Enterprise and Social Responsibility - Assignment Example

Student Name: Tutor: Title: Enterprise and Social Responsibility Course: Question 1 A stakeholder is a person, a group or an organization that has an interest in a business or organization. Stakeholders have a stake in a particular business. Different stakeholders in this case study have been affected differently. Every stakeholder acts in his own self-interest and possesses different expectations (Slote, 2001). Financial institutions The financial institutions in the case are adversely affected since they are losing money through the risk-averse policies that they used to conduct their business leading to the financial crisis. British financial institutions like Bradford, Bingley and Northern Rock were emulating a similar trend exhibited in America such as giving 125% mortgages and granting loans only based on self-certified income declarations. Banks became persistently risk averse lending out up to forty times the amount held by them in terms of deposits. The situation was made worse with rash diversification and acquisition policies. Morgan Chase bank was fined about £527 million for failure in culture and control following the loss of £4 billion by London traders. Fines harm banks. Banks made losses in forms bad debts that comprised of loads that could not be recovered. Taxpayers Taxpayers have been negatively affected since the state was forced to provide up to £70 billion to provide financial support to UK banks and in an effort to mitigate the collapse of the banking sector. The money that the government used is taxes from the taxpayers. In a disparate move to help the banking sector recover its stability the UK government has taken liabilities that have the ability to rise to trillion pounds and be footed by higher taxation as well as cuts in public expenditure which would take a long time. There is partial state ownership via increased government funding. The government owns 90% of RBS and is the major shareholder in TSB. This is enabled through the taxpayers’ contributions in forms of taxes and other levies. The taxpayers have suffered following mistakes made in the banking industry. Shareholders The shareholders have lost their investments or its value decline to the lowest degree. Shareholders in the affected banking institutions are displeased with the prevailing situation. The value of shares of Northern Rock has dwindled to almost worthless and the share prices of major banks affected adversely. Depositors/consumers The depositors feared they will lose their hard-earned income. The consumers were misled into buying financial packages that were risky. Mis-selling of financial products like complex interest rate swaps extended to small businesses as well as manipulation of LIBOR by various retail banks in the UK. As rumours about the failing banking system spread individuals and companies started to queue up to close their accounts. In case a bank fails in the UK, it will lead to loss of confidence by the public in the banking system and subsequent huge withdrawals of their deposits. Both small and large businesses are complaining of banks recalling their loans and unwillingness to offer new finance in spite of customer credit being available. Some of the clients offered credit were unable to pay up the loans. Employees The employers were entangled in the crisis situation. The employees were motivated by the bonuses they were getting from getting clients to borrow more. The bank managers became obsessed by bank targets linked to very high bonuses and started to ignore risk assessment in favour of attaining sales targets in order to maximize their bonuses after attaining the targets. Failure of the banking sector led to loss of jobs as some banks closed shop. Regulators/government The regulators were charged with the responsibility of monitoring the banking activities. The Financial Services Authority instituted during Gordon Brown Chancellorship chose a light touch regime hence with a hindsight that was totally ineffective and inappropriate. The Bank of England that has a responsibility of influencing policies by commercial banks has been preoccupied with inflation controlling as its main objective. The Labour government had done nothing to control the situation in the banking sector when it became shaky. The government was forced to come in and rescue the banking sector from collapse through bailouts. Question 2 The Utilitarian perspective is credited to the philosopher Jeremy Bentham. Utilitarian perspective revolves on the consequences that policies or actions have on the well-being or utility of all persons indirectly or directly affected by the policy or action. The moral right or wrong of actions depends solely on their effects (LeBar, 2009). The utilitarian moral theory calls for moral judgment to be based on equal consideration of interests. I would argue for the proposed banking regulations using the utilitarian perspective. A requirement for all banks to maintain a capital ratio that is higher in order to support lending aims to bring stability in the banking system. Deregulation contributed to a large extent to the financial crisis (Winter, 2011). Deregulation allowed banks to have the final say on how to contact their business. This made banks to be continuously conservative with regard to their lending policies. It reached a point where loans were being accorded for home purchasing to people who had a poor credit history and little chance of meeting their financial obligations. The stark reality was camouflaged in short term discount periods with rates set artificially low hence making the likelihood of monthly payment impossible once the discount period elapsed. The aggressive nature of banks for new business was triggered by the shift in the banking culture as a result of deregulation that progressively linked staff bonuses to sales volumes hence making them to maximize bank lending. Regulation will make banks be careful in their operations