‘The main responsibility of business is to increase the profit for its shareholders – discuss ’
Formative Essay Business Ethics and Society
‘The main responsibility of business is to increase the profit for its shareholders – discuss ’.
First I am going to explain the role of shareholders and how they affect the decision making of businesses. I will then discuss other stakeholders and the responsibilities that the business ‘owes’ to them. I also plan to look at examples of real life businesses that have made decisions based on the different stakeholder’s needs and wants and compare this in terms of ethical theories.
Shareholders are just one form of stakeholders that have a stake in the business. They invest in businesses in order to see a return on their money through profits. It could be argued that investing large amount s of money into a business is risky and so the largest incentive is financial. A business is usually run by a group of managers/directors on behalf of the shareholders. Shareholders attend annual general meetings in order to use their powers and exert control over the Directors. However, it is important to note that shareholders can also be directors. For example all John Lewis employees own shares of the company, so they have more of an incentive for the business to be successful in order to keep their jobs and investments safe. Shareholders also have certain duties to fulfil; this is laid out in the Companies Act 2006.
Directors have responsibilities to their employers, the shareholders, ensuring the business is successful financially. However, Freidman (1970) also states that Directors need to conform ‘to the basic rules of society, both those embodied in law and those embodied in ethical custom’. This suggests conflicts of interest as some decisions made by directors may benefit shareholders in financial gains, but other stakeholders such as the environment or customers may suffer as a result. An example of this is the case study by Fisher and Lovell (2005) concerning a large pharmaceutical company. In order to achieve
‘The main responsibility of business is to increase the profit for its shareholders – discuss ’.
First I am going to explain the role of shareholders and how they affect the decision making of businesses. I will then discuss other stakeholders and the responsibilities that the business ‘owes’ to them. I also plan to look at examples of real life businesses that have made decisions based on the different stakeholder’s needs and wants and compare this in terms of ethical theories.
Shareholders are just one form of stakeholders that have a stake in the business. They invest in businesses in order to see a return on their money through profits. It could be argued that investing large amount s of money into a business is risky and so the largest incentive is financial. A business is usually run by a group of managers/directors on behalf of the shareholders. Shareholders attend annual general meetings in order to use their powers and exert control over the Directors. However, it is important to note that shareholders can also be directors. For example all John Lewis employees own shares of the company, so they have more of an incentive for the business to be successful in order to keep their jobs and investments safe. Shareholders also have certain duties to fulfil; this is laid out in the Companies Act 2006.
Directors have responsibilities to their employers, the shareholders, ensuring the business is successful financially. However, Freidman (1970) also states that Directors need to conform ‘to the basic rules of society, both those embodied in law and those embodied in ethical custom’. This suggests conflicts of interest as some decisions made by directors may benefit shareholders in financial gains, but other stakeholders such as the environment or customers may suffer as a result. An example of this is the case study by Fisher and Lovell (2005) concerning a large pharmaceutical company. In order to achieve
Bibliography: Chamberlain ‘Apple 's Chinese workers treated 'inhumanely, like machines ' The Observer, Saturday 30 April 2011 Companies Act 2006 http://www.rtcoopers.com/companiesact2006.php Edward Freeman “What is Stakeholder Theory?” Business Roundtable Institute for Corporate Ethics, available at www.youtube.com/watch?v=bIRUaLcvPe8. Fisher and Lovell 2005 sited in ‘Business Ethics and Values, Harlow: FT/ Prentice Hall (2nd Edition) pp 315-6 Mckinsey & Co “The McKinsey Global Survey of Business Executives: Business and Society,” January 2006, Milton Friedman, “The Social Responsibility of Business,” The New York Times Magazine, Sept. 13, 1970. http://cqresearcherblog.blogspot.co.uk/2011/05/do-businesses-have-ethical-obligations.html