Reference no: EM133323136

Case Study: It is a typical Monday morning and Mr. Kriengsak Lertpittayapoom is sitting on his bamboo recliner chair in one of the factories he established over 50 years ago. While watching his employees performing their tasks along with his wife, Mrs. Lamead Lertpittayapoom, Mr. Lertpittayapoom wonders if he will be able to resolve the challenges that he is currently facing in his business. Guided by his Buddhist beliefs, Mr. Lertpittayapoom has engaged in corporate citizenship activities and a laissez-faire leadership style that have left his employees dissatisfied. In particular, he faces challenges resulting from his desire to help external stakeholders (e.g. Buddhist temples, educational institutions, government agencies, customers, and the community). To fulfill his desire to help the external stakeholders, Mr. Lertpittayapoom exhibits a laissez-faire leadership style at work allowing him to devote more time to helping the external stakeholders. Mr. Lertpittayapoom's leadership style as well as his strong desire to help the external stakeholders subsequently trigger the internal shareholders' (i.e. managers and employees) perceptions that Mr. Lertpittayapoom lacks motivation to generate financial wealth for the internal shareholders. These perceptions of organizational injustice have led to negative work attitudes and behaviors exhibited by the internal shareholders.

Chug Yont Engineering Co., Ltd

Established in 1962, Chug Yont Engineering Co., Ltd (CYE) is a small-sized machinery and industrial construction family business with two factories located in the city of Samut Sakhon in Thailand. Products manufactured by CYE include: fish deboners; conveyors; cookers; can washers; and rotary fish washers. CYE also offers services in consultation, product design, installation, and after-sales service. Currently, CYE employs twenty-two front-line employees and one factory manager in each of its two factories. While CYE is considered a small-sized company, in 2014 its annual revenue was approximately 18.2 million Thai baht (Chug Yont Engineering Company, 2014). Due to its size, CYE follows a simple organizational structure that is shown in Figure 1.

Figure 1. The organizational structure of Chug Yont Engineering Co., Ltd. Mr. and Mrs. Lertpittayapoom are the business owners. There are two factories and each is managed by a manager who reports to Mr. and Mrs. Lertpittayapoom. There are five and seventeen frontline employees in factory one and factory two, respectively.

As depicted in Figure 1, Mr. and Mrs. Lertpittayapoom are the owners and final decision makers of CYE. Although Mrs. Lertpittayapoom is considered the co-owner of CYE, she possesses traditional Thai societal and family values, which reinforce her beliefs that she should support Mr. Lertpittayapoom to do whatever makes him happy. As a result, Mrs. Lertpittayapoom does not often participate in Mr. Lertpittayapoom's decision making. Each of the two factories has a manager that reports to Mr. and Mrs. Lertpittayapoom. The main function of these two managers is to assign tasks to employees and handle sales. Because the managers receive direct orders from Mr. Lertpittayapoom, they often exhibit the directive managerial style when managing frontline employees. There are five and seventeen frontline employees who perform mechanical jobs, such as drilling, welding, assembling, and lathing, in factory one and two, respectively.

Early Struggles

Even though the current financial condition of CYE is considered relatively healthy, CYE had experienced some struggles, especially during its early establishment. Specifically, during the first three years after CYE was established, Mr. Lertpittayapoom only worked by himself. Because of the lack of manpower, Mr. Lertpittayapoom was unable to obtain several contract deals that could strengthen CYE's financial position. After a few years of working by himself, Mr. Lertpittayapoom grew the company and hired more employees. The growth of the company triggered Mr. Lertpittayapoom's desire to diversify the company and invest in other types of businesses. Specifically, due to CYE's close proximity to the Gulf of Thailand and Mr. Lertpittayapoom's close friendships with successful business owners in the fishing industry, Mr. Lertpittayapoom invested roughly 2.1 million Thai baht and started his commercial fishing business. Unfortunately, because of the global recession and increase in oil prices, Mr. Lertpittayapoom lost all of the investment in the fishing business, which eventually he divested.

Diversification

While the loss in the fishing business resulted in a great deal of financial distress experienced by CYE and Mr. Lertpittayapoom, it did not discourage him. Mr. Lertpittayapoom came to the conclusion that he should focus on the food machinery business because of his existing knowledge and expertise. In particular, with his knowledge and expertise in the food machinery business along with his connections with business owners in the fishing industry, Mr. Lertpittayapoom quickly decided that he would expand CYE by manufacturing packaging machinery and tools for seafood products. Mr. Lertpittayapoom's decision to expand the business into manufacturing packaging machinery and tools for seafood products turned out to be the right diversification decision as several seafood companies, such as Thai Union Frozen Products PCL and Kibun (Thailand) Co., Ltd, opened in the city of Samut Sakhon in 1977.

