Michaeldouala
Apple Maintains Strong Ethical Roots. Headquartered in…
Apple Maintains Strong Ethical Roots.
Headquartered in Cupertino, California, Apple Inc. experienced many successes throughout its business history. Like many leading firms in the technology industry, Apple has faced a number of challenging ethical issues. Apple’s success can be seen from its stock price going from $3.30 a share in 1997 to over $140 a share 20 years later in 2017. For the last 10 years, Apple earned first place among Fortune magazine’s World’s Most Admired Companies. To millions of consumers, the Apple brand embodies quality, prestige, and innovation. Although companies tried to copy the Apple business model, none have been able to discover what it is that makes Apple so unique. Apple is ranked first in innovation by Forbes magazine and is a market leader in the development and sales of mobile devices. Many believe Apple’s success stems from a combination of several factors, including the leadership skills of former CEO Steve Jobs, a corporate culture of enthusiasm and innovation, and the high-tech products for which Apple is known. These combining qualities allowed Apple to revolutionize the technology and retail industries. APPLE’S HISTORY Apple’s first product, the Apple I, was vastly different from the Apple products most are familiar with today. This first handmade computer kit was constructed by Apple cofounder Steve Wozniak. It lacked a graphic user interface (GUI), and buyers had to add their own keyboard and display. Cofounder Steve Jobs convinced Wozniak that it could be sold as a commercial product. In 1976 the Apple I was unveiled at the Home Brew Computer Club and put on sale for $666.66. Jobs and Wozniak continued to create innovative products. Soon their new company, Apple Computer Inc., surpassed $1 million in sales. However, the mid-1980s brought difficult times for Apple. In 1983 the company introduced the Apple Lisa for $10,000. The product flopped. In 1985 Steve Jobs was ousted after internal conflicts with the Apple CEO. Its computer products the Mac I and the Newton were not successful, and the company underwent several CEO changes. With declining stock prices, the future of Apple was in jeopardy. Steve Jobs returned to Apple in 1997 to try and save the struggling company. The return of Jobs introduced a new era for Apple. Jobs immediately began to change the company’s corporate culture. Before Jobs’s return, employees were more open about Apple projects. After he returned, Jobs instituted a “closed door” policy. Aside from efforts to protect intellectual property internally, Jobs was also a proponent of using litigation against rival companies suspected of patent infringement. Apple sued Nokia, HTC, and Samsung in 2009, 2010, and 2011, respectively. Perhaps the most notable lawsuits were made against Samsung, where both companies filed suits against each other across nine countries over a three-year period. In total, Apple and Samsung filed over 40 patent infringement lawsuits and counter suits related to intellectual property rights. The companies decided to end litigation outside of the United States, choosing to focus instead on cases that are still active in the United States. Today Apple continues to remain vigilant in protecting its technology and ensuring information remains proprietary. Jobs also created a flattened organizational structure; rather than go through layers of management to address employees, he addressed them directly. Perhaps one of the most noticeable changes, however, was Apple’s expansion into new product lines within the electronics industry. In 2001 Apple launched the iPoda portable music player that forever changed the music industry. The company also introduced iTunes, a type of “jukebox” software that allowed users to upload songs from CDs onto their Macs and then organize and manage their personalized song libraries. Two years later Apple introduced the iTunes Store, where users could download millions of their favorite songs for $0.99 each online. The introduction of the iPhone in 2007 was a turning point for Apple and the beginning of a paradigm shift for the entire world. The iPhone was a revolutionary new smartphone with the music capabilities of an iPod. The iPhone has about 40 percent of the smartphone market in the United States. The same year that Apple introduced the iPhone, Jobs announced Apple Computer, Inc. would be renamed Apple Inc. This signified that Apple was no longer just a computer manufacturer but also a driver in consumer electronics. Some saw this as a shift away from computers toward consumer electronics such as Apple TV, iPods, iTunes, iPhones, and iPads. However, it may be more accurate to say Apple is reinventing computers, or at least what they look like and how they are used. With the introduction of tablet computers such as the iPad, Apple began to take market share away from its top competitors in the computer industry, but in the process sales of its Mac computer line were also cannibalized by consumers opting for a tablet. Sales of desktops, laptops, and netbooks began to decline after tablet computers were introduced. Although analysts believed tablet sales would continue growing at a rapid rate, the tablet market became saturated with fewer than expected customers upgrading their current tablets to newer versions. Because nearly half of all U.S. households own at least one tablet, this has translated into stagnating industry growth and low sales. Consequently, just as Apple cannibalized its own line of Mac computers with the introduction of the iPad, it appears that its newer iPhones, which feature a larger screen, are eroding the iPad market. The dynamic fluctuation in PC and Mac computer sales and the frequent introduction of new smartphones make it difficult to predict future sales of Apple products. Only time will tell if Apple’s devices improve in market share or are overtaken by a rival platform.
