The of RBS and Ethical Considerations for Businesses in the Global Economy - Case Study Example

The Case of RBS and Ethical Considerations for Businesses in the Global Economy Contents Introduction 2 s Hold the Key in Goading Companies to Act Ethically 3 Government and Companies Interplay 3 Organizational Ethics and the Case of Royal Bank of Scotland 5 Fred Goodwin’s Leadership Style 6 Leadership Style of George Mathewson 7 Recommendations 8 Conclusion 9 References 10 The Case of RBS and Ethical Considerations for Businesses in the Global Economy Introduction The businesses all around the world have to act according to the requirements of society in which they are operating or tend to operate. The businesses in all fields of life have been known to operate according to the needs and wants of the society. The customers and other stakeholders of the companies hold a critical key in this regard. The companies will become ethically and socially responsible in response to the societal demands (Alvord, Brown, & Letts, 2004). The communities have to tighten their legal systems in order to force the capitalistic companies to transform into social entrepreneurship centers. The companies will not at all work by themselves in order to better the community and that is for sure because all of the organizations in the world are operating to fulfill the basic and fundamental requirements of Marxism (Shaw, 2009). Marxism states that societies must exert themselves to serve the goals and objectives of the capitalist and then he or she will work in order to serve the society in return (Auger, Burke, Devinney, & Louviere, 2003). The Marxism as a theory and economic philosophy is very clear in terms of stating that societies should benefit few individuals but now the mindset is changing due to induction of information technology. The information and internet technology have blessed masses with important pieces of knowledge and the public of developing and under developed nations have gotten enlightened about living standards of developed economies (Brien, 1998). The public of developed nations became aware of their basic legal rights and then they came out onto the streets in order to raise voice for their civil rights. The leaders like Martin Luther King, John Kennedy and Nelson Mandela have spent their entire life to work for the realization of civil rights of suppressed factions of the society. The report is about mistreatment of RBS with customers in England whereas, the bank remained quite deceitful when it came down to communicating with the customers so banking sector of the country in specific and other ones in general are suggested to give honest pieces of information to their stakeholders. Customers Hold the Key in Goading Companies to Act Ethically The above discussion is done in order to make the readers understand the value and importance of effective leadership regarding helping people in the process of getting their human rights entertained by the local governments and organizations. The political theory massively argues that people’s power holds the key for bringing societal change and if the masses of a certain economy and geographical location have decided to make peace with problems in the society and then they cannot dream about transforming into respected citizens. The organizations have been famous for sponsoring political campaigns of candidates in all parts of the world and therefore, the opinionated leaderships have to work to fulfill economic agendas of their sponsors (Brien, 1998). However, the governments will ensure capitalists’ benefit and these administrative bodies will not refrain from using illegal means to please their sponsors. The governments will be forced to raise their ethical commitment if the general public gets onto the streets in order to raise voice about social crimes of administration and corporate sector. Government and Companies Interplay The companies and governments collaborate in terms of looting the public every now and then and the attempts in these areas will aggravate if the public does not respond to unethical practices. The society should play a significant role in keeping organizations on the right path and any distraction incidentally will send the organizations to use whatever means they could in order to enhance their bottom line (Clair, 2008). The customers of developed nations are getting more and more concerned about saving the planet and in this way; they are literally goading the organizations towards taking initiatives to better natural environment. The clientele of advanced nations generally like to do business with organizations which serve their employees, customers and other stakeholders in a reasonable fashion (Dann & Haddow, 2008). Additionally, the organizations linger inclined to find geographical locations where they can do their dirty work. The latest concept of outsourcing is used in order to attain benefit of the unused and idol resources of the developing to serve the public of developed nations and it is happening because governments of emergent economies are naïve enough to let the capitalist of the developed nations to hijack the local economies of the developing world (Dowling & Pfeffer, 1975). The quoted example suggested that local governments have to take charge of the situation and use incentives and threats in order to keep the organizations operating in their jurisdiction to abide by the ethical principles of the corporate activities. The companies are known to find ways of evading local laws and regulations in the most sophisticated economies and legal systems of the world. The governments then start to make public aware of the harmful effects of corporate and industrial endeavors on the natural environment specifically and therefore, the customers