A Study On A Stakeholder Approach Business Essay Example

directors' power, prestigiousness, compensation, and bequest with shareholder value

Stockholders desire dividends, capital growth, and safety. There is a choice between short-term and long-term strategies. Tax returns may be obtained from low-cost countries through development. Government is concerned with taxes and employment tax avoidance strategies.

Corruption in developing countries may require the payment of "facilitation" fees, and this can harm societies, employees, and the environment. It can also result in job outsourcing to cheaper countries, where health and safety regulations may be lower. The CEO and management team are also considered stakeholders.

Both the management and administration board have a fiduciary duty to the shareholders, but there is tension between them. The board's responsibility is to ensure that the executive appointed to manage the company acts in the best interests of the shareholders. This can lead to conflict because shareholders aim to maximize their returns while management may have differing objectives. For instance, even if it leads to higher costs and lower shareholder returns, the CEO may prioritize an ethical

supply chain approach. A strong board can address power imbalances and ensure that non-executive managers give priority to shareholder interests.

The board's power to select a new CEO is a serious threat that should ensure compliance with ethical codes. A well-managed company would not combine the roles of Board Chairman and CEO because of conflicts of interest. Non-profit organizations without shareholders also consider the needs of other stakeholders. Ethics, the moral principles that guide behavior in organizations, are an area where management can choose to be proactive (take a leadership role) or simply react to laws and regulations. It is the responsibility of management to determine the ethical stance.

The organization creates a code to support the pattern. The ethical stance is likely to consider diverse stakeholder opinions. To make the ethical standard meaningful, performance should be evaluated. Business outcomes are still important, but so is the manner in which they were accomplished. The development of the triple bottom line concept, which suggests that Corporate Social Responsibility (CSR) measures should be included along with financial and other performance indicators, has emphasized the ethical position of companies.

Bartlett (1990) highlights the impact of concerns about stockholder value on major strategic decisions, which may not always be beneficial. While it is understandable that stockholders expect a return on their investment, many are short-term holders seeking quick gains. This puts CEOs under pressure to deliver immediate results, resulting in conflicting values among the company's stakeholders. One potential solution is to adopt an ethical stance by promoting sustainable sourcing, investing in people, and supporting auditing procedures. However, the additional expenses associated with this approach may be considered too burdensome given the current

challenging economic climate. Nonetheless, abandoning ethical principles could prove costly if governments or trade associations impose fines for non-compliance with standards, or if it leads to negative publicity and a loss of sales.

The text examines the application of Heracleous's (2009) ESCO model in identifying stakeholder tensions concerning ethical concerns. These tensions will be further investigated. The text also highlights different environmental aspects, encompassing political factors such as more stringent regulations on pollution and advertising, minimum wage and safety standards; social factors like a growing emphasis on quality of life resulting in conservation endeavors and pressure from marginalized community advocacy groups; and economic factors such as global expansion necessitating operations in developing nations.

Technological

New technologies have the potential to change work patterns by replacing manual labor with mechanization. However, it is important to consider the possible negative impact on employment that may result from these changes.

Strategy

• Low cost
• When considering outsourcing or offshoring to low-cost countries, a thorough audit is necessary to ensure ethical standards are met.
• Differentiation
• To market ethical products at a higher price, a strict compliance program is required. Higher standards may be necessary to be associated with "ethical" funds or associations.
• Core Competences
• Service excellence
• An understanding of the customer perspective through ethics as a core value can lead to increased costs.
+
+

+ Administration:
Ethical issue procedures, checklists, and guidance are available. Training is provided to support employees in dealing with ethical matters.

+ Seek synergies with ethical dimensions:
-

In order to remain profitable in today's business climate, organizations cannot afford to have an ethical image that contradicts the values of society. It is beneficial for businesses to adopt ethical positions, as this can directly impact consumers and indirectly influence

government perceptions of the industry, ultimately helping to prevent legislative obstacles. According to Porter (1985), the bargaining power of consumers and labor suppliers is increasingly affected by ethics. Taking an ethical approach to employment, such as non-discrimination and fair wages, aids in attracting and retaining talent, thereby avoiding additional associated costs. However, teaching ethics is challenging due to its subjective nature. Paine (2000) argues that many individuals find analyzing numbers more enjoyable than contemplating ethical issues.

As the cognitive abilities influenced by lupus erythematosus weaken, they are likely to worsen, posing difficulties for board managers in making informed decisions and for companies in developing and formalizing their workforce. Nonetheless, this intricacy should not discourage efforts. The company can focus on attracting the ethically/socially conscious consumer segment.

