Government action towards businesses can lead to adverse effects on the business. The action may be because of certain aspects such as breach of the law, employee complaints, environmental issues and the failure of businesses to meet their tax requirements. Such effects can include loss of much money in lawsuits and compensation, closure of the business, poor reputation and loss of customers, among others. Business entities need to be very careful in their operation and meet their obligations to avoid governmental action. This paper will focus on the McDonald’s lawsuit by a California district judge about the business’s failure to pay minimum wage bill to the employees. (Chamlee, 2016).
Business Profile
McDonald’s is a fast food and Hamburger restaurant based in America with branches over 100 countries. As of 2014, it served food in over 36 000 locations in the world (McDonalds, 2014). It has been in operation since 1940 and enjoys a large customer base throughout the world. The main office is located in Oak Brook, Illinois, United States. The address of the business is McDonald’s Corporation, 2111 McDonald’s Drive, Oak Brook, IL 60523 USA. The business operates over the counter food service, McDrive, Special Diet and convenience restaurants in almost all countries. The main products served at McDonald’s are breakfast products, chicken products, hamburgers, cheeseburgers, milkshakes, French fries as well as soft drinks.
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Throughout the world, McDonald’s controls a large market share of the fast food customer base by serving as many as 38 million customers a day. The net income for the 2014 fiscal year was 4.76 billion United States Dollars (Statista, 2017). The main competitors in the business industry are: Subway, Wendy’s, Burger King, Taco Bell, KFC and Chipotle Mexican Grill, Inc. the business operates under the restaurant industry in the United States and all the countries where branches have been opened. McDonald’s has a number of strengths over the competitors. They include: expansion into many countries (it has branches in over 100 countries) serving a large customer base, it already has a large customer base, offers products in convenience stores such as in malls and near petrol stations and has a quick customer service policy. There are also threats that face the business. These include: the ever-growing number of fast food business in the restaurant industry, businesses offering eat in and take home products with periodic offers on their websites and finally, the growing health concern by the people who are always migrating to healthy food choices.
Potential Governmental Action against the Business
The action by the California District judge to have McDonald’s Corporation to take care of the increment of the employee salaries and wages will go a long way into affecting the corporation’s way of operation and how they deal with their customers. Over many years, McDonald’s has faced many law suits with some of them similar to the current case. The corporation has a policy that the franchisees hold the responsibility to increase the salaries and wages of the employees who work there. On the other hand, the court holds that the corporation should be responsible for the increasing the wage bill so that they meet the recommendations of the U.S. Department of Labour. Wages have become a hotly contested topic in the employment arena in the United States and throughout the world with labour departments seeking to level the minimum wages for all the people at the same level of employment. Some of fast food in the U.S and the world have already adopted the minimum wage bill as many other prepare to do so. McDonald’s still has the employees being pain on the grounds that it is the franchisees that have to take care of the wages of their particular employees. Should the corporation be legally forced to increase the minimum wage for the employees, there may be effects on the company’s revenue, number of employees and the overall financial net income. McDonald’s, like many corporations, may resort to reducing the number of employees in their stores such that the wages would not take most of the revenue. Secondly, the corporation may choose to increase the price of per unit for the products so that they raise more revenue to cater for the increment of the wages for their products. Increased wages will definitely affect the net revenue of the business as more money will be channel to the accounts of the employees in terms of wages.
Organization of the Corporation
McDonald’s is a fast-food chain of restaurants located in different countries throughout the world. The main outlets are franchisees which operate independently of others; they have their own managers, recruit employees on their own and are free to modify the products they offer and the manner in which they serve the foods depending on the market they serve. This organization has been the lifeline for McDonald’s for many years and the company cannot control what happens therein in most cases. The managers of the franchisees are totally in charge of the business and therefore, McDonald’s Corporation does not have power to enforce a wage increase on the branches all over the world. However, recently, the corporation’s Chief Executive Officer (CEO) has echoed suggestions has the corporation will support increase in the minimum wage bill as is required by the federal and state government. However, the main determinant to increasing the employee wages remains the individual franchisees managers. The corporation has also move the use of tech-robots as cashiers; these robots will cause an increased unemployment since they will replace the people and they do not ask for salary increases as it with the case of the mainstream employees.
