Group Project in Ethics - Research Paper Example

The financial crisis that began in 2007 destabilized the banking sectors and its effects spread to other industries across the globe. Banks’ risky behaviors in lending were the major cause of the crisis and governments were quick to bail out the banks and other large companies because of their perceived significance. Other sectors such as the retail industry, though significantly hit by the crisis and are major sources of employment, did not benefit from government aid and faced collapse. This paper explores the scope of such crises and the government's role and position in resolving the crises.

1. Stakeholders of a corporation
Stakeholders in a corporation are people, groups of people, and entities with an interest in the corporation’s achievements. They can be classified into two groups, internal stakeholders, and external stakeholders. Shareholders are the first group of stakeholders, their interest is in their investments and the potential rewards from the investments. A corporation’s employees are another set of stakeholders with a stake in job security and the corporation’s ability to pay remunerations on time. Management, a part of employees, also has an interest in their obligations as the corporation’s custodians (Hill and Jones, 2012). External stakeholders include bondholders and other types of creditors whose interests are in the corporation’s ability to repay its liabilities, consumers because of their dependence on the corporation’s products, and the government whose interest includes tax from the corporation and regulatory measures over the corporation. Other stakeholders are the society within which the corporation operates, and immediate and extended economies (Hill and Jones, 2011).

2. Relative significance of entities and government’s responsibility to sustain entities discriminatively
Stakeholders’ interests determine the relative significance of an entity to an economy and I believe, based on this argument, that some entities are very important, and should not be allowed to fail. My argument also relies on utilitarian ethics that supports maximum good for the largest section of society and this means that the number of stakeholders in an entity should determine its significance. Consequently, entities with the highest number of stakeholders are more important than those with few stakeholders. Entities whose actions pose macroeconomic consequences are also more important than those whose impacts are limited in scope (Brooks and Dunn, 2009). The relative significance of entities also depends on the possible impacts on market sustainability and those that can lead to market collapse are more important than others whose impacts on market sustainability are mild. The quality of jobs in an entity and the value that the entity adds to the economy also justify the position that some entities are more important than others. The government, as the custodial of the national economy, should therefore help the important businesses to sustainability during the financial crisis to ensure economic stability. The government should however restrain from help to less important businesses because of possible involved strain on federal expenditure and because of the need to promote prudence and self-reliance among businesses (Gilpin, 2011).

3. Determinants of deficiency and the need for downsizing, and benefits of downsizing solving deficiency
Many measures exist by which a company may be considered deficient. A high debt ratio such as debt to equity ratio that shows the percentage of debts relative to an entity’s internal equity indicates deficiency. A company’s inability to honor debts as they become due, an increased number of court cases over defaulted payments, and human resource problems regarding employees’ remunerations are other measures for determining a company’s deficiency. The extreme level of these measures identifies the need for downsizing as a strategy to improve a company’s liquidity toward meeting its obligations. Downsizing can help an organization solve the deficiency problem by reducing cash outflow (Sutherland and Canwell, 2008).

4. The bailout issue: The Company and its stockholders’ perspective
The bailout is a necessary initiative to save a company and its stockholders by empowering the company to an operational state. It, therefore, ensures the company’s sustainability and safeguards stockholders’ interest in their investment that would otherwise be lost with the company’s collapse (Phillips, 2009).
5. Problem with the government taking an equity position in a private enterprise

The government’s acquisition of a company’s equity induces decision-making and managerial complications for the company and its stockholders.
These identify the disadvantages of asset acquisition by the government upon bailout (Porter, Glauber, and Healey, 2011). Read More