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1. KEY FACTORS
• Subcontracting unsupervised .
• No review of compliance with quality and safety standards in the final product .
• Let means from seizing the news.
2. KEY FACTORS
• Lack of clarity regarding the because of retirements, Mattel ‘s fault or distributors in China.
• history of safety violations at the CPSC.
• design deficiencies in their products.
• Pay more attention to the issue of outsourcing.
• Getting involved in the review process of the finished product .
• Avoid defamation by means time giving clear answers.
• More stringent security controls in their designs.
• In this case the importance of compliance with the quality standards are further evidence of the implementation of security and control systems that provide assurance to the consumer of the final product quality .
• The role of the implementation of ethics business is still questioned by playing with the safety of consumers ( children ) to try to reduce costs.
Reasons for Recall
There are two separate reasons why Mattel recalled 19 million toys from August to September of 2007.
The fact that both recalls occurred at the same time makes this the biggest recall in the company’s history. The first reason toys were recalled was because of faulty magnets. The design of these toys included parts with high-energy magnets – magnets normally used for industrial purposes – that can easily come loose. These magnets pose a threat to young children and infants who could easily ingest the parts and have them bond together along their digestive tract. If several magnets were swallowed they would pull together in the stomach and rip through stomach tissue.
The strength of the magnets combined with Mattel’s poor design of the toys made these products a serious hazard for young children. On their website, Mattel listed 71 models and makes of toys that are recalled because of faulty magnets. Toys affected by this problem included Polly Pockets, Batman action figures, and Barbie and her dog Tanner. Some Polly Pocket sets had been recalled as early as November of 2006. The other reason Mattel toys were recalled was because high levels of lead-based paint were found on the surface of many toys. Mattel had previously given manufacturers in China a list of eight paint suppliers that they could use, but in order to cut costs, subcontractors used unapproved suppliers.
In some cases the lead content was over 180 times the legal limit. Lead-based paint is dangerous for children because elevated levels have been shown to create learning and behavioral problems, slow muscle and bone growth, hearing loss, anemia, brain damage, seizures, coma, and in extreme cases, death. There are 91 models and makes of toys that Mattel placed on recall because of harmful levels of paint. Many of the toys coated with lead-based paint were from Mattel’s Fisher Price line.
Recently, China has had numerous problems with the quality and standards of the products manufactured within the country. Pet food, toothpaste, seafood, tires, and toys are some of the products that had to be recalled from homes in the United States because of serious – and possibly deadly – manufacturing errors. The business relationship between Mattel and China seemed to be a text-book partnership that started over 25 years ago. Mattel currently does 65 percent of their manufacturing in China, and before this recall was a company others wanted to model in terms of their global manufacturing. Mattel has been criticized for placing too much confidence in their relationship with China and slacking on quality checks at the manufacturing sites. At this point, it seems that Mattel will continue to work with the same manufacturers in China because their options are limited.
In November of 2006, Mattel recalled several Polly Pocket sets sold with magnets that could pose a threat to children. In early July of 2007 a retailer in Europe discovered a high lead content on some Mattel toys. Upon notification, Mattel began an investigation and halted operations at the factory that produced the toys. During this investigation it was discovered that there were millions of products that didn’t conform to safety standards, many that had been available since 2003. Fisher-Price started the recalled with 1.5 million toys on August 1, 2007 due to high levels of lead-based paint. The products containing lead paint were mostly from this division of Mattel and were all manufactured in China. On August 9, 2007, China cancelled the export license of two of the factories linked to the recalls – Hansheng Wooden Products Factory and Lida Toy company.
Four days later, the body of Zhang Shuhong, the boss of the Lida Toy Company, was found in the factory workshop. Reports said that he committed suicide by hanging himself in the factory. After further investigation, Mattel recalled 18 million more products on August 14, 2007 because of the possible hazards they could pose to children swallowing faulty magnets. And on September 4, 2007, Mattel recalled 848,000 more toys globally because of high levels of lead-based paint. The U.S. Senate Committee began scrutinizing American safety standards for children’s toys and clothing on August 28. The committee said it would consider the possibility of creating new legislation to keep hazardous toys from children.
