Business Ethics and Governance - Case Study Example

Business Ethics & Governance Introduction The study of Business Ethics & Governance may be based on a doctrine “The Social Responsibility of Businessis to Increase its Profits” given by Milton Friedman, a Professor of Economics at the University of Chicago. To this end the paper tends to highlight on two very important aspects first The Concept of Ethics in Business Perspective & how & why a Corporate Person should be tuned with it & second the Role of a Business in the area of Social Responsibilities. In regards to the first part the paper further tries to analyze a statement made by Friedman that “businessmen are unwitting puppets of the intellectual forces that have been undermining the basis of a free society” (Friedman, 2010, p. 1). It tries to find the impact on the position of the shareholders in the light of social activities conducted in the Business hemisphere. As regards to the second part the paper focuses on Corporate Monitoring & Control mechanisms adopted by a company in the light of employee welfare. Business Ethics  The first part of this section is centered on the statement made by Friedman that businessmen are unwitting puppets of the intellectual forces that have been undermining the basis of a free society. Here some crucial questions needs to be answered as to why ethical activities by businessmen are considered to be acts of puppetry conducted by the so called socio – intellects, why a businessman’s act of social responsibility is taken to be an act of foolery on his part & the impact of such acts on the stakeholders. To discuss on the point of considering businessmen as mere puppets in the hands of intellectual forces the paper analyzes some ethical & strategic perspectives emerging in today’s business domain. A case study of Coca-Cola in violation of principles of Corporate Social Responsibility can be studied in the respect of need to address Ethical issues. Case Study of Coca-Cola in India In the context of non-alcoholic beverage industry Coca Cola occupies a significant position as per its brand name & global presence. It embraces a particular lifestyle of vibrancy & is seen to be a brand ambassador in the sports arena. However, the case to be studied presents a discerning factor in Coca Cola’s operation, which not only disturbed its international repute as a Society friendly concern but also hampered its profitability. The Coca Cola plant operating in Plachimada, Kerela , India was found to have been alleged regarding utilization of groundwater resources which had led to the drying up of wells & other natural resources of water in the area. Plachimada, an area of agricultural base had to resort to tankers for getting water. The coke company was reported of drawing 1.5 million liters of water a day from groundwater resources. The groundwater resources being drenched the company in order to compensate its water loss took to drawing water from nearby villages leading to parched lands of more than 2000 people residing within 1.2 miles of the coke factory. There was a vehement public protest from the local community & environmentalists against the above cause, which caught international attention. The factory gates being picketed by the protestors attracted media. It further called for a government intervention to the problem, which eventually led to the closure of the plant. Adding fuel to the fire the coke company was further accused of supplying poisonous waste to the farmers in the form of fertilizers. Tests conducted revealed that the chemical contents of the fertilizers given contained high levels of Lead & Cadmium. The waste products even went out to ponds & natural water resources resulting in spread of diseases. (Krishnan & Balachandran, N.D.).  It is a clear sign that business has to abide by ethical conducts while operating in the social sphere. A neglect towards conducts of business ethics on a mass scale like that of Coca Cola would result to a strong blow to business as is evident here of plant closure & products boycott meaning loss of revenue. The paper now moves on to reflect the strategic implications, which were taken by Coca Cola to combat against the uproar of the ethical blunder that it was stuck into. Strategic Implications for Coca Cola Coca Cola in the light of the several criticisms against it by social & environmental experts in exploiting groundwater resources & toxic fertilizers did not deter itself from designing several initiatives like rainwater harvesting, restoration of natural water resources, sustainable packaging & recycling activities. It was also felt by the critics that Coca Cola was making huge investments in environment friendly projects without disturbing its operations. They saw it as Coca Cola’s ‘green washing ‘its public image which had been tarnished globally. (Coca Cola India’s Corporate Social Responsibility Strategy, N.D.).  