Managers Should Leave Their Personal Values at Home - Essay Example

?DEBATE on “Managers should leave their personal values at home. Their role is to maximize shareholder values” Shareholders of the company are the major source of generating the funds for the company in the form of investments. Company approaches shareholders with the purpose of generating source of investment for the company (Smith, 2003). Therefore it is an essential responsibility of the company managers to maximize the return for its shareholders. The return is given in the form of dividend or in the form of shares (David, 2007). Shareholders invest in the company with the purpose of gaining profits and every profit oriented firm always seeks for maximizing the shareholders value (Roe, 2000). Shareholders value refers to the wealth and profits of the shareholders. It is a part of business ethics that company should strive continuously for maximizing the shareholders value (Zairi, 1998). According to the Vermaelen (2008), Professor of Finance at INSEAD, in the consideration of capitalist economy it is assumed that management has the responsibility to maximize the shareholders value. The value maximization should be considered as an implicit contract and in his opinion it is an ethical responsibility of the managers. Hence, the policies of the company that are designed to reduce the application of this implicit contract must be considered as an unethical practice. Until, of course, the Company has clearly stated in the shareholders contract about the different objectives of using the profit for other purposes. For example, a company decided to start a corporate social responsibility practice in the society for the sake of humanity. The application of this practice will be done by distributing five percent of the company’s profit among the social welfare institutions. Shareholders would not have any problem for this company’s decision because it will improve the company’s image in the society and that could become the reason of rising in stock prices, but still before doing this practice of corporate social responsibility the company should inform its share holders about it. If the company will not notify the shareholders regarding the activity then it is unethical in the view of Vermaelen (2008). The perception or opinion of Professor Vermaelen clearly indicates that the mangers are liable to maximize the shareholders value, if they do so then they are on a right track, and if not, then they are violating the conducts of business ethics. Sometimes it seems that the companies violate the conducts of social ethics in maximizing the shareholders value. Here the question arises, is that ethical to violate the conducts of social ethics to maximize the wealth of shareholders? The profit of shareholders is associated with company’s profit and it has a positive relationship with profit as well. In the consideration of raised question the business ethics are designed to protect the rights of employees, customers, shareholders and the society. And companies are liable to follow the conducts of business ethics. The implementation of business ethics creates the company’s image in the society. The example for violation of business ethics and social ethics is given to understand the importance of considering the business and social ethics in the company’s practices. The case of Nokia in china is the perfect example for understanding the consideration of social ethics in the maximization of shareholders value. Everyone is aware with the fact that the China has low labor wage rates when comparing it with wage rates of other countries. China is highly focused on achieving economies of scale and they are getting success in their vision. Nokia is in contract with few Chinese electronic factories for the supply of mobile parts and accessories. But the factories do not supply the finished products. The factory has a great number of female labors. When the survey was conducted in the factory and female labor are asked to give their reviews regarding the application of policy of business ethics then a negative response was received from the labor. The labor said that the management is asked them to work more than working hours without the overtime payments and extra pressure is exerting on them to produce extra units which completely distressing them at the workplace. The complete violation of industrial law was occurring in the factory and workers were not getting their proper rights (Balmes, 2004). Nokia took immediate steps to reduce the impact of extra load from the female labor. It was actually affecting the social image of Nokia that could be the reason why Nokia took immediate steps. But as far as this debate is concerned whether the personal value of managers should be considered or not in maximizing the shareholders value. The case of Nokia is very much useful in this debate because it is setting the ground for understanding the personal values of managers (Myint, and Lee, 2011). The management of Chinese factory violates the labor law for making the maximum profits and profit maximization leads to the maximization of shareholders value. Here it can be interpreted that Chinese electronic company violated the law for maximizing the shareholders value. Now understand this violation in the context of personal values of managers. The personal values are the guidelines that individual designs for the process of his/her own decision making. Individual design these guidelines on the basis of his/her believes, norms, culture and ethics. It is possible that every individual could have different personal