Despite the fact that a larger number of toys were recalled because of faulty magnets rather than lead-based paint, recall blame was heavily placed on China by global media. During this time, Chinese media claimed that Mattel should be accountable for the mistakes they made rather than use China as a scapegoat. Mattel eventually listened. On September 21, Mattel issued a prepared apology to China about the recall, taking full blame for the incident. They took ownership of the magnetic design flaw, claiming that it was a Mattel design flaw and not a Chinese manufacturing flaw. Nothing was said about the paint.
Objective 1: Get all information about the recall to the public accurately, quickly, and efficiently.
Objective 2: Reassure consumers – especially parents – that Mattel is committed to making safe toys, fixing the problem, and being open and honest.
Objective 3: Take responsibility for the recall. Solve the problem while maintaining a stable relationship with China.
When Mattel realized their company was facing a very serious problem, they first contacted the federal agency that oversees toy problems and product safety. Then they opened their 100-page crisis plan. The fact that the company had a product defect and a difficulty with their supplier made this recall a problem within their control. When federal officials announced the first Mattel recall, 16 public relations personnel immediately called reporters at the top 40 media outlets. They sent out e-mails with a recall press release, told reporters about a teleconference with executives, and allowed the media to schedule TV appearances or phone conversations with top personnel at Mattel. The day of the recall, Robert Eckert, the CEO of Mattel did 14 interviews on television and took 20 calls from reporters.
Mattel answered over 300 media requests in the United States by the end of the week. The company took out full-page ads in the New York Times and the Wall Street Journal as well. Mattel also launched a massive online crusade to inform people about the recall. A link to a crisis response website was set up on their webpage right away and updates have been posted regularly. Webcasts and search engine marketing, also known as pay per click marketing, were used as well. There are a few reports (and a lawsuit) that claim Mattel knew about the defects of their products long before their announcement to the public, but since announcing it, Mattel has constantly been open with the media and their customers. They claim that although they have very high standards and thorough quality and safety testing procedures, “no system can be perfect.” Mattel also made it clear that they are doing all that they can to assess the situation on the manufacturing level.
Apology to China
Mattel’s toy recalls spurred a wave of China-bashing in the media across the world. This greatly damaged China’s manufacturing reputation around the globe. But much of the criticism may have been unwarranted. Many manufacturers in China claimed they were being blamed for design flaws created by Mattel. On September 20, 2007, with lawyers present, Mattel issued a carefully-worded apology to China in a meeting with Li Changjiang, the Chinese product safety chief. The apology was given by Mattel’s executive vice president for worldwide operations, Thomas A. Debrowski. In part of the apology, Debrowski said “Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of our customers who received the toys.”
The apology also took responsibility for Mattel’s design flaws, a problem that encompassed a majority of the recalled products and admitted that toys affected by the lead-based paint were a very small percentage of the toys recalled. China accepted the apology, but Li said that Mattel “should value our cooperation. I really hope that Mattel can learn lessons and gain experience from these incidents, [and they should] improve their control measures.” The apology may have been later than China would have liked, but the country hopes that it will restore consumer confidence in products “made in China.”
What Mattel is Currently Doing
Those at Mattel have done their best to appear up-front and completely open about the recall. On the first page of their webpage, Mattel dedicated a bold red link to the toy recall. This link contains information for the recall for all countries affected in the world. It tells customers what toys are being recalled, where to bring recalled toys, and what Mattel’s three-point check system is. Mattel’s three-point check system covers the steps that they are currently taking to insure that all their toys are safe for children. These steps include:
1. Mattel will make sure that manufactures only use paint from certified suppliers and they will test every single batch of paint from all vendors. If the paint isn’t up to Mattel’s standards, it won’t be used.
2. Mattel is increasing control on every level of the production process and conducting random inspections at all vender facilities.
3. Mattel pledges to test all finished toys vigorously before they reach the consumer. The toys must meet a series of strict safety standards before they are put on the market.
Mattel assures customers that all venders are aware of these new procedures and Mattel’s strict enforcement of them.