Firms that actively engage, commonly referred to as "ethical organizations," are distinguished by their values guiding their actions and methods of accomplishment. This requires a dedication to elevated standards, extensive training, and transparent data management. The management team evaluates the advantages of this approach and decides if it is suitable for the business. Failure to adhere to these principles can have severe consequences, including damaging one's reputation with ethical investors, resulting in investment loss and potential market devaluation. Ethical funds may even exert pressure on shareholders to impact company policies.

In general, an active showing procedure involves selecting organizations from the fund that have violated core values like corruption or lack of progress. There are various methods to consider stakeholder positions when making company decisions, and it is recommended to have guidelines in place to direct the procedure. Power carries influence, especially for large multinational corporations, which have substantial ethical and

social impact. This impact can be used positively.

It is unclear if the role of administrations is to provide high ethical standards, as Trudel and Cotte (2009) found that consumers with strong ethical values are willing to pay more. They discovered that punishment for unethical behavior outweighs the premium consumers are willing to pay. Furthermore, companies don't necessarily have to be completely ethical to receive rewards. Administrations can market their products at a higher price point by adopting an ethically responsible distinction strategy, as long as consumers are educated about these products. However, certain consumer groups may demand all products to be ethical, which could increase costs and pose challenges. Consumer expectations may also change and require full ethical compliance.

Administration

The administration can implement ethical rules at lower levels through two methods: conformity and unity (value) based. Directors need to effectively communicate the company's stance on issues like accepting gifts that could be seen as incentives. If employees think that following these rules will hinder their job performance, they may not support them. It is important for the administration to ensure fair compensation aligned with desired behavior and establish consequences for nonconformity.

The exploration of ethical issues arises when there are short-term deficits, such as with swine grippe medicine. This leads to a debate on whether increasing prices should be the solution. However, pharmaceutical companies have decided not to pursue this approach. They believe that doing so would contradict their core values of being highly ethical and not profiting from vulnerable individuals.
Despite the public's awareness of and sensitivity to drug pricing, pharmaceutical companies choose to comply with the letter of the

law by offering affordable generics instead of focusing on the spirit of the law. Following only the spirit of the law would allow them to generate significant profits. These companies argue that they use these profits for further research, but this practice may contradict the overall benefit to society since all stakeholders are not treated equally.

MSN (2009)

The Obama administration intends to lower healthcare costs by discontinuing payments from pharmaceutical companies to generic drug manufacturers. In court, these companies have justified their actions by asserting that their patents allow them to delay the availability of less expensive copies. It is anticipated that the law will be adhered to and any breaches will be penalized accordingly. Pharmaceutical companies may argue that the consequences imposed by the Obama administration for legal compliance are more severe compared to previous measures.

Selling

There are clear ethical concerns associated with advertising targeted at children.

Other issues that may cause disagreement between management and the board include withholding information that could negatively impact purchasing decisions or the handling of harmful products.

The Independent (2009)

The French government has implemented a ban on advertising mobile phones to children under 12, as well as prohibiting the sale of phones designed for those under six. In Western society, some companies have utilized persuasive tactics to exploit children's ownership of mobile phones. The enactment of this legislation reflects society's opposition to such practices, and responsible boards should have anticipated this trend through environmental scanning. They should have adopted a proactive approach in establishing a favorable company stance and challenging management executives' policies if necessary. Failure to address issues within their own

jurisdiction can lead to stricter regulations from governments. The company must acknowledge the significance of satisfying various stakeholders while also recognizing that customers are vital since retaining them is more cost-effective than attracting new ones.

According to Reichheld (1994), increasing customer loyalty by 5% can result in significant profit gains (25-100%) through repeat purchases and recommendations, which offers a cost-effective marketing advantage. Having a strong ethical stance can be a strategic tool in generating consumer loyalty. It is crucial for future success to prioritize environmentally friendly and ethical innovations that align with societal expectations, as they can also be a source of competitive advantage. Ethical considerations might even be the deciding factor between competing companies, so businesses must comprehend the key customer values that drive purchase decisions.

Ultimately, consumer pressure may require ethical criteria to become a core concern driver rather than a representation of the company's philanthropic values. Tobacco companies have faced significant criticism for their advertising practices. British American Tobacco (BAT) has gone above and beyond legal requirements in many countries and takes pride in its stance, as seen on its website.

