From Marketingmag.ca

In 2011, Target, a US based supermarket chain, began their Canadian expansion when they purchased lease rights from over 200 Zellers locations.^[1] Unfortunately for Target, Walmart, one of their direct competitors, made their Canadian expansion in 1994 and had already developed a strong brand relationship with many Canadians.^[2]

Both Target and Walmart employ a cost leadership strategy, and average prices from both chains are traditionally very low. However, a recent article in the National Post explains that Target has recently cut prices in their Canadian stores in order to challenge Walmart and win additional market share. The article shows that a sample of the exact same goods bought at the two different stores cost 4% less at Target.

This case is interesting because Target Canada is not just competing with Walmart, but also its father company Target USA. Most Canadians live close to the US border, and many routinely travel south of it in order to take advantage of lower prices. When Target opened its first Canadian stores in 2013, many consumers were upset to find that the prices offered in these new stores were significantly higher than those in the USA. By reducing their prices, Target has directly engaged Walmart in a price war, as well as offered Canadians increased incentive to shop in Canada.

From The Telegraph

A few days ago I came across an article in the National Post that caught my eye. The article was about Tesco, a large UK based supermarket chain, and how they recently suspended four executives for financial fraud. I was quite surprised to see this article, as it was just a few days before that we talked about fraud as part of our financial accounting lecture. The article explains that Tesco overstated their half year profits by just over $400 million.

In class five we talked about how the three main reasons that companies report fraudulent financial statements are greed, incompetence, and pressure. In this case, although Tesco blames incompetence, I believe that pressure was the key factor.

Tesco has long been the biggest supermarket chain in the UK, but in the last few years they have started to lose significant market share to newer companies offering lower prices. This loss in revenue makes Tesco’s financial well-being dependent on its shareholders not losing faith, putting an enormous amount of pressure on executives. This pressure most likely led them to falsify reports.

Unfortunately for Tesco, they got caught and the strategy ultimately backfired. On September 22, the day the news of the fraudulent statements broke, Tesco’s stock dropped 11.6%. I expect it will continue to drop until Tesco fires the executives involved, and announces an actual plan to re-gain lost sales.

What is the most ethical way of running a business? According to Milton Friedman, the ethical role of an executive is to make decisions based on maximizing profit for business owners and shareholders. Conversely, R. Edward Freeman believes that in order for a business to operate at its full potential, and maximize profits for business owners and shareholders, the executive needs to make decisions that please all stakeholders.

These methodologies are both aimed at growing business and maximizing profits. One method focuses on rewarding financiers, while the other claims it is both possible and beneficial to financiers to reward everyone. Is it possible to please everyone without decreasing capital? This early in my business education I was unsure, so I decided to try and find an example.

Dr. John Izzo’s article “A lesson in leading” focuses on former CEO, now executive chairman, Darren Entwistle of TELUS. When Entwistle took over the company in 2000, he decided that the company’s culture would lead to its success. To create the desired culture, he decided to engage employees by determining their values, encouraging them to buy shares in the company, and making their development a priority. Was this an ethical use of time and resources? Would Entwistle’s time have been better spent focusing on the financiers? The answer is, no! By focusing on his employees, Entwistle was able to create a brand that customers, suppliers, and communities were pleased with. The result was a shareholder value creation of 304%, a statistic that certainly pleased business owners and shareholders alike.

What did I take from this? One primary ethical concern for executives is to make sure they are maximizing profit for business owners and shareholders. Although, in some cases decisions can be made that not only benefit financiers, but all other stakeholders as well. It follows that the most ethical way of running a business is to make decisions that benefit all stakeholders. However, decisions made in the interest of other stakeholders must not come at the expense of business owners and shareholders.

Works Cited

Freeman, R. Edward . “Stakeholder Theory.” YouTube. Business Roundtable Institute for Corporate Ethics, 13 May 2009. Web. 10 Sept. 2014. <https://www.youtube.com/watch?v=Ih5IBe1cnQw>.

Izzo, John. “A lesson in leading.” Financial Post Business. National Post, 6 Sept. 2014. Web. 10 Sept. 2014. <http://business.financialpost.com/2014/09/06/a-lesson-in-leading/?__lsa=678c-4cdf>.

Zimmerli, Walther Ch., Klaus Richter, Markus Holzinger, and Milton  Friedman. “The Social Responsibility of Business Is to Increase Its Profits.” Corporate ethics and corporate governance. Berlin: Springer, 2007. 173 – 178. Print.

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