McDonald’s Stakeholders
McDonald’s has a number of stakeholders that affect its operation and policies. Stakeholders are the main determinants of success for any business entity and their interests should put before any other aspect in the business and that is the same with McDonald’s. The internal stakeholders are the investors and the employees whereas the external stakeholders are the customers and the community. Employees play a crucial role in the success of the business and have been on the forefront in helping prepare foods and dispense the orders of the customers. Their dedication and willingness to work tirelessly has been the main reason most of the products and services meet the needs and expectation of the business. Employees’ interests include career development and right wage compensation for the duties they do during their shifts at the corporation stores. Concerning the wage bill, employees have been very vocal with many calls for the increment of their wages by McDonald’s to match that of other corporations or at least meet the recommendations of the U.S. Department of Labor. In the U.S., there have been protests by the employees about the need to increase of their wages; something that is yet to happen and the government through the courts may be their remaining hope. On their part, the investors want to see the value of the business grow regularly and the profits and revenues continue growing as well. In most cases, the investors have been quiet when it comes to the issues about the increased wages for the employees. They have left the issue to the manager and the Chief Executive Officers to tackle. To them, as long as the business is growing steadily, there is nothing to worry about.
The external stakeholders (the customers and communities), have their interest which they care about. The customers want to get the value for their foods, food products that are affordable and healthful. There have been legal cases by consumer groups against the McDonald’s for the health implications of the food products they offer. The United States leads in number of people who are overweight and obese and the problem has been on the rise in the world. Fast foods are known major contributors to the overweight and obese among the populations. For the communities, the interests include environmental preservation programs as well as community development. These stakeholders have been vocal on the corporation’s need to compensate its employees adequately and are in support of the government’s policy to have the minimum wages to be increased. The customers and the community at large are the beneficiaries of the increased wages either directly or indirectly and have stood with the employees all along in their quest of improved pay.
Current Environment
The business environment has not been so attractive with the financial base on the decline over some time now. In the past few years, the revenue has fallen from with little respite seen over the same period. The reason for the reduction of revenue over time include the dissatisfaction by the customers over the quality of food provided by the outlets, the pricing of the products and the general concern by the public on matters related to health. Today, a reduced number of people visit the McDonald’s as compared to the past few years when the corporation enjoyed a big number of people flocking the premises for products. Another reason that might be contributing to the fall in revenue is the increased number of restaurants offering similar products at cheaper products and the growing offers on fast foods in other countries. Such offers include the buy get one free on pizza on certain days of the week. These offers see most people visit those business entities at the expense of others like the McDonald’s.
The competition for the market by other fast food organizations has also been on the rise today and it has proved to be a thorn that persists in the flesh for McDonald’s. Some companies have embraced innovation and creativity as well as providing foods for special groups and delivery of products that have been ordered. McDonald’s needs to act as quickly as possible to cope with the ever changing needs and tastes of the customers. The recent move to improve services by use of robot cashiers may be a means to help satisfy customers more; there is need to look at many other ways to do so. The literacy levels in the world have improved so much as compared to the time when McDonald’s was starting years ago. This has played a major role in reducing the sales over time as people have become more knowledgeable and make healthy food choices. In the past one year, the company has put in place mechanisms that may help improve the situation. One of the main mechanisms has been the appointment of a new CEO to help run the business and reverse the negative trend that has been witnessed over time.
In the recent past, there have been cases about the health of people who consumed products from McDonald’s outlets. These have led to a poor perception by the people towards the products and the entire corporation. As a result, people have changed the places where they eat their meals as alternatives to the “bad” McDonald’s hence reduced sales over time. Groups that are concerned with consumer health have also been on the forefront to denounce fast foods and advocate for healthy foods. These campaigns are slowly taking toll on the fast foods and with time, the fast foods may be faced out of the market by healthy and safe food restaurants.