CYE's success in manufacturing packaging machinery and tools for seafood products triggered Mr. Lertpittayapoom's motivation to diversify CYE even more. In the 1990s, Mr. Lertpittayapoom's started producing packaging machinery and tools for dry fruits, sausages, coconut milk, and chili pastes. This intermediate level of diversification led to the establishment of the second CYE factory with several skilled and non-skilled new employees hired in order to fulfill customer orders.

Corporate Citizenship: Transforming Spiritual Ideologies into a Reality

Although it has long been viewed that the primary role of a for-profit corporation is its economic responsibility to its shareholders (e.g. Friedman, 1970; Jensen & Meckling, 1976), the emergence of social issues such as poverty, unemployment, environmental pollution, and classism has resulted in debates in managerial choice between corporate economic responsibility to shareholders and corporate social responsibility to stakeholders (Queen, 2015). That is, the central theme of shareholder theory (e.g. Friedman, 1970; Jensen & Meckling, 1976) suggests that businesses have a responsibility of creating long-term financial wealth for shareholders. In contrast, stakeholder theorists (e.g. Freeman, 1984; Phillips, Freeman, & Wicks, 2003) emphasize that corporations should help solve social problems in addition to generating profits. Indeed, as noted in Henry Gantt's early work, formal business systems must assume their social responsibility by devoting themselves primarily to service or the community (Gantt, 1919).

Given the interdependence between CYE and the community in which CYE operates, Mr. Lertpittayapoom has long devoted himself and his business to corporate citizenship, which refers to a corporate investment that not only helps improve and prevent society issues, but also allows the organization to enhance its legitimacy and sustainability (Delmas, Etzion, & Nairn-Birch, 2013). In particular, as CYE continued to operate successfully and Mr. Lertpittayapoom entered his early 50s, he began shifting his attention and effort from operating CYE to realizing his spiritual ideologies in Buddhism. At age 10, Mr. Lertpittayapoom visited a Buddhist temple with his older sister. This trip resulted in his faith in Buddhism. At age 45, Mr. Lertpittayapoom decided to practice Buddhism by becoming a Buddhist monk for a week. Since his first visit to the Buddhist temple, Mr. Lertpittayapoom has been a sincere Buddhist who cultivates his Buddhist values by practicing dhamma (i.e. Buddha's teachings) and respecting Sangha (Thai Buddhist monks). Among various fundamental Buddhist values, one emphasizes the importance of kindness and good deeds (Payutto, 1997), which have been embedded in Mr. Lertpittayapoom's personal life and business practices. After stabilizing CYE's financial performance, Mr. Lertpittayapoom started transforming his Buddhist spiritual ideologies into a reality. Specifically, Mr. Lertpittayapoom has devoted much of his personal time and CYE's financial resources into helping the community. For instance, Mr. Lertpittayapoom has been making financial contributions to local hospitals, Buddhist temples, and primary and secondary educational institutions. Moreover, because of CYE's expertise in industrial construction, Mr. Lertpittayapoom has helped various local non-for-profit organizations build physical facilities, such as building roofs, water tanks, classrooms, shelters, and gates, by charging only the cost, or sometimes without charging the organizations for CYE's services. Mr. Lertpittayapoom once stated that: I do not charge or charge only the cost because these organizations usually do not receive enough financial support from the government agencies. Sometimes, they have to ask for support from local people. Thus, if I make contributions to these organizations, it means that these donations are meant for helping people, not for making profit. This is also why I do not charge or charge only the cost (K. Lertpittayapoom, personal communication, February 14, 2015).

Mr. Lertpittayapoom usually only charges material costs for corporate citizenship initiatives, and he ultimately relies on the profits (approximately 3.6 million Thai baht) that he makes from fulfilling regular customer orders to support his continuous engagement in corporate citizenship initiatives. While most of the corporate citizenship initiatives came with predictable financial costs (e.g. material costs), Mr. Lertpittayapoom was sometimes faced with unexpected additional expenses that he chose to absorb rather than pass on to those he helped. Mr. Lertpittayapoom's corporate citizenship initiatives may make little sense from the shareholder perspective of business operation in which the generation of long-term financial wealth is the primary goal of the business. In contrast, Mr. Lertpittayapoom's beliefs are consistent with the stakeholder perspective of business operation: he believes that operating his business with kindness and good deeds is more important than generating financial wealth. In particular, Mr. Lertpittayapoom mentioned that:

Money is one of the things that I cannot bring with me when I reach the end of my life. One of my goals is to make sure that the business can continuously operate so that my employees can continuously get paid and sustain their lives. To achieve this, I first calculate the total cost for a particular customer order. Then, I add 20% on top of the cost as the profit margin for the customer order. After the customer order and the transaction are completed, I usually donate half of the profit to local community. The other half is used for sustaining my family and taking care of the business (K. Lertpittayapoom, personal communication, January 24, 2015). Clearly, Mr. Lertpittayapoom's corporate citizenship initiatives are not used as a means to increase the company's profitability and/or personal financial wealth. While empirical evidence from existing research has shown the positive impact of corporate citizenship on corporate financial outcomes (e.g. Luken & Stares, 2005; Russo & Fouts, 1997; Simpson & Kohers, 2002) and reputation of the firm (e.g. McWilliams, Siegel, & Wright, 2006), Mr. Lertpittayapoom's engagement in corporate citizenship is largely motivated by the internal happiness that he obtains when helping others. In addition to making financial contributions to non-for- profit organizations in the local community, Mr. Lertpittayapoom consistently exhibits his care for the well- being of the local community. For example, Mr. Lertpittayapoom has actively participated in the operations of educational institutions, hospitals, and temples by serving as an advisory board member.

Even though Mr. Lertpittayapoom's unconditional financial and non-financial assistance provided to the local community might be viewed unfavorably by the competitors of CYE and even some of his employees (as CYE essentially is a for-profit company), Mr. Lertpittayapoom firmly believes that giving, whether it is for charity or simply giving material help to people in need, is essential to Buddhists. Most importantly, giving, explained further by Mr. Lertpittayapoom, provides spiritual guidance to those who seek it and loving kindness to all who need it (K. Lertpittayapoom, personal communication, February 14, 2015). While Mr. Lertpittayapoom's business concept of loving kindness is primarily driven by Buddhist values, this particular business concept has also been observed in the Western economies where the idea of stewardship emphasizes that businesses should use their wealth on behalf of God or the public for the common good (Husted, 2014).

New Challenges

While Mr. Lertpittayapoom has been practicing dhamma, which is manifested by practicing five basic percepts: (1) not taking life or doing bodily harm; (2) not stealing; (3) not engaging in sexual misconduct;

(4) not lying; and (5) not consuming alcohol (Payutto, 1997), he highly values the central theme of dhamma: kamma. In particular, like other Thai Buddhists, Mr. Lertpittayapoom strongly believes that doing good things results in getting good things back, and that doing bad things leads to experiencing negative consequences.

Although it can be presumed that Mr. Lertpittayapoom's engagement in corporate citizenship (e.g. helping the community) is motivated by his belief in kamma, various serious business-related challenges have found their way to Mr. Lertpittayapoom.

Leadership issues

First and foremost, because of his desire to provide for the community and people in need, Mr. Lertpittayappom has devoted much of his time and effort to helping non-for-profit organizations. Consequently, CYE's employees are not clear about who is in charge of CYE's daily operations (S. Srilapo, personal communication, December 6, 2014a). Specifically, it has been noticed by his employees that Mr. Lertpittayappom engages in helping the community during regular business hours when most business owners are expected to engage in business-related activities. While this may imply that Mr. Lertpittayappom's personal Buddhist values, such as loving kindness and helping those who suffer, are intertwined with his business values, Mr. Lertpittayappom's desire for helping others has resulted in his demonstration of the laissez-faire leadership style. For example, Mr. Lertpittayappom allows factory managers to have complete freedom in making decisions on behalf of him and CYE. Additionally, because of Mr. Lertpittayappom's lack of presence in the company, some employees perceive that Mr. Lertpittayappom is not interested in managing the company at all. One of the employees stated that: To me, it does not make sense that the business owner would spend that much time on engaging activities that are not really relevant to the CYE's financial performance and growth. His non-existent leadership has resulted in people in the company doing whatever they want to do to satisfy their personal interests (S. Srilapo, personal communication, December 6, 2014b). As a result of Mr. Lertpittayappom's decision to spend the majority of his time interacting with not-for- profit organizations and helping the community, instead of focusing on CYE's business needs, employee morale has been negatively affected. Although there are two factory managers who help Mr. Lertpittayappom supervise his employees, the laissez-faire leadership style exhibited by Mr. Lertpittayappom allowed for the factory managers' abuse of power. For instance, Mr. Lertpittayappom's daughters have heard complaints made by some employees regarding factory managers' pursuing business projects that are not in CYE's best interest (e.g. accepting customer orders at significantly reduced rates), employee stealing, and disruptive arguments among employees. While these issues have resulted in organizational injustice, Mr. Lerpittayappom has chosen to ignore them and continuously pursue his internal happiness by helping the external stakeholders.

