Samsung Utilitarianism Ethics and Illegal Labor Practices Jorge Yeshayahu Gonzales -Lara, Pedro Och

Business Organization and Management MA 50000 Professor: Dr, Jesus Lemus Ph.D.

The Samsung Galaxy 7 debacle and Utilitarianism Ethics Samsung Illegal Labor Practices

The Samsung Galaxy 7 debacle and Utilitarianism Ethics Samsung Illegal Labor Practices

Abstract This paper will talk about Samsung Galaxy 7 debacle as well as which Utilitarianism Ethics, The Law involved with the Exploding Samsung Galaxy 7. It will also address the social responsibilities. This paper will also talk about Samsung Illegal Labor Practices

Despite the Samsung Galaxy 7 debacle, the company ended the fiscal year in the black. The company did a voluntary recall and gave incentives for people that returned the recalled devices.

Because of the company brand and reputation, consumers did not lose faith in the brand., South Korea’s largest business, is family owned Samsung, is a global electronics manufacturer operating in 61 countries, with more than 150,000 employees. The newest Samsung Galaxy 7 forced the company to recall 2.5 million devices shortly after they went on sale. (Samsung, 2012). Because of the negligence of Samsung's rush to produce and release the Samsung Galaxy Note 7 proved to be negligent. As a result, several people suffered injuries, and the company had to endure a costly recall. Due to the number of products manufactured around the world yearly that cause harm or worse, death to individuals, the government created the Consumer Product Safety Commission as

Making ethical decisions has an enormous impact on businesses. Firms that do the right thing, regardless of the cost to the company, as in the case of Samsung with the Galaxy 7, can maintain brand power and customer loyalty.

First, South Korea’s largest business, is family owned Samsung, a global electronics manufacturer operating in 61 countries, with more than 150,000 employees. The newest Samsung Galaxy 7 forced the company to recall 2.5 million devices shortly after they went on sale last

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an administrative agency to protect consumers from the irrational danger of injury or death., and

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August. Because of Samsung's rush to produce and release the Samsung Galaxy 7 ahead of Apple’s iPhone 7 anticipate release, there were proven to be negligent. The devices injured several people, and as a result, the company had to endure a costly recall. Shortly after the August 2016 release, reports of exploding phone incidents began. The reported incidents prompted Samsung to initiate a refund and exchange program. The program worked with Samsung and the mobile carriers. Verizon Wireless gave customers the option to trade the device for a new device of their choice with the possibility to get the Note 7 again once they were deemed safe without any additional out of pocket cost or penalties to the customer.

After a month, Samsung thought the problem was identified with the software and released the devices; to determine if the instrument has the new software the color of the battery icon in the upper right-hand corner of the device is the identifier. Customers were ecstatic at the release and began swapping the temporary devices for the much-expected Samsung 7, only to be disappointed quickly. Reports began coming in regarding devices with the new software, identified by the battery color were having problems exploding. This led to the government is becoming involved, and the Federal Aviation Administration (FAA), and the Pipeline and Hazardous Materials Safety Administration and the U.S. Department of Transportation (DOT), issuing a prohibition of the Samsung Galaxy 7 flights in the United States. Involving the governmental agency to regulate and ensure the devices were banned from airlines was a step to avoid a potential in-flight disaster. Once in place, people could not transport the phones in their carry-on luggage or checked luggage, nor could it be shipped as air cargo. This prohibition posed a huge inconvenience for people who were away from home or were already traveling with the device could no longer travel with the device on an airplane. Once the in place, anyone failing to follow the emergency order could be charged for violation of the Hazardous Materials Regulations, pay a hefty fine of almost $180,000 and

Ethics, Law and deontology considering the rights of persons Ethics and the law go hand and hand in business situations. Using ethics as a reference aids in assuring the common good for all involved. There are a variety of ethical theories that a company can face when in the situation of a product recall. Samsung could have followed the ethical absolutism theory, where a situation is either right or wrong, and regardless of the situation or

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possible criminal prosecution with up to ten years in prison under Title 18. (DOT, 2016).