want their suppliers of goods and services to work for the betterment of the society and environment. In this way, companies are trapped into performing in favor of the communities by statutory requirements and when the customers and general public require higher level of social concern from organizations then the companies become very committed towards the notion of serving the society in order to sustain their clientele (Edvardsson & Gruber, 2011). Organizational Ethics and the Case of Royal Bank of Scotland The societies are often fooled by fake companies and the scandal of RBS is one of the outstanding instances of incident in which organizations take advantage of public’s ignorance. The Royal Bank of Scotland inflated its assets in order to show reasonable level of liquidity to the stakeholders but the masses found out that these possessions were faked and they were backed up by debt which was never announced in the financial statements of the bank. The public was more than happy to keep their money with the bank in dire circumstances mainly created by financial crisis that took down English real estate business and the ripple effect was created jolting the entire array of industries of the country. The manufacturers were hit the hardest because they cannot have loans from the banks and that brought the cycle of production to a halt. Unemployment rates spiked in all states and before anyone can have an idea about what was going on, the financial crisis engulfed everyone. The proceeding years were the worst because middle class of the country was literally vanished from the economic scene and income disparity grew entirely out of proportion (Eyerman, 2013). The banks and real estate dealers created a bubble by showing appreciated value of their assets and people kept on investing their hard earned money on purchasing the real estate and they did that only to witness greatest depreciation of assets in the history of America after the Great Depression. The Royal Bank of Scotland was nationalized during the period of financial crisis about seven years ago. The bank got greedy in the subsequent years and it was determined not to get over-dependent on the governmental financial resources and as a tactic to achieve independence, the company used small businesses as a monetary cushion in order to get through the rough times. The bank made real money this time and sent significant amount of businesses to destruction in the process. The general public and businesses did not realize the nature of trouble they were getting in but when they did then it was too late. Fred Goodwin’s Leadership Style The leader of RBS had been famous for using assertive leadership and business community and government warned him many times about his mean nature and his prevalent mindset towards leadership. The strategic choice theory helps this paper in the process of identifying organizations as a representative of managerial mindset. The RBS’s decision to seek out benefit from dogging the customers means that the leadership does not have a considerable level of ethical commitment towards business and customers. However, the company suffered in the long run because in future, people are not going to trust the bank and therefore, the financial institution will definitively suffer in the days to come (Auger, Burke, Devinney, & Louviere, 2003). The companies have to work in order to create a win-win situation for customers and other stakeholders. The RBS as an organization did not satisfy the stakeholders and rather it decided to deceive society. The society and customers in general do not suffer as much as organizations do in the longer run scenario after misguiding clientele. The clientele of RBS is getting increasingly uncomfortable and discontented with service quality of the business. Furthermore, the substantial level of customers have already switched to competitors and the UK government is also lured into bailing out the downed bank for nothing and the bank was given another opportunity to fool the clientele and this time the target was set upon small and medium size enterprises which do not have sufficient financial power to cover floating rates of interest. The bank took advantage of weak liquidity position of small business in order to enhance its liquid cash reserves. In short, managers at RBS are having a substantial degree of psychological distance from their clientele, government and other stakeholders and therefore, management of the bank did not consider it necessary to benefit the society while watching their own self interest. The main problem lies within the inability of leadership to force workforce to act beneficially in the direction of the society. Leadership Style of George Mathewson The great corporate leadership of George Mathewson worked miracles for the Royal Bank of Scotland. The leader had an incredible vision and also had the urge to lead from the front (Edvardsson & Gruber, 2011). Additionally, he was very ruthless in terms of getting risks in the field. He also kept committed to the purpose and took risks in order to get done what was expected of him. His career started when he was put into the position of strategic planner for the bank in 1987 and after his success in this particular campaign he made considerable literature of bank’s history. Fred and George were quite divergent in terms of personality types but the former one failed to do what he was expected to do while other did what was anticipated from him. Finally, leaders are more like legends and they have to fulfill and meet social needs and wants when they put in to do a certain kind of job. The leaders follow different ethical approaches and therefore, George was an effective leader because he led the bank from being underdog to world leader and in his