Enterprise and Social Responsibility - Assignment Example

ENTERPRISE AND SOCIAL RESPONSIBILITY Identify each of the stakeholders and how they are affected. What arethe main harms and benefits in this case for the different stakeholders based on the current situation? Customers: This category of stakeholders includes both individuals and businesses. Businesses in particular, had their loans recalled with banks unwilling to subsequently issue new finance despite the availability of credit. For those who depended on loans to finance operations, this situation has made life extremely difficult. The only benefit is that it has called for more strict regulation to ensure the events of 2008 do not re-occur ever. Additionally, this situation has exposed the banking system to customers on the flawed policy areas that were responsible for the largest economic disaster after the great depression of 1930s. Investors in the banking sector: This interest group suffered in near total wipe down of their investments when stock prices collapsed. Northern Rock shareholders for example, suffered huge losses when the stock lost value to almost worthless. This harm was not confined to Northern Rock alone as other banks also had their shares diluted when government acquired minority stake. There is no visible benefit of the situation to this group of stakeholders besides exposure of the rot in the banking industry (Davies, 2010). UK Government: Having taken immense liabilities that are likely to rise to over a trillion pounds, in an attempt to rescue the banking industry, it is one of the key stakeholders. The government is proposing higher taxation and austerity measures that will see a cut in public expenditure over the next few years (Geithner, 2014). Such moves are and will continue to be unpopular with the harm of causing civil unrest that could lead to a collapse in governance systems. UK citizens: With planned austerity measures and government interest in several banks following their bailout with tax payers’ money, UK citizens are significant stakeholders. Should taxes be raised and public expenditure reduced, then ordinary citizens will feel the true impact of this scenario. They, however, could benefit from revised regulatory frameworks that have the potential of restoring the global community’s faith in the UK banking system. 2 From a utilitarian perspective, would you argue for or against the proposed tightening of UK banking regulation? The fundamental principle of utilitarianism is that; an action is morally appropriate if the end result has supreme good to the most number of people affected by such deed (Crane, & Matten, 2010). On this basis therefore, I would argue for the tightening of baking regulations in the UK. The drive to earn bigger bonuses based on sales figures coupled with deregulation that allowed banks to lend more than they held in deposits were the main reason for the events of 2008. It therefore, follows that these loopholes must be sealed if a repeat of the 2008/9 crisis is to be averted in the future (Great Britain, 2009). With reference to the indispensable principle of utilitarianism, the decision to deregulate banks made in the 1980s in the end caused most harm to the highest number of people, which is the exact opposite on the concept. Correcting it, therefore, calls for a total grip on regulatory matter by relevant on the authorities charged with such responsibility. The British economy heavily relies on income from international banking operations based in London; this makes the country most vulnerable among developed nations, when an economic crisis strikes within the banking industry. Having the Financial Services Authority (FSA) exercise more regulatory power is a decision that will in the end save not only the British economy and its people from economic collapse, but also help bring sanity in the global financial sector by virtue of London being the world’s financial capital (Buckle & Thompson, 2004). Fully implementing these reforms will allow the FSA to influence policies adopted by commercial banks besides controlling inflation. A properly regulated financial sector is good for humanity given the adversity that comes with economic collapse as was witnessed in 2008 when the global banking system was seriously threatened. The global economy today has such an interconnected that a scare in one region send shock waves across markets, having a banking sector that is not properly regulated in the UK will be in total contravention of the principles of utilitarianism and for this reason, I support tight regulation. 