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circumstance, the thought will always be the same. Samsung could have said, the Samsung Galaxy phones have always worked just fine, there has never been any problem with devices catching fire in the past, so there is no way they are catching fire now. The utilitarianism ethical theory could have been the viewpoint of Samsung, in which the result would have been on the good for the greatest number of people. More people were wanting to continue to use their phones that had not problems than devices with overheating batteries. Samsung could have done a case by case analysis. Deontology ethical theory focuses on the individual and what is right; even if an act would benefit a group of people, it must also consider an individual’s rights as well. Justice ethics are about being fair, like deontology considering the rights of persons and adheres to the U.S. justice system. Under justice ethics, constitutional rights are protected and ensure everyone is treated equally in court. (Seaquist, 2012).

Utilitarianism Ethics Had Samsung chose utilitarianism ethics, the exploding battery situation could have been a disaster. If the utilitarianism ethics approach would have taken place, then only devices that were displaying issues would have been addressed. Meaning, there would never have been any recalls, and people would still be free to use the device everywhere jeopardizing the lives of not just the phone user, but anyone near them. The phones would also be free to continue to fly on U.S. airlines, which could have resulted in planes explodes in the air killing countless people and costing countless amounts of money. Just as there was a fire at one of the manufacturing plants that provided the batteries for the Samsung Galaxy 7 caught fire because of a pile of the discarded batteries, which could have been an American business or home. (Yahoo, 2017). Samsung displayed the ethics theory of justice when they company conducted a voluntary recall of the

intentions and complying with the United States government. Though there were only 30 cases of known exploding Samsung Galaxy 7 devices, out of fairness, Samsung used justice ethics and recalled over one million of the devices sold around the world. The primary reason global electronics manufacturer Samsun maintained customer loyalty is the ethical decisions made by the company. (Samsung, 2017). The newest Samsung Galaxy 7 forced the company to recall 2.5 million devices shortly after they went on sale. Making ethical decisions has an enormous impact on businesses. Enterprises that do the right thing, regardless of the cost to the company, as in the

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Samsung Galaxy 7, giving focus to doing the right thing for the consumer and showing good

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case of Samsung with the Galaxy 7, can maintain brand power and customer loyalty. When faced with a product recall, the severity of the harm motivates the remedy the company offers. When there is a greater chance of consumer injuries, the company provides a better long-term solution to ensure customer satisfaction and loyalty and brand trust. The solution may cause major revenue losses initially, but trust will remain, and the Brand name can bounce back successfully. Ethics within leadership throughout the business is a critical component of all involved in management positions, with front line managers to CEOs. Product recalls testing the strength and the ethical values of a business and the person with the most influence, the CEO. (Xia Liu, Liu, and Lou, 2016).

Products recall costly and if poorly implemented can be the end of a company’s brand. When there is a recall, it is important to have the capability to trace back the steps to get to the cause of the problem to ensure a solution in as quickly as possible. Having a system in place with identifying product codes can eliminate having to recall all the goods, instead, a batch within a group. (Dai, Tseng and Zipkin, 2014). The Consumer Product Safety issued a recall of the device on September 15th and again October 13th, after the second recall, Samsung stopped all sales of the product and issued a voluntary recall. (CPSC, 2016). In December, Samsung pushed a software update to the devices that would not allow them to charge past 60% due to safety concerns. At the end of December, the big four U.S. mobile carriers, Verizon, AT&T, Sprint and T-Mobile began the process of shutting the devices off and refusing to activate on the networks out of safety concerns.

Due to the number of products manufactured around the world yearly that cause harm or worse, death to individuals, the government created the Consumer Product Safety Commission as an administrative agency to protect consumers from the irrational danger of injury or death. (Seaquist, 2012). Studies found that brand equality has an effect of product recall outcome. Brands that were

known business. Managers and CEOs from larger companies have more to lose from recalls because the consumer expectation is greater than that of a manager at a smaller less known brand.

