Ethical Problem in Business - Essay Example

Ethical problem Introduction Businesses exist so they can produce goods and services that are needed by the consumers, while making value to the shareholders. Therefore, the relationship between the shareholders and the management of the company is based on the assumption that the managers will act in the best interest of the shareholders, by doing all that appertains to creating value for the shareholders (Frederic, 12). Nevertheless, it is not uncommon to find a situation where the relationship between the shareholders and the management is characterized by ethical conflicts, arising from the actions of the managers which do not seem to be directed towards protecting the best interest of the shareholders (Weiss, 33). Therefore, this discussion seeks to analyze the causes of an ethical conflict between a manager and shareholders that entails the manager hiding some information to the shareholders, with a view to categorize the nature of the conflict, its causes and how it can be avoided. Define the conflict The action of the managers to hide some information to the shareholders is unethical. This is because, ethical behavior requires that any decision reached by the management should be a truthful one, and thus any action that is mean to hide the truth from the shareholders is unethical (Frederic, 17). This type of conflict falls under the category of conflict referred to as Normative ethics, in a subset referred to as professional ethics, which requires that the professional conduct of individuals within an certain professions should act in accordance with set standards of right and wrong, and the deviation from such conduct eventually creates an ethical conflict (Weiss, 41). The classification of this ethical conflict under the Normative ethics category is informed by the fact that Normative ethics apply a practical approach towards arriving at an ethical decision, which has to do with the duties that individuals should follow and the implication of behaviors of an individual on others (Frederic, 31). Explaining the conflict can happen in the corporation Normative ethics conflict can happen in organizations due to conflicts of interests, where the interests of the professionals tend to compete with the obligations and responsibilities of the professional (Weiss, 72). The managers can hide information from the shareholders, so that they can favor their interests at the expense of the interests of the shareholders, considering that he interest of the shareholders and those of the management are always conflicting (Frederic, 22). Therefore, the managers can hide a potential investment venture to the stakeholders, which would have long-term benefits for the shareholders through enhancing organizational growth, and prefer to pursue short-term investments that will result to short term benefits for the shareholders, to avoid taking risks, while also trying to make a name amongst their peers and other corporate commentators, who evaluates organizations on the basis of their short term revenues and performances (Weiss, 49). Further, the managers might hide the long-term benefits of an investment from the shareholders, and instead pursue short-term investments, so that they can increase the revenues in the short-term and benefit from salary increments and promotions, at the expense of pursuing investments that may have no revenue benefits in the present, but will yield more benefits and revenues for the shareholders in the future, such as investment in Research & Development (Frederic, 44). The effect of this conflict on the stakeholders This conflict has an adverse effect on the shareholders, since it works towards making the shareholders lose their future value of investment, while the managers are the ones who benefit from the conflict, through financial gains and promotions. Another effect of the conflict on the stakeholders is that; it erodes the trust that the stakeholders had on the managers, since the existence of such a conflict shows that the managers are not favoring the interests of the stakeholders, whenever such conflict of interest arises between the interest of managers and those of the stakeholders (Weiss, 58). The betrayal of the stakeholders’ interest by the management of the organization can affect the stakeholders, such as the employees who are part of the internal stakeholders of the company, through eroding their morale and further lowering their levels of motivation. Further, the unethical actions of the organization can cause the stakeholders to defect from the organization through selling their shares or at least ceasing any further investment (Frederic, 63). Alternatively, the stakeholders can be affected through the downfall of the organization, where the decision to hide information by the managers results to the organization incurring losses or losing its competitive edge, which may in turn cause the organization to fail and thus close down its business. Job security is yet another aspect through which the stakeholders, precisely the employees lose; while the shareholders on the other hand lose future profits that the organization would have created (Weiss, 34). How to minimize this conflict First, shareholders monitoring of the management is one of the way of addressing the normative conflict of interests, where the shareholders, through the board of governors consistently monitors the operations of the organization, to ensure that any relevant information, which is potentially able to causes a conflict of interest is addressed in good time, before the managers hides such information from the shareholders (Frederic, 45). Secondly, offering the right types of incentives to the managers is an effective way of addressing the ethical conflict of hiding information, considering that when the managers are given sufficient information to stay open and clean, they are able to pass all the relevant information that might cause of a conflict of interest between their obligations and their duties to the shareholders (Weiss, 44). Considering that it is relatively difficult for the shareholders to effectively monitor the behavior of the managers, since complete understanding of the managers behavior can take several years, granting the managers sufficient incentives remain the most effective way of addressing this type of a conflict (Frederic, 26). Therefore, giving the managers rewards based on the outcome of their performance and behavior will motivate the managers to ensure making all the necessary disclosures to the shareholders, which might cause them to lose the benefits they obtain from the incentives (Weiss, 77). Works Cited Frederic, Robert E. A Companion to Business Ethics. Massachusetts: Blackwell, 2002. Print. Weiss, Joseph. W. Business Ethics: A Stakeholder and Issues Management Approach With Cases (5 ed.). Mason, OH:: South-Western Cengage Learning, 2009. Print. Read More