Share-holder theory

Summary

This report looks at the ethics of business today with consideration of executive remuneration and possible new directions for the Ethics of business for the future. Considering the governance of business has never been scrutinised so much ever before which has never been seen since the Great Depression and insuring years prior the outbreak of World War II. . With the debate now rising in the political rhetoric in the entire developing world, a sphere were we would not normally see these issues be debated . Attributed to the collapse of many corporate giants and other businesses as a conquence in the recent Global Economic Crisis. Many have cited a need to create a new culture of business ethics and regulation. The 1980s of "Reaganomics" and "Thatcherism" legitimated the principle of "market control"(Besser et al. 2006, p.233) and freeing buinesses of governmental constraints of the 1970's., intruding on the established model of stakeholder relations. Consequently, ethical or philanthropic responsibilities (Besser 1998, p.223) Causing a conflict for business between the "Share- Holder Theory" and the "Stake-holder Thoery".

What now must happen is need to be some form of new social contract that business must engage society with to fulfil its role in corporate citizenship and social responsibility. Recreating it to create a new form of sustainable responsibility that contributes to the whole of society. Who will business do this? One suggestion is to overhaul the ethics and compliance of business into a process that has determinants how employees are compensated the quality of Business ethics and their of Corporate Societal Community Responsibility (CSR) programs by some form of accreditation based on ethical performance. In light of a survey conducted by the Society of Corporate Compliance and Ethics ("SCCE") assocaited organization, the Health Care Compliance Association ("HCCA") in the USA. Their research among compliance and ethics professionals reveals that when it comes to compliance and ethics, very little has been done regards ethical behaviour of buinesses. (Soluble 2009, p.1) Utilimately there has to be a change to the game is business is to survive in the new paradigm

Introduction

The Issue of executive remuneration and corporate citizenship has become a issue of community debate throughout the world We often we read headlines were we see executives are claiming salaries that are 5000 to 10000 times greater than the lowest worker of these organizations. And on the other hand retrenching workers or the company is heading to, or are bankrupt. Fuelling a debate to the very ethics of business in our modern society. The governance of business has never been scrutinised so much ever before since the Great Depression and insuring years prior the outbreak of World War II. With the debate now rising in the political rhetoric in the entire developing world, a sphere were we would not normally see these issues be not debated. Attributed to the collapse of many corporate giants and other businesses as a conquence in the recent Global Economic Crisis. Many have cited a need to create a new culture of business ethics and regulation. To create a model for future corporate citizenship of society and remuneration of senior corporate executives. Business and Society has a basic premise that is must work by -

Society is predicated upon behaviour that it expects it will advance itself .It is not interested in behaviour that will force the society to regress. Business is established and allowed to exist because in capitalist societies as it is deemed to have a central and pivotal role in the betterment of society. (Joyner and Payne, 2002; Lea, 1999; Spiller, 2000 Wood, 1991 as cited in (Svensson & Wood 2008, p.305)

This quote suggests that there must be some form of new social contract that business must engage society with to fulfil its role in corporate citizenship and social responsibility. Not only in the light of the recent events, but also from the perspective of past change of paradigms. Recreating itself new a face, aspect, or responsibility that contributes to the whole of society. Just as private citizens are expected to, companies are as to conform as well. Corporate citizenship has an economic face, a legal face, an ethical face, and a philanthropic face. Stated differently, good corporate citizens are expected to be profitable and unburdening and fulfil their economic responsibilities. Obey the law and fulfil their legal responsibilities. To actively engage in ethical behaviour in a responsive manner to their ethical responsibilities and finally to give back to society through philanthropy gestures. (Carroll 1998, p.1)

The Social Responsibility Paradigm

Social Responsibility Paradigm and Business

The fundamentals of business remain the same everywhere, different emphases though each part of the world depending on the culture or traditions of each society. The issues also vary in nature and importance from industry to industry. The social issues faced by an energy company, will be different compared to those faced by another industry. (Stigson, n.d., p.1) though what does remain is the need is a social responsibility to the culture. For the most of the last several centuries business and industrial societies have been driven by a dominant social paradigm. The dominant social paradigm has been largely based upon principles that are derived from neoclassical economics. (Korhonen 2002, p.67)

