Success Through Business Ethics For H&M

Introduction

Nature of Business ethics

Business ethics are principles that promote a company’s brand and address the operational aspects of an organisation, ensuring that the business does not digress ethical boundaries (Saeed and Khan, 2022). The company’s reputation is also improved by the influence of business ethics, which addresses sustainability awareness and confronts the brand image towards society. Within this context, corporate responsibility necessitates the emphasis of contextual, normative, and dynamic components that are interconnected with financial and marketing components (Zan, 2023).

Introduction to the Fashion Brand

H&M, an international fashion retailer, maintains its headquarters in Stockholm, Sweden, and operates 4000 outlets in 75 regions (Scott and Fridenson, 2021). The corporation encountered unethical business practices, such as the employment of child labour, worker complaints of maltreatment in Myanmar’s workplace, and the payment of inadequate wages to Bangladeshi labourers. The allegations of “greenwashing” have emerged as a consequence of the increased utilisation of virgin synthetic materials, which contribute to environmental pollution by emphasising recycling initiatives. The business’s overall profitability is impacted by these immoral activities, which in turn erodes consumer trust and reduces total sales.

Section 1: Evaluation of the Company across three philosophical pillars

1.1 Utilitarianism

Moral decisions are determined by assessing the level of enjoyment of each individual in relation to human rights that have been discussed from a societal perspective, as per utilitarianism, a normative ethical theory (Drašček et al., 2021). The components of this theory analyse the right to make choices by making well-informed decisions in response to intermediate effects that are observed through action. H&M was criticised for allegedly reducing the number of workers in the Myanmar facility, which led to unethical employee conduct and hazardous working conditions, in relation to labour accusations. The organisation has addressed 156 instances of worker maltreatment that have led to the erosion of the rights of victims of military coups. Pay reduction fraud has occurred as a result of the fact that employees are compensated inadequately and are obligated to work extended hours. However, the general operational maintenance will be impeded by a rise in difficulties, which will impede the outsourcing of production as a whole. In certain cases, employees are subjected to forced labour, which includes psychological pressure, which endangers the company’s financial stability and reputation.

In contrast, H&M’s reputation was adversely affected by environmental degradation, which led to a reduction in the overall amount of textile refuse. The company was accused of “greenwashing” due to the impact of deceptive marketing on the promotion of sustainable commodities (Kaner, 2021). The deceptive statements about sustainability that result from H&M’s complaints about sustainable claims have long-term consequences and make it challenging to maintain high sustainability standards. The company’s reputation is harmed by the management of recycling-related accusations and the awareness of product recommendations that result from deceptive labelling.

1.2 Kantian Ethics

An organization’s reputation among its employees is significantly improved by the incorporation of human dignity into its business activities, which is a significant focus of the Kantian ethical philosophy. H&M’s consumer reputation has been adversely affected by unethical personnel management practices. For instance, 850,000 textile workers employed at H&M facilities in Turkey, Bulgaria, India, and Cambodia have not received their pay cheques on time (Guilbert, 2018). However, it has also been observed that Cambodian labourers have received lower wages than their counterparts in Turkey and India. The inequality in the number of earnings and peaks that has been observed is the result of the variance in the inflation rates of Turkey, Cambodia, and India. H&M’s operations have been adversely affected by the Cambodian labour force’s resistance. For instance, Human Rights Watch, a local non-governmental organisation, has accused H&M’s suppliers in Cambodia of workplace abuse. In conclusion, H&M’s operations have been impeded by its corrupt business practices, which include the mistreatment of employees.

Nevertheless, H&M has also been accused of employing juvenile labour in its operations, which has had a negative impact on the company’s efficiency. For example, H&M has been accused of employing juveniles under the age of 14 to work for 12 hours per day in its factories (Scott and Fridenson, 2021). Human dignity and the ethical standards that organisations have embraced are both violated by H&M’s utilisation of child labour. Overall, the company’s consumer reputation has been tarnished as a result of H&M’s immoral implementation of child labour in its business practices.

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1.3 Virtue Ethics

The emphasis of virtue ethics is on the significance of cultivating the cognitive and behavioural skills necessary to recognise moral quandaries and adhere to moral principles rather than abandoning them. This approach may function as a framework for cultivating a constructive community. Virtue ethics is a critical component of the contemporary business environment (Russell, 2023). A number of global fashion companies, such as H&M, have not adhered to the theoretical approach in this regard. A morally solid decision is one that is based on the individual’s virtue in constructing for the organization’s benefit.

