African Skies – Taking our customers to new heights

Key leadership figures

Dr Richard Dhlamini: Chairman of the Board & CEO

Ms Phumi Ngcobo: Company Secretary

Mr Jack Dawson: Chief Risk Officer

Ms Melanie Oliphant: HR Manager

Ms Lesego Radebe: Head of Cabin Crew

Mr Albert Jackson: Sales Director

Mr Themba Moloi: Procurement Manager

Mr Jan Pretorius: Chief Technical and Ground Operations Director.

Company background

African Skies is a low-cost airline that covers the Southern and Eastern African region, having been operational between Nairobi, Maputo, Harare, Gaborone, Zanzibar, Johannesburg and Cape Town for the last four years. The airline has a ground staff (administrative, customer interface and technical) of 600 personnel and a team of cabin crew and pilots totalling just under 300. African Skies, with a turnover of R1.85 billion in the last financial year, is a private, unlisted company. Its public interest score consistently exceeded 1 000 points over the last three years. The company's board is chaired Dr Richard Dhlamini, who is also the CEO. The main board has the following sub-committees: audit and risk, remuneration, and safety. The Board has expressed its intentions to list on the Alt-Ex of the Johannesburg Securities Exchange within 24 months.

The chief risk officer, Mr Jack Dawson, has produced an organisational risk register that addresses the following risks: aircraft safety, procurement, environmental impact, illegal substance use by cabin crew, cabin-crew and pilot fatigue, theft of catering supplies (in particular 50ml bottles of liquor) by cabin crew, luggage theft, ticket-issuing, and reputation.

The CEO

Dr Richard Dhlamini joined African Skies three years ago. Prior to that he was the country's ambassador in Armenia. He was recruited to African Skies in the wake of a fine of R25 million invoked by the Competition Commission for having paid incentives to travel agents to punt African Skies as their preferred carrier. He spent most of his working career in the mining industry. He currently serves on the boards of eight other companies as independent non-executive director. Dr Dhlamini has been acting as caretaker CEO for the last 13 months. The previous CEO (Dimitri Sarbanes) was suspended by the Board under a cloud of

secrecy after having been in the position for 11 months. Rumours were rife that Sarbanes was being investigated by his previous employer, (before he joined African Skies), for alleged accounting irregularities.

The current situation

Due to the competitive nature of the local low-cost airline industry, coupled with an economic downturn and increasing fuel costs, African Skies has been burning cash of late and has initiated a corporate strategy to increase the bottom line. Dr Richard Dhlamini has

advised EXCO to "sweat our assets" and instructed cost-cutting measures to be instituted across the organisation, as well as identifying alternative revenue streams. After issuing these directives, the following incidents have played out at African Skies:

• Melanie Oliphant, HR manager for African Skies, decided to implement a moratorium on hiring new employees, specifically cabin crew. To compensate for the lack of available personnel as a result of this hiring freeze, she has given Lesego Radebe, head of cabin crew, a fixed budget to offer overtime to the existing cabin crew. Lately, however, Melanie has received complaints from several cabin crew that certain individuals are always being chosen for overtime, despite others indicating their willingness to work extra shifts. Melanie meets with Lesego to discuss these matters. Lesego agrees that certain crew are given more overtime shifts than others, but that is because the chosen ones are willing to work much longer shifts, even consecutive shifts, and are, in general much more enthusiastic and energetic.

• After further probing, Lesego revealed that she had noticed that many crew-members had been using an energy-boosting 'tonic! On enquiry Melanie discovered that the tonic contained high levels of pseudoephedrine, which is a highly regulated chemical compound across the globe, with medications containing it classed as a scheduled substance. Upon hearing this, Lesego expressed surprise, but stated that she did not believe it to be harmful, despite some of the cabin crew indicating minor palpitations, dizziness and anxiety; besides, 'it was their choice, and it worked to everyone's advantage. Melanie, satisfied with Lesego's explanation, closed the matter.

• Under the direction of Mr Albert Jackson, the sales director, an aggressive drive to capture market share had been initiated, leading to flights being grossly overbooked, causing increasing numbers of travellers to miss their flights. Although overbooking of flights was standard industry practice, African Skies had pushed this quite a bit further. Albert had glossed over this by remarking, "If they miss their flight and are late for a meeting it wouldn't be the end of the world."

• Another initiative introduced was to charge customers for ancillaries, specifically extra baggage. Albert had inserted these costs in the terms and conditions, making passengers liable to pay these charges at the check-in counter before boarding. The African Skies strapline reads 'taking our customers to new heights’. After handling yet another customer complaint about ancillary fees and overbooking, one check-in counter assistant suggested to her supervisor that the slogan should be amended to read 'taking our customers mile-high to frustration’ This off-hand remark had caught on and support staff had taken to suffixing their sentences with 'new heights of frustration.’

The airline marketing material depicted a photograph of smiling family having lunch on a beach under a palm tree. The photograph's heading reads: 'Breakfast in Johannesburg ... lunch in Zanzibar.