Operating responsibly

If a business is managing products that pose health hazards, it becomes even more important for it to do so responsibly. Our International Marketing Standards (IMS) provide detailed guidance on all aspects of tobacco marketing.

Central to the IMS is our longstanding commitment to ensuring that no marketing activity is directed at, or specifically appeals to, youth. The IMS are globally applicable. Compliance by our companies is part of our regular internal audit process. We publicly report any instances of incomplete compliance each year.

Supply Chain

The Co-operative website states.

While other retail merchants have recently realized

the commercial advantages of an ethical approach to business, our beliefs define our identity. We are proud that our ethical approach began in 1844 when the Rochdale Pioneers established a set of values and rules in response to a society that was being exploited. Clearly, the carbon monoxide op is the UK's most loyal supporter of Fairtrade products. Fairtrade guarantees that manufacturers operate in a sustainable manner and offers a premium for investing in education, healthcare, or farm improvements. UK Fairtrade sales have increased by 4267% since 1998.

(Fairtrade website). In addition to offering banking services, the Co-op also operates ethically in its investment portfolio. They face some challenges in reconciling the interests of different stakeholders due to their trading principles. According to The Guardian, Primark took action by firing three Indian clothing suppliers who were found to be employing child labor under poor working conditions and for long hours.

Many organizations are implementing cost-cutting measures in the current economic climate. However, there are ethical and supervisory concerns associated with outsourcing to low-cost countries. Global trade now impacts even minor purchasing decisions. Financial considerations such as tax efficiency and reduced operating expenses are increasingly becoming a crucial element of competitive strategy. This puts pressure on management to ensure that such sourcing is carried out according to set standards and that a comprehensive audit program is in place for overseas subcontractors. When managing from a remote location, there are options available for visibility and control.

The argument for exerting a high level of control in local markets may result in increased costs related to establishing a subsidiary or joint venture. These higher costs for ethical control may not align

with the financial interests of shareholders, prompting the Board to discuss the congruence with the financial position and overall strategy. In certain countries, directors tend to hire family members as a preference. However, from an ethical standpoint, employment should be given to the most qualified candidate.

Directors often pressure employees to meet targets, creating an ethical dilemma. This tension may arise when deciding whether to dishonestly explain a late delivery to appease a customer. However, honesty is what most people value and forcing this issue could harm the company's reputation if the truth is later revealed. It could also lead to employee disengagement in other aspects of their work, resulting in lower standards and increased costs. The board wants evidence that management is promoting the right approach in the company's culture, so access to reports is crucial. According to Mintzberg (1983), shareholders' control is often insufficient as they tend to be passive.

However, in 2009, Shell stockholders opposed the executive wage program of the company (BBC 2009). This rise in stockholder activism was a consequence of poor performance and the belief that high executive salaries were unsuitable in these circumstances. It is suggested that the board establish a compensation committee to recommend appropriate levels and take into account public opinion. Some stakeholders, including certain stockholders, view excessive compensation as unethical.

Corruptness

In December 2008, the Guardian reported that there were strong suspicions of corruption involving former president and CEO Heinrich von Pierer at Siemens. It was alleged that he and his board were aware of the graft but failed to take action. Von Pierer has consistently denied any knowledge of corruption. The Department of

Justice and the Securities and Exchange Commission findings indicate that the former board is to blame for neglecting their fiduciary duties, although no specific individuals are named. Siemens is now seeking compensation from 11 former executives. Additionally, as part of a settlement with the US authorities, Siemens appointed Theo Waigel, a former German finance minister, as its first "compliance monitor."

Siemens' organizational culture allowed for participation in bribery as an acceptable behavior. The board did not exert sufficient influence to fully establish an ethical stance in the processes or daily culture. Additionally, the board or management did not set a suitable standard as a cultural reference point. The board had an obligation to prevent illegal practices and should have recognized the potential risks of non-compliance and actively sought relevant information if it was not provided.

Mhos at the senior management level should have had a conformity function. When it was mandated, there was less flexibility in the response compared to if they had been proactive. The board did not effectively monitor management on behalf of stockholders or evaluate the CEO's performance in an honest and open manner. Combining the roles of CEO and president gave one person a significant influence. While this may have made it more difficult to challenge him, they should have exercised their legitimate powers to do so. They neglected the interests of stockholders and failed to fulfill their fiducial role, which is a serious dereliction of duty.

Additionally, Siemens neglected their responsibility for comprehending and identifying strategic risks and ensuring compliance with laws and regulations. They engaged in aggressive and unfair competition against their competitors, placing themselves at risk of government intervention and financial

loss. This demonstrates that simply introducing a code of ethics is not enough to promote ethical conduct.