values. For example, In case of Chinese electronic factory who is a supplier to Nokia, if a manager of the factory took the stand on the basis of his/her personal values for the sake of female workers or to protect the rights of female workers then what would happened. The factory management could fired the manager because of interference of his/her personal believes or retain him/her by making changes in the favor of female workers. But the big picture of the scenario is developing a clear perception that factory has nothing to do with workers rights; it has a complete focus on making high profits to maximize the shareholders value. Now see the picture with a broader perception and analyze the view point of Chinese electronic factory employers. In the view of employers and in the view of economists, the maximum production gives the maximum benefits to the country (Mankiw, 2009). The production directly increases the GDP of a country which is the basic requirement for any country for its successful survival (Arnold, 2008). The employer’s believe was that the unfinished product is exporting to Nokia company and a high amount of foreign income is coming in to the Chinese economy and it is a good indicator for economic growth then what is the concerned if the labor is working for some extra hours. The workers should also analyze that they are making a good contribution in the economy. The extra load on workers is driving a high growth in the production sector. This was the perception of employers of the company. The analysis of employer’s perception can be perceived as the driver of fast economic growth. The workers of China are required to work for some extra hours with low wage rates to produce the goods and services in low cost. This will increase the company profits and shareholders wealth. Increased profits and shareholders income would results in the increase in productive investment in the country. The overall scenario is indicating the fast economic growth of the country. The incentive of low labor wage rate is attracting a great number of multinationals to shift their production plants in to Chinese market for producing goods and services with low cost of production (Zentes, Morschett, & Schramm-Klein, 2011). The commencement of multinationals investment increasing the GDP with a high growth rate and huge amount of foreign income is earned by the country. The low production plants of multinationals increasing their profit margins and maximizing the shareholders value. The shareholders of multinational firms are enforcing them to make maximum investments in China for generating high profit margins. The investments creating a high level of employment in the country and living of standard of people is becoming continuously better. Therefore, some extra work of labor cannot be considered as the violation of ethical standards. The managers who believe that the workers should not be forced to work for extra hours then in case of China those managers would be considered as constraint in the economic growth of the country. These personal values of managers can be considerable in the developed countries but for the developing countries managers should have a focus of maximizing the company’ profit along with the shareholders value. Managers of developing countries should understand that maximization of shareholders value is the key to increase the investments in the country. Businesses that are working with the purpose of shareholders value maximization are liable to contribute a certain amount of money in social service to prove their beneficial existence in the society. The charity for the social welfare and for the sake of humanity improves the image of company in the society that reflects the increase in brands value of the company (Griffin, Pustay, & Liu, 2010). In all that company remains beneficial in all the situations and profits remain increases from all the ways. The profit maximization leads to the maximization of shareholders value. The conclusion of the discussion can be drawn as the maximization of shareholders is beneficial for the country’s economy and managers should follow this vision by putting his/her personal values aside and see the picture form a broader perception and take those steps that gives the most benefits to the country. References Arnold, R. (2008). Economics. Mason, OH: South-Western Cengage Learning. Balmes, T. (2004). A Decent Factory. ICARUS Films. David, F. (2007). Strategic Management: Concepts and cases. Upper Saddle River, NJ: Prentice Hall. Griffin, R. W., Pustay, M. W., & Liu, C. (2010). International business. Boston: Pearson Prentice Hall. Mankiw, G. (2009). Principles of Economics. Mason, OH: South-Western Cengage Learning. Myint, T., and Lee, C. (2011). A Decent Factory. Following Things, Available from http://www.followthethings.com/adecentfactory.shtml [Accessed 14th November, 2013] Roe, M. J. (2000). Shareholder Wealth Maximization Norm and Industrial Organization, The. U. Pa. L. Rev., vol. 149, no. 2063. Smith, H. J. (2003). The shareholders vs. stakeholders debate. MIT Sloan Management Review, vol. 44, no. 4, pp. 85-90. Vermaelen, T. (2008). Maximising shareholder value: an ethical responsibility?. Insead, Available from http://knowledge.insead.edu/csr/ethics/maximising-shareholder-value-an-ethical-responsibility-1840 [Accessed 14th November, 2013] Zairi, M. (1998). Benchmarking  for Best Practice. Burlington: Elsevier. Zentes, J., Morschett, D., & Schramm-Klein, H. (2011). Strategic retail management: text and international cases. New York: Springer. 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