Corporate citizenship issues

In addition to challenges created by the factory managers and employees, challenges associated with Mr. Lertpittayappom's engagement in corporate citizenship have also occurred. In particular, during his visits to various educational institutions, Buddhist temples, and local hospitals, Mr. Lertpittayappom noticed that his financial contribution to them might not be enough. Mr. Lertpittayappom believed that he could utilize CYE's resources and employees' skills in industrial engineering and construction to improve the infrastructure of those non-for-profit organizations. As a result, in addition to performing their regular customers' orders, the employees of CYE have been constantly asked by Mr. Lertpittayappom to perform corporate citizenship- related tasks, such as building roofs, water tanks, classrooms, shelters, and gates, during their normal work hours. Specifically, Mr. Lertpittayappom often requests his employees to complete customers' orders as quickly as possible so that CYE can engage in corporate citizenship-related tasks. There have been some instances where Mr. Lertpittayappom asked his employees to perform corporate citizenship-related tasks before the employees completed their customers' orders. As CYE's employees are generally not paid until CYE fulfills customers' orders, Mr. Lertpittayappom's strong desire to engage in corporate citizenship has led to employees' job stress and strain. As mentioned previously, Mr. Lertpittayapoom typically only charges basic material costs when helping build physical facilities for local not-for-profit organizations. This often means that the employees of CYE not only need to perform CYE's customer orders that they are paid to do, but also engage in corporate citizenship initiatives without getting extra compensation; consequently, organizational justice, which refers to employees' perceptions of organizational practices as being fair or unfair (Turillo, Folger, Lavelle, Umphress, & Gee, 2002), has been negatively perceived by some employees of CYE (S. Srilapo, personal communication, December 6, 2014). Moreover, although Mr. Lertpittayapoom pays his employees to fulfill customer orders, his employees' perceived organizational injustice resulting from the lack of extra compensation for building physical facilities for local non-for-profit organizations has led to the employees' changes in work attitudes and behaviors, such as reduced job satisfaction, turnover, and absenteeism. One employee particularly commented that: It seems to me that the owner has devoted much of his time, effort, and resources to organizational outsiders without considering what his employees may want from him. Some employees are complaining about why the owner rather spends money on helping outsiders than giving more pay raises to his employees who basically help him fulfil his desire for helping others (S. Srilapo, personal communication, December 6, 2014).

Not surprisingly, due to the lack of additional pay when performing corporate citizenship initiatives and tensions created by internal turmoil among the managers and employees, CYE experienced an overall high employee turnover rate of 56% (an average rate between 2010 and 2014) (S. Lertpittayapoom, personal communication, February 10, 2015). The high employee turnover rate led to a consistent need for finding new employees as well as providing training to the newly hired employees.

Finding Resolutions

Although the emergence of personnel issues has resulted in additional company expenses spent on human resources, Mr. Lertpittayapoom's daughters perceive that Mr. Lertpittayapoom does not seem to be interested in dealing with those personnel issues (S. Lertpittayapoom, personal communication, February 10, 2015). Instead, he continuously delegates full responsibility to his two factory managers regarding who to hire, what training should be provided, and what tasks need to be performed. By doing so, Mr. Lertpittayapoom finds himself more time to help local Buddhist temples, educational institutions, non-for-profit organizations, and government agencies. Mr. Lertpittayapoom is aware that he faces challenges in his leadership style and employees' experiences of and responses to his engagement in corporate citizenship. While these challenges are on Mr. Lertpittaypoom's mind, he quickly thinks of one of his sons-in-law, a university professor teaching business management. "Maybe I should ask him if he could provide me with some recommendations about the challenges that I am facing," said Mr. Lertpittayapoom (K. Lertpittayapoom, personal communication, February 21, 2015). After deciding to invite his son-in-law for a discussion, Mr. Lertpittayapoom wonders what will happen next.

Question 1.How does employees' perceived organizational justice affect employees' work attitudes and behaviors? How do leadership behaviors affect employees' perceived organizational justice?

Question 2.How does Mr. Lertpittayapoom's leadership style relate to the negative outcomes of his corporate citizenship activities? If you were Mr. Lertpittayapoom's son-in-law, what would you recommend Mr. Lertpittayapoom should do concerning his leadership style?