(Korkofingas, Ang, 2011). Successful companies have proactive strategies ready to deploy in the event product-harm arrives. Having proactive strategies in place and willing to implement at a moment’s notice can reduce the financial ramifications and allow the company to maintain long-

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stronger, established and popular has a less adverse effect by recalls as opposed to smaller lesser

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term viability. Recalls are never good, however, at least having a plan will limit the time it takes to initiate a solution if a crisis arises. (Chen, Ganesan & Liu, 2009).

The Law involved with the Exploding Samsung Galaxy 7 There are several areas law involved with the exploding Samsung Galaxy 7; the company was neglectful in the engineering of the devices by the four elements that define negligence. First, the duty of care, persons injured by their phone's battery overheating and in some cases exploding, merely using the device for the intended purpose. Samsung breached the duty of attention with the faulty manufactured devices. The breach directly caused injuries to some users of the devices.

(Seaquist, 2012).

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Due to some devices exploding and causing damages to personal property, there are also 92 incidents in the U.S. and based on state statutes. Several people cite damages to their vehicle or their home, in such cases, there will be civil lawsuits for people seeking monetary damages. (CPSC, 2016).

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It is imperative to differentiate between criminal and civil lawsuits resulting from the negligent lawsuits.

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The incidents where the consumers injured from the use of the Samsung Galaxy 7 will file civil lawsuits which are the lawsuits where plaintiffs seek money for damages, in civil court; Samsung will receive a summons, and the plaintiffs will be responsible for proving the defendant is liable.

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Samsung also face some criminal suits if the United States government imposes any fines because of the recall. The negligence of Samsung is a Strict Liability in Tort

and wholesalers liable for defects making a product unusable for its intended purpose.

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The three criteria for product liability are, the phones are just as they are when received no alterations, and used as intended, and the batteries are getting hot and exploding due to manufacturing defects. (Seaquist, 2012).

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Product recalls explain reasonable conduct and defines the manufacturer reasonably in not recalling precludes tort liability. (Lens, 2016).

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because it comes under the theory of law developed to hold manufacturers, retailers,

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Because the batteries are harmful to the environment, the Environmental Protection Agency must become involved to make sure Samsung handled the disposal of the batteries safely and appropriately.

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Due to security concerns, there were special return bio-hazard, fire proof boxing for device returns.

The Constitutional Law Constitutional law is a state’s main source of law, comprised of 51 constitutions; Each state has a constitution plus one federal constitution. Under the constitution, states are free to adopt and regulate any laws they wish within their borders. The case of the Samsung exploding phones come under federal statutes because there were domestic transactions because the phones were massproduced outside of the United States, then transported into each state and the reason for the government agencies involvement with the ban and recall. Legislatures have to address ethical concerns regarding companies in the United States that conduct business with international companies regarding regulations. The Foreign Corrupt Practices Act by Congress in 1977 came due to bribing between U.S. corporations and international businesses; the act was passed making it unlawful for American companies or foreign governments to commit bribery, making it a criminally liable act. (Seaquist, 2012).

The exploding caused Samsung to end production of Galaxy 7 The exploding devices fiasco caused Samsung to end production of the Samsung Galaxy 7 devices and recall the 3 million devices sold globally.

As of January 23rd, 96% of the devices are back to Samsung. Samsung now has a team of 700 engineers working to investigate the cause of the device failure. Samsung has also engaged third party experts to provide objective analysis.

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The company is reviewing every aspect of their manufacturing process. After a lot of independent analysis and consultations with third parties, experts determined the batteries cause the issues. To avoid this type of occurrence in the future, they have improved the entire process putting quality first. Because the battery was the cause of

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the disaster, a new 8-point battery safety check protocol with multi-layer security measures including a battery advisory group. (Samsung, 2017).