APPLE’S CORPORATE CULTURE : Apple’s transition from a computer to a consumer electronics company is unprecedented and hard to replicate. Although many can only speculate about why Apple succeeded so well, they tend to credit Steve Jobs’s leadership abilities, Apple’s highly skilled employees, and its strong corporate culture.
The concept of evangelism is an important component of Apple’s culture. Corporate evangelists refer to people who extensively promote a corporation’s products. Apple even had a chief evangelist whose job was to spread the message about Apple and gain support for its products. However, as the name evangelism implies, the role of evangelist takes on greater meaning. Evangelists believe strongly in the company and will spread that belief to others, who in turn convince other people. Therefore, evangelists are not only employees but loyal customers as well. In this way, Apple was able to form what it refers to as a “Mac cult”customers who are loyal to Apple’s Mac computers and who spread a positive message about Macs to their friends and families. Successful evangelism only occurs with dedicated, enthusiastic employees who are willing to spread the word about Apple. When Jobs returned to Apple, he instituted two cultural changes: he encouraged debate on ideas and he created a vision employees could believe in. By implementing these two changes, employees felt their input was important and they were a part of something bigger than themselves. Such feelings created a sense of loyalty among those working at Apple. Apple prides itself on its unique corporate culture. On its job site for corporate employees, Apple markets itself as a “demanding” but rewarding workplace where employees work among “the best of the best.” Original thinking, innovation, inventingall are common daily activities for Apple employees. By offering both challenges and benefits to applicants, Apple hopes to attract those who fit best with its corporate culture. Apple also looks for retail employees who fit well in its culture. It wants to ensure that its retail employees make each customer feel welcome. Inside Apple retailers are stations where customers can test and experiment with the latest Apple products. Employees are trained to speak with customers within two minutes of entering the store. To ensure its retail employees feel motivated, Apple provides extensive training, greater compensation than employees might receive at similar stores, and opportunities to move up to higher level positions, such as manager, genius (an employee trained to answer the more difficult customer questions), or creative (an employee who trains customers one-on-one or through workshops). Apple also offers young people the chance to intern with the firm, become student representatives at their schools, or work remotely during college as home advisors. Another benefit Apple offers combines employee concerns with concerns of the environment. In an effort to reduce its overall environmental impact, Apple offers incentives such as transit subsidies for employees who opt to use public transportation. Additionally, as part of its long-term commitment to sustainability, Apple is spending $850 million for 25 years of solar power. Its Cupertino facility runs on 100 percent renewable energy and is equipped with shuttles for employees. Apple’s free buses are powered by biodiesel. Apple also opened a new headquarters facility, named Apple Campus 2. With a budget of $5 billion, the new facilities include a fitness center, underground auditorium, and 300 electric vehicle charging stations. The new buildings are Leadership in Energy and Environmental Design (LEED) certified and incorporate solar technology. The campus is also conveniently located so that many employees can walk, ride, or carpool to work. These incentives reduce fuel costs for employees while simultaneously lowering emissions released into the environment.
