Business Organization and Management MA 50000

Professor: Dr, Jesus Lemus Ph.D.

MBA Students: Jorge Yeshayahu Gonzales -Lara, Pedro Ochoa,
Ana Parada, Angela Fernández

The Samsung Galaxy 7 debacle and Utilitarianism Ethics

Samsung Illegal Labor Practices
by

Jorge Yeshayahu Gonzales -Lara, Pedro Ochoa, Ana Parada, Angela Fernández
 The Samsung Galaxy 7 debacle and Utilitarianism Ethics
Samsung Illegal Labor Practices
Jorge Yeshayahu Gonzales -Lara, Pedro Ochoa,
Ana Parada, Angela Fernández

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 7
proved to be negligent. As a result, several people suffered injuries, and the company had to endure
San Ignacio University - Miami

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

2
 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 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.

1. The devices injured several people, and as a result, the company had to endure a costly
recall.
2. Shortly after the August 2016 release, reports of exploding phone incidents began.
3. The reported incidents prompted Samsung to initiate a refund and exchange program.
4. The program worked with Samsung and the mobile carriers.
5. Verizon Wireless gave customers the option to trade the device for a new device of their
choice with the possibility to get the Galaxy 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
San Ignacio University - Miami

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.

3
  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 possible criminal prosecution with up to ten years in prison under Title 18. (DOT,
2016).

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.

1. Samsung could have followed the ethical absolutism theory, where a situation is either
right or wrong, and regardless of the situation or circumstance, the thought will always
be the same.
2. 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.
3. 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.
4. More people were wanting to continue to use their phones that had not problems than
devices with overheating batteries.
5. Samsung could have done a case by case analysis.
6. Deontology ethical theory focuses on the individual and what is right; even if an act
San Ignacio University - Miami

would benefit a group of people, it must also consider an individual’s rights as well.
7. 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).

4
 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.

1. 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.
2. 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).
3. Samsung displayed the ethics theory of justice when they company conducted a
voluntary recall of the Samsung Galaxy 7, giving focus to doing the right thing for the
consumer and showing good intentions and complying with the United States
government.
4. 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.
5. The primary reason global electronics manufacturer Samsun maintained customer
loyalty is the ethical decisions made by the company. (Samsung, 2017).
6. 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 San Ignacio University - Miami
businesses.
7. Enterprises 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.
 When faced with a product recall, the severity of the harm motivates the
remedy the company offers.

5
  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
stronger, established and popular has a less adverse effect by recalls as opposed to smaller lesser
San Ignacio University - Miami

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-

6
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).

 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).
 It is imperative to differentiate between criminal and civil lawsuits resulting from the
negligent lawsuits.
 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.
 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
because it comes under the theory of law developed to hold manufacturers, retailers,
and wholesalers liable for defects making a product unusable for its intended purpose.
San Ignacio University - Miami

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

7
  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.
 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 mass-produced 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.
San Ignacio University - Miami

 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.
 The company is reviewing every aspect of their manufacturing process. After a lot of
independent analysis and consultations with third parties, experts determined the

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

1. As a company with “308,745 employees in 79 countries” (Fast-Facts) they must

make sure that they are following all the rule.
2. 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.
San Ignacio University - Miami

3. 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.
4. With an aim to become one of the most ethical companies in the world that is
respected by its stakeholders, Samsung Electronics continues to train its employees

9
 and operate monitoring systems, while practicing fair and transparent corporate
management.” (Corporate Ethics)
5. “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.”
6. 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 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 Samsung 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
San Ignacio University - Miami

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.

10
  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
conditions, this includes:
1. The failure to provide basic safety equipment for the employees. The 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.
2. 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).
3. 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 and being fined for absence and tardiness” (CBS News 2012).
4. 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
San Ignacio University - Miami

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

11
 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.
1. To maximize their profit, unethical and illegal hiring policies were practiced.
2. 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.
3. The employing children to preform adult procedures the suppliers are behaving unethically
towards the children’s’ responsibility and the society.
4. 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.
5. 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.
6. Samsung is held responsible for continuing the contract with the suppliers and therefore also
San Ignacio University - Miami

plays an equal role as the suppliers in behaving 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

12
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
monetary damages.