The Current State of Business Ethics

Peter Drucker a well-versed business author, writer and ethicist in his article ""Wbat is 'business ethics'"? Written in 1981. Criticizes the business ethicists of the time for reducing the discipline of business ethics to a pale shade of what it should be. He maintained that their version of business ethics is a form of casuistry, and it provides an illegitimate argument for business apologists, while, ironically, it also exhibits hostility to business and economic activity.(A cited in Klein 2000, p.1). In a review of the current literature of business, ethics has shown that this thinking has not changed much until now. What we do have is an on the one hand is the shareholder value model, suggested by Milton Friedman, which claims that corporations owe positive moral obligations only to their shareholders.(Friedman, M 1993, p.224) On the other hand is the stakeholder theory, which claims that corporations are morally obliged to secure the interests of a broad range of groups, of which shareholders are only one that has to be considered by a organization.(Freeman. 1984, p.3)

Change of Game

Changing the Paradigm

In practice, there were many barriers to the implementation of Corporate Societal Community Responsibility (CSR) programs and stakeholder theory. The 1980s of "Reaganomics" and "Thatcherism" legitimated the principle of "market control"(Besser et al. 2006, p.233) and freeing buinesses of governmental constraints of the 1970's., intruding on the established model of stakeholder relations. Consequently, ethical or philanthropic responsibilities (Besser 1998, p.223) were not judged under the criterion of certain ethical values or social duties but under the clear perspective of corporate interests. With shift in focus away from a model of social, ethical or philanthropic endeavours by business increasingly became deemed acceptable as long as it added to the bottom line.(Besser 1998, p.223)

Any shift in the paradigm is a process that has two stages. In order for a paradigm shift to occur, a deep change is needed at the paradigm stage, not only a change the action stage. The action stage does not change in a deep or fundamental manner without a change in the ?rst stage of the paradigm shift.(Korhonen 2002, p.68) What also need to be considered is interdependency and cooperation can be presented as a distinct element of the corporate social responsibility paradigm.(Korhonen 2002, p.73)

Changing Remuneration Paradigms

The recipe for rational executive numeration is for the board to treat shareholders like owners, instead as they are now. That means limiting pay to reasonable levels, keeping it simple, linking it to performance and disclosing details about how it's measured and why. The recent events have stimulated interest in good governance, with a number of firms, to show how it is done. (Lambert 2009) . A recent example reported was that in an article by Ruth Bender in the "Chemistry & Industry News" on 22 June 2009 was that Shell's directors' remuneration Some 59% of the shareholders voted against accepting the company's remuneration report, objecting to the fact that the company had paid bonuses to its top executives even though it hadn't meet the necessary performance targets . The board accepted this and withdrew the report for consideration.(Bender 2009)

This is significant, but it is not as dramatic as it is in the, "ABA Banking Journal", 101(9), 20-23. Cocheo suggests that ultimately, while everyone has a personal interest in executive compensation if you are in top management, corporate stewardship plays a big part in his or her concerns. In addition, that the largest concern is that the possibility of "Brain drain" from thier organization if they were to reduce or put in place compensation restrictions that will see the best talent walk.(Cocheo 2009 Pg.24)

Conclusion

What is seeing now is a moving away from the PROMOTION OF PROVEN DUDS PRINCIPLE (PPD). The "Principle" suggests that in order to qualify for the job of CEO the candidate must have demonstrated incompetence in a previous position or at least this does not disqualify him from promotion, as suggested in Klaas Woldrin's paper "The Ethics of Australian Executive Remuneration Packages" in the "Journal of Business Ethics" 14: 937-947, 1995. Nevertheless, to an era of were those that are promoted are people who will take these organizations to the next level and have a strong commitment to social engagement with all stakeholders.(Woldring n.d., p.937) W will see a change in all performance conditions on bonuses and longer-term incentives becoming tougher, and more focused. And a likely outcome of the economic conditions is that companies that never used to reward cash generation will start to implement cash-based performance targets drip feed over a agreered time frame. . Will government be involved in this process? That is yet to be seen,

References

  • (Bender 2009, p.17)

Please be aware that the free essay that you were just reading was not written by us. This essay, and all of the others available to view on the website, were provided to us by students in exchange for services that we offer. This relationship helps our students to get an even better deal while also contributing to the biggest free essay resource in the UK!