Enterprise and Social Responsibility - Assignment Example

Enterprise and Social Responsibility Name Professor Institution Course Date Enterprise and Social Responsibility Introduction In the previous decade, ethics in the banking sector has drawn numerous public debates due to its obvious critical role in the sustainability of banks and their relationship with the society (Arjoon 2005, p.3). The headline in the recent years has depicted sad news of unethical conduct on banks, particularly the UK and US banks. Recent problems which have manifested themselves compose of financial products mis-selling like complex interest rate and LIBOR manipulation by numerous United Kingdom Retail banks. Arjoon (2005, p.3) claims that some of the banks that have been in the limelight because of unethical conduct include Morgan Chase, Northern Rock and Bradford and Bingley and Lehmans brothers among others. Banking experts contend that corporate failure and unconvincing accounting practices have led to weakening the confidence of the shareholders. 1.1 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? In the recent time, to be precise 2013, Chase Morgan was one of the banks that has been fined with unethical conduct due to poor culture and lack of control after its shareholders lost up to $4 billion. Also, the company mis-sold financial products and manipulated LIBOR. In the situation, Stakeholders were adversely affected by Chase decisions Morgan’s policies, operations and decisions. Some of the stakeholders that were affected consist of employees, customers, creditors and government. In Northern Rock case, the customers’ shares reduced to valueless and ownership was diluted because of the Government getting a minority stake. Customers also lost confidence on the banks and drawn their credits as a sign of protest. Employees were also affected by the unethical conduct because they depend on the work for income (Thompson & Cowton 2004, p.201). Staffs not in the money making ranks held a majority interest in operating in an atmosphere which provided job security. These staffs had the emphasis on operating in positions which provided rewarding tasks while offering the pleasure of understanding there may be a stable job (Deckop 2006). Nevertheless, after the scandal had erupted, they were not sure of their jobs. Actually, the company layoff some staffs to offset its losses it had incurred due to London whale. Due to lack of risk assessment, depositors lost much of their savings. The housing sector was severely affected forcing the government to intervene and rescue mortgage broking companies. Customers who had acquired loans and mortgages were adversely affected cold not sell their house due high. 1.2 From a utilitarian perspective, would you argue for or against the proposed tightening of UK banking regulation? Analyzing it from the utilitarian perspective, I would argue for a proposed tightening of UK banking regulation. This is because the major emphasis of utilitarianism is maximizing utility. Bredeson (2011) argues that in business ethics discipline, utility is best explained as the intention to get maximum happiness while reducing the suffering level. It implies total pleasure for the bank and public in general has to be the major aspect of decision making (Joanne 2009, p.3). In business perspective, the management action at Chase Morgan is totally unethical. Due to risky trading, large amount of money got lost, hence making the banking management unhappy. Additionally, extensive effects of the scandal made several people across the globe unhappy. If the business would have benefited the bank then utilitarian perspective of morality would have been contented (Bredeson 2011). Nonetheless, the bank not only failed to improve satisfaction, but efficiently reduced the level of contentment which had been there. To summarize the issues resulted by the Management, the managers operated the banks in a way which was in contradiction to Utilitarianism. In order to reduce suffering resulted by dismal trade and money loss, managers like Ina Drew, and Dimon decided to hide the losses from the public. When the news reached the public, there was an apparent feeling of mistrust among the managers. After all, the bank did what it wanted to avoid. In a nutshell, there was no utility achieved. 1.3 Using arguments based on the 'maxims' of duty, would you consider the UK banks to have acted ethically in their operations? The mortgage predicament rose because of different causes that were interconnected. Particularly, funding and buying of homes with low interest rates of easier lending in the US was the major rationale for mortgage predicaments. This predicament did not just affect the US, but also the whole of Europe. The renowned philosopher Immanuel Kant held that for an act to be considered ethically right, three circumstances must be satisfied consisting of human dignity, universality and consistency (Johnson 2009). Kantian concept is anchored in the primary categorical imperatives that are fundamentally non-utilitarian. According to Johnson (2009), Kant thinks that an act is ethically right if its intention is ethically acceptable regardless of the outcomes. The on-goings of the mortgage sector has put the situation under Kantian ethics to evaluate the basis for the subprime crisis. Maxim based on mortgage perspective can be created since “anybody is likely to borrow mortgage credits at any time anyone requires money for funding”. In this aspect, the maxim is ethically right if it is universal. The maxim cited above upsets the initial categorical imperative that claims that the action is ethically acceptable if the maxim is universal accepted.” According to Johnson (2009), a duty has to be accepted by the society. Therefore, managers, employees and even customers of banks such as Chase Morgan, UK Northern Rock and any other banks must honour their duties. For managers and employees, they must understand that manipulation of Libor is not accepted because is bound to affect both the bank and shareholders in the long run. Similarly, customers must borrow knowing that their will be able to repay the whole amount. Therefore, it can be argued that UK banks did not act ethically and breached the categorical imperative that claims that any person persons ought to be treated as an end and not s means. However, this is not true because UK banks used mortgage borrowers, even after government deregulation. The banks also act of lending did not follow the universals law and led to financial crisis hence it was unethical. 