APPLE’S ETHICS : Apple has tried to ensure its employees and those with whom they work display appropriate conduct in all situations. It bases its success on “creating innovative, high-quality products and services and on demonstrating integrity in every business interaction.” According to Apple, four main principles contribute to integrity: honesty, respect, confidentiality, and compliance. To thoroughly detail these principles, Apple drafted a code of business conduct that applies to all its operations, including those overseas. It also provides specific policies regarding corporate governance, director conflict of interest, and guidelines on reporting questionable conduct on its website. Apple provides employees with a Business Conduct Helpline they can use to report misconduct to Apple’s Audit and Finance Committee. Many of Apple’s product components are manufactured in countries with low labor costs. The potential for misconduct is high because of differing labor standards and less direct oversight. As a result, Apple makes each of its suppliers sign a “Supplier Code of Conduct” and performs factory audits to ensure compliance. Apple may refuse to do additional business with suppliers who refuse to comply with its standards. To emphasize its commitment toward responsible supplier conduct, Apple releases an annual Apple Supplier Responsibility Report that explains its supplier expectations as well as audit conclusions and corrective actions the company takes against factories where violations occur.
ETHICAL ISSUES AT APPLE INC: Although Apple has consistently won first place as the World’s Most Admired Company, it has experienced several ethical issues in recent years. These issues could have a profound effect on the company’s future success. Apple’s sterling reputation could easily be damaged by serious misconduct or a failure to address risks appropriately. Privacy Consumer tracking is a controversial issue. With the increase in social networking, mobile devices, and Internet use, the ability for companies to track customers is greater than ever before. For Apple, more customer information can help the company better understand consumer trends and subsequently market its products more effectively. However, a perceived breach in privacy is likely to result in backlash against the company. In 2011 Apple experienced just such a backlash. Apple and Google disclosed that certain smartphone apps and software, often utilizing the phones’ internal GPS devices, collected data on the phones’ locations. Consumers and government officials saw this as an infringement on user privacy. The companies announced that users have the option to disable these features on their phones, yet this was not entirely true for Apple’s iPhone. Some smartphones continued to collect location information even after users disabled the “location” feature. Apple attributed this to a glitch it remedied with new software. In future iPhone releases, Apple improved the privacy features of iOS, the mobile operating system found in the iPhone and iPad. The security feature upgrades include enhanced Wi-Fi security and a policy that location features are turned off by default on new iPhones. Once the smartphone is set up, users have the option of turning on the location feature if they desire. Both Google and Apple defend their data-collection mechanisms, but many government officials question whether these tracking techniques are ethical. Another privacy controversy was related to Apple Pay, software that allows consumers to purchase items through their iPhones. The mobile payment system became a target for hackers, who exploited vulnerabilities in the verification process of adding a credit card to an Apple Pay account. Apple Pay was designed with simplicity at its coreusers can complete transactions by waving their iPhone in front of a wireless reading machine. Apple also implemented a number of security features into Apple Pay so consumer information is safeguarded. The issue with hackers gaining access to payment information is at least partially the responsibility of the banking institutions, since they approve the addition of credit cards to Apple Pay accounts. Banks did not ask enough security verification questions, making it easier for consumers to add credit cards to their accounts and also leaving the door open for increased fraud. Compromised information from Apple Pay was not the first time an Apple system was attacked by hackers. Just a few months before vulnerabilities in Apple Pay were exploited, hackers broke into 26 iCloud accounts belonging to celebrities. Many people use iCloud’s remote cloud storage capabilities to store photos, videos, and music. When the hackers gained access to the cloud-based accounts, they leaked nude photos of the celebrities. These highly publicized scandals led many to criticize the security of iCloud, with some completely losing trust in Apple’s ability to secure user information across the entire iOS ecosystem. These celebrity photo leaks came at a time when iCloud was also being targeted by cybercriminals trying to intercept and obtain usernames, passwords, and personal data from users in China. Apple responded to the attacks by enforcing more stringent password requirements and adding extra layers of encryption to its iPhone and iCloud infrastructure. In 2016 Apple faced another privacy issue that pitted it against the FBI. Earlier that year, a couple opened fire in an office in San Bernardino, California. The attack killed 14 people. The FBI believed that the husband’s encrypted iPhone could reveal important information about how they planned the attack and whether the couple received help from anyone else. Interestingly, only a few years earlier, Apple had developed encryption systems making it more difficult for forensic investigators to get into the system. The FBI asked for Apple’s help in hacking into its own security system. Apple claimed that providing the government with a way to bypass its own security measures would set a dangerous precedent that could place the privacy of millions of customers who use Apple products at risk. Privacy and civil liberties advocates claimed that if the U.S. government can successfully force Apple to allow it to bypass Apple’s security systems, there would be no stopping repressive governments from doing the same thing. The FBI issued a court order mandating Apple to help the government in this matter. Apple refused. The conflict elicited mixed feelings from the general populace. On the one hand, many consumers felt that this was a special case that could be used to fight terrorism, possibly saving lives in the future. However, others believed it would allow the U.S. government, and possibly other governments, to hack into the phones of private citizens whenever they felt a need. This could destroy consumer rights to privacy. In the end, the FBI dropped the case after it was able to hack into the iPhone without Apple’s help. Yet this is just one of several cases where the government has asked for access to secured tech devices in its investigation. Privacy advocates believe the conflict between the government and tech giants like Apple is far from over.