In this context it can be well said that the question of having an eye on the ethical issues Vis-a- Vis handling the operational duties of any concern does not signify foolery in its part. Neither the business managers have become puppets in the hands of social & environmental activists – the intellectual workforce. On the other hand not abiding by the ethical parameters while conducting business had resulted in loss of business endeavor, fall in growth of profits & goodwill & even to closure of firms. Thus ethics & business must go hand in hand in today’s world. The paper now moves on to another important aspect to study the impact these ethical activities from the shareholders & stakeholders point of view. In this regard Friedman’s Doctrine states that the Managers in today’s business are employees working under an owner. Thus if the manager wants to do social activities he can do it, however personally. Engaging in social responsibilities from within the business hemisphere would mean using the money of the stakeholders & thus must also care of the profitability part. (Friedman, N.D.). A company has two types of stakeholders: internal & external. The internal stakeholders are employees, shareholders & management. External stakeholders are the consumers, suppliers, government & the community at large. (Stakeholders & Ethics, N.D.). Two case studies have been given to reflect the stakeholders’ position in regard to Business Ethics. Case Study of Home Depot’s Shareholder Rebellion Home Depot is the world’s biggest retailer dealing in products, which enhance the ambience of our home. It has 50 stores all over US & in other European countries with also China. (The Home Depot, N, D.). At the annual general meeting in 2006 shareholders in huge numbers complained of the $245 million compensation package that was awarded to the CEO, in that time Robert L.Nardelli. The shareholders were asked to refrain from asking any questions at the meeting. Further, the directors were seen to be absent in the meeting. This led them to make negative remarks about the company to the media. The shareholders complained that the company is no longer transparent about sales figure information on a store basis because of which the company’s performance cannot be judged. The company’s share prices dropped on the following day owing to the above reason. The company in light of the above case cited the strategies it ought to take: to let the shareholder’s ask questions in meetings & the mandatory provision on directors to attend the meetings. (Jennings, 2008. P-492-493) .  Wal-Mart – Paradoxical Initiatives in Corporate Sustainability Wal-Mart’s strategy of low price offerings to gather a huge customer base stands to be a paradoxical initiative taken in regard to Corporate Sustainability. Critics have observed that the company becomes able to give low price offerings to consumers by cutting down the pays of its employees even below the level of a living wage, not providing an adequate plan for health insurance & forcing the local business to cut down the wages in their areas. From the suppliers viewpoint also Wal-Mart tends to be manipulative in rendering its impact of human mismanagement to the employees working in supplier’s factories. (Epstein, N.D.). The discussion on Business Ethics from stakeholders’ point of view can thus be drawn to bear some important conclusions. The basis of a free society rests on transparency, equanimity & restoration of a safe& healthy work environment. From the case studies discussed above it can be stated that stakeholders’ viewpoints in investment matters must be well appreciated & also organizations must mot take social initiatives at the cost of human welfare, more specifically its employees-the internal stakeholders. Corporate Governance The second part of the paper focuses on the control & monitoring mechanisms that a company should possess in the light of its social & business responsibilities. It also endeavors to find answers as to the interrelation of an organization with its people. The paper also throws light on the argument framed by Friedman on the vagueness of the term ‘business responsibilities’. In this regard Corporate Governance practiced in companies can be cited in the form of case studies. Corporate Governance in Coca Cola The Corporate Governance in Coca Cola has a sound stand. It is found that the shareholders elect persons to the board to secure their long-term interests. Though the board takes the final decisions yet the shareholders’ views are well incorporated. The senior management is made by the board to take care of the company’s responsibilities. The board functions depend on the charters & guidelines of Corporate Governance. (Corporate Governance, 2009) This reflects a strong control by the board as also stakeholders’ support. Corporate Governance in Standard Chartered Bank The Standard Chartered Bank believes that operations being run on strong Corporate Governance rules imply persistent delivery of company value to the shareholders. In this light the bank increased its board by an addition of three non-executive & two executive directors; adopted a formalized approach in reviewing