and have shrewd policies to guide transactions. However, the stringent rules in the financial sector would enhance rigidity which will make competitors from other countries to have more options. The Confederation of British Industry explains that the structural reforms will shrink the lending volumes as well as make London to be less competitive as one of the international banking centers. The proposed reforms will make Britain to have a tightly regulated banking industry alongside Switzerland. Britain, whose income largely relies on income from international banking in London will become the worst affected among the developed countries and this is compounded by the fact that its economy is still in a dangerous stage. The reforms have been scheduled to be implemented over an eight-year period and doubts have been cast as to whether they will ever be completed. Question 3 Immanuel Kant proposed that moral requirements are founded on a standard of rationality referred to as Categorical Imperative (CI). Immorality entails violation of CI and irrational. According to Kant an individual is able to determine the moral status of actions through deriving the moral status of the action out of the categorical imperative (Bailey, 2010). The action’s maxim has to be shown to be universal and necessary. Using maxims of duty the UK banks did not act ethically in their operations. The UK banks should have found the maxim of their actions, change the maxim to universal law and check what would happen if all financial institutions behaved in the same money. Failure to consider the maxim and its universality led to the failure in the banking sector. Employees were treated as means in many situations not as ends (Walker & Ivanhoe, 2007). The bank managers became obsessed by bank targets linked to very high bonuses and started to ignore risk assessment in favor of attaining sales targets in order to maximize their bonuses after attaining the targets. Each bank never considered what would happen if every bank acted in the same manner of chasing targets, aggressive selling of loans and mortgages to people with poor credit history. Prices of houses in the UK have risen relative to incomes as compared to other places in the world except Ireland; large part of this ‘boom’ had been cultivated by aggressive lending policies of the banks. Banks were driven by individual self-interest and never thought about their actions being replicated universally. Question 4 Financial institutions The financial instructions have the right to engage in engage in legitimate business. The banks are entitled to sell their genuine products to the public. They have to operate in a safe environment regulated by the state. Taxpayers Taxpayers need to know that their funds that have been collected through taxes are used for the public good. They have a right to be told how the money is being used. Shareholders Shareholders require responsible management that will ensure safety and profitability of their investments. They have to be informed about the safety of their investment and future plans of the banks (McGee, 2008). Depositors The depositors have the right to have their investment safety assured. They have the right to access their money whenever they want it. Depositors can also access services by the banks at any time. Consumers Consumers have the right to know the truth and be informed of risks. The consumers need to understand the compositions of any product or services sold to them (Sandler, 2013). Employees Employees are entitled to a stable labour market. The employees would want to know that they work in a secure labour market and that they jobs are safe. Have to be remunerated according to their input and not only used to meet the interest of the banks. Regulators/government The state regulations the banking industry and provides guidance. The regulators have to know what the financial institutions are doing. The rights of shareholders and consumers/depositors matter most in this situation but the rights of all stakeholders have to be considered. Question 5 Virtue ethics is a key approach in normative ethics. It emphasizes on the moral character or virtues as opposed to duties or rules (Taylor, 2006). If the UK banks had strong corporate culture that encouraged honesty and generally virtues, there would people who would have raised an alarm about the bundled packages that was being traded. Banks were creating loan books which had been riddled in bad debts and in order to make their balance sheet look good they bundled loans into packages that they sold in the financial market. The bundled packages were full of toxic assets that had loans with little chance of being repaid. The situation resulted in a bubble that would eventually burst since all the banks understood the weakness if their financial position. No one was virtuous enough to alert the public or regulators about the mischief that banks were involved in. One of the managers or employees should have had the moral obligation to let the truth be known to the world before the crisis (Merihew, 2006). Every month months brings new revelations as to the degree of questionable practices by banks. References Bailey, O. 2010, What Knowledge is Necessary for Virtue? Journal of Ethics and Social Philosophy 4 (2): 1–17. LeBar, M., 2009, Virtue Ethics and Deontic Constraints, Ethics, 119: 642–71. McGee, R.W. 2008, Corporate Governance in Transition Economies, Springer Science & Business Media, New Mexico. Merihew, A.R., 2006, A Theory of Virtue, New York: Oxford University Press. Sandler, R.L. 2013, Character and Environment: A Virtue-Oriented Approach to Environmental Ethics, Columbia University Press, New Jersey. Slote, M., 2001, Morals from Motives, OUP, Oxford. Taylor, 2006, Deadly Vices, Oxford: Oxford University Press. Walker, R.L. & Ivanhoe, P.J. (eds.), 2007, Working Virtue, Oxford: Oxford University Press. Winter, M. 2011, Rethinking Virtue Ethics, Springer Science & Business Media, New Mexico. Read More