Many of the news articles that covered the Mattel Recall focused on the lead-paint explanation for the recall, rather than the problems with the toy’s design flaws. This led to a heavy bout of China-bashing throughout the media. Many headlines claimed that “China has Ruined Christmas” and a line that was often repeated in articles was “Made In China should be viewed as a warning label.” All articles mentioned that part of the recall involved toys with industrial magnets, but not all said that 85 percent of all the toys recalled were the ones with the design flaw – not the lead-based paint. Even if the article mentioned the breakdown of recalled toys, that didn’t usually stop them from participating in the negative portrayal of China’s credibility as a manufacturer. Many articles – especially those in newspapers outside the U.S. – insisted that China crack down on their safety standards before they put any more lives in danger. In the media, people in power threatened to detain and inspect all questionable shipments from China. The media’s coverage of Mattel was vastly different.
Although the company was going through a crisis, many media sources commended Mattel for getting the word out quickly and efficiently. Mattel was also often praised in the media for their openness with customers – and the media. The fact that top executives of Mattel were willing to talk to media outlets seemed to give the company favorable coverage and blame shifted to China. Mattel cultivated the image of the company’s willingness to discuss problems as soon as they arose and complete parental concern. The only article I actually found that defended China was an article printed in the country itself: in the China Post.
The article reported that Beijing believed Mattel and the United States put too much blame on China, and was the only source to point out the mislaid emphasis on the majority of the recalls: design flaws. It talked about how China’s image as a reliable producer was damaged, but also said that in light of the product safety scandals the country set up a task force to supervise manufacturing and enforce laws. It applauded Mattel’s courage to come clean about their flawed goods and accept responsibility, and criticized mainland China for not having the same moral courage “to admit fault and embrace responsibility.” The article emphasized that China needs to improve its product safety and learn that quality of goods is often the best policy.
What China Has Done
China has tried to clear up their problems and corruption inside their country. They executed the former head of their food and drug administration for taking bribes from manufactures and placed the blame because his “failure to conscientiously carry out his duties seriously damaged the interests of the state and people.” One subordinate was given the same sentence, and another was put in jail. But China never made a formal apology to the rest of the world, the companies they manufactured for, or to customers who received tainted goods.
Effect on Society
Parents had extremely different reactions to Mattel’s toy recall. Parent blogs were filled with everything from the Mattel name surrounded by four-letter words to polite requests for a list of all items recalled. Many complained that they had to take their children’s favorite toys away. Many decided not to (or try not to) buy any toys made in China – a difficult task because about 80 percent of toys sold in America are made in China. Many said they would be willing to give the Mattel brand another try. But some parents became exasperated with Mattel’s procedures for the recall. One mother, completely fed up with what seemed to be daily recalls, decided to drive to the Mattel headquarters with her car piled with children and Mattel toys. She ordered the company to sort through the toys and remove any recalled items.
Another mother viewed the recall as a wake-up-call to her parenting style. She decided not to blame China or Mattel for the problems, but instead realized that she needed to start entertaining her children herself, not buy their entertainment or use the television as a babysitter. A father made cynical jokes about the recall in a video on youtube.com. A couple bashed Mattel for their PR-scrubbed handling of the entire recall and using “too much red” on their recall webpage. But no matter what the parent’s reactions were, they all agreed that they wanted safe toys for their children to play with.
• Small Mom and Pop Stores have seen a drop in sales, whether they carry Mattel toys or not. They have said that since many parents have changed their buying habits and are trying to stay away form the “Made in China” label. .
• Mega toy stores like Toys-R-Us and FAO Swartz are educating their staff about which toys are made in China and where to find toys made in the United States.
• There has been a spike in the purchase of lead testing kits (to be used on Children).
• Companies that have partnered with Mattel, such as Sesame Street and Nickelodeon, have decided to implement their own tests on finished products and toys that Mattel produces.
• EBay has sent out e-mails and notices asking members not to buy or sell many Mattel toys.
• Toys and brands “Made in America” have the potential to gain a new niche in the market. If they can establish themselves as safe and reliable companies, parents said they would gladly pay extra for the security of quality goods.
What We Can Learn
In many ways, Mattel handled the crisis exactly the way textbooks tell corporations to handle reputation-damaging incidents. With their experience with recalls, the company smoothly executed all aspects of their crisis management plan. The company and the CEO were visible and available. They broke the bad news themselves. They told the truth. They apologized publicly, and took immediate action to fix the problem. Articles have claimed that Mattel was doing their job correctly because they told people about the problem. They confessed and comprehended that they made a mistake and offered a solution. Mattel’s apology to China is, for the most part, is looked at favorably as well.