For example, H&M encountered ethical dilemmas in Bangladesh due to the inadequate compensation it provided to its employees. H&M employs approximately 600,000 individuals in Bangladesh, with an average monthly salary of $119 as of 2023 (Mao, 2023). It was discovered that the employees are required to perform their duties in hazardous conditions with minimal guidance or regulation.

Nevertheless, the fast-fashion model of enterprises is plagued by significant environmental degradation as a result of the extraction of raw materials. In 2018, Global Labour Justice received reports of violence against female garment workers in factories that supply H&M, as well as labour rights violations by the company’s suppliers in various global regions (Brown, 2021). The analysis demonstrates that these organisational issues are in direct opposition to the concept of virtue ethics and do not align with the moral standards of business. Transparency, diligence, accountability, and passion are among the values that a corporation with strong principles promotes among its employees.  

Section 2: ‘Ethical Decision-Making’ and H&M’s Unethical Business Practices

The moral principles that businesses adhere to when making decisions are adversely affected by the use of immoral business practices. For example, H&M terminated its operations in Myanmar as a result of allegations of labour exploitation within the country. The 212 abuse incidents that H&M has been accused of have allegedly had a detrimental impact on the human rights of approximately 108,000 workers (Doherty and Toh, 2023). The emphasis on the triple bottom line hypothesis involves allowing the organisation to evaluate its business operations based on its elements, including profit, planet, and people (Pereira and Martins, 2021). In the present circumstances, H&M has violated the fundamental rights of its citizens on numerous occasions. H&M was constrained to cease operations in Myanmar as a result of the increasing concerns regarding worker mistreatment, which had a significant impact on the financial situation of the company’s current workforce. H&M established 41 factories in Myanmar in 2021, which resulted in the employment of 42,000 individuals (Zan, 2023). Consequently, the workforce in Myanmar has expressed dissatisfaction with H&M’s decision to cease operations in the country.

Nevertheless, H&M has also been accused of underpaying its employees, a situation that has hampered the company’s relationship with its workforce. For example, H&M has been penalized £1,400 for each of its business divisions that engaged in the practice of paying employees on a consistent basis (Zan, 2023). In general, the immoral methods employed to appease the financial demands of the staff have resulted in a decline in H&M’s market position.

Businesses benefit from corporate social responsibility (CSR) initiatives by mitigating risks and avoiding unfavourable circumstances (Bhattacharya et al., 2021). Some of the unethical labor-related business practices that H&M engages in have an instantaneous negative impact on corporate social responsibility initiatives. The organization’s reputation is being progressively eroded by concerns regarding environmental degradation and labour rights in this scenario. Nevertheless, the sustainability options and efficacy of the fashion industry are being impacted by the rapid fashion process. The organization’s reputation will be questioned in the future as a result of these organisational issues. This encompasses the cessation of detrimental conduct, such as disrespecting the environment, misusing corporate funds, prejudice against labour unions, and engaging in actions that may lead to legal action and disagreements.

Figure 1: CSR framework

(Source: Popa et al., 2022)

Nevertheless, the organization’s CSR initiatives are hampered by exaggerated claims and violations of employment laws. The corporation was discovered to have included accusations as a consequence of the damage that greenwashing and labour maltreatment are causing to the company’s brand. It is challenging to implement CSR initiatives in this environment due to the diminished trust that stakeholders and potential consumers have in it. Unethical conduct has a significant impact on the fashion industry’s reputation and severely undermines corporate social responsibility initiatives from an industry perspective (Saeed and Khan, 2022). The report indicates that unethical company operations methods are having an immediate negative impact on organisational development in the fiercely competitive market.

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Section 3: Response of Employees and Leaders to Unethical Business Practices

Aspect	Anti-Forced Labour Practices by H&M	Anti-Child Labour Practices by H&M
Zero-Tolerance Policy	H&M maintains a rigorous zero-tolerance policy against modern slavery, forced labour, and human trafficking in its operational activities.	Additionally, the company has a zero-tolerance policy on child labour, ensuring that no children are employed in any capacity within its supply chain.
Supplier Code of Conduct	Suppliers are required to adhere to H&M’s Code of Conduct, which explicitly prohibits forced labour abuses and requires compliance with international human rights norms.	Additionally, suppliers are required to adhere to H&M’s Code of Conduct, which establishes minimum age restrictions and prohibits child labour.

