Communication in Business - Essay Example

? Communication in Business The Case of BASF I. BASF: Company overview and performance BASF is the largest chemical company in the world. It has business interests that include “chemicals, plastics, functional solutions, performance products, agricultural solutions, crude oil, and natural gas1”. Its operation is also global and has a dominant presence in “Europe, North America, Asia Pacific, South America, Africa, and Middle East countries2. AS of the financial year December 31, 2011, the company posted a net earnings of E73,497 million ($102,339.1 million which is a substantial 15% increase from the last financial year’s profit in 2010. BASF is headquartered in Ludwigshafen, Germany3. II. Aspect of BASF social performance: Verbund BASF always prided itself with its “Verbund” philosophy which meant total integration strategy which provided the company a competitive edge by improving its efficiency by restructuring4. One of the aspect of Verbund for instance is how they used byproducts of their production which could have been discarded as waste as an input for other production. Concretely is how BASF ingeniously capture heat energy into its plants and convert it into power to drive other machines in their plants5. Verbund has also allowed BASF to extend itself to a wide array of product lines with a well diversified revenue portfolio that brings in stability in the company while catering to a broader customer base6. But this concept of Verbund or integration which is the core of BASF corporate philosophy might have been taken into excess because it has been sued 35 class actions for price fixing in violation of the Anti-trust Law the United States. In the same vein, it was also sued in the United Kingdom for infringement of Fair Trade Policy (UK’s equivalent for Antitrust) for unethically “integrating” with other companies to the point of collusion that retards the mechanism of the market. III. Details of the case against BASF It is quite bothersome for a huge company such as BASF which is considered to be the largest chemical company in the world has 35 class action suit filed against it in the United States alone7. It indicates that there is something wrong with the company’s business practices. If it was only several cases, it could have been dismissed as a nuisance, but with 35 class action suits, the cases are worth to look at because it appears to be a business trend which is not exactly ideal. The cases hurled against BASF are serious that ranged from unfair company practice such as violation on anti-trust laws on price fixing, to exposing its employees to contaminated chemicals in the production of its fertilizers. Both allegations are serious offenses for it boils down to unfair business practice and total disregard for its employees’ safety and well-being. The lawsuit begun in 2004 when BASF together with Huntsman, Bayer, Dow and LyondellBasell were accused of price fixing. They were accused of price fixing “propylene oxide (PO)-based polyether polyols; methyl di-p-phenylene isocyanate (MDI); and toluene di-isocyanate (TDI) that were purchased from 1 January 1999 through 31 December 20048”. All of the parties that were accused opted to settle out of court with BASF offering a settlement amount of $51 million. It denied guilt to price fixing and justified that it was settling to save itself with the cost of a dragged litigation and the distraction of court hearing that will bother the company. This may have been approved by the Department of Justice in December of 2011 but still, the company is still facing a separate price fixing lawsuit from its isocyanates customers9.  Apparently, BASF has also a Fair Trading (Antitrust version in United Kingdom) case in UK which indicates that their alleged price fixing practices are not isolated in the US10. In Brazil, BASF together with Shell also faced class lawsuits and was in fact convicted to pay damages to its former employees. The class lawsuit was about contaminating its “former employees, their families and descendants11”to harmful chemicals by the production of fertilizers that could posed a potential health damage to them. The court ordered BASF and Shell to pay its claimants for their medical treatment and indemnity with the estimated amount of €490 million, not including interest12. BASF appealed the case but was rejected at first instance by the court on April 04, 2011. BASF also attempted to pass the liability to Shell for it to shoulder the full amount of the indemnity of the former employees of the Paulina, Brazil site. This dragged the case and as of this writing, negotiations are still on-going with the settlement between BASF, Shell and the plaintiffs. Clearly, these two cases that BASF is involved and convicted manifests that the company was not and maybe still not exercising the ideal business practice with the numerous lawsuit it had for price fixing. Price fixing is a serious allegation because it is an attempt to retard competition that would have made the market efficient to the benefit of the consumers. Of course it is expected that BASF will deny the allegations and justify the settlement to save itself from the bother. But considering that none of the co-accused stood to clear itself from the lawsuits is a strong indication of guilt for collusion to manipulate prices. The only saving