China hasn’t apologized for any faulty products in the past, in fact, the country often got into long, ugly disputes with corporations over who was to blame for recalls. By accepting all blame, Mattel was able to continue forward and focus on setting things right – not on whose fault it is. This also allowed consumers to see that Mattel is dependable and the one who is responsible for fixing the problem. Another thing that we have learned is that in regard to the global economy, it’s difficult to know where products are made, what is in them, and who is properly regulating them. By getting this issue out in the open, Mattel is allowing consumers to get a glimpse of how goods get from factories into our homes.
Other China Recalls
The RC2 Corporation recalled several Thomas and Friends train sets in June of 2007 because of high levels of lead-based paint used by Chinese contractors. The R2C Corporation’s recall wasn’t as expansive as Mattel’s, nor is the company as large, but on their website the letter offers an apology to parents first, not an explanation. This corporation also ended their relationship with all manufacturers who did not comply with their paint specifications and implemented a six-point safety check system. In March of 2007, the US Food and Drug Administration was alerted that animals had died after eating a Canadian pet food, many popular pet food brands were withdrawn overnight across the US.
Melamine, an industrial chemical found in plastics was the suspected killer ingredient. There is controversy about how such high levels of melamine got into the pet food, but articles have been written claiming that sources in China admitted to mixing melamine into batches of pet food to make it look like there was a higher content of protein than there actually was. Adding melamine to pet food was banned by China on April 26, 2007, but the country never took any responsibility for the death of pets in America. Diethylene glycol, a component of antifreeze was found in two brands of Chinese-made toothpaste sold in Europe. The diethylene glycol in toothpaste was found to be the result of deaths in Panama, the Dominican Republic, and Australia.
Paul A. Argenti, Professor of Corporate Communications at the Tuck School of Business at Dartmouth, commented on the case. “I think Mattel handled the problem very well overall,” he said. “It’s a problem that isn’t unusual for them to have. Product defects and difficulty with suppliers are pretty typical in their line of work and they took responsibility. They were willing to talk about it and understood the ramifications. He said that maybe Mattel could have been more diligent in picking out suppliers, but that is easier said than done. But Argenti thinks that the two can now have an ongoing relationship. He looked at fact that Mattel took responsibility for the entire recall very favorably, pointing out that not many American companies are willing to be held accountable for legal reasons.
“It’s refreshing to see,” he said, “It takes courage. Mattel seems to have a mind of their own and think outside lawyers and their lawyer’s public relations firms. You can tell by how the case is handled. Either they have a savvy consultant or a great PR firm.” However, Argenti doesn’t think that Mattel’s problem is over yet. He believes they need to continue to look for problems, work on thing operationally, and produce safer toys. The company has to be prepared for other problems and continue risk management audits. Holiday sales must be monitored and so do blogs. “There are always going to be problems. But if Mattel can lead the change for toy manufacturers to create a more responsible industry, they could become the hero.”
I agree with Professor Argenti that Mattel did a good job of handling the recall, but I can’t help but wonder how much of it was just for show. Mattel has recalled toys so many times that they know exactly how to handle the problem and use the media to their advantage. But I think by getting their recalls almost down to a science, they may have lost sight of the customer. The website is corporate and cold. There should be an apology readily recognizable when you first open the page and the CEO speaking shouldn’t be so formal and stiff. I can see how the apology to China was a very excellent and responsible move, but when will China actually take responsibility for themselves? And how can we continue to support an industry that refuses to accept blame for its mistakes? I can’t help but think that it was a bit of a coincidence that the faulty magnet recall and the lead paint recall happened at the same time.
Let’s look at the facts: Mattel recalled several Polly Pocket Sets in November 2006 because of hazardous magnets. In August of 2007, Mattel’s Fisher-Price division recalls a huge amount of toys because of lead-based paint. Mattel recalls a huge amount of toys because of faulty magnet design. Then Mattel recalls a few more toys because of lead-based paint. Why were there so many faulty-magnet recalls nine months later? Why didn’t Mattel catch and fix the magnet problem last November? The timing of the recalls and the fact that China was already being scrutinized for several other product recalls made it very easy for people to throw all the blame on the country, not the company. I also think that if there’s any time for manufacturers in America to increase their business, the time is now.
