Enterprise and Social Responsibility - the Financial Crises - Assignment Example

Course: Tutor: Institution: City: Date: Identify each of the stakeholders and how they are affected. What are the main harms and benefits in this case for the different stakeholders based on the current situation? The corporation’s stakeholder being a group or an individual can either benefit or get harmed by the corporation or violates their rights or need to be accorded respected by the corporation (Crane & Matten 2010). Competitor banks such as Lehman Brothers and Northern Rock appear to benefit from stakeholder harms in cases where they experience in ability to support their finances with their weak balance sheets. According to Crane & Matten (2010), stakeholders’ interests are intrinsically valuable and they are their particular identification. This case presents a decision to change the banking system to a conservative and more regulated system from a risky bonus driven banking system (Singh 2007). Stakeholders and their needs either harm or benefit includes; The banks need more access to their retail operations thereby financing the operations of risky investments (Labrosse, Olivares-Caminal & Singh 2011). This circumstance eliminates state’s guarantee behind investment banks hence increasing the respective costs of borrowing. The UK government seeks a solution in regulation where a split could clear 0.3% of the country’s GDP in times of increased fragility of the economy (Singh 2007). This decreases the costs of resolving troubled banking institutions. On the other hand, the tax payers would pay higher taxes in crises while bailing out failing banks. Therefore, total separation of the investment banking system and the retail banking will effectively protect and cloister the tax payer against any market failure and increased security for the depositors’ money (Labrosse, Olivares-Caminal & Singh 2011). The increased house Owner prices relative to incomes drive the house owners to negative equity with the inability to sell (Singh 2007). Mortgages and respective loans granted are increasingly accessible to individuals with poor credit history. The bank managers award themselves bonuses as they link the sales volume to staff bonuses. The value of shareholders is reduced to minimum therefore the shareholders experience reduced rates of return since the banks fall and the depositors finances and savings are lost (Crane & Matten 2010). Governments face increased financial losses by rescuing the failing banks and the market deregulation increases competition allowing customers a wide variety of services and products. As illustrated by the stakeholder theory, it can be augmented that immense profits and respective bonuses as reward for the productivity are in no circumstance a negative approach (Labrosse, Olivares-Caminal & Singh 2011). From a utilitarian perspective, would you argue for or against the proposed tightening of UK banking regulation? A utilitarian perspective determines morality dependent on the consequential right. Placing minimal consideration on criticism of the Vickers report by banks, the regulations are beneficial to the UK market as the markets will be more secure attracting additional businesses (Boeckman, Greenwald & Von Bismarck 2013). The report by Vickers and the Independent Commission on Banking (ICB) recommending the ring-fencing of the retail banks from being “casino” investment banks so as to ensure safety of the taxpayers’ money (Boeckman, Greenwald & Von Bismarck 2013). The markets will eventually be more reliable, enhanced predictability, strict adherence to the set regulations, and there is increased feeling of safety be the depositors (Boeckman, Greenwald & Von Bismarck 2013). Using arguments based on the ‘maxims’ of duty would you consider the UK banks to have acted ethically in their operations? Three tests can be used to test every probable action and every particular action is considered morally right if it survives the entire three tests by the three maxims according to Immanuel Kant’s (1724 – 1804) (Kant, Wood & Schneewind 2002). The three maxims put forward the characteristic of morality in three important aspects; Maxim 1; Perform a deed in accordance to the maxim through which one is capable and can equally exist as a universal law. In accordance to this maxim, the request would for everybody to act appropriately respective to the principles of their actions. The motive by the banks to issue the home loans and mortgages to individuals with poor credit history and with the inability to pay the loans was to earn increased interest earnings (Kant, Wood & Schneewind 2002). This was applied as a universal law and it results into chaos when the loans are defaulted and spelling doom to investment banking. Therefore, it is a failure in implementation of the first maxim. Maxim 2; Act in a manner so to treat humanity, regardless of your personal standing and that it has an end rather than solely the means. The criterion of human dignity bases the justice of the existence of duty according to maxim 2. The case illustrates bankers who were solely driven by greed, misused and abused the prevailing market regulations thereby resulting in ruined lives. This move was instigated with minimal consideration to human dignity, where the customers were entangled in endless debt circumstances whilst the banks reeled off the profits (Kant, Wood & Schneewind 2002). Maxim 3; It describes acting in ways through which the consideration of the maxims is of the universality law of giving. This illustrates the responsibilities of the banks under the principle of universality. The acts of the investment banks would not be copied by other individuals and the pretense by the investment bankers who are currently suffering a post crisis condition of having learnt from previous undoing by current moral acts minimally satisfies this maxim. Maxim of the mortgage market describes a circumstance of ease in borrowing subprime mortgages in case of need of financing. In addition, the UK lending regulations for the banks was devoid of the moral responsibility and adheres to some regulation autonomously to conform to the second imperative (Kant, Wood & Schneewind 2002). In addition, these laws are considered immoral since the lending practices by the banks were out of interest in expansion of credit among the populous. Therefore, it is imperative to illustrate that the immoral acts of both the lenders and the customers go against the three maxims with the primary cause of the financial crisis being mortgage lenders’ immoral actions (Kant, Wood & Schneewind 2002). 