The support from senior leadership is crucial in promoting a cultural change that aligns with the desired values, thoughts, and behavior. According to McKinney and Moore (2008), relying solely on written ethical codes is not sufficient to address the global issue of corruption. It is necessary for ethical behavior to be demonstrated and enforced within the corporation, starting from top-level executives and cascading throughout the entire organization. HR practices should be utilized to recruit and promote individuals who embody the correct values, provide additional training, and align incentives with ethical objectives. In certain cases, it may be necessary to provide training for non-compliance.

BP reports the number of employees it has terminated for misdemeanors. In certain states, there is a prevalence of gifts or incentives given to companies or authorities' officials. Even in civilized societies like Japan, the use of gifts is common, but having a policy can help prevent confusion. Bribery, extortion, and facilitation fees are clearly defined as unethical behavior. Companies must determine their level of engagement, which may involve admitting its existence and working towards changing practices from within or avoiding them altogether.

Head office sets the tone for foreign directors who may feel they need to conform to local practices because they perceive it as acceptable due to repeated exposure.

Telegraph Mabey website

Mabey, A, Johnson admitted guilt on 10 counts of corruption and violation of sanctions. The company attempted to influence officials in Jamaica and Ghana during bidding for public contracts. They also made payments totaling more than ˆ422,000 to Saddam Hussein's

government.

Mabey & Johnson will face fines and provide reparations to Jamaica, Ghana, and a UN program benefiting Iraq. They have agreed to an internal compliance program, overseen by an independent proctor approved by the Serious Fraud Office (SFO). The manager of the SFO stated that these are significant offenses and that Mabey & Johnson's cooperation has brought them to this important point. This serves as a model for other companies wishing to address corruption through self-examination, with prompt and fair resolution. The new managing director, Peter Lloyd, expressed deep regret for the company's past behavior and their commitment to starting anew.

Staffs have undergone retraining and an evaluation of gross revenues and associated systems has been conducted after the company voluntarily reported potential corrupt practices to the SFO. The revelation emerged during an internal investigation by the company's auditors. Since informing the SFO about the corruption offenses, five out of Mabey & Johnson's eight managers have resigned since spring 2008.

Excerpt from their code of ethics: policy prohibits offering, giving or accepting bribes, excessive hospitality or significant favors

Failure to align with the environment is a common mistake observed in Siemens and Mabey. Furthermore, the organizational elements of process, structure and culture are crucial factors where misalignment exposes ethical tokenism- expressing one thing but rewarding another.

Kerr (1975) discovered that individuals react based on their perception of what others value. If they believe that others value trust and positive outcomes, they will act accordingly. However, if there is a mismatch between their behavior and what is valued, it can disrupt the organizational culture. This, in turn, can hinder the pursuit of ethical goals. If the wage system does

not incentivize ethical behavior and the management or board of directors ignore misconduct in order to achieve business objectives, it should come as no surprise that employees do the same.

Discussion

The strategic direction of the company could incorporate an ethical standpoint that serves as a differentiating factor. As different individuals have various values along the ethical continuum, management consciously makes decisions that involve trade-offs in selecting a specific strategy. This decision-making process may depend on factors specific to the company and its core competencies.

There is also a convergence of moral and economic logic. Creating new regulations or ethical demands by consumers can lead to the development of better products and services, providing a competitive advantage. Technology currently allows for the recycling of rubber from developing areas into playground flooring. Compliance with the law is the minimum expectation, and companies that violate regulations are increasingly facing more severe and public punishments for unethical behavior, such as disruptions in shareholder meetings. Successful companies with established ethical rankings have codes of behavior, CSR/ethics officers, show management support, and report results on the company scorecard (e.g.,).

Practical checklists can assist employees in making effective determinations and facilitate proper monitoring. Good governance necessitates moral integrity and courage to make difficult judgment-based decisions. Boards are responsible for taking action and should exercise their powers accordingly. Companies have the option to seek compensation for board failures, highlighting the accountability associated with the role. Maintaining the company's ethical integrity is a crucial responsibility of the board.

Recommendations

Boards should: proactively prosecute in strategic determinations, supervise conformity, and carry through their duties. In add-on, an extenuation program to cover with the revelation

of unethical behavior is good. Boards should take immediate action on any misdemeanors and reexamine the fortunes for lessons learned. Scenario planning could place possible dirt so boards can fix how to respond while keeping the highest ethical place possible.

