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Business Law and Ethics - Essay Example

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I. Question 1 According to Joseph Johnston, the stakeholder theory is not a viable long-term option because the fiduciary principle of natural law, which competes against stakeholder theory, would tend to exert a stronger motive force upon the manager The fiduciary relationship is founded on the element of trust, and it “gives rise to an ethical obligation of loyalty on the part of the fiduciary” (Johnston)…
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Business Law and Ethics
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Download file to see previous pages eternal law), further bolstering its obligatory nature, then calling attention to the Roman jurists and the contemporary court pronouncements to the same effect, adding a legal dimension to the duty. All these aside, Johnston argues that the fiduciary obligation is encompassed within natural law, that is, it is within the nature of man as a free, rational and social being to render fiduciary loyalty where the situation calls for it. In the context of business, the fiduciary relationship exists between the owner of the business and the person that owner has hired to discharge the business. In modern corporate parlance, the business owner would be the shareholders, those who have invested financial resources in the business entity. The steward hired to conduct the affairs of the business is the modern business manager, or the Chief Executive Officer (CEO) in large corporations. In the Biblical metaphor, therefore, the CEO is the servant who is morally charged to owe loyalty to the shareholders. Johnston argues that one who serves in a fiduciary position cannot serve his interest first before the interest of the person/s to whom trust is owed, legally, the cestui que trust or beneficiary of the trust relationship. Corollary to this argument is that the person entrusted cannot substitute his own judgment for that of the trustor, or undertake an action that he knows jeopardizes the trustor’s best interests. The conflict therefore arises in the modern business context, where advocates of corporate social responsibility insist that business managers, particularly for large corporations, have a duty not only to shareholders but also to other stakeholders – customers, employees, suppliers, the immediate community and society in general – to likewise serve their benefit and welfare in the conduct of their business. This is seen to run counter to the fiduciary relationship because management would have to decide in favour of the benefit of other shareholders, at times to the detriment of the aim to maximize shareholder gain and corporate profit. It is the equal obligation to stakeholders as to shareholders that Johnston believes is untenable in practice From a legal standpoint, I would tend to agree with Johnston. Given an either-or proposition, the fiduciary relationship would supersede the stakeholder relationship. From a practical perspective, however, it is apparent that seldom is one drawn into the choice of one side to the exclusion of the other. Most business owners are aware that keeping customers satisfied, employees engaged and motivated, suppliers operationally viable, and the community supportive, would eventually translate to business gain and growth. By serving stakeholder interests, managers may forego opportunities for short-term profits but benefit the shareholders in terms of long-run and sustainable profitability. From a utilitarian perspective, therefore, the satisfaction of stakeholder interests also serves the interests of the shareholders, and there is no conflict. It is also often forgotten that the shareholders are themselves stakeholders of the company, particularly as customers, and oftentimes also as employees, because of employees’ share options. Shareholders are also part of the community and larger society. In this sense, the ...Download file to see next pagesRead More
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