Satisfying Corporate Shareholders or the Stakeholder as Business Priority - Essay Example

Here Your School Here Your Here December 26, 2007 Satisfying Corporate Shareholders or the Stakeholder as Business Priority? Milton Friedman, a renowned business theorist, proposed that the only real obligations of modern business are to satisfy the shareholder, represented by those individuals who invest into the stock of the company, and earn a profit. Satisfying profit expectations would appear to be a rather common sense practice for business, as the goal of any major enterprise is to ensure that increased revenues and business growth occur as outcomes of business operations. However, is it ethical to satisfy the needs of only the business and the shareholder, while sacrificing the needs of the broader stakeholder community? This paper serves to highlight a series of situations which might occur where denying the needs of the stakeholder in favor of profitability raises questions regarding the ethical nature of the company. Those who carry interests in the future of the firm, other than the shareholder, require similar focus as part of corporate social responsibility. Most of the main themes in business deal with making a profit and satisfying corporate expectations for growth, expansion and profitability. In many instances, businesses are able to effectively make plans for internationalization efforts, often building overseas facilities as a means of cost-reduction and further global expansion. When similar facilities are constructed, businesses will often applaud these efforts, citing the contribution to the local, international labor pool as a positive contribution to the economic stability of any particular foreign region. However, is this truly an ethical practice when domestic laborers are denied opportunities for employment? Adam Smith, an 18th Century theorist, proposed his theory of the invisible hand, which essentially states that business’ thirst for profitability will automatically create positive environmental outcomes for society, hence satisfying corporate responsibility toward the betterment of society (Nickels, McHugh & McHugh, 2005). These outcomes include better economic stability for the region in which the firm operates, as well as providing new jobs and better quality products for citizens. When a firm moves its operations from domestic to the foreign, the outcomes, as measured by the invisible hand theory, would indeed be positive for the foreign nation in which the business thrives. However, moving operations out of the domestic environment, especially in times of national economic crisis, only serves to eliminate career positions for already-struggling citizens in the United States, thus corporate expectations for profitability tend to blind businesses from the needs of its potential local workforce. This topic is hotly debated today which is quite obvious in the media and with recent activities of striking workers who fight to ensure that jobs stay local by preventing foreign expansion efforts. Today, Adam Smith might attempt to quiet the barrage of social outcry regarding business shifting its operations overseas by stating that the business had, in some fashion, restored health to the local region while it was domestically in place. Thus, corporate proponents of Smith’s theory might suggest that business had performed ethically, as it continues to experience profitability and its shareholders are making dividends. From a needs perspective, the business had radically decided to honor its investors over the health of its own regional economy, hence the business is performing unethically if the firm remains focused on issues of corporate social responsibility. Today many businesses make sizeable contributions to a variety of charities, as a means of expressing additional corporate social responsibility. As with others in society, such donations are tax-deductible and come in the form of cash donations or engaging in other partnered activities such as food bank donations. Whatever the specific charity, many businesses heavily publicize these efforts as a means of casting a positive light on the public image of the firm and its leadership. However, despite the fact that members of society are reaping the benefit of these charitable actions, are their actions ethical? When the focus of the charitable donation is to provide a better portfolio of tax-reduction initiatives in the pursuit of paying a higher dividend, it is possible to say that the donations are unethical when the motive of the donation is more for satisfying write-off initiatives. Though members of society are often positively affected by these charitable activities, a socially responsible firm would make charity and donations a regular and incorporated process, thus providing a non-stop contribution to the region which does not take the form of a yearly tax write-off. Hence, in this instance, motive for charity marks the unethical performance of the firm. Finally, Schiebel & Pochtrager (2000) propose a model of business ethics which suggests that brand image is a primary element of ethical corporate behavior, which involves creating a product that consumers can recognize easily through aggressive marketing tactics. The authors highlight that brand focus builds community relationships, thus providing a better business environment for customers, suppliers, and the stakeholder. However, can one consider the marketing aspects of a company to be a firm commitment to ethics, in spite of the relationships it might create? Marketers often come under fire in the media for risqué advertisements and for providing false claims about product superiority. In fact, Boone & Kurtz (2006) suggest that many companies will falsely-herald their products as superior to others when their own product really is not high quality. In this instance, even though the company is experiencing sales growth and providing assistance to the community, they may be misrepresenting their products, thus negatively impacting the consumer household. It is clear that ethical behaviors in business require a focus on legitimately satisfying the needs of the stakeholder, somewhat dismissing the corporate expectations for higher profitability and sustained investor confidence. Local communities require jobs to save the regional economy, charitable donations should be granted not as a tax write-off initiative, and brand-building for community relationships is only viable if the product is actually superior to others on the market. It is best to conclude by offering that many efforts of business to act in a socially responsible manner are transparent, and designed to satisfy the investor as first priority. Bibliography Boone, L. & Kurtz, D. Contemporary Marketing. 12th ed. United States, Thomson South- Western, 2006. This academic text describes the various elements of marketing from a modern business perspective, highlighting issues of brand-building as a means of boosting sales and profit. The authors describe consumer behavior and the essence of product-related marketing focus, discussing the positive and negative ethical ramifications of modern marketing theory. Nickels, W., McHugh, J. & McHugh, S. Understanding Business. 7th ed. McGraw Hill Irwin, 2005. The authors cover a wide range of contemporary business theory, with one particular section focusing on social responsibility as a process of industrial growth and social initiatives. Theories discussing Milton Friedman and Adam Smith tend to support the notion that business ethics come in the form of unintended, social outcomes to thriving business. Schiebel, W. & Pochtrager, D. (2000). Corporate Ethics as a Factor for Success – The Measurement Instrument of the University of Agricultural Studies Vienna’. The Ethics of Consumption. Retrieved 22 Dec 2007 from http://www.boku.ac.at/mi/fp/texte/ethics.pdf This article provides insight into six specific steps that businesses often use for corporate social responsibility and ethical behaviors. It shows the relationship between consumers, the market environment, and the needs of the business as an incorporated system of interactions which provide business success. The article describes ethics from a stakeholder and shareholder perspective. Read More