Term Paper on "Ethical Theory and Business"

Term Paper 5 pages (1689 words) Sources: 4 Style: Chicago

[EXCERPT] . . . .

Social Responsibility

Two prehistoric men (corporate executives) go hunting for their families (corporate stockholders). It is cold, and animals are scarce. The men are competing for the little food that remains to keep their wives and children alive. One man spies a lone animal that will just about be enough for the quantity needed (profit, positive gain). He does not let the other man know he sees the animal. This is not unethical; both men understand and agree to these standards. He kills his find, brings it home and leaves the other man to fend for himself. That night, after his family eats, the man's wife explains that the fellow hunter was not as successful and did not find food; she is concerned about his family. Her husband now assumes a different role. As CEO, he fulfilled his obligation, or social responsibility, of caring for his family unit. Now, he has the concern of helping others in his clan. It is his social responsibility to find a balance between his two roles of corporate executive and clan member. After allotting for necessary needs, he has a little meat left over, as do several other clansmen. The men combine their small amounts and give it to the other man's family. They are returning a favor that he did for them earlier. Sharing is a necessity for the clan's continued existence. Although this allegory takes wide latitutde of terminology, it demonstrates the difference between "social responsibility" by a corporate executive of a business and an individual person. As Milton Friedman (1970) states: "There is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud."

Several points are indicated here. First, as Friedman points out, a corporation is a non-living entity or "an artificial person." It may have artificial responsibilities, but "business" as a totality, cannot have responsibilities. The corporate executive in a free-enterprise, private-property system as those in Western democratic societies is an employee of the owners of the business, his employers. In the broadest sense, the caveman's family is his employer. His obligation as head of the household, a corporation, is to take care of his family. His responsibility is to conduct the business in accordance with their desires, which is to care for them as well as possible while conforming to the basic rules of their society, both those embodied in law and those embodied in ethical custom. For example, the man did not beat his fellow clansman unconscious in order to guarantee that he would find food first. Further, when going home with his kill, he did not break the society's ethical standards. As noted by Friedman (1970):

In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate. There are no "social" values, no "social" responsibilities in any sense other than the shared values and responsibilities of individuals. Society is a collection of individuals and of the various groups they voluntarily form.

In other words, shareholders own the corporation. Thus, corporate profits belong to them. Corporate executives act as the shareholders' agent and so are responsible to them. These shareholders are entitled to profits that result from a contract among the corporate stakeholders. As Boatright stipulates (1994), managers do not have a special fiduciary responsibility to shareholders, because these individuals already have protections unlike those of other stakeholders. Shareholders have enough protection given their right for such actions as to elect the board of directors and vote on resolutions.

Second, one can also look at this situation from a stockholder/shareholder viewpoint, as noted by Hasnas (1998). The difficulty with this distinction is that there is no definitive line that separates a collection of individuals into "a new, separate and distinct entity that is endowed with rights or laden with obligations not possessed by the individual human beings that comprise it." This implies, adds Hasanas, that the necessary normative theory of business ethics must consist of the ethical obligations produced when a person voluntarily joins the complex institution of contractual agreements that makes up a business. However, as Hasnas, stresses, accepting the stockholder theory does have its problems: 1) it does not properly deal with the limits managers' ordinary ethical obligations as human beings place on the actions they may take in the business environment and 2) it completely fails to explain the managerial obligations that develop from the actual agreements made with the non-stockholder participants in the business enterprise.

In response to this dilemma, perhaps it is necessary that two steps be taken. In the first place, it is important that the shareholders, or employees, assume their own responsibilities. In addition to doing their jobs (or, for instant, the caveman's wife caring for her children, making clothes, and finding berries and fruit), it is the social responsibility for the shareholders to ensure that the corporate executives are following the agreed upon ethical considerations. if, for example, the wife learned that her husband did indeed beat up the other man to get food, she is obliged to do something about it. In today's society, that is called "whistle blowing." In the Enron case, for instance, it took individuals such as Sharon Watkins to stand up and detail what was happening. Of course, shareholders are most often not privy to what is taking place in the upper layers of management. However, those individuals who are in that position (including the board of directors) need to accept this responsibility of watchdog. Secondly, it is imperative that each company write in detail an ethics contract for its organization. After situations such as Enron, many corporations scrambled to write ethics policies. Some companies did so with a sincere desire to follow them; others wrote them just to say they did, and the policy does not have much meaning. Still, some companies have yet to write any policy at all. It is essential for a company to have an ethics contract, so that the shareholders know if the company meets their own personal ethical standards and that the business as an inanimate entity has some guidelines in place.

The third factor that the story about the prehistoric man story raises is the difference between someone in a corporation capacity and that same person in a societal capacity. In the former, the CEO must ensure that he will do everything within reason for the organization. What if this caveman killed the animal and then gave the meat to another family besides his own? This would be unacceptable, since his obligation is to his own company. Only as an individual acting on his own, not on the behalf of the organization, can he make such as decision.

It is important to stress that being responsible for making profit does not give the CEO carte blanche to do what he/she wishes. As noted above, there are ethical considerations at all times. It was all right for Enron to make a profit; it was not all right for the officers to do so for their own sake at the cost of others. Friedman's views, for example, offer a concise understanding of ethical miscreants like the officers of Enron in its heyday, Enron was seen as the model of social responsibility. It was seen as one of the best companies at which to work and a prime example of how to effectively run a company amidst the height of a competitive environment. In fact, it won several social responsibility awards. It regularly reported on its actions on behalf of social and environmental issues.… READ MORE

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