The toy industry is estimated to be a 71 billion dollar market in 2007 (pg.167) with approximately 880 competitive companies with its clear industry leaders. Mattel being number one toy making company in the world has been faced with several conflicts due to the industries strict jurisdiction under the Consumer Product Safety Commission. It is necessary for toy companies to have great control over the safety features of the their products as the users are small children who are not yet capable of making educated decisions when it comes to safety and play time. Stern laws and regulations enforced by the CPSC state very specific guidelines, in this case it would be the lead content in product available to children to be less than 600 parts per million (pg.170). Mattel’s problems began when their supply line became greater and greater within China.
As the list of suppliers and vendors grew, Mattel’s ability to control the working environment and the quality of their product became a lot harder and sometimes impossible. The inability to trace back the company Dongguan from which Lee Der (one of Mattel’s principle vendors) purchased the paint revealing too much lead was a major problem. Dongguan Zhongxin Toner Powder Company was reported to be fake (pg.175), harming the confidence of consumers in Mattel’s credibility. Mettal has been an industry leader for over 60 years and has proven itself to be a good corporate citizen with its Global Manufacturing Principles and Mattel’s Children Foundation. The company has gained and continued to build consumer trust and a positive image in the toy market, and therefore a recall was necessary procedure in the nature of the conflict in regards to the lead content. Undeniably the core problem of the issue was the long supply
Summary of Case
Mattel’s Toy Recalls and Supply Chain Management
This case talks focuses on the event in the year of 2007 when Mattel – the leading global toymaker – voluntarily recalled its toys from worldwide stores. Mattel’s name is synonymous worldwide for its most famous product – the Barbie Doll. The recall was initially for 83 toys which had excessive lead paint and soon after 6 more products we recalled which had a design problem of small magnets coming off the toys in addition to the use of lead paints. The lead that was used could potentially be toxic for children and the magnetic parts that could come off the toys could potentially be fatal for the digestive systems of children if ingested. All the toys recalled were manufactured in China and in total more than 1.5 million toys were called back. The initial diagnosis was that the main cause of the problem was “Made in China” however the case explores that the root causes for the default were defective designs.
Background – Mattel & China
* China had become the leading manufacturer of toys by 2000
* 80 % of toys coming to US were manufactured in China
* 65% of Mattel toys were produced in China
* Most Chinese toys were made in about 5000 factories located in Guangdon province in China. These factories were majorly owned by Hong Kong Mattel’s Supply Chain
Mattel’s product fell into two broad buckets. First was the core products like Barbie dolls which sold through longer periods and the second bucket comprised of the non-core products which comprised of seasonal toys like movie characters. By 2007, more than half of the revenues for Mattel came from core products that were manufactured in Mattel – owned plants in china. The remaining products which were procured from local Chinese licensed vendors. Mattel had an inspection program in place for its products. Off the 5000 products that it used to develop each year, it would randomly check products by taking them off.
Mattel’s outsourcing strategy
Mattel’s has been trying to maximize production efficiency while minimizing risk, controlling costs, and maintaining flexibility. To do that, Mattel has strategically decided on a complex mix of wholly owned and third-party manufacturing for its products. Mattel has also been steadily moving manufacturing out of the United States and into other countries like China, Indonesia, Thailand, Malaysia and Mexico. In those countries, Mattel would contract with thousands of different vendors to produce their toys. Those contractors would usually have their own contracts with other local companies to obtain the required resources and services to build the toys based on Mattel’s guidelines and partial auditing.
While this does allow flexibility and reduces the risk of over relying on a single manufacturer, it also reduces the ability to effectively control and monitor all that happens in the toy making process, the main problem being quality assurance and enforcement of safety regulations. The system built has so many variables influenced by so many players, that it makes it nearly impossible for Mattel to keep on track with every last detail.