3 Using arguments based on the ‘maxims’ of duty; would you consider the UK banks to have acted ethically in their operations? Brought forth by Immanuel Kant the three maxims are as follows (Crane, & Matten, 2010): a. Act only according to that maxim by which you can with the possibility of it becoming a universal law b. Your actions towards humanity should be in manner that other people are an end and never a means only c. Act in a manner that could be universally acceptable to every other human being Maxim 1 looks at the possibility of an action being performed by everyone and still remains consistent, which means that such an actions can remain right if everyone followed its basic principle. The UK banks in this regard lent beyond their deposits and overlooked borrowers’ credit credentials. If every other institution was to follow these principles in their lending, then there would be no global financial industry. The system would collapse at the earliest possible opportunity. On the basis of this maxim, therefore, the UK banks acted unethically. Maxim 2 fronts Kant’s view that human beings deserve respect in their own right as autonomous beings, which underscores the need to take human dignity into account in all actions. When the UK banks lent as they did and wiped out people’s life investments, this maxim was flouted and on this basis alone, the banks acted unethically. Maxim 3 looks at universality. In this context, Kant argues that if actions taken were to be known by everyone, would they approve such and accept it as a morally appropriate principle. If at the time of lending beyond their means on the basis of the urge to earn bigger bonuses, information came to the public that the banks were lending in that magnitude and with such intentions, would everyone accept such actions? The obvious answer is a no. It therefore means that the actions by UK banks in this situation lacked universality and were forthwith unethical, on the basis of this maxim. 4. What clashes of rights are involved in this situation? Is it possible to judge their relative importance? Whose rights matter most in this situation? The rights that clash are those of customers to receive credit, especially when their hare credit worthy, the right of investors (shareholders) to receive a fair return and value of their investments and the right of bank executives to receive bonuses based on performance and other parameters. Following the banking situation in 2008, investors appear to have been the biggest losers, followed by customers with bank executives closing the list of losers. On relative importance, investors are of most significance, followed by customers and then executives, if there no other people in between. As provider of capital and owners of both tangible and intangible assets, investors’ rights matter the most. Thanks to them, customers have an institution that can provide services and executives have jobs. Their interests should therefore supersede any other and all decisions by executives should be aim at safeguarding the interest of investors (shareholders). 5. Select and apply two other normative theories to critically examine the current situation? Expected Utility theory: This theory is on the basis that decisions are made under conditions of uncertainty so it looks at how to make a rational choice when the outcome from such acts in not definite (Fishburn, 1982). In choosing actions that maximize expected utility, the end rationality must involve maximum expected utility, as such; there are long term arguments that are founded on evidence that expected utility is a profitable policy in the end (Barbera, Hammond & Seidl, 1998). On this basis of this theory, the possibility of a favorable outcome when the FSA is given more powers to regulate looks more rational that letting the banks run amok as was the case during deregulation. The outcome in this context is not as uncertain since results of deregulation were evident in 2008. The theory of public choice: This theory refers to the use of tools applicable in economics to solve political science problems. It analyses a governments’ ability to create a prototype welfare society where besides pursuing public interests, they might act in a manner that is self beneficial (Tresch, 2015). In this context of this theory, government officials and bank executives who chose to deregulate did so in an attempt to self enrich through hefty bonuses and taxes from unsustainable profits. It is, therefore, clear that decisions prior to the 2008 crisis under the not so watchful eye of the FSA were all in service to self interests for both the government and bank executives. Bibliography BARBERA, S., HAMMOND, P. J., & SEIDL, C. (1998). Handbook of utility theory. Dordrecht, Kluwer Academic Publishers. BUCKLE, M., & THOMPSON, J. (2004). The UK financial system: theory and practice. Manchester [u.a.], Manchester Univ. Press. CRANE, A., & MATTEN, D. (2010). Business ethics: managing corporate citizenship and sustainability in the age of globalization. Oxford, Oxford University Press. DAVIES, H. (2010). The financial crisis: who is to blame? Cambridge, UK, Polity Press. FISHBURN, P. C. (1982). The Foundations of Expected Utility. Dordrecht, Springer Netherlands. GEITHNER, T. F. (2014). Stress test. GREAT BRITAIN. (2009). Banking crisis: dealing with the failure of the UK banks : report, together with formal minutes. London, TSO. TRESCH, R. W. (2015). Public finance : a normative theory. Read More