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 most evident in this situation exist between the mortgage borrower and the mortgage lender. The rudimentary principle of the subprime crisis granting at reduced interest rates minimum credit quality loans which would then be securitized and sold to any mortgage industry potential investor (Crane & Matten 2010). These rights include; The specific rights of the banks to have the capability of accessing retail banking services to finance the particularly risky investments Small businesses have the right to have the capacity to acquire loans with suitable interest rates The government’s right to have the capacity to adopt and implement the regulations or policies that restricts banks in engaging in risky behavior and to limit their reliance on the taxpayer’s money. The banks have the right to be considered on the costs of reforms that would influence the small and medium sized institutions that would therefore not be able to offer certain services. In addition, the tax payer has the right to be free of the burden of the costs of bailing out banks The most prioritized of the rights listed above are the rights of the tax payer. These are particular since they are the ones immensely affected as they were burdened with bailing out the respective failed institutions. Presently, the tax payers are the ones greatly affected amongst all stakeholders (Giudice, Kuenzel & Springbett 2012). This is because; the taxes to be paid were increased, there has been increased unemployment, and a sharp decrease in the living standards of individuals due to the decreased incomes. Select and apply two other normative theories to critically examine the current situation? Virtue Ethics The situation presented would be critically evaluated and a preventive approach to the financial crisis provided. The illustration by the virtue ethics where an individual’s morality is from within and it elucidates appropriate lies rather not in rights and rules but in the classical impression of character such as; firmness, honesty, generosity, and compassion (Giudice, Kuenzel & Springbett 2012). The virtue ethics emphasizes the existence of humans as subjects rather than operatives to the set regulations and rules. It bases its primary principles on the character, agent, and the personalities of the person in particular. This theory seeks to produce individuals of excellence and those whose acts are out of impulsive goodness and reflect and inspiration of confidence amongst their consumers. The theory can be applied in circumstances either by individuals or institutions that are ‘whistle blowers’ and have their personal character conflicting with their institutions’. This circumstance forces the individuals to become unfaithful to organizations and break the unwritten code of silence so as to preserve their personal integrity and character. Environmental ethics This aspect of increasing importance in numerous discussions since the influence of enterprise on the degradation of the environment; land, air, and water is acknowledged. This principle can be approached in two primary ways including; The polluter principle that argues that the costs of cleaning up the environment should not be external to the respective businesses and that the exploitation of resources ought not to be free to the enterprises. This has led to combative initiative such as Carbon trading. The deep ecology or the bio-centric view purports to discriminate the economic activities by businesses from a mere anthropomorphic standpoint and perceives the individual’s social system as integrated with the immense bio-system with which they are interdependent. This dependency of survival with the environment emphasizes the business’ minimal negative influences. These theories present similar approaches in the ultimate conservation of the wellbeing of humanity and the necessity of the business ensuring sustainability as the prioritized objective (Crane & Matten 2010). References Boeckman, P., Greenwald, D. J., & Von Bismarck, N. (2013). Twelfth annual institute on Securities regulation in Europe: overcoming deal-making challenges in the current markets. New York, NY, Practicing Law Institute. Crane, A., & Matten, D. (2010). Business ethics: managing corporate citizenship and Sustainability in the age of globalization. Oxford, Oxford University Press. Giudice, G., Kuenzel, R., & Springbett, T. (2012). UK economy: the crisis in perspective: essays On the drivers of recent UK economic performance and lessons for the future. London, Routledge. Kant, I., Wood, A. W., & Schneewind, J. B. (2002). Groundwork for the metaphysics of morals. New Haven, Yale University Press. Labrosse, J. R., Olivares-Caminal, R., & Singh, D. (2011). Managing risk in the financial System. Cheltenham, UK, Edward Elgar. Singh, D. (2007). Banking regulation of UK and US financial markets. Aldershot, Ashgate. Read More