Business ethics and environment - Assignment Example

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It suggested that in the presence of perfect competition and complete markets, eventually the result will be that producers and other stakeholders will pursue…
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Business Ethics and Environment Business Ethics and Environment Q1 The Shareholder Value Maximization began (SVM) in the late 50’s and early 60’s as an idea founded by Arrow-Debreu. It suggested that in the presence of perfect competition and complete markets, eventually the result will be that producers and other stakeholders will pursue their interests (Montier, 2014). The SVM view was based on the theory by Adam Smith that the rational market was an invisible hand. It claimed that one could predict the future income of cash through the current share price in the market. This was a very bold assumption because it is very difficult to predict the future market expectations. It also strongly advocated for the principle that companies should embark on fair pricing so as to improve the economy and attract investment. In addition, it advocated for employees by stating that they should be respected and treated with high regard. It believed that by doing this then one would increase employee output and reliability. This would in return amount to better quality work done. Subsequently, the company will make returns. The prime problem of this assumption is that the employee may fail to deliver when they feel that respect for them lacks.
Indeed, Shareholder Value Management and Stakeholder value management are quite different in aspect. Shareholder Value Management stresses more on the principle of profitability over responsibility, and the organizations are seen as tools that are to rake in profits. On the other hand, Stakeholder Value Management believes in the principles of responsibility for profitability (Denning, 2014). While Shareholder Value Management deals more with issues targeting at how a corporation can manage to rake in more profit, Stakeholder Value Management seek to deal with the main issues, which hamper effective productivity. Additionally, it offers to bring solutions, which can improve the overall situation. Focusing on profitability seeks to look for short-term solutions that will ensure quick profits. The prime focus of the former is to concentrate on profit margins, while the latter digs deeper and seeks to offer practical solutions to these issues at hand (Carroll, & Buchholtz, 2015). The satisfaction of the employees and the clients as well is the priority of the latter while the former seeks to please the bigwigs with impressive figures.
The major issues leading to failure of the Shareholder Value Maximization were that the emphasis was placed on returns, and this resulted in a workforce, which was not producing results as per the expected outcomes. Employee output was affected, and the workers were not able to “think outside the box.” Basically, this means that they ran short of innovative ideas. Apart from that, there was a sudden drop in profits, which led to questioning of the loyalty of the customer base. Another major issue was the sudden drop in the rate of return on assets that caused turmoil within the corporation (Montier, 2014). These issues caused mass panic, and the Shareholder Value Maximization principle came under much scrutiny because it was more focused on profit making and failed to pin down the core issues affecting corporations.
Carroll, A., & Buchholtz, A., (2015). Business and society: ethics, sustainability, and stakeholder management (9th Ed). Boston, MA: Cengage Learning.
Denning, S. (2014). Why the world’s dumbest idea is (finally) dying. Forbes. Retrieved April 28, 2015 from
Montier, J. (2014). The world’s dumbest idea. GMO. Retrieved from Read More
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