History of Business Ethics and Stakeholder Theory in America

The chief executive officer is responsible for many roles in an organization. It therefore means that, besides being at the top of the hierarchy of leadership, the CEO has the responsibility and mandate to generate strategies to make the organization run smoothly, provide a favorable platform for the growth of the members of the organization that work below him, enable teamwork and cooperation among the different levels and departments of the organization, ensure the availability and accessibility of up-to-date data regarding the organization, and managing financial duties. Because of the administrative structure of any organization, the CEO is strategically placed to be the link between the employees and the management of the organization. For example, in a military setting, the company commander, acting as the CEO is the link between the soldiers enlisted and the officers. The most crucial and outstanding responsibility of the CEO is the generation of policies that guide the daily operations of an organization. Policies are what determine the success of any organization, as such, policy formulation is very important as it determines the prosperity of any organization. The core mandate of the CEO, according to the stakeholder theory is to create a balance between profits generated by the organization and the rights and needs of the stakeholders who are part of the organization.

The stakeholder theory focuses on the ties between the various groups that have an interest in or are involved in the prosperity of the organization. These groups are jointly referred to as stakeholders,, and they include employees, manufacturers, stockholders, and the larger community where the organization is based. This means that stakeholders must be involved in any major decision that greatly affects the organization. This mainly includes any major financial undertaking or decision to be reached concerning the interest of profit-making for a big corporation. It, however, becomes difficult to reach a balance between profits and stakeholders because the main aim of any business venture is profit-making rather than the rights of the stakeholders. Therefore, the rights of the stakeholders cannot surpass the need of the business to make profits. The driving factor here is that profits are in line with the interests of the stockholders, and thus any profit-making effort is positively received by the stockholders. They are mainly concerned with generations of high profits regardless of the methods used by the CEO to achieve this, contrary to the stakeholders. For example, the retrenchment of employees meant to cut down on the running operations of an organization negatively impacts the employees, who are the stakeholders in this case. The wider implication of this is the ghost town effect since there is a reduction in economic growth in the neighborhood since employees are rendered. However, the same is an advantage to the stakeholders since it reduces expenses and maximizes profit generation in the organization.

Milton Friedman reiterated that a business organization has the social responsibility of utilizing its resources as well as getting involved in activities that are meant to grow its profits only if it participates in open and free competition devoid of fraud or deception. This statement by Milton implies that some business organizations go to the extent of using fraudulent and illegal approaches to make profits such as tax evasion, unfair competition, and scandal cover-ups. However, Milton goes ahead and cautions business and advises on the need and importance of balancing a business. A business organization must show the intention to protect the rights of the stakeholders that are part of the business organization. An instance of a CEO who failed to incorporate a balance between profit and stockholders in this organization is the case of Merrill Lynch. The kick of the scandal was engineered by the bank executives, who came up with a comprehensive plan on how to get extra undeserved profits by giving out bonuses to a group they created. Some traders within Merrill Lynch named the scheme ‘million for billion,” which meant that a bonus of a million dollars was awarded for every billion upon taking mortgage securities from Merrill. Others named the scheme “the subsidy,” whereas a former executive referred to it as bribery. The group that was created by these executives was compensated on the grounds of the amount they took and not whether it made money. The securities lost value and dropped to pennies compared to the dollar, and this finally led to the collapse of the iconic firm. Merrill was however rescued after it was bought by Bank of America that was bailed out using the taxpayer’s money. Merrill Lynch incurred losses amounting to millions of dollars due to this fraudulent scheme. This saw former CEOs who had made millions of dollars for the firm being charged with securities fraud charges. This whole mess left an unbalance with the firm which resulted in another bank taking over the problem. The stakeholders were negatively affected as a result of the fraud caused by the CEOs.

Ethical business practice has been part of a crucial aspect of business history since the 1800s. Many business entities engage in unscrupulous competitive strategies such as trade defamation to outdo their competitors, thereby making huge profits. Trade defamation takes place when a business falsely disseminates negative and untrue details about a competitor with an aim of having a competitive advantage, such as increasing their sales compared to the falsely accused competitor. Healthy and fair competition is highly acceptable in a business environment. For example, the competition between Amazon and eBay online sales. These two can engage in stiff competitive strategies to outdo each other without infringing on the rights of the other business.

Welfare capitalism is an all-inclusive system that aims at supporting both the interests of the employees of an organization as well as the prosperity and growth of a business organization. This system supports and enforces the aspect of balancing between profits and stakeholders. It ensures the welfare of the stakeholders is taken care of without hurting the profit-making venture of the business. This system further believes businesses in the private sector are also in a better position to offer social welfare initiatives more effectively compared to the government. In the 1900s, for instance, towns in England developed because of the initiative taken by companies to build their employee’s houses as well as provide them with other benefits. Welfare capitalism also gave birth to paying employees’ pensions in an effort to cement employees’ loyalty to their employers. The system also ensured that employees were provided with healthcare insurance, which was also enforced by the government. Today, the government has made it mandatory for employers to provide their employees with insurance health covers. Such benefits improve the employees’ morale, hence increasing their productivity which in turn translates to bigger profit margins for the companies.

Business organizations have corporate social responsibilities that they are obligated to provide to society. This ensures a smooth relationship between business and society. Howard Bowen argues that corporate leaders are part and parcel of the peer network and they play a great role in ensuring a harmonious relationship between their firms and the neighboring communities, which greatly influences public attitudes towards a firm (Terris, 2013). It is very crucial for business firms to know how the company’s decision affects stakeholders as well as stockholders. A business organization must show the intention to protect the rights of the stakeholders that are part of the business organization. An instance of a CEO who fails to incorporate a balance between profit and stockholders Companies should always be knowledgeable about what is expected of them by all parties involved. Plans should be devised to find and address the needs and interests of every group that has an interest in and enjoys benefits from the activities of the business. Some companies have made mandatory monthly deductions for their employees’ remittances for insurance health coverage (George, 2015). Such benefits improve the employees’ morale, thereby increasing their productivity, which in turn translates to bigger profit margins for the companies.

 Strategies should be made to maximize consumer attraction, improve employee welfare, and create channels of succeeding businesswise in terms of profit-making. In today’s setting, businesses, Bowen’s prediction of social responsibility. Companies spend a large sum of money in full fulfilling their corporate social responsibilities to society such as providing healthcare facilities, schools, and other social amenities such as roads. This is because the same society is the consumers of the goods and services provided by these firms. At the end of the day, everybody belongs to one society that networks for success.

References

George, R. T. (2015). A History of Business Ethics. Economy Business.

Terris, D. (2013). Ethics at Work, Waltham, US. ProQuest.