grace of BASF in this aspect is that it did not attempt to hide this fact (because it cannot) but even posted it on its own website for full disclosure13. It sends the message that the company erred and is being responsible for it and intends to do the right thing now. BASF’s conviction of exposing its employees at Paulina, Brazil site and how it treated the court order is really bothersome. First, the disregard of the health and well-being of its employees seems wantonly done considering the magnitude of the indemnity for reparatory damages and to medicate these former employees. Second, BASF attempted to appeal the case hoping for the reversal of the decision but it was rejected at first instance which meant that the violation was flagrant. And worst, when their appeal was denied, BASF attempted to pass the liability to Shell which complicated the indemnity procedures because they are now in the process of negotiating when the victims should have been paid already. BASF behavior in this case is very typical of corporate greediness that would dodge liabilities if the indemnity is huge. But if it is manageable, BASF would offer out of court settlement to extricate itself such as the price fixing class suit. IV. Conclusion In a SWOT analysis conducted by Market Line, it identified the class suits to be the biggest threat to BASF. It threaten BASF not only in terms of undermining or reducing its profit by court orders to pay indemnity or by court settlement but more importantly, the damage it will inflict on its brand and its image as a company14. If the reputation of being an irresponsible employer and unethical company will stick to BASF, it will erode its customer base when customers lose their confidence on the company15. This happened to Enron, Worldcom where their stock prices significantly dropped when the market begun to perceive the company as unethical. The amount of paying indemnity and court orders may be huge but it does not undermine the perpetuity of a business unlike the negative image that a class suit would inflict to the company. Customers these days are very sensitive to corporate social behavior16 considering the numerous financial scandals that we have been that sunk the whole world economy into recession. Perhaps BASF already realized its mistakes in the past considering that these court cases were committed as early as late 1990s (for the Brazil case). While their previous court entanglements were significant, BASF did not wait for it to be blown out of proportion that could trigger the company’s precipitous decline. Apparently, their current action as a company is a complete departure of what they were. It is difficult to say what prompted them to change direction but suffice to conclude that it is better to be perceived as a socially responsible company for the sake of company’s image and perpetuity. Customer responds better to a company that is perceived to be socially responsible. They may be a different company now (in terms of behavior) because their recent acts as a company can now be construed as an ideal corporate citizenship that practices sound customer relations management (CRM). First, when the European Union (EU) “has passed the legislation on chemicals to govern the registration, evaluation, and authorization of chemicals” (REACH)17, BASF was among those who gladly registered and even involved itself in the projects of EU as a gesture of support in implementing REACH. This cost BASF roughly E50 million (approx. $70 million) million per year. Second, it is being transparent of its past transgressions that surprisingly, they had the proceedings of their lawsuits posted on their website indicating that they do not intend to cover up their past mistakes. And lastly, they recycle their waste not only to save on energy cost but also to lessen their disposal of chemical waste byproducts and to create goodwill with the general public which is now becoming environmentally conscious. Bibliography Alperowicz, Navasha (2005). BASF Building a Stronger Brand in Chemicals. (cover story). Full Chemical Week.. 167(4):17-20. 4p. pg. 19 Alperowicz, Natasha (2000). BASF: Sticking to its Guns. . Chemical Week.  162(33):20-23. BASF (2012). 24 – Risks from litigation and claims. Retrieved at [http://report.basf.com/2011/en/notes/notesonbalancesheets/note24.]html Davis, Nigel (2011). BASF shifts strategy. ICIS Chemical Business, 19375786, (280):19 Donovan, John (2012). Court knocks down BASF, Shell Brazil payment. http://royaldutchshellplc.com/2012/07/04/court-knocks-down-basf-shell-brazil-payment/ Greenwood, Al (2011). US judge approves BASF's $51m settlement in isocyanates suit. Retrieved at http://www.icis.com/Articles/2011/12/12/9515945/us-judge-approves-basfs-51m-settlement-in-isocyanates.html Introduction to BASF (2011).  Black Book - BASF: Hidden Value Within the World's Largest Chemical Company. 13-21. 9. p. 13 Jones Day (June 2009). Antitrust Alert: UK decision in BASF vitamins cartel litigation clarifies time limits for follow-on damages claims. http://www.jonesday.com/newsknowledge/publicationdetail.aspx?publication=6325 March Fischer; Franziska Volckner; Henrik Sattler (2010). How Important Are Brands? A Cross-Category, Cross-Country Study, Journal of Marketing Research (JMR) 47(5) pg. 832 Market Line (June 2012). BASF SE SWOT Analysis.  BASF AG SWOT Analysis.  p1-10. Read More