read the instruction

| June 2, 2016

Question
aMBA 5325 S – Business Ethics

Analysis Focus: Corporate Citizenship – Profits vs. Responsibility

Business, Profit, and Morals: The Ethical Value of Water Health International

THE IMPORTANCE OF BALANCING SOCIAL RESPONSIBILITY WITH A PROFITABLE BUSINESS MODEL

Throughout the course we have learned about the importance of embedding proper ethical behavior into our everyday actions. Any action we do throughout the day whether it is personal, professional, or social, must be taken with a certain degree of accountability and responsibility. Each person must act in a way that they know each action they make will bring a net positive impact to his/her community, and will not negatively harm others. Unless we follow these important guidelines, any business action, no matter how much it’s intended to make good, will fall as a tool that will do more harm than good to its community.

The company subject for this project is Water Health International (which shall be referred as WHI for the reader’s reference).

WHI is an Indian company that focuses on providing clean sustainable water sources to various marginalized communities throughout the globe.

WHI states that one of the newest and greatest crisis our world faces is a shortage of access to clean water sources, especially by poor people. There are many parts of the world, where people face obstacles accessing clean water; whether is due to economical restrictions in a developing country, or due to geographical restrictions in a country whose geography consists mostly of arid and desert landscapes. WHI focuses in helping these “poor countries” in being able to afford their water purification systems, in order to have same access to cleaner water as their richer neighbors. WHI wants to meet the demands of the Millennium Development Goal (MDG); a standard proposed by many foundations worldwide to set goal standards to improve the potable water crisis worldwide.

In an overview of WHI, they are a for-profit business, but their main target sales are to lower income areas. According to their website, this is to focus their resources first on the people who need it most. WHI wants to focus on the Microeconomic level of helping these marginalized villages; while on the Macroeconomic level balance making a valid profit out of a service they’re offering the world.

WHI makes a sound argument that lower income villages need their services first. That is why they do not market their services to higher income neighborhoods.

WHI product is the construction of high quality, modern, water filtration systems that replace the old, unsafe methods villages have. These are called their WaterHealth Centers. They use modern technology that uses all kinds of water purification methods like reverse osmosis, and ultraviolet light disinfection, to deliver a final product to the community free of any hazardous pathogens in the water.

The advantage of these modern methods is the increased volume of disinfected water that can be accessed daily by the village. Instead of having to spend an average of 3-5 hours to carry the water from miles away, and having to rely on raw primitive methods like raw tank sedimentation, a WaterHealth Center streamlines this process, and saves the community time, efforts, and lives in the process. Primitive filtration processes are not as efficient in preventing diseases that modern technology can eliminate, like cholera and bacterial infections.

One of the biggest benefits that WHI gives the community it makes business with is the affordability and financing to build the WaterHealth Center. WHI immediately deployable strategy ensures to keep its cost low, so the final price will be affordable. A water treatment facility will cost around USD $25,000, and it can be built in just 21 days. A finished modular system can produce up to 65,000 liters of clean water per day. This cost accounts to an investment of less than $10 per person, for families that earn an average of $2 per day. And financing is extended to communities at reasonable rate up to eight years to replay loan. This makes this expenditure an affordable investment, communities would be smart to make on themselves. It’s a win-win for the community, since the investment was lower cost than somewhere else, and provides the benefit of clean water for years to come.

In addition to building the water treatment facility, communities that may need to have the same clean water distributed to some more remote areas of the village, at an additional (affordable) cost, WHI can deliver the water using their own trucks or third party delivery services. WHI supports distributors that adhere to their business model.

Once a village contacts WHI, WHI comes and builds the high quality, modern WaterHealth Center, and will also focus resources on teaching the local community the importance of clean water, and how to properly maintain the facility. And the people would instantly notice the benefits of not having to walk grueling distances anymore for clean water.

The company uses the BOT (Build, Operate, and Transfer) model for Water Health Centers. Local governments sanction the land, water, and electricity connection for centers. Around 30 to 40% of the upfront capital expenditure is covered through a mix of individual and corporate donations. WHI raises the balance through long-term loans, which it takes out on its own books. However in smaller communities where debt financing may not be suitable, WHI uses a combination of grants and equity. The company operates a center for a period of 10 to 15 years during which the revenue from providing clean water to the community covers operation and maintenance, debt service, and profits to Water Health. The center transfers to the community at the end of the 10-15 year term via the local government body such as the Panchayat in India. To the extent that the debt has not been paid off during the term, the term is extended until the debt is retired. At the time of the transfer of operations, the community has the option of entering into a new operations and maintenance contract with WHI.

WHI does make a profit out of all this. But seems that WHI is doing the ethically correct thing of not charging a lot for their services. Just enough to make a healthy and acceptable profit per community, but WHI knows their stronger profit will be in volume and not margin. There are a lot of poor neighborhoods out there, and WHI is aiming in being the company to service all of them. That way WHI helps the most villages and does a lot of good deeds, and makes money by being the sole company getting those construction contracts.

So where is the corporate citizenship in all of this? Shouldn’t WHI be run as non-profit and not try to earn a profit out of a service that should be a right for every human being? The right for everyone to have access to clean water.