Price Fixing :Another major ethical issue for Apple includes allegations of price fixing. A judge ruled that Apple had conspired to fix prices on electronic books (e-books) in conjunction with five major book publishers. A federal judge ruled that Apple was part of a deal that required publishers to give Apple’s iTunes store the best deals in the marketplace for e-books. According to allegations, Apple allowed publishers to set the e-book prices for the iPad, and Apple received 30 percent of the proceeds (known as the “agency model”). The agency model is thought to be less competitive than the wholesale model, in which retailers and publishers negotiate on the price. However, if a competitor was found to be selling the e-book for less, Apple was to be offered the same lower price. This scheme is more commonly referred to as a most-favored-nation clause and can be used by companies to dominate the market by keeping competitors out. After striking the deal with Apple, publishers approached Amazon about participating in the contract. In court, Apple faced fines totaling $450 million as part of a settlement agreement. Apple appealed to the Supreme Court, but it refused to consider the case. Price-fixing allegations against Apple are not relegated to the United States. In 2017 Russia’s Federal Antimonopoly Service found Apple guilty of forcing 16 retailers to fix prices on its iPhone 5 and iPhone 6. Allegedly, Apple even contacted retailers who it felt were not adhering to the agreed-upon price. Apple has denied these charges and claims resellers have always had the right to price their products as they choose. Rioting In early 2012 Apple halted sales of the iPhone 4S at retail stores in China. This result came after massive crowds waiting for 48 hours outside of the flagship store in Beijing began to riot. Tensions grew between prospective buyers waiting overnight who tried to edge themselves closer to the front of the line. The estimated crowd was upward of 2,000 people, which alarmed police officials who asked Apple not to open the store as a safety precaution. Customers waiting for the iPhone retaliated by throwing eggs at the store and attacking a mall property manager mistaken for an Apple employee. To their dismay, customers were encouraged to purchase the iPhone online or through other authorized sellers. Other stores in Shanghai and one other in Beijing opened as scheduled and quickly sold out of the iPhone 4S. Many questioned Apple’s ethics about how it handled this situation and the dangers to customer and employee safety. Another instance of rioting associated with Apple occurred later in September when more than 2,000 Foxconn plant workers assembling the iPhone 5 broke out into a fight in the plant’s dormitories. Authorities sent 5,000 police officials to restore order at the plant. Workers reportedly broke glass windows of guard shacks and destroyed railings throughout the property. Reasons given for the riot included alleged beatings from factory guards, stress among workers required to produce products in a short period of time, and frustration with the work environment itself. This is not the first time Foxconn’s environment has been questioned, and as a major Apple supplier, both companies have the responsibility to ensure workers at the plant are being treated fairly. More on Foxconn will be discussed later in this case. Sustainability Apple has taken steps to become a greener company and reduce the environmental impact of its facilities. It also has restrictions addressing the manufacturing, use, and recycling of its products. However, the company admits that the majority of its emissions come from its products. Since Apple’s success hinges on constantly developing and launching new products, the environmental impact of its products is a serious issue. One practice for which some consumers have criticized Apple is planned obsolescencepushing people to replace or upgrade their technology whenever Apple comes out with an updated version. Since Apple constantly releases upgraded products, this could result in older technology being tossed aside. Apple undertook different approaches to combat this problem. For one, the company strives to build quality, longlasting products with materials suitable for recycling. To encourage recycling, Apple implemented a program at its stores where old iPods, mobile phones, and Mac computers could be recycled. Consumers that trade in their old iPods can receive a 10 percent discount on a newer version; those with old Mac computers that still have value can receive gift cards. Apple partners with hundreds of regional recyclers and has established recycling programs in 99 percent of the countries where its products are sold. Despite the recycling programs, many consumers still throw away their old products out of convenience, particularly if they have no value. E-waste remains a significant issue as consumers continue to improperly dispose of their old electronic devices. Intellectual Property Intellectual property theft