In the case of Siemens, they were defensive and reactive, only taking action after the public became aware of the issue. On the other hand, Mabey was proactive and identified the issue themselves through an audit. They contacted the government and utilized their website to inform the public and make a statement. They even received recognition from the Serious Fraud Office as an example of proper action. Boards that are reviewing strategic decisions require access to useful tools and information.

They should use their legitimate authority to request information if it's not forthcoming. In addition to examining discrepancies highlighted in an ESCO model, the board is advised to utilize the Cultural Administrative Geographic Economic (CAGE) distance model (Brennan 2009) for making proposals in foreign operations. This tool identifies the types of challenges to be faced and presents risks that may be unnoticed in a conventional country portfolio analysis. Subsequently, the Board can assess if operating in the suggested country is financially viable and does not compromise their ethical stance.

A comprehensive economic analysis may be necessary as overseas fiscal wages are often overestimated, and the costs of corruption can offset lower production costs. According to Hills, G, Fiske, L, and Mahmud, A (2009), corruption adds expenses throughout the corporate value chain and can lead to costly operational disruptions. Current studies suggest that corruption adds more than 10% to the cost of doing business in many countries, and relocating

a business from a country with low corruption levels to one with medium to high levels is equivalent to a 20% tax. Moreover, various factors related to culture, administration, geography, and economics need to be considered. For instance, having diverse cultural backgrounds in the workforce can potentially lead to discrimination issues. Society norms may not prioritize basic safety or hygiene factors, and child labor is prevalent. Political ambivalence may result in administrations needing to pay "facilitation fees." Remote locations and time differences pose risks that could compromise an administration's values. Different attitudes towards quality increase the likelihood of accepting faulty or unsafe products. Additionally, developing employees in developing countries to meet internal standards incurs higher costs and there is a higher potential for fines with a less-educated workforce. However, it should be noted that this review has limitations in terms of the range of dimensions it covers.

Decision

The board plays a vital role in ensuring that shareholders' interests are properly represented among various stakeholders in organizations. Although there may be some tension, there is a growing consensus on ethical matters and organizations are expected to adhere to a moral code. Ethical standards vary across countries, making judgment on ethical issues challenging.

Thus, it is important for moral programs to include overarching rules, and for organizations to have procedures in place to develop forces and monitor consequences. Over time, society's values can change and new trends can emerge, so it is important to engage in environmental scanning for strategic positioning, including in moral decision making. Boards should review this information and consider the management's perspective on the opportunities these conditions create for setting strategic direction. The pressure to

perform financially has negatively affected ethical decision making, and implementing an ethical philosophy within an organization is challenging yet offers significant rewards.

References:

1. Bartlett CA (1990), "Confronting up to Complexity," McKinsey Quarterly, Spring pp27 35
2. Brennan (2009) Warwick MMBA Strategy & Practice course notes delivered June 8-12.
3. Freeman RE (1984), "Strategic Management: A Stakeholder Approach," Pitman, Boston, MA
4. Freeman RE, Martin K, & Parmar B (2007), "Stakeholder Capitalism," Journal of Business Ethics, vol 74, pp303 314
5. Friedman M (1982), "Capitalism and Freedom," University of Chicago Press, IL
6. Heracleous L, Wirtz J, & Pangarkar (2009), "Flying High in a Competitive Industry Secrets of the world's leading airline," McGraw Hill, Singapore, p172Hills G; Fiske L;

Mahmud, A. (May 2009), "Anti corruptness as Strategic CSR: A call to action for corporations," Ethics Resource Center, accessed from www.ethics.org 1 Jul 2009
Kerr, S (1995) "On the foolishness of honoring A, while trusting for B," The Academy of Management Executive, Vol.9, Iss.1, pp 7-15
McKinney, JA.;A; Moore, CW., (2008), "International Bribery: Does a Written Code of Ethics Make a Difference in Perceptions of Business Professionals," Journal of Business Ethics, Vol.79, Iss.1/2;pp 103-112
Mintzberg H, (1983), "Power In and Around Organizations," Prentice-Hall Englewood Cliffs, NJ
Paine, Lynn Sharp, (2000) "Does Ethical motives Pay?," Business Ethics Quarterly, Vol.10, Issue 1, pp319-330
Porter, M (1985), "Competitive Advantage," The Free Press, NY
Reichheld FF, (1994), "Loyalty and the Renaissance of Marketing," Marketing Management, 2(4), pp10-20
Trudel, R ;A; Cotte J,