the performance of the directors; a highly professional process was adopted in election of the new chairman & smoothness was given importance to his accessibility; it also reviewed the appointment letters of the non-executive directors in recognition of the time given by them in the services of the company. (Annual Report 2009, 2009) The case studies given above clearly show that control & monitoring mechanisms followed by the companies in electing the board of directors to governing the day to day activities of a company in the light of Corporate Governance not only increases the stakeholders’ morale but also increases the value of the company. The question of Business being socially responsible as said by Friedman is not a vague term. (Friedman, N.D.). A business has to be socially responsible to the various stakeholders in it. This is so because the business in order to gain a good public image & increase its goodwill has to care for the society. Further, the business should abide by government regulations in relation to environmental issues to create a favorable position. Business being a part of the society not only should consume the facilities offered but must give steady returns on it. Providing good salary & promoting healthy working environments are factors which need to be cared for by any business for enhancing employee morale. Consumer Interests should be a primary factor to be cared for while producing goods & services for them in that they should be free from being dubious or does not have harmful contents. Otherwise the business will call for legal action from Consumer Protection courts. (Social Responsibilities of Business, N.D.) This paper thus concludes that a Business Corporation to be successful must be accountable to the different stakeholders tied to it. It also must look after the bettering up of the environment & the society evading the motive of continually harnessing such for growth & profit needs. References 1. Krishnan, S. & Balachandran, R. (N.D.). Corporate Social Responsibility as a determinant of market success: An exploratory analysis with special reference to MNCs in emerging markets. P-14.Retrieved on August 19, 2010 from : http://docs.google.com/viewer?a=v&q=cache:JBLtbIKdSScJ:stdwww.iimahd.ernet.in/~sandeepk/CSR.pdf+emerging+ethical+perspectives+%2B+coca+cola&hl=en&gl=in&pid=bl&srcid=ADGEESiYyoVxFQwuJa7pKKz4ay4JmoR-3LhUniGy4VlFnBT4prUA5u582BJEVDVOtVjEICQ4jqH20tUNttioHwQhNybOtbfbJD3ib3FoO2sL7fAyl_MsRMtuf_OijjZTkAzXuvPzssz6&sig=AHIEtbRtFDYxGJEnAd-aAl4Qj6MVHvJS0A 2. Coca Cola India’s Corporate Social Responsibility Strategy. (N.D.). IBS & Center for Management Research. Retrieved on August 19, 2010 from : http://www.icmrindia.org/casestudies/catalogue/Business%20Ethics/BECG093.htm 3. Friedman, M. (2010), The Social Responsibility of Business is to Increase Profits. Retrieved on August 19, 2010 from : http://webcache.googleusercontent.com/search?q=cache:fvfY36VsANMJ:141.109.221.55/nmaltby/Courses/BSAD%2520101/Friedman%2520article.doc+Businessmen+who+talk+this+way+are+unwitting+puppets+of+the+intellectual+forces+that+have+been+undermining+the+basis+of+a+free+society+these+past+decades.&cd=2&hl=en&ct=clnk&gl=in 4. Stakeholders & Ethics. (N.D.).Tutor2u, GSCE Business Studies. Retrieved on August 19, 2010 from : http://tutor2u.net/business/gcse/downloads/organisation_stakeholders_ethics.pdf 5. The Home Depot. (N.D.). Retrieved on August 19, 2010 from: http://corporate.homedepot.com/wps/portal/? 6. Jennings, M.M. (2008). Business Ethics: Case Studies & Selected Readings. Cengage Learning. 7. Epstein, M. (N.D.). Making Sustainability Work: Best Practices in Managing & Measuring Corporate Social, Environmental & Economic Impacts. Berrett-Koehler.  8. Corporate Governance. (2009). The Coca Cola Company. Retrieved on August 19, 2010 from : http://www.thecoca-colacompany.com/investors/governance/ 9. Annual Report 2009. (2009). Strong Corporate Governance is essential for delivering sustainable shareholder value. Retrieved on August 19, 2010 from: http://annualreport.standardchartered.com/corporate-governance/corporate-governance.html 10. Friedman, M. (N.D.). The Social Responsibility of Business is to Increase Profits. Retrieved on August 19, 2010 from : http://webcache.googleusercontent.com/search?q=cache:fvfY36VsANMJ:141.109.221.55/nmaltby/Courses/BSAD%2520101/Friedman%2520article.doc+Businessmen+who+talk+this+way+are+unwitting+puppets+of+the+intellectual+forces+that+have+been+undermining+the+basis+of+a+free+society+these+past+decades.&cd=2&hl=en&ct=clnk&gl=in 11. Social Responsibilities of Business. (N.D.). Friedman, M. (N.D.). The Social Responsibility of Business is to Increase Profits. Retrieved on August 19, 2010 from : http://docs.google.com/viewer?a=v&q=cache:_7ZnBkVkZVIJ:www.nos.org/Secbuscour/cc04.pdf+how+does+business+has+responsibilities&hl=en&gl=in&pid=bl&srcid=ADGEEShxQn7n3MuNo3HXJcOzeeBlhiunjRWhBCuYLEcfIgNpmOed3DRlGBFe4nCGD_ROUFiXtS69532GaklL2llLU79YoUvMuI_LJnv5MfyEvs6_0OyOsM9lLqqSdcTgfygNefLbcncQ&sig=AHIEtbQGYC1LWrpCBwxTtWmXF57aA_9dQA Read More