7 Eleven Case Study

7 Eleven and their franchise owners have been at the forefront of allegations regarding
underpayment of workers and falsifying payroll records, unfair franchise agreements and
exploiting overseas workers in order to maximise profit. This report will analyse these three
significant Corporate Social Responsibility issues, as well as evaluating three significant
management strategies that aim to improve their CSR program. Recommendations will then
be formulated to improve their CSR and do well on the Global Reporting Initiative scorecard.

7 Eleven faces many issues regarding their CSR however the 3 most significant issues are the
underpayment of workers and payroll fraud, unfair franchise agreements and exploiting
overseas workers.

The underpayment of workers and payroll fraud is 7 Eleven’s primary CSR issue, and should
be addressed if they wish to improve their CSR program. This falls under the Social category,
with further refinements in the human rights and labour practices sub-categories. Their
underpayment and fraudulent payroll allegations have a direct impact on the wellbeing of
their employees, as workers are not receiving the correct payment for their hours worked.
This leads to employees not being able to provide for their family, and leaves them eating
the products that were headed to the bin. These actions affect other stakeholders, such as
the 7 Eleven management team. They are placed at the forefront of allegations as they are
responsible for proper payment of employees’ wages. 7 Eleven’s head office is also effected
as they take a percent of profits which leaves the franchisees to work with the remaining
revenue. A raid conducted in September 2014 revealed that, out of 20 stores, 60% were
underpaying staff and falsifying their payroll (Source 1). “It seems to me that the business
model will only work for the franchisee if they underpay or overwork employees” states
Professor Fels (Source 1).

The second CSR issue that 7 Eleven faces is their unfair franchise agreements. 7 Eleven head
office takes 57% of gross profits, leaving the franchisees to operate with only 43% of profits
to cover expenses. They must pay; rent, utilities, wages and any other costs that are
required when running a business. In order to cover these expenses, they resort to
underpaying employees, as stated above. Franchisees are placed in a vulnerable position
and forced to underpay employees due to their unfair agreement with 7 Eleven Head office.
Without the underpayment of workers, they would not make a profit. Head Office is clearly
prioritising their strategies in order to maximise profit, however their risk minimisation is
subpar, as they continue to practice illegal activities. “From their 43 per cent takings, the
franchisee pays a raft of other running costs including all staff wages – which is a big
expense” (Source 1). Due to 7 Eleven operating 24/7, their total wage for one employee
working each shift is an estimated $230,000 (Source 1). With only 43% of profits to work
with, they are forced to underpay employees in order to function properly.
The third CSR issue with 7 Eleven is their exploitation of overseas workers, whether it be
through working excessive hours or underpayment. This falls under the Social category of
the GRI framework, specifically the human rights and labour practices sub-categories. 7
Eleven took advantage of immigrant workers in order to maximise profits. This has a direct
impact on their brand’s legitimacy and reputation, as it portrays them as a company whose
sole intention is to make a profit regardless of the damage it will cause. “In a submission to
a federal parliament inquiry, Mr Levitt alleged the chain practised a "de facto ethnic
selection of franchisees" in order to select store owners less likely to blow the whistle on
employment practices, Fairfax Media reported in early 2016” (Source 2). They purposefully
exploited workers and “underpaid international students on threat of deportation” (Source
2). This means they could get away with overworking and underpaying as employees felt
too belittled to speak up about what was happening. This is not to say that they should not
be hiring overseas workers, but rather to emphasise that all employees deserve to be
treated equally.

7 Eleven must implement three significant management strategies in order to improve their
Corporate Social Responsibility. These could be; developing an ethical business culture,
recruitment and selection of ethical head office managers and franchisees, and
implementing an improved code of conduct.

Firstly, developing an ethical business culture will benefit 7 Eleven both ethically and
financially. It will be effective as it will increase the business’ legitimacy and reputation,
whilst giving them a competitive advantage that future employees will want to work for.
This responds to the third and fourth level of the CSR pyramid, as the business is fulfilling
their ethical and philanthropic duties. This system could be implemented successfully if it is
promoted in every store and instilled into the employees upon training. Drawbacks of this
strategy could include an increase in expenses, as franchisees may have to cater for
employee’s needs. However, these expenses can be made back by the increase in customers
from their improved brand reputation. 7 Eleven’s current code of conduct states “…[want
to] operate our business at the highest ethical standards” (Source 3).

The second strategy that will improve 7 Eleven’s CSR is the recruitment and selection of an
ethical head office and franchisees. This will again improve their legitimacy and reputation,
and will aid in avoiding any ethical lawsuits in the future; maximising cost and risk reduction.
Evidence of ethical practices should be provided by the applicants in order to select the
suitable candidates. A limitation to this strategy is that in employing someone who is more
ethically driven, the company’s profits could suffer a reduction as the main focus shifts from
profit to people.

The third management strategy is to implement an improved code of conduct. As seen in

source 3, 7 Eleven already have an established code of conduct. This means the success of
this program must lie in the effective implementation of the system. A code of conduct will
benefit their legal, ethical and philanthropic duties and increase their reputation. They claim
to “seek and value diversity in our teams and partnerships” (Source 3), however, are they
doing this just to find new employees to exploit? This is an issue that can be aided through
the use of an efficient code of conduct. There would also be minimal limitations to this
strategy.

7 Eleven’s management team is to improve its CSR program and performance on the GRI
scorecard by implementing the following recommendations: develop an ethical business
culture, recruitment and selection of an ethical head office and franchisees, and implement
an improved code of conduct.

An ethical business culture can be developed through a survey on aspects of the business
that employees feel need improvement. This will help to identify any immediate problems
that the business need to fix. The recruitment and selection of an ethical head office and
franchisees can be conducted through allowing applicants to demonstrate their ethical
characteristics by reviewing more than just an applicants’ resume. This will ensure a socially
responsible head office is employed and will prevent any further scandals. An improved
code of conduct can be implemented through a mandatory information session to all
employees, franchisees and management. Ensuring that all values/codes are followed will
confirm the ethical and legal practices of any future endeavours the business takes.