era, RBS became first ever Scottish Bank to make a profit of 1 billion pounds. The leader also forged a strategic alliance with a Spanish bank named Banco Santander and he opened gates of globalization for his organization. Finally, RBS was gaining US presence in George’s time as well and tied turned when RBS bought out National Westminster Bank in a 20 billion pounds takeover. Recommendations The lessons learned from the experience with RBS were so vivid that they overturned the investment behavior of the entire English nation. People of England are nowadays read newspapers more often then they keep a close eye on stock market and they also listen to the views and suggestions of financial experts (Mackinnon, 2007). The UK investors have become risk averse in the light of recent scams and organizational frauds. The government on the other hand could not intervene into the customer affairs of RBS and therefore, it has to play the uncomfortable role of silent bystander while the bank went out of its ways to trap small businesses. The government was not at fault but public was because it did not study print media and also did not practice due diligence before getting a loan from a rogue bank of the past. Currently, the bank is going through hard times in terms of winning the trust of the clientele once again (Gjølberg, 2010). The competitors took considerable level of advantage from compromised position of the once leading financial institution of the country. Additionally, one of the families decided to buy a hotel on mortgage from the bank and as in England, mortgage deals are closed at a floating rate of interest and therefore, the family decided to hedge against interest rate fluctuations by dealing in with a swap but instead the rates dropped and as a response, the bank forced the couple into insolvency and sold the real estate to an eager client for just $1.4 million. The family lost everything including their home and they are currently in the middle of a painful divorce. In the given example, the couple was at fault once again as the rest of the investors who kept their money with RBS. The bank was not honest with the customers and this is very last thing a business can do with its clientele (Shaw, 2009). The public is suggested to analyze all of the information before making an investment decision and they should develop a sense to figure out where interests are headed in order to keep their investments safe (Strand, 2013). The investors are also suggested not to trust companies and businesses who claim to have sufficient level of liquidity when indeed economy as a whole is going through a slump. Finally, the ramifications of past actions apparently caught up with the bank and it has lost more than half of the customers in England already. The customers are the ones who hold the key in the process of goading companies to act ethically and if they are willing to trust their service provider with the money then who has the right to stop them and RBS played with the trust of customers and sent thousands of investors to live the life of insolvency. In the light of above argument, the customers and investors have the first obligation to clearly see the direction in which their money is going. Conclusion This paper ran a comparative analysis of leadership style of George Mathewson and Fred Goodwin and found out that the former person was an effective leader as he remained pretty much successful in terms of satisfying all stakeholders while the other one miserably failed in this regard. Fred was working in a corporate sector and it was his job and duty to help his organization in the process of making new customers and retaining the existing ones as well. The managers and leaders are supposed to work in order to create confidence in the customers. The RBS was expecting people to forget the fraud that they committed in the recent past and they managed to use floating rate of interest to their advantage. Currently, the governments and customers are dealing with the bank with care and customers are seeking out new financial services’ providers. Finally, it can be established that customers hold the key towards goading the corporate sector to adopt ethical behaviors. 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Appendices Following are the SWOT and STEP Analyses of the RBS SWOT Analysis Strengths The company had loyal customers who trusted it Strong brand name International coverage and strong ties with British government Weaknesses The Bank had lower liquidity level and therefore, it had to take assistance from British government Low commitment towards organizational ethics Misinforming customers and trapping them into destructive financial deals Opportunities The bank needs to shift to developing parts of the world where customers are not aware of their past activities and they offer an ideal chance for the organization to start over Threats Tightening governmental policies Customer distrust Poor liquidity and inability to pay higher interest rates STEP Analysis Social Position of RBS The bank deceived quite a few people and governmental offices in the process of looting and misleading masses in the country and therefore, people are not willing to trust the organization presently. Technological Position of RBS The bank failed to adopt higher technological interventions in the recent years and customers do not find it convenient working with the bank Economic Position of RBS The bank had a poor level of liquidity and because of this reason, it is not being able to cover its expenses whereas, it jeopardized small businesses in order to remain afloat Political Position of RBS RBS as an organization has close ties with the English government and therefore, it managed to have a bailout deal with the government Read More