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.
San Ignacio University - Miami

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
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
the production procedures are highly unethical and illegal.

13
 Miami, October 29, 2019

14
San Ignacio University - Miami
 Biography and References

Chen, Yubo; Ganesan, Shankar; Liu, Yong. Journal of Marketing.Nov2009, Vol. 73 Issue 6,
p214-226. 13p. 5 Charts. DOI: 10.1509/jmkg.73.6.214., Database: Business Source Elite
Cusumano, Michael A. Communications of the ACM. Jan2013, Vol. 56 Issue 1, p28-31. 4p. 1
Color Photograph. DOI: 10.1145/2398356.2398366. , Database: Business Source Elite
Dai, Hongyan; Tseng, Mitchell M.; Zipkin, Paul H. International Journal of Production
Research. Jan2015, Vol. 53 Issue 2, p511-531. 21p. 2 Diagrams, 1 Chart, 11 Graphs.
DOI: 10.1080/00207543.2014.955922. , Database: Business Source Elite
DOT Bans All Samsung Galaxy Note7 Phones from Airplanes. (2016, Oct 14). Retrieved from
U.S. Department of Transportation: https://www.transportation.gov/briefing-room/dot-
bans-all-samsung-galaxy-note7-phones-airplanes
Korkofingas, Con; Ang, Lawrence. Journal of Marketing Management.Aug2011, Vol. 27 Issue
9-10, p959-975. 17p. 1 Diagram, 5 Charts. DOI: 10.1080/0267257X.2011.560717. ,
Database: Business Source Elite
Kumar, Sameer; Schmitz, Stephanie. International Journal of Production Research. Jan2011,
Vol. 49 Issue 1, p235-253. 19p. 4 Diagrams, 4 Charts, 2 Graphs, 1 Map. DOI:
10.1080/00207543.2010.508952. , Database: Business Source Elite
Lee, Keun; Jung, Moosup; Review of World Economics/Weltwirtschaftliches Archiv, August
2015, v. 151, iss. 3, pp. 461-75, Database: EconLit with Full Text
Lee,Y. and Lee, M.J. (2016, Sept 19). Samsung exploding phone fiasco: 7 powerful lessons for
every business. Retrieved from BizNews:
http://www.biznews.com/entrepreneur/2016/09/19/samsung-exploding-phone-fiasco-7-
powerful-lessons-for-every-business/
LENS, JILL WIEBER. St. John's Law Review. Summer2016, Vol. 90 Issue 2, p329-367. 39p.
McGoogan, C. (2017, Feb 9). Samsung factory that made 'exploding' Not 7 batteries catches fire.
Retrieved from Yahoo Finance: http://finance.yahoo.com/news/samsung-factory-made-note-7-
102719358.html

Samsung Expands Recall to All Galaxy Note7 Devices. (2017, Jan 22). Retrieved from
Samsung: http://www.samsung.com/us/note7recall/
Samsung Recalls Galaxy Note7 Smartphones Due to Serious Fire and Burn Hazards. (2016, Sept
15). Retrieved from United States Consumer Product Safety Commission:
San Ignacio University - Miami

https://www.cpsc.gov/recalls/2016/samsung-recalls-galaxy-note7-smartphones
Samuelson, Pamela. Communications of the ACM. Jul2016, Vol. 59 Issue 7, p22-24. 3p. 1 Color
Photograph. DOI: 10.11145/2935878. , Database: Business Source Elite
Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education
Seongjae Yu. International Studies of Management & Organization.Winter98/99, Vol. 28 Issue
4, p57-72. 16p. 1 Diagram, 1 Graph. , Database: Business Source Elite
Xia Liu, Angela; Yong Liu; Ting Luo. Journal of Marketing. May2016, Vol. 80 Issue 3, p79-95.
17p. 1 Diagram, 5 Charts, 2 Graphs. DOI: 10.1509/jm.14.0382. , Database: Business
Source Elite

15
Youngjin Yoo; Kyungmook Kim. In: Harvard Business Review. Sept, 2015, Vol. 93 Issue 9,
p72, 7 p.; Harvard Business School Press Language: English, Database: General OneFile

San Ignacio University - Miami

16