History of Business Ethics & Stakeholders Theory in America Essay

History of Business Ethics & Stakeholders Theory in America
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History of Business Ethics & Stakeholders Theory in America
The top management is always in a dilemma in striking a balance between addressing stakeholders and maximizing profit because they are equally important. Profit-making is a crucial dimension for an organization to perform, grow, and sustain wealth. Stakeholders' concerns revolve around fundamental accountability that emphasizes on social utilization in totality (Saltaji, 2013). Top organization's performance arises from an overall strategy, market positioning, innovation, quality, and long-term strategy. Therefore, organizations are always seeking new, improved, and innovative products, processes, structures, and leadership qualities to reduce production costs, generate more profits, and meet customer demands and satisfaction.
In his book, Daniel Terri defines stakeholders as a group of individuals or individuals who directly or indirectly affect or affect the achievement of an organization's goals and financial success. Stakeholders are categorized as primary and secondary stakeholders.
Primary stakeholders’ interests are directly linked to the fortunes of an organization. They include investors, suppliers, customers, employees, and residents of a society where the organization operates(Saltaji, 2013). Future generation, non-human, and natural are also part of these stakeholders. Secondary stakeholders, on the other hand, have an indirect impact on an organization. They include pressure groups, media, regulators, competitors, and interested groups that form social ecology groups within the organization.
An organization's ability to create sustainable wealth depends on the relationship between the top management and stakeholders and the level of competitiveness and effectiveness on the organizational value chain (Mahoney, 1995). Therefore, the top management should build on their relations with all stakeholders to bridge the gap between profitability and addressing stakeholders’ concerns.
 Responsibility of Top Management
1 Instituting strong controls
An organization without proper control activities and the internal environment is likely to provide room for creative accounting, which involves manipulating accounting entries and policies to generate more profits. Such policies include changing depreciation methods and stock valuation methods. When those policies are altered, the organization is likely to report more profits that do not exist to impress shareholders (Mahoney, 1995). When shareholders find out, it will create conflicts. Failure to institute controls will also create loopholes for fraud, leading to huge losses of the company's assets, causing friction with shareholders (Macintosh, 2008). Therefore, strong controls will prevent fraud, thus safeguarding the company's assets and avert reporting non-existing profits, thereby minimizing conflicts and build a strong relationship with stakeholders. On the other hand, fraud prevention increases the company's profitability.
Enron Corporation was the seventh-largest corporation in the United States in 2001 but was involved in creative accounting fraud and corruption. The CEO fooled the shareholders and regulators with off the book accounting practices and fake holdings. The company had toxic assets and huge debts, but they used special purpose vehicles and entities to hide them. They were able to operate freely in the market and acquire huge loans from lenders(Macintosh, 2008). The company was later plunged into financial constraints because the profits expected resulted in losses. It resulted in conflicts with shareholders and lenders as Enron was unable to repay debts. They later filed for bankruptcy. The shareholders lost $ 74 billion, and the company paid creditors more than $ 22 billion between 2004 and 2011. These are the effects of creative controls and failure to institute controls.
2. Investing in safer investment options.
Organizations borrow money from lenders such as banks to invest in various bonds, securities, or acquire assets. Some investments are risky and may lead to losses in the long run; hence a company may fail to repay the loan. That will result in a conflict between management and creditors and affect the firm's profitability (Brockman et al., 2009). Therefore, if an organization invests in bonds, securities, and other safe investments, they will likely increase their profitability, repay debts, and pay suppliers, hence addressing lenders' concerns.
3. Engaging in Social responsibilities and safeguarding the environment.
Top management should place mechanisms of participating in corporate social responsibility and preventing pollution of the environment. Degradation of the company's environment encourages conflict with surrounding residents, especially for manufacturing companies that may direct their waste to nearby rivers, which are vital water sources in the community. Participating in social responsibility activities build on a company's image and boost the employee's morale leading to greater productivity (Carroll, 1999). Good company image attracts more customers hence increasing sales. Therefore, management's responsibility is to ensure that the surrounding environment is not degraded and engage in societal projects and activities, thus minimizing conflicts with the community and attracting more customers who boost sales volume, increasing its profitability.
The New Belgium Brewing Company in the United States brew beer can and sell. In their production process, they produce a lot of waste from grain processing. The CEO decided to acquire an anaerobic digester to process the trash instead of releasing it. The aerobic digester processes the waste into energy to power the organization and production process. The CEO's move safeguarded the environment hence building the company's image, which attracted more customers. The CEO also directed the employees to be issued with bicycles to easily move around the 50-acre brewery firm's premises. The CEO's effort reduced the conflicts between the surrounding community and the organization, attracting more customers to increase their profits. Issuing the bicycles motivated the employees, which improved their productivity.
QUESTION 2
Daniel Terri's book tried to address work ethics for seeking an unfair advantage, anticompetitive practices, failure to comply with laws and regulations, and lack of accountability and transparency. He carried out research to determine whether Lockheed Martin's ethical programs made it an honest corporation. ...