Current challenges and suggestions crisis management
Facing the problem with the safety of their products Mattel has to quickly implement a crisis management plan. Knowing that recalls are part of the industry and having experienced those kinds of problems before it is absolutely vital that the company have a crisis management team with backup plans to address those issues as they come up in real time, working together with both manufacturing and PR departments to isolate the problem while communicating the issue to their customers. In such instances time, accountability and responsibility are key for the company to effectively address the problem while controlling the negative impact on their reputation and sales. The leadership of the company must be involved from day one to act inside and outside simultaneously, investigating the issue and implementing crisis control. implemention
The company had to move fast to work with CPSC to alert the public, yet while they did work with CPSC’s “fast track”, it took them over a month and a half of internal investigation to alert the public. Since responsibility will be attributed to Mattel no matter what, accepting the responsibility is vital for Mattel to maintain credibility. Throwing the blame on others looks bad and invites a counter strike by the accused. In this case Mattel has been suggesting that the cause was related to the Chinese factories and the Chinese regulatory system, which has back-fired on them as the Chinese government decided to fight – not only against Mattel. Mattel’s high dependence on the Chinese factories and Chinese government has led them to apologize to the Chinese and lose the audience they were initially trying to convince.
Mattel has also known from the beginning that while the lead problem was due to the manufacturing in China, the magnet problem was due to their own faulty design, so it was their irresponsible unwillingness to admit guilt that amounted to a much worse effect when the truth was revealed than would have been accepting responsibility in the first place. Recalls are only one step in the crisis management implementation as additional critical areas include strategy, compensation, PR and law. First, Mattel is required to change its strategy to address the concerns in both design, manufacturing, quality control, auditing, safety assurance, offshoring, etc..
Secondly, the company would need to communicate their message effectively, while offering to compensate those hurt while preparing for the legal battle that will surely follow. Mattel has done a the minimum required in strategically reorganizing while focusing efforts on trying to communicate their message to maintain reputation, thus neglecting the important steps required in managing the crisis.
Mattel now has to focus on a rebuilding strategy – rebuilding its reputation, rebuilding consumer trust in toys, rebuilding trust with industry, and rebuilding the relationship with China and the Chinese government. To do that, it should consider – (1) being open, transparent and truthful, (2) implementing a full scale crisis management action plan as suggested above, (3) constantly working on communicating and listening to their consumers to address their concerns and needs, (4) adapting strategic changes for future prevention, and (5) waging a huge promotion and public relation campaign, emphasizing the US and China. To address the consumers, denial and accusations should be replaced with acceptance of guilt and responsibility, moving on to fully implement strategically changes to ensure the company is doing whatever it can to address the crisis and prevent one in the future. Emphasis in this case should be made on resource reallocation into safety assurance and quality control, reassessing contractors and reviewing all products in all plants by all contractors.
The Chinese government has been quick and determined in addressing this specific crisis. China was under attack not only by Mattel, but world-wide by both companies and countries (Brazil) tossing the blame onto China and the Chinese government for their lack of regulation and safety measures enforcement. To fight back, China has been emphasizing similar problems in other developed countries, proving that the story to be much more complex and using China’s trade and financial power to shift focus from debating China to debating the industry. With that said, the Chinese government is facing an alarming increase in the rate of such incidents, which leads to a severe problem for China’s reputation as a manufacturing hub. Together with other issues of a rising Yuan and increased labor costs, China’s attractiveness is coming in question. As is with other global concerns in China over Intellectual Property (IP), environment and governance, there is a lot that China can do when it comes to regulations/laws and enforcement should it choose to.
Possible action items – Setting high safety manufacturing standards through legislation, monitoring companies, on-going auditing to keep companies on their toes, strictly enforcing punishment in cases found, forming related governmental agencies corresponding to the American ones, and working together with companies in cases of crisis to quickly address and problem. Mattel’s key stakeholders include it’s customers, employees, retailers, shareholders, suppliers, both the American and Chinese Government, The Consumer Product safety Commission (CPSC) and licensors such as Disney and Sesame Workshop. These are the main parties that have a stake in the organisation and who are affected by the companies actions. In the recall, Mattel catered to some of it’s stakeholders. Whether timely enough or not, Mattel catered to it’s customers in the recall. By making the recall and releasing a statement explaining the procedure, they risked their reputation at the stake of their customers safety.
I believe that they also catered to the Consumer Product safety Commission who I assume would have enforced the recall had they not co-operated. I believe that they also catered to some of their other stakeholders in the recall such as the owners and shareholders and employees. While the implications of the recall may have negative effects on these parties in the short run perhaps they felt that they were minimising these implications in the long run by acting when they did. Had they waited any longer or been forced to make the recall the reputational implications may have been worse. The stakeholder approach believes that managers should take into account the views of all the organisations stakeholders and not just the shareholders when making decisions. The hope is that by doing..
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