Business Ethics essay

Stakeholders are seen as an interest group of individuals, who may have an impact on the achievement of organization’s objectives or on the organization’s performance as a whole. Consequently, stakeholders are a group of people whose contribution (work, capital, resources, buying power, distribution of information about the company, etc.) is the foundation to the success of the organization. In relations with some interest groups, short-term interactions are important for the company, with others – long-term. In most cases, the most important groups of stakeholders are the employees (including management and sales managers), consumers, suppliers, distributors, financial institutions, financial analysts, media, civic organizations, and surely stockholders. Typical interests of stockholders as stakeholders include the annual dividend increase, the value of their shares, the rising cost of the company and its profits, and share price fluctuations.

On a whole, stakeholders can be defined as groups or individuals who may not only influence, but who are also affected by the achievement of organizational goals. Stakeholder theory argues that the goals of organizations should take into account various interests of various parties who are representing a certain type of informal coalition (De George 190). The relative power of different groups of influence is crucial in assessing their value, and companies are often ranking them to create a hierarchy of relative importance. Considering the levels of moral responsibility in the company, we’ll consequently get back to this theory.

There are four levels in the regulation of moral responsibility in the organization (De George 193):

• ethical principles (imperatives), dominant in the environment external for the organization, the change of which depends on the dynamics of cultural archetypes in the society;
• normative acts governing the conduct of organization’s employees (e.g., a corporate code of ethics);
• groups of employees whose activities are determined by the moral climate in the organization (determined by moral and psychological stereotypes and moral authority of the leader);
• individual motivations of employees, encouraging them to moral activity, which constitutes the ideals of goodness and is subject to a sense of duty.

A newly emerging level of organizational responsibility is corporate social responsibility. To reveal the essence of social responsibility in corporate governance, it is necessary to consider the essence of the corporation. The main indicator of the corporate form of conducting business is the separation of company’s assets ownership from the management of these assets (De George 198).

Thus, due to the fact that the responsibility for company’s operating activities is rested on the professional managers, ownership of the company gets separated from the operational control. As a result of such separation, managers are often suspected in the fact that they are indifferent to the welfare of stockholders, as the power to solve many issues in their sole discretion is transmitted. In this case, there appear a lot of options to abuse the power. But generally, the fact that in a certain degree determined by law, the management of a company is controlled by shareholders, leads to the situation when the management is obliged to act in the interests of stockholders, i.e. stockholders’ welfare becomes the primary goal of the company’s activity (De George 191).

On the other hand, this contradicts with the responsibility to other groups, because often it is the other interested groups who accuse companies that they behave socially irresponsible in their pursuit of increased profits, i.e. in the interests of stockholders. Therefore, the only solution for reducing the socially responsible behavior is to transfer the benefits from the stockholders of other stakeholder groups in the society.

Since management has enough power to act at its own discretion, it is responsible for choosing under existing legislation between the increase of shareholder wealth or its decrease (De George 191). As a consequence, the separation of ownership from management is not just a feature of the corporation, but also the problem of corporate governance efficiency.

It is in organizations arranged according to the corporate division of control and ownership that social responsibility level is seen most widely and clearly, because there exist not only two significant groups – internal entities (owners, managers and employees) and external (suppliers, customers, etc.). Due to the separation of ownership and control, such companies becomes more sensitive to the external environment, as managers are more actively operating on behalf of external parties, than companies with no separation of ownership and control (De George 214). Thus, corporate social responsibility means that the company undertakes to act for the sake of achieving public welfare, even if such actions may reduce its economic benefits (De George 199).

Nowadays, application of the concept of stakeholders is considered important because it improves corporate governance and social responsibility of the company, as stakeholders are not only those individuals the organization is interested in, but also those individuals who are interested in the result of organization’s activity. Such an understanding of stakeholders in the era of globalization makes virtually anyone a stakeholder (De George 191).

Therefore, corporate social responsibility in system of corporate governance can be effective in case of keeping balance of interests of various groups of stakeholders and should be based on a clear goal of the organization as a criterion for activity. For instance, if the purpose of the organization is to maximize long-term value of its shares, the production of environmentally friendly products or provision of employment for the disabled persons, such objectives should become a criterion for inclusion of these target groups to stakeholders. Such an approach would allow predicting the benefits and to resolve conflicts of interests of different groups at any level of responsibility.