Interestingly, our opinion on this is that WHI is in fact being an ethical company. Solely on the fact that even though they are earning a profit in the process, they are earning a modest profit (based on our calculations on the cost : benefit ratio); and the overall benefits to the community create a positive Return on Investment for the community. The access to initial financing is accessible, and the low cost can be paid by a well organized poor community. As long as everyone works hard and pitches, they can afford the project.

In the aspect of ethical theory, WHI balances moral and legal rights. Where they are providing a service, where they are helping bring an essential need to a community, and in return they are charging a small premium for the service. The moral benefit is in this case greater than their legal right to ask for a profit, so the action is justified.

An important detail to measure for WHI is the company’s sustainability. Sustainability consists of, and must influence positively three areas: Economy, Society, and Environment. Without all three, a human community cannot prosper; and ethical companies must ensure their work or services positively impact any of these three areas.

WHI’s impact would fall under all three circles. Directly it falls under Environment, because the company helps bring access to clean water to poor people, therefore saving lives.

Indirectly, WHI’s actions affect also the Economy and Society area of sustainability. Because the lower cost of the purification center makes it affordable, and the community will work closer together now that they have a water purification plant, that is a patrimony of the community for its current and future generations. All this combined makes the business model of WHI sustainable.

Another measurement of sustainability is its effect on poverty. A major hurdle to achieve sustainability is the alleviation of poverty. Poverty is one source of environmental degradation. As previously mentioned, WHI’s water purification plants do bring some long term benefits regarding cost savings. These savings are in the form of lower monetary cost per person to access the clean water, affordable financing, and also time saved. Time that does not need to be wasted anymore walking to get water, and can now instead be used on other projects that can be invested into improving other aspects of the area.

And last but not least, there is also sustainability in the area of education. According to WHI website, they also ensure to teach the local community the importance of water purification, and how to properly maintain the water treatment center, so it will work continuously for at least its expected 10 year life cycle. This is an improvement from the 5 year life cycle other water purification facilities have only been able to achieve.

WHI besides educating the community on water treatment, they will also focus some funds towards investing in local schools, to educate local children (and adults) in also other basic learning fields.

Moving on, another area where WHI can be measured is using the Theory of Moral Approbation. We want to use this theory in relation to the question of whether WHI should really be doing this kind of business, or should it be left for the government since it pertains to a social need / service.

The component that applies here would be the Certitude of Evil. If WHI is in this line of business for the profit, and doesn’t allow the government or force it to take action.

The question would be who has the greatest moral responsibility. The government since they should be the caretakers of their community in regard to a basic social need (water), or if WHI has the moral responsibility to jump in, in lieu of the government taking action.

In our opinion, it should have been the government’s responsibility to fulfill this duty, but India’s current economic situation doesn’t allow it. India runs mostly as a cash-basis society. And many people heavily underreport their earnings, and therefore pay fewer taxes. So the government doesn’t have the revenue it would need to finance such projects. Due to this lack of revenue, the position becomes open for another private entity to jump in and do this for them. And that is where WHI decided to enter the business of bringing clean water.

WHI is doing the lowest level of evil, where the only evil is charging the marginal profit. But this is overshadowed by the fact that since India forced this project into the private sector, the private sector by nature is entitled to charge a profit margin for the service. The benefits and good coming out for the project outweigh the negative. So the project becomes morally approved. The price is low, and many people have their quality of life greatly improved. But in the future, the government needs to fix their budget problems, and eventually transition this back into the public sector, run under a non-profit model, so all the revenue can be reinvented back into the program itself, and give a further boost to return on investment. All revenue must be reinvested, with no profit margin taken out of it.

Further online research about the company found no negative reports about it. This gives us the understanding that the marketplace is accepting the current model. People are happy with the service provided by WHI, and want it to keep bringing their services to rural communities throughout India. The demand will continue for services, until the Indian government is able to develop and improve its internal structure, in order to adequately take over the supervision of the project.

In conclusion, Water Health International is indeed a morally responsible company. They are a corporate leader that decided to do the responsible thing. Enter a market for which there was a need for a necessity, and the community needed someone that could adequately provide the service. WHI was a wise leader by not charging exorbitant amounts for their water filtration stations. By focusing their business model in volume rather than margin, they have been able to expand their business, and leave with the moral satisfaction that they did it with the right balance between profit and benefits. The Indian communities understand the value of this investment, and have been happy to pay it, since it will be giving them fruits for years to come.

WHI is a sustainable company, due to the water stations bringing a net positive impact to their Society, Economy, and Environment. We applaud their business model, and operation methods. This company is doing something that is right, in a responsible way, for themselves, their communities, and society as a whole. All levels of what makes the company morally right are satisfied, and the ethical model is fulfilled.

We challenge other companies to create business models that copy WHI’s. Their model is easily replicable, and can be adapted for other projects in various fields.

Information Sources (Citation)

Water Health International Website -.com/”>http://waterhealth.com

Corporate Sustainability Reporting -.sustreport.org/business/report/trends.html”>http://www.sustreport.org/business/report/trends.html

Water Health International Analytical Reporting -.transnationale.org/companies/water_health.php”>http://www.transnationale.org/companies/water_health.php

Order your essay today and save 30% with the discount code: ESSAYHELPOrder Now