is a key concern at Apple and is an issue the company aggressively pursues. Apple is serious about keeping its proprietary information a secret to prevent other companies from acquiring its ideas. This led to many lawsuits between Apple and other technology firms. In 1982 Apple filed a lawsuit against Franklin Computer Corporation that impacted intellectual property laws. Apple alleged Franklin was illegally formatting copies of Apple II’s operating system and ROM so they would run on Franklin computers. Franklin’s lawyers argued that portions of computer programs were not subject to copyright law. At first the courts sided with Franklin, but the verdict was later overturned. The courts eventually determined that codes and programs are protected under copyright law. This law provided technology companies with more extensive intellectual property protections. Another notable case was Apple’s lawsuit against Microsoft after Apple licensed technology to Microsoft. When Microsoft released Windows 2.0, Apple claimed the licensing agreement was only for Windows 1.0 and that Microsoft’s Windows had the “look and feel” of Apple’s Macintosh GUI. The courts ruled in favor of Microsoft, deciding the license did not cover the “look and feel” of Apple’s Macintosh GUI. Although there were similarities between the two, the courts ruled that Windows did not violate copyright law or the licensing agreement simply by resembling Macintosh systems. Two other lawsuits involved more serious ethical issues on Apple’s part. One involved Apple’s use of the domain name iTunes.co.uk. The domain name had already been registered by Ben Cohen in 2000, who used the name to redirect users to other sites. Cohen eventually used the domain name to redirect users to the Napster site, a direct competitor of Apple. Apple attempted to purchase the domain name from Cohen, but when negotiations failed the company appealed to U.K. registry Nominet. Usually, whoever registers the domain name first gets the rights to that name. However, the mediator in the case determined that Cohen abused his registration rights and took unfair advantage of Apple. Apple won the right to use the domain name, which led to complaints that Apple was being favored at the expense of smaller companies. Apple faced another trademark lawsuit from Cisco Systems in 2007. Cisco claimed Apple infringed on its iPhone trademark, a name Cisco had owned since 2000. Apple and Cisco negotiated to determine whether to allow Apple to use the trademark. However, Apple walked away from the discussions. According to Cisco, the company then opened up a front organization, Ocean Telecom Services, and filed for the iPhone trademark in the United States. Some stakeholders saw Apple’s actions as a deceptive way to get around negotiation procedures. The lawsuit ended with both parties agreeing to use the iPhone name. However, Apple’s actions in this situation remain controversial. In a twist of events, iOS, the name given to Apple’s mobile software, was also a trademark owned by Cisco. This time, Apple avoided controversy by acquiring the iOS trademark from Cisco before publicly using the name. As was mentioned in the introduction, a more recent case came in the form of a lawsuit between Samsung and Apple. Apple claimed Samsung infringed on multiple intellectual property rights, including patents, trademarks, user interface, style, false designation of origin, unfair competition, and trademark infringement. Specifically, Apple claimed Samsung used key features of its iPhone and iPad, including glass screens and rounded corners, along with many performance features and physical similarities. A jury found Samsung guilty of willfully infringing on Apple’s design and utility patents. Apple was initially awarded $1.049 billion in damages, and Samsung’s allegations of infringement against Apple were dismissed within the United States. After years of litigation Apple was ultimately awarded $119.6 million, only a fraction of the initial damages the company sought against Samsung. One overarching ethical issue is the question of the legitimacy of Apple’s claims. Is Apple pursuing companies it honestly believes infringed on its patents, or is it simply trying to cast its competitors in a bad light to gain market share? Although it might seem Apple is too aggressive, companies that do not adequately protect their intellectual property can easily have it copied by the competition, which uses it to gain a competitive foothold. Threats to Other Companies A recently released document suggests that in 2007 former CEO Steve Jobs allegedly threatened former CEO of Palm, Edward Colligan, with patent litigation if Palm did not cease and desist poaching valuable Apple employees. Jobs suggested each company should respectively comply with the idea of not taking valuable employees away from competitors. This “unspoken agreement” seems to have also applied among companies such as Adobe, Google, Intel, Intuit, and Pixar. The document came to light because of lawsuits filed by