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Despite the Samsung Galaxy 7 debacle, the company ended the fiscal year in the black.

The company did a voluntary recall and gave incentives for people that returned the recalled devices.

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Because of the company brand and reputation, consumers did not lose faith in the brand. Samsung’s success can contribute to various ethical reason. First, they have an excellent reputation and have built trust and brand respect. The company’s employees are committed to satisfaction for productivity. Samsung made a good decision to completely pull the Samsung Galaxy Note 7, a move that cost the company billions of dollars.

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Samsung states on their website, they re-assessed every step of their manufacturing and redesigned the quality assurance program, making sure to place customer safety ahead of beating the competition with the latest device release.

Ethics, Social Responsibility, and Environmental Sustainability Samsung has devoted themselves in practicing the code of conduct, and they are making sure that “their employees share the company’s values and practice integrity.” (Samsung Code of Ethics) As a company with “308,745 employees in 79 countries” (Fast-Facts) they must make sure that they are following all the rule. The company is “fully committed to complying with local laws and regulations as well as applying a strict global code of conduct to all employees. It believes that ethical management is not only a tool for responding to the rapid changes in the global business environment, but also a vehicle for building trust with its various stakeholders including customers, shareholders, employees, business partners, and local communities. With an aim to become one of

continues to train its employees and operate monitoring systems, while practicing fair and transparent corporate management.” (Corporate Ethics) “Samsung Electronics endeavors to become a world leading company by following its management philosophy of “Devoting its talent and technology to creating superior products and services that contribute to a better global society.”

Samsung Electronics’ value chain of “Management Philosophy, Core Values and Management Principles” is rooted in this management philosophy and constitutes the spiritual guidelines for all

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the most ethical companies in the world that is respected by its stakeholders, Samsung Electronics

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its employees in their effort to realize the corporate vision of being a world leader.” (Corporate Ethics) Samsung really doesn’t have a proactive social responsibility statement more so a policy that they aim to enforce by “creating integrated values. Not only do we create economic value by maximizing profits and shareholder value, but also, we take on a broader responsibility as a global corporate citizen to create societal values. These societal values are the total accumulation of all the impact generated by direct/indirect causes and serve as resources to usher in a better future.”

(Samsung Electronics Sustainability Report) Samsung Illegal Labor Practices Ethics broadly refers to the values of the right manner, obtained from the society, often referred as “the right thing to do”. Ethics are a necessity for individuals as the appropriate course of action in any content or condition is reliant on ethics. In August 2012, according to the China Labor Watch, a self-governing labor rights group based in New York, Samsung was investigated for illegal hiring procedures including inhumane working conditions of their manufactures based in China (Arthur 2012).

Samsung is a well-known, South Korean based multinational company a series of subsidiaries and associated businesses. The Samsung Group consists of approximately 80 companies with a prime emphasis on electronics, heavy industry, construction, and defense industries. In early 2012, Samsung became the world’s leading mobile phone maker overtaking Nokia and is currently the world’s prime TV and flat screen maker.

Samsung suppliers have violated labor rights in a few areas including underprivileged working

report by the China Labor Watch also revels the use of illegal hiring practices embracing the employment of children under the age of 16 years. At HEG Electronics (Huizhou), a Samsung Supplier, child labor consisted of approximately 80% of the factory’s workforce and only received 70% of the adult wages, the children also faced pay deductions for absenteeism due to illness (Alan 2012). The actions by the manufactures were highly unethical and illegal. Excessive working hours is very common in factories in China. “Chinese employees working overtime beyond legal hours

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conditions, this includes the failure to provide basic safety equipment for the employees. The

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and being fined for absence and tardiness” (CBS News 2012). Employees were expected to work 16 hours a day with only one day off at some of the Samsung’s manufactures.

