The essence of business ethics lies in the notion that an organization has an ethical obligation to specific groups of stakeholders. The stakeholders, as a rule, consist of the founders, managers, shareholders (owners), suppliers, creditors, customers, government regulators, professional associations, and employees. This multi-layered social environment can significantly affect the achievement of the purposes of big companies, so it is crucial to analyze the ways top leadership can balance the profits with social, ethical, and economic concerns of stakeholders.
Responsibility of Top Leadership
The social and ethical obligations of a company can be viewed in the paradigm of the four levels of the business organization’s responsibilities (Goodwin 193). First, it is the level of economic responsibility, which refers to the basic mandatory responsibilities that an organization and its management have to carry out, which is to make a profit, that is, fulfill its primary purpose as a business tool. Second, it is the level of legal responsibility, which implies following the law (the responsibility of any organization), the violation of which entails severe sanctions.
Third, it is the ethical responsibility, the essence of which is to follow the moral principles of the society and the company. The responsibility of this level is obligatory because it is not subject to strict formal regulation. Fourth, it is the level of social responsibility, which is to promote the well-being and improve the quality of life of society. It is at the very top of the pyramid of responsibilities and is not regulated by any formal or informal relations; it is the desired level of responsibility that justifies the existence of a company (Goodwin 201).
The corporate governance mechanisms are designed to ensure that the board of directors is responsible to shareholders; management is responsible to the board of directors, the owners of large blocks of shares – to minority shareholders, the corporation – to employees and customers, and society as a whole. Corporate governance focuses on the idea that all these groups and institutions perform their functions well while maintaining a balance of interests between them.
An example of a company where the CEO did a good job keeping the harmony between profits and stakeholder concerns is Google Inc. It was able to make a profit while bearing the tax responsibility to the government. Further, the company provided its employees with the corresponding salaries and remuneration and furnished customers with services and goods of high value. In addition, the installments were settled for the creditors, whereas suppliers were paid accordingly.
Regarding society, the company provided people with vacant job positions, and they were planning their operations with due respect for the environment (Steiber 67). However, there are large-scale companies that did their job in maintaining this balance poorly; for instance, Walmart is one of them. There were numerous scandals and cases concerning employee issues, quality of goods, taxation, and others, which could characterize the company’s ex-CEOs in an unpleasant way.
As per the discussion of the development of business ethics in America since the late 1800s, it should be noted that the situation has changed due to anti-competitive laws in place and the practices of the Department of Justice. At present, it is prohibited to violate competition rules by capturing a dominant position in the market, which will allow you to restrict access of other producers, dictate the prices and other terms of business (Nguyen 225).
Laws have been established to regulate the process of centralization of capital through the creation of monopolies that impede free competition. The law provides a definition of unfair methods of competition and includes a prohibition of monopolistic associations (Nguyen 72). However, antitrust laws should not be viewed solely as a means of counteracting the creation of trusts and their restrictive practices.
Currently, it is one of the specific forms of government regulation of the economy, and is an attempt to regulate the market economy, the level and extent of competition in order to increase economic efficiency. Nevertheless, regarding the vertical agreements, antitrust law does not contain, as a rule, the direct prohibitions. As a result, the official approach to vertical agreements varies considerably: if previously they were considered inherently illegal, now the attitude towards them is a much more liberal (except agreements on fixing resale prices, which is considered illegal).
Henry Ford and his practices of welfare capitalism aimed at improving the working conditions and welfare of personnel should be regarded in the perspective of business ethics. The notion implied reducing turnover and increasing production efficiency, as well as the inclusion of workers in the enterprise and revenue management to consolidate corporate communications in management systems (Shaw 137). In addition, it allowed using social provisions of employees as a special cognitive capital in times of crisis, enhancing the competitiveness of the company and strengthening its power in the global market (Shaw 138).
Despite the fact that this approach was the basis of the ideology of business ethics, it did not fully consider the issue of balancing profits and stakeholders’ concerns. It can be explained by the fact that the employer will have to share part of profits with employees, in fact, making them shareholders, but at present, there are few companies operating in this way. However, this ideology has given a corporate foundation of modern business ethics.
Social responsibility is a system of consistent economic, environmental, and social activities of the company implemented through continuous interaction with stakeholders and aimed at reducing non-financial risks, improvement of the company’s image and reputation as well as the growth of capitalization and competitiveness that would provide profitability and sustainable development of the company. Terris explained the ideas of Bowen that the responsibility of a company lies in the implementation of policies and decisions that would be desirable from the standpoint of the goals and values of the society (41).
It is possible to agree with and to refute the predictions of Terris. Currently, social responsibility is a set of obligations assumed by the organization in terms of protecting the interests of society and its further improvement. The social responsibility of the company may be revealed in relation to the parties interested in the results of its operations, as well as in relation to the environment and to social welfare in general (Rajak 262). Some companies recognize their responsibility in all the three areas and make efforts to ensure they succeed in their activities. At the same time, other companies place special emphasis on one or two areas of social responsibility. Finally, there are companies that do not recognize their responsibility to the community in any way.
In conclusion, social responsibility has a significant impact on the overall development of the companies by limiting their impact on the environment, improving standards of living and working conditions (which contributes to the improvement of living standards). It makes the company’s operations more transparent, which has a positive impact on relations with the community, customers, employees, and other parties involved. In addition, various social responsibility initiatives establish the ultimate goal of transition to a sustainable development model, which is a huge step towards progress.
Goodwin, Barbara. Ethics at Work, New York: Springer, 2012. Print.
Nguyen, Tu. Competition Law, Technology Transfer and the TRIPS Agreement, Cheltenham: Edward Elgar Publishing, 2010. Print.
Rajak, Dinah. In Good Company, Palo Alto: Stanford University Press, 2011. Print.
Shaw, William. Business Ethics, Boston: Cengage, 2013. Print.
Steiber, Annika. The Google Model, New York: Springer, 2014. Print.
Terris, Daniel. Ethics at Work, Lebanon: Brandeis University Press, 2005. Print.