Table 1: Critical elements of the H&M policy

(Source: Self-created)

In response to unethical business practices, H&M has instituted a zero-tolerance policy for both child and forced work, as well as “anti-forced labour” and “anti-child labour practices” (Aibar-Guzmán et al., 2023). Maximising overall profit while enhancing H&M’s gender-based violence policies through the implementation of equal opportunity and participation in working procedures. The philosophy of Utilitarianism mandates that businesses should recognise the prohibition of child and forced labour through their actions, which will consequently affect the entire value chain of the business. By combating workplace discrimination, which undermines respect, the risk of risk is mitigated by implementing a human rights policy that prioritises the interests of employees. The leaders’ remarks regarding unethical behaviour, which did not adhere to labour standards, resulted in a decrease in employee security. These unethical actions have a significant impact on the organization’s overall reputation, thereby diminishing consumer trust.

3.1 Financial Impact

Figure 2: H&M annual revenue

(Source: H&M, 2024)

The financial performance of H&M is significantly affected by the allegations of human rights violations at its factories in Myanmar. The results revealed significant issues, such as coerced labour and hazardous working conditions. In response, H&M initiated an inquiry and pledged to implement modifications to mitigate the impact on brand value. However, it resulted in a decline in revenue prosperity and had a detrimental influence on the business’s financial performance. H&M’s annual revenue for 2022 was $22.235 billion, a 3.9% decrease from 2019, serving as an illustration of the dispute’s adverse consequences (H&M, 2024). In addition, the share price of H&M experienced substantial fluctuations, including a 15% decrease in the months following the accusations. In conclusion, this financial impact underscores the importance of effectively monitoring supply chains that adhere to critical ethical standards and illustrates the more extensive consequences of ethical violations.

3.2 Environmental Impact

H&M’s “greenwashing” strategies have a significant impact on leaders, as they cause uncertainty and undermine consumer confidence, thereby reducing production levels. The business was required to address claims that were sustainable, as large investments are more effective at mitigating harm by suppressing public criticism. Society benefits from the CSR standards’ guiding principle, which prioritises moral discernment in the context of greenwashing decisions. Public security implements environmental policy by reducing the 1.5-degree target for climatic effect through the use of a dual method in response to allegations of greenwashing by H&M (Vinnars et al., 2020). In an effort to resolve the crisis of greenwashing, H&M maintains its environmental strategy by conducting a thorough examination of financial obligations that have a detrimental impact on its entire business operations. H&M obstructs substantial progress towards a sustainable future by modifying the climate.

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Section 4: Recommendations for ethical business practices

Recommendation 1

Policies be implemented to address child labour and the organization’s commercial activities must include safeguards against child labour. Corporations are prohibited from employing juvenile labour in their operations in developed nations such as the United Kingdom, which have implemented regulations. For instance, an alumni mentorship program has been implemented to provide students over the age of 18 with an appropriate education that effectively develops their unique skills (Okolie et al., 2020). In order to effectively educate children, it is imperative that H&M establish the aforementioned programs.

Recommendation 2

A proper supply chain audit program should also effectively investigate an organization’s fundamental internal conditions by minimising unethical actions. Additionally, it is necessary to adhere to the equitable working principles of the labour rights association in order to mitigate labour rights violations in factories such as Myanmar. For example, Zara is acknowledged for its Compliance Program, which involves conducting regular independent audits throughout its supply chain to ensure ethical labour practices (Antonini et al., 2020). Consequently, Zara’s partnership with the IndustriALL Global Union ensures that the company’s operations are conducted with greater transparency. In general, it is advantageous for H&M to pursue the main inferential actions to ensure its long-term viability and transparent working practices.

Recommendation 3

Pay increases lead to enhanced customer satisfaction, decreased attrition, increased output, and increased morale. It is essential that H&M creates investments in the well-being of its employees. Employers possess the capacity to cultivate a positive work environment that promotes dedication and diligence. H&M should implement labour laws and compensation policies that correspond to the Fair Wear Foundation’s standards. This procedure will be beneficial in ensuring that workers receive equitable compensation and respectable working conditions, particularly women.

Conclusion

H&M’s most profitable unethical business practices are characterised by worker abuse, greenwashing, and environmental harm, according to the analysis. The company’s reputation, finances, and standing have all been adversely affected. These activities are in opposition to significant ethical theories, such as Kantian ethics, utilitarianism, and virtue ethics. It also underscores the insufficient efforts to safeguard human rights, uphold fair labour standards, and preserve the environment. Consequently, H&M continues to improve its internal regulatory workplace by implementing initiatives such as environmental limitations and anti-labor laws.

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References

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