A range of stakeholders were impacted by the unethical behavior of the Chinese suppliers. The employees that work at the factories or the manufactures were employed on illegal terms not binding the Chinese labor laws as well as unsuitable working conditions, including the under aged employees. Due to the report by the China Labor Watch, many of these illegally recruited employees lost their jobs at the factories. During their employment period, the health and safety of the employees was compromised, “…didn't provide sufficient protective goggles, masks and other safety equipment to workers” (Arthur 2014). Samsung itself was impacted by the unethical actions of its supplies in China. The reputation of the company has been damaged as Samsung claimed to be unaware of the activities carried out by the suppliers. Although Samsung denies the existence of any form of illegal activity at their own factories but admits the excessive working hours at their suppliers’ factories (Mundy 2013). Samsung also had to pay compensation which was delayed but refused of any “link” (Arthur 2014). Intertek is a global auditing firm, claiming to be reliable and independent, however the firm has been exposed for accepting bribery from a toy company in China from the past (Mucaster 2012). Coincidently, Samsung also utilizes Intertek’s services, this represents Samsung’s lack of interest towards their sources of products and encouraging the suppliers to behave unethically towards the employees and the community.

The decision made by the suppliers of Samsung was not ethical in any case. To maximize their profit, unethical and illegal hiring policies were practiced. The over worked employees were forced to work in unsafe and inhumane working conditions, by putting the employees in danger the manufacturers compromise the safety of the workers which is highly unethical and illegal. The children’s’ responsibility and the society. Samsung on the other hand, claiming to be unaware of the procedures and treatment of their suppliers’ employees, it is Samsung’s responsibility to know the conditions in which their products are manufactured in as well as the induvial that produces the products. Samsung has only warned the suppliers that were involved in the illegal procedures but has not terminated and contracts of the suppliers involved, this has indirectly encouraged the suppliers to continue them activates but on a low scale. Samsung is held responsible for continuing the contract with the suppliers and therefore also plays an equal role as the suppliers in behaving

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employing children to preform adult procedures the suppliers are behaving unethically towards the

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unethically for their own financial benefits.

Business ethics previously was considered as a focus on the rights of the employees and their treatment. To behave ethically within a business, the employees must be receiving the correct wages and entitlements. The business also has the meet the legal workplace safety regulations to insure the well-being of the workers. As well as the legal requirements, the business must behave in an ethical manner with the employees, socially and professionally, by respecting their choices and opinions in the workplace. However, after the additional provided on the business ethics, business ethics are significantly boarder in terms of the employer’s duty towards the employees and the wider society. Business ethics also considers the effect of the business activities in the larger society, socially and environmentally, as the business activities are evaluated by the potential impact it can have on the environment. The further learning and research have only added additional knowledge about business ethics to the prior understanding, by providing a detailed explanation of the responsibilities of the business towards the environment, society and the employees.

Conclusion There are several areas law involved with the exploding Samsung Galaxy 7; the company was neglectful in the engineering of the devices by the four elements that define negligence. First, the duty of care, persons injured by their phone's battery overheating and in some cases exploding, merely using the device for the intended purpose. Samsung breached the duty of attention with the faulty manufactured devices. Due to some devices exploding and causing damages to personal property, there are also 92 incidents in the U.S. and based on state statutes. Several people cite damages to their vehicle or their home, in such cases, there will be civil lawsuits for people seeking

Samsung’s supplies in China have acted unethically by illegally employing employees as they are under paid and over worked, including child labor, investigated by the China Labor Watch. The manufactures have breached many laws relating to wages and safety standards of the factories. As a result, Samsung is also behaving unethically by continuing the contracts with the suppliers.

Samsung’s actions indirectly encourage the illegal and unethical activities of the suppliers on a low scale. Samsung shows a lack of interest in the welfare of the employees involved in the

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monetary damages.

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Samsung’s production, as they utilize the services of an unreliable auditing firm to record perform the auditing of their suppliers. Samsung’s actions in the consumer world are misleading however

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the production procedures are highly unethical and illegal.

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