contract with Makeit & Co. The ethical and business dilemma A new managing director has been appointed to ‘turn around’ Britishstores. He has asked all the main functional directors to present a root-and-branch analysis of how the business can regain its market position and restore stock market confidence. These papers will be presented to and discussed at a ‘Retail 2050: Future Directions’ seminar, the outcome of which will determine the new business strategy to be presented to the next company AGM. The recently appointed head of marketing has already stolen a march on the others by circulating radical plans for a new, marketing-led, customer-focused, flexible firm that breaks almost completely with the traditional shape of the business, including its much-vaunted ethical employment policies. She proposes a new ‘culture of entrepreneurship’ which will withdraw the ‘comfort zone’ and ‘time-serving’ of current employment practices. Using a cricket metaphor, she argues that the point is ‘not to occupy the crease but to score runs’. This will include establishing specialist boutiques and other facilities (including restaurants) within the stores, run on a franchise basis, using external subcontractors wherever possible, transferring all remaining direct employees to part-time contracts, except for a core of ‘enterprise managers and supervisors’ who, in future, will be paid largely according to performance. In addition, she moots the closure of the Scottish company headquarters and complete withdrawal from the town to smaller, more convenient facilities in an English new town; and the ending of the contract with Makeit & Co. to enable Britishstores to buy on the open market and benefit fully from low labour costs in Southeast Asia. In the marketing director’s view, the traditional paternalist approach is now completely archaic and untenable in the fast-moving retail market. To further complicate matters, a whistleblower within either senior management or the marketing department has leaked these plans to the media. Rumours are circulating that Britishstores has been negotiating with a military dictatorship for access to its labour force. Concerns about the abandonment of existing employees and the exploitation of Third World ‘cheap labour’ have been tabled by the founder’s family for the company AGM.

There have been demonstrations by employees in the original ‘company town’, addressed by outside trade union leaders, who called for union recognition for Britishstores employees and an effective European works council. A petition has been presented to the Scottish Assembly by local MPs and church leaders, describing Britishstores as ‘the unacceptable face of capitalism’ and urging a consumer boycott of stores nationwide. Historically, the personnel function, now renamed HRM, has been seen as the custodian of the company’s ethical employment policies. As we have seen, these centre on a long-term relationship with a stable workforce. Concerned at the bad publicity the business is attracting, the managing director has asked you, as personnel director, to frame an explicitly ethical employment policy which overcomes the difficulties you are facing and draws on some of the business’ existing strengths. There are signs that the adverse publicity is affecting customers and undermining their trust and loyalty towards the company.

No options are barred, but the managing director has asked you to consider specifically the following questions. Note: While Britishstores is a fictional ideal-type company, it incorporates many real-life elements from a number of leading British manufacturing and retail organisations. These all began as paternalist family firms with their own ethical ideas about how employment should be managed and adapted, and developed these as they grew into large, modern businesses.
Questions
1 How far was Britishstores’ original employment policy ‘ethical’ in modern terms? What sort of ethical principles did it draw upon? Which elements would be acceptable today, and which would not?
2 How justified was the decision to prevent trade union organisation and is it still appropriate today? Consider the arguments for and against and the principles involved.
3 Construct an ethical case in favour of the flexible firm solution proposed by the director of marketing, explaining which principles you draw on.
4 Devise an alternative, HRM-driven business and ethical case for maintaining the existing long-term relationship with employees, customers and subcontractors.
5 Which stakeholder groups should take priority when push comes to shove? What duty, if any, does the company owe to its employees and shareholders in a modern free market society?
6 Design an up-to-date and realistic, ethical employment code of practice consistent with your answers to the above questions, which can be issued by the personnel department to all employees and used for external public relations purposes. Begin with some general principles and then identify key areas of business and employee rights and responsibilities.