Analysis of the Situation
The current situation facing the business today is a tricky one and there is need for the corporation to find solutions to it before it grows out of hand. The employee dissatisfaction and frequent protests are not helping the already poor state of affairs. The situation is a threat to the business as it has had people have a negative perception about the business and its perception. There might be loss of employees and difficulty in finding new ones as they may opt to look for jobs at other fast food corporations where wages and salaries are better than what McDonald’s offers. The government is also becoming more determined to have all employees’ minimum wage bill raised to about $15 per hour and the earlier the business implements so the better. A self-motivated wage increase is better than a forced increase which might come when the business management is not ready or when the business is in a recess and thus affects the entire businesses over time. Choosing to improve the employee wages may be an opportunity to improve the perception by the employees and the community at large. Improving the wages may be seen as a liability today but in the long run, it may a blessing in disguise. McDonald’s has already lost lots of revenue on legal lawsuits among which the minimum wage has been the cause. Continued loss due to legal suits with lead to increased losses in the long run yet in the end the employees will have to be paid better wages.
The business has experienced tough times in the recent times and action by the government to have the employees’ wages increased may be another issue that may take toll on the business. If the management can work out the best way to compensate the workers such that there would not be a situation where it is forceful yet the business may be experiencing poor performance at the time.
McDonald’s is an entity that has the ability to see off such problems through well thought mechanisms and methods. The financial experts and auditors can help advice when and how best the business can compensate the employees other than waiting for the government directives to increase the wages of the customers. Though the business has experienced a decline in the revenue, it is still stable and the opportunity can be grabbed to reverse the trend within its stores and restaurants across the world. The entity should continue its automation where customers serve themselves other than wait for employees to serve themselves. It has already worked in some places and can be adopted where possible to cut the wage bill.
Recently, there has been communication from within the business leadership to the public through interviews conducted by news agencies. The management has also communicated about its position through reports and the websites. The community, customers and the investors have been able to get access to information through these avenues. The communication seeks to restore the company’s image that is already tarnished because of poor wage payment, health issues and the rejection of the business operation in Asia. Innovation and creativity to improve products have been the positive aspects in the recent past. The business has to improve its operation through improved customer service and by making sure that the interests of all the stakeholders are adequately met. Addition of healthful foods and special foods to the menu has also been effected in a number of outlets in a bid to meet specific needs of customers. These changes will increase the sales volumes in the short run and restore the position of the company before it was dogged by poor performance. It also means the company will have to incur expenses to make it possible. The experts and consumer groups can be part of the team that will be constantly evaluating the company’s improvement and decide if it is worth considering or not.
Recommendation
The internal team made of the CEO and his executive team, franchisee managers, human resource departments as well as internal auditors can come together, evaluate the situation and draw a roadmap to revive the situation. Outlet managers need to make sure that the products provided are of quality, enough to meet the needs of the customers. The management can also set up means of official communication to help counter the negative information about the business. Such means can be use of electronic media, the internet and social media as well as print updates and reports for the public and specific concerned entities.
There are two possible solutions for the company; choose to increase the minimum wage as directed or decide to phase out human labor with automated machines. Increasing the minimum wage will consequently increase expenditure and thus reduce the rate of growth of the company and may be lead to losses and eventually loss of value of the company in the long run. Automation on the other hands means increased expenditure in the short run but reduced expenses in the long run. The company should use both methods; predominantly use machines but have employees to do duties that machines cannot do by themselves.
The company can use the power of politicians by writing to them and asking them to reject laws and orders that force businesses and companies to pay their workers a certain amount of money. The management can also call on politicians to join them during the interviews so that they can help enlighten the public about the company and the industry at large.
References
Chamlee, Virginia. (2016). The latest McDonald’s Lawsuit Is a Big Deal for Fast Food Workers. Eater. Retrieved January 1, 2017 from: https://www.eater.com/platform/amp/2016/7.15.12197700/mcdonalds-class-action-labor-suit
McDonalds (2014). Company Profile. Retrieved January 1, 2017 from: http://corporate.mcdonalds.com/contect/mcd/investors/company-overview/company-overview-segment-information.html\
Statista. (2017). Income of McDonalds Corporation worldwide from 2005-2015 (in Billion US dollars). Retrieved January 1, 2016 from: https://www.statista.com/statistics/219420/net-income-of-mcdonalds-corporation/