former Apple employees. Jobs’s firm stance on the matter was made clear to Colligan, who countered with a response that this type of collusion was highly unethical and Apple’s employees had the right to work at other companies. In 2010 the U.S. Department of Justice filed an antitrust lawsuit against the aforementioned companies and required them to dissolve the agreement. Current CEO Tim Cook made it clear Steve Jobs was the only one with knowledge to this agreement and no other Apple employees were involved. Supply Chain Management Issues As mentioned earlier, Apple makes each supplier sign a supplier code of conduct and performs factory audits to ensure compliance. In addition, Apple says it has empowered millions of workers by teaching them about their rights, increased the number of suppliers it audits each year, and allows outside organizations to evaluate its labor practices. These audits appear to be an important component of controlling the supply chain. Apple discovered a correlation between improved compliance and the number of auditsfacilities audited twice, instead of once, showed a 25 percent gain in compliance rating, while three audits resulted in an even greater 31 percent compliance score improvement. In the last few years serious supply chain issues have threatened to undermine Apple’s status as a highly admired and ethical company. This threat is likely the catalyst to Apple’s continuous supply chain improvements. To meet the repeated demands of Apple consumers, products from the company must be readily available. Most of Apple’s products are manufactured throughout Asia, with a majority produced within Foxconn and Pegatron factories in China. In the past, multiple accusations pertaining to improper working conditions, underage labor disputes, and worker abuse have come into question. Apple has been labeled as an unfair sweatshop, and critics launched multiple campaigns against the company. This resulted in negative publicity from protestors, who asked current Apple consumers not to support Apple’s unlawful practices by purchasing its products. Additionally, suppliers claim Apple’s manufacturing standards are hard to achieve because of the slim profit margins afforded to suppliers. In contrast, competitors like Hewlett-Packard allow suppliers to keep more profits if they improve worker conditions. According to suppliers, Apple’s focus on the bottom line forced them to find other ways to cut costs, usually by requiring employees to work longer hours and using less expensive but more dangerous chemicals. In this environment, mistakes and safety issues become more common. Thankfully, Apple appears to be making progress. According to the company’s own audits, 98 percent of Apple’s suppliers were in compliance of working-hour limits (60 hours per week)the highest ever. Additionally, audits discovered only one underage worker among 705 supplier facilities. Apple acknowledges that the problem of underage workers needs to be totally eliminated from the supply chain, and each year the audits uncover fewer facilities out of compliance. Apple claims suppliers who violate company policies are re-audited every 30, 60, and 90 days or until the problem has been rectified. If a core violation is discovered, such as employing underage labor, employee retaliation, and falsified documents, the supplier is put on immediate probation while senior officials from both companies address the problem. Apple will drop suppliers who do not improve. Several high-profile events at factories generated criticism of Apple’s supply chain practices. In January 2010 over 135 workers fell ill after using a poisonous chemical to clean iPhone screens. In 2011 aluminum dust and improper ventilation caused two explosions that killed four people and injured 77. Additionally, over a dozen workers committed suicide at Apple supplier factories. Much of the media attention focused on the conditions at Foxconn, one of Apple’s largest suppliers with a background of labor violations. Foxconn continues to assert it is in compliance with all regulations. Some blame factory conditions on Apple’s culture of innovation and the need to release new and improved products each year, requiring suppliers to work quickly at the expense of safety standards. However, the Foxconn and Pegatron factories are some of only a handful of facilities in the world with the capacity to build iPads and iPhones, making it difficult for Apple to change suppliers. Additionally, inconsistent international labor standards and fierce competition mean that virtually every major electronics producer faces similar manufacturing issues. As media and consumer scrutiny increase, Apple must continue to address its supply chain management issues. However, as one current Apple executive told The New York Times, customer expectations could also be a problem since customers seem to care more about the newest product than the labor conditions of those who made it. Apple has significantly improved supplier conditions and transparency abo