Recently some of the company's advertisement posters in a number of shopping centres were defaced with the words ... and luggage in Harare' applied boldly below 'lunch in Zanzibar'.

• Mr Themba Moloi, the procurement manager, identified the in-flight snacks served on board as an area where significant cost savings could be made. An ex-colleague, Ravi, who

had left the airline to start his own catering business had approached Themba, punting his strong BBBEE credentials and low wholesale prices, for the opportunity to supply the in-flight snacks. Themba arranged for samples of the snacks and pricelists to be presented in order for him to make a determination. The prices were indeed much lower than several other competitors. A colleague, overheard Themba setting up a meeting with Ravi, and noticed a familiarity in the way in which the conversation proceeded. He confronted Themba after he had put down the phone and warned "You know that doing business with friends must be declared." Themba responded that "Ravi's daughter and my daughter go to the same school, that's all. There's no funny business, so there is nothing to declare."

At the presentation, Themba quizzed Ravi as to how he could afford such lower prices on goods supplied. Ravi shifted a pack of crisps closer, turned it over and pointed to the sell-by date. The sell by-date was just one week off. This was good for the environment Ravi suggested, 'less wastage’. Upon concluding his presentation, Ravi left behind several boxes of crisps and chocolates which he said Themba should pass on to somebody in need. Themba then consulted the company's gift policy which, while listing currency thresholds on gifts that require registration, did not contain anything about receiving samples from a supplier. Later that afternoon Themba packed two boxes of the samples into the boot of his car. A week later Ravi was awarded the contract.

• The head of Ground Operations, Mr Jan Pretorius, had interpreted the directive to 'sweat our assets' to mean that certain preventative maintenance on the aircraft could be pushed out a bit further, in spite of the aging nature of the leased fleet. Also, in line with the aim to increase revenue, Jan indicated that aircraft turnaround times - the time needed after landing to clean, replenish and refuel the aircraft - should be decreased so that an extra flight per route could be squeezed in per day. To achieve this, he indicated that certain checks should be scaled back from a per-flight basis to a per-day basis, such as ensuring that each passenger seat had an emergency landing card in its pouch. He remarked that 'no-one pays attention to the safety demonstration anyway’.

• Aware that staff morale could be suffering due to the cost constraints introduced, Richard Dhlamini tasked Mr Jack Dawson, the risk officer, to produce a cost-effective intervention to address this. Jack considered this and decided that redrafting the African Skies values statement would boost employee morale. After scouring the internet for ideas he came across a values statement for a well-known American airline and adopted it, in particular the

values of 'servant leadership 'perseverance' and 'honesty’. Happy with his decision he produced a document and sent it to the printers to print 50 posters designated for the walls of the administrative offices and staff canteens. He also sent out an email to all employees informing them of their new values statement, to which he received several responses seeking clarity on what the values meant, and in particular what exactly a 'servant leader' was.

• Phumi Ngcobo, the company secretary and compliance officer, was one of the founding members' of African Skies. She is highly respected by all and is known as a person with integrity. The three independent non-executive Board members often rely on her for information and advice. Phumi has notified Jack Dawson that she is unhappy about how the new values came about. She advises that they should be scrapped and that a new set should

be formulated through employee participation. The office of the company secretary is also the custodian of all policies. The following ethics-related policies exist in the company: anti-money laundering, responsible use of company resources, gifts and gratuities, anti-sexual harassment, and prevention of corruption and bribery.

• Dr Dhlamini also considered how African Skies could leverage its social responsibility mandate in such a way as to enhance the company's reputation. Later that week he announced in the press that African Skies had entered into a sponsorship agreement with a local sports personality, a tennis player, justifying this costly brand partnership on the grounds that it would raise the profile of the airline, and so increase revenue. Thereafter he also outlined a plan to start the African Skies Tennis Academy that would develop young talent in under-privileged areas in partnership with the famous tennis-player.

• That weekend Dr Dhlamini's daughter handed him her phone showing him a tweet trending on Twitter from an African Skies employee with a meme showing Dr Dhlamini playing tennis with the new brand ambassador overlaid on the new values statement with the caption 'youbeenserved! The hashtag #youbeenserved had caught on, with unflattering responses from both the public and employees. Before the weekend was over a parody account '(African Flies') in the name of African Skies had been created in the social media.

Questions

1. Identify the key ethics risks that exist in African Skies. What are the ethics opportunities that may be capitalised upon? (11 marks)

2. Describe the state of ethics in this organisation in terms of the modes of managing corporate ethics. Should one assume that divisions' leadership reflect the state of ethics of different departments in the organisation, what is the effect of their mindsets and behaviour on the ethical culture in the organisation? (10 marks)

3. How could the organisation go about building an ethical culture? Describe the governance of ethics structure that should be established to exercise oversight in the company?

(10 marks)

4. Who should assume responsibility for ethics management in the company? If you had to advise the company on the code(s) of ethics that it requires, what would you tell them? What ethics management systems could be institutionalised in the organisation? (6 marks)

5. What should those functionaries that are allocated an ethics management role report on and to whom?