1.4 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 disagreement of rights which took place in this case is between the mortgage borrower and the mortgage lender. The fundamental approach of a financial crisis was that lower credit loans issue at the low rates of interest were hence securitized and traded to investors who intended to invest the mortgage sector. There were different rights that were the situation entailed. The rights of customers were violated when the company failed to tell them the right information concerning lending laws, and also when the manipulated the laws of LIBOR. Pedersen, Rahbek & Mette (2006) asserts that normally when customers are not told right information, they find themselves making the wrong financial decision which can affect them for the rest of their lives. In such situation, the bank also stands to taint its image and also to loose its loyal customers (Thompson & Cowton 2004, p.206). The customers also were not assured the rights of security of bank products. After some few years, mortgages borrowers started to experience business as less people were buying real estates. The company also had to be rescued by the government to cover its debts. The company rights were also violated by the management by allowing people with bad credit history and no guarantee of repaying were granted loans. In this case, the right to information was denied. Thompson & Cowton (2004) posit that the company must create a well defined communication channel integrated with the lending laws and rights within system so that they can be accessed by anyone. 1.5 Select and apply two other normative theories to critically examine the current situation? Sometimes it’s difficult to make decision since it can affect the company. On the other hand, decisions can make the company escape crisis. However, all in all as trusted banks, UK and the US banks ought to make decision which improves their images to make sure they remain sustainable. Without proper image, the operations of the banks and expansion would be ever more difficult (Steven, Deguire & Lay 2005, p.47). Decisions take in normative theories which in turn consider virtue ethics, deontology and consequentialism of action. Ethics hold that action must take the form of three aspects; therefore the action of lending and mortgage borrowing took this line. Virtue ethics consider whether the character of the actor is right or wrong, deontology and consequentialism looks at the reputation of the act and the rule (Russell &Daniel 2013). The characters of the banks’ management are one instance, which can be analyzed through normative theory. Another case which can be analyzed the act of the management and the rule of lending or loaning. Managers of the Chase Morgan and other exploitative banks can be described as manipulative and self-centered. The managers manipulated LIBOR to ensure it attracts more customers to their products hence more profits. The act denied customer justice in knowing true information about the current situation of the credit, interest rates and mortgages. On the other hand, the current situation has been brought up by ignoring consequentialism ethics. The managers had narrowed the consequences and only thought it would increase profits and not taint the image and reduce profits in the long run. Conclusion` In conclusion, this report has established how UIK and the US banks have been unethical in the recent past. The act has continued to become a heavy burden on the banking sector and government. The government has been forced to come in and intervene to improve their financial sectors. The situation has severe consequences on the government because it lowers its reserves. Also, it creates a situation where customers cannot borrow from the bank the amount they need. As such, government must monitor the set banking laws to ensure that they prevent lending, interest rates, credits and mortgages crisis in future. References Arjoon, S 2005, Corporate Governance: An Ethical Perspective, University of the West Indies, p. 1-36. Bredeson, D 2011, Utilitarianism vgs. Dentological Ethics: Applied Business Ethics: A Skills- Based Approach, Cengage Learning. Deckop, J. R 2006, Human resource management ethics, Greenwich, CT, Information Age Publishing, Inc., Chapters 3, 4, 6 and 14. Joanne, C 2009, Leadership and the ethics of care, Journal of Business Ethics, Vol. 88, pp. 3-4. Johnson, R.N 2009, 1: Good Will and the Moral Worth of Acting from Duty, In Hill Jr, Thomas E. The Blackwell Guide to Kant's Ethics, Wiley-Blackwell. Pedersen, Rahbek, E & Mette, A 2006, Safeguarding Corporate Social Responsibility (CSR) in Global Supply Chains: How Codes of Conduct are Managed in Buyer-Supplier Relationships, Journal of Public Affairs. Russell, E &Daniel C 2013, The Cambridge Companion to Virtue Ethics, New York, Cambridge University Press. Steven, A, Deguire, K.J & Lay, M 2005, The relationship of ethical climate to deviant workplace behavior, Corporate Governance, Vol. 5, No.4, pp. 43-55. Thompson, P & Cowton, C.J 2004 Bringing the Environment into Bank Lending: Implications for Environmental Reporting, British Accounting Review, vol.36, No.2, pp. 197–218. Read More