JEXTRA NEIGHBOURHOOD STORES IN MALAYSIA Appalachian State University MBA Exit Case Study December 2012 Kathleen McReynolds

Tom Chong, the newly appointed Malaysia country manager, has been promoted into an important leadership role within the international chain of Jextra grocery stores. Chong is responsible for the oversight of all operations in Malaysia and has been instructed to pursue a strategy of aggressive growth within this budding market. After eight months of employment, Chong begins to discern an undercurrent of unethical behavior surrounding Jextra and is forced to contemplate what actions if any he will take to address two precarious situations. Chongs initial concerns pertain to his meeting with the mayor of a Malaysian town called Klang, which is located near the countrys capital. Klang is not yet zoned for commercial purposes, but otherwise represents a seemingly perfect location for expansion. During a meeting regarding this potential store site, the mayor proposes that Jextra should contribute to a local primary school fund and incur some of the costs associated with road and electricity development near the Klang lot. Chong is unsure about the legality and logistics of these requested donations, and he doesnt know if they are a prerequisite to gaining zoning permission. His suspicions are further aroused when he learns that the mayors sister is the leading champion of the primary school fund, and that the road development planning was underway months before Jextra expressed interest in breaking ground in Klang. According to Jextras Business Conduct Code, it is illegal to pay or receive a bribe intended to influence business conduct, so Chong should have no qualms about denying the donations if they are a precondition of doing business in Malaysia. Furthermore, the code instructs employees not to partake in any activity that creates the appearance of anything improper, which could certainly transpire if Jextra funded the mayors sisters public project. Accepting the offer is tempting to Chong because the number of new stores is a performance metric against which he will be evaluated, and Jextras entrance into Klang could easily be

thwarted by a competitor who would appease the mayor. However, in accepting the vague terms, Chong would be violating the conduct code and tarnishing Jextras reputation as an ethical, lawabiding firm. He might also be entering Jextra into a toxic relationship with high future costs to the companys shareholders. In a larger context, Chong would be undermining the Malaysian governments recent reformation, in which politicians and government authorities promised to make project funding and business transactions transparent to citizens and investors alike. Disregarding this initiative could impede foreign direct investment in Malaysia and perpetuate the countrys history of corrupt business practices. This is unfair to Malaysian citizens and Jextra stockholders, who expect to achieve earnings ethically. Although the mayors requests are ostensibly corrupt, refusing to work with him is not necessarily the only legal and ethical course of action. Chong could ask for more information on the primary school fund and development projects to see if they were legitimate ventures that aligned with Jextras existing philanthropy efforts since the company does make an effort to give back to communities in which it operates. However, Malaysian funds are sometimes funneled to fraudulent benefactors, and even the most well-intentioned donation could be interpreted as dishonesty. For this reason, Chongs safest and most proactive option is to consult upper management about alternative targets for expansion. Chong also has serious suspicions about Jextras top buyer of fruits and vegetables who has been an important contributor to company profits for nearly a decade. Arif Alam consistently negotiates more favorable contract terms than other employees and competitors, but the source of his success eludes colleagues and even superiors. Consequently, several members of the accounting department suspect that Alam is accepting unauthorized gifts from suppliers and

generally engaging in unethical procurement tactics. According to more troubling corporate rumors, Alam is also diverting funds for personal gain by requiring Jextras suppliers to contract with and pay commissions to his father-in-laws bogus referral agency. At the most micro level, the allegations against Alam represent a blatant divergence from the companys conduct code, which states that associates should not accept money, gifts, or excessive entertainment from any guest, contractor, or supplier at any time. The code further instructs that employees and their immediate family or household members may not accept business opportunities, commissions, or advantageous financial arrangements that arise as a result of employment at Jextra. The potential ramifications of Alams behaviors extend much further than the realms of the conduct code. In fact, they pose the threat of serious injury to many company stakeholders. The most obvious risk is that the companys reputation may suffer if these unethical business dealings become public knowledge. The financial success and growth potential of Jextra hinges on the companys ability to enter new foreign marketsa strategy that is jeopardized if the requisite foreign business partners become hesitant to work with Jextra for fear of opportunism. An inability to grow internationally could wreak havoc on company profits, stockholder earnings, and employment stability at Jextra. As an agent of Jextra, Chong has a fiduciary duty to represent the interests of these stakeholders and to act on their behalf. Alams actions have already caused a deterioration in the work environment at Jextra, as evidenced by the gossip about Alam in the accounting department. Chongs acceptance or feigned ignorance of Alams unethical rule-breaking, for any amount of time, has the potential to create great schisms within the Jextra workforce, particularly if employees perceive a sense of inequitable treatment from superiors like Chong. Consequently, inaction is not a viable option.

As an appointed leader in Malaysia, Chong has a duty to report his suspicions about Alam to the proper executives and illustrate to his colleagues that devious behaviors will not be tolerated at Jextra. In many situations, it is preferable to directly confront the offending party initially in an attempt to cause minimal company disturbance in handling the infraction. If Chong has serious doubts about the legitimacy or extent of Alams guilt, then this is likely the best course of action. However, if Chong can easily and discreetly gather the evidence to prove Alams offenses, then he should take decisive action by initiating the appropriate disciplinary process or by terminating Alams employment if Chong possesses the discretion to do so. In either scenario, Chong must make a concerted effort to communicate the rationale behind his decisions to Jextras employees so they interpret the situation as an imposition of discipline rather than an arbitrary or unfair act. Chong is undoubtedly facing several undesirable conflicts at his workplace. In both cases, the easy, short-term solution seems to be to maintain the status quo and ignore the ethical violations. However, Chong has a duty to uphold the companys conduct code, and more importantly, the legal and ethical standards of the countries in which Jextra operates. In upholding the stringent ethical standards prescribed by Jextra, Chong should not accept the mayors proposal for bribery, and he should take swift and decisive action in reprimanding or terminating the employment of Alam.