The History of Business Ethics and Stakeholder Theory in America
The Balance Between Profits and Stakeholders’ Concerns
It is a reality that businesses are established towards the end of getting profits and make money for the investors. However, the premise is never adequate because there are other major concerns that should be addressed. As a leader, one has the role of ensuring that profits are made, but minding the concerns of the stakeholders and operating in a socially responsible manner (Terris, 2005). There are major responsibilities that an organization has, including adequate compensation to the employees, payment of the government mandated taxes, payment of sensible prices to the suppliers, offering value for money to the clients, and being socially responsible in the use of the natural resources and protecting the environment. All these are important stakeholders of the company and every concern they have matters.
There are cases where the top leadership of companies is only focused on making profits at the expense of taking into consideration the needs of the employees. The case of Wal-Mart is a perfect example of leadership failing to take into account the concerns of the workers, who are one of the most important stakeholder groups. The company has faced lawsuits because of gender inequality in payment, where men are claimed to earn more than women in the same positions. The company, hence, can be said not to operate in an ethical and socially responsible manner. On the contrary, Google Inc. is a model of a balance between profit-making and the concerns of the stakeholders. The company is able to attract quality employees because it maintains fair payment and the working conditions of all the employees are good. The leadership, in this case, has struck the balance.
The History of Business Ethics
Things are better in terms of anti-competitive practices, taking unfair advantage through immoral arrangements with suppliers and public officials, failing to adhere to laws and regulations, and lack of transparency because there are effective laws and agencies to enforce the laws in the current business environment. Businesses are expected and have been complying with the market practice’s relevant laws, codes, rules, regulations, and standards. Some of the laws and regulations, national and international, regulating the business operations include “the U.S. Foreign Corrupt Practices Act, the Securities Exchange Act of 1934, the Financial Institutions Regulatory and Interest Rate Control Act, the Community Reinvestment Act, the Truth-in-Lending Act, the Fair Credit Reporting Act, the Bank Secrecy Act, the Gramm-Leach-Bliley Act, and various federal and state usury laws among others” (HSBC North America Holdings Inc., 2016, p. 8). Businesses in the modern world are expected to comply with these laws and the majority has been doing just that.
In adherence to government policies, companies have been setting up their own policies and standards to guide ethical practice within their operations. Businesses are maintaining positive cultures that are necessary for their sustainability, reputation, and success. With time, businesses have realized the criticality of good practice and do not have to be forced to comply with the requirements by law and the enforcing agencies. Companies have realized the need to avoid acting in an unlawful way and conducting their operations in observance of the highest standards of personal and business conduct (Terris, 2005). Although there are cases of fraud and other misconduct, they have become fewer with time. Employees are expected to operate, on the behalf of the company, with honesty and integrity. At the same time, the leadership is also operating with integrity towards suppliers, customers, regulators, and the society in general.
Codes of Ethics are in place regulating businesses in different sectors and are the basis for ethical practice in the world of business today (Terris, 2005). Besides the regulatory standards, the stakeholders’ expectations have forced the businesses to observe the highest level of good practice. Investors and customers will expect nothing short of good business practice. The expectations have contributed towards making the business environment more compliant with the law. For instance, customers are only prepared to spend their money buying from businesses that exhibit a high level of social responsibility. Investors will also invest in companies that are acting in socially responsible and ethical manner. Generally, the modern business environment is better in terms of ethical practice than things were in the 19th century.
Welfare capitalism is posited to have played a critical role in the development of the modern business ethics movement. To understand this important role it is critical to what the concept of welfare capitalism stands for. It is the nature of capitalism in which there is concern for the workers’ social welfare (Esping-Andersen, 2013). It is the aspect responsible for the creation of the policies of providing employees with social security, collective bargaining, universal health care, and safety codes. The term emerged with the efforts of manufacturers to provide benefits to the employees in their factories and to ensure that their work environment was conducive. The move was two-folds in nature. First, the manufacturers recognized the importance of paternalism, where the employees would be given what was thought to be in their best interest. Secondly, the manufacturers were also focused on offering the employees with the benefits that would protect the company from complaints.
Even in the event that there were worse structural issues within the company, as long as the needs of the employees were protected, it was viewed as safe for the company and the leadership. During the time of the emergence of welfare capitalism, the grounds for the workers were not leveled, which means that the benefits for the workers were not the same across the board. At the same time, not all businesses were prepared to adopt the principles of welfare capitalism (Barton, 2011). With time, the workers and other stakeholders would realize the importance of welfare capitalism and begin efforts to have the same applied in all sectors, including the business world. The frustrations of the workers led to the efforts to practice the principles in their work environments. This became the basis for the business ethics movement as it was considered ethical for business to observe ethical conduct when dealing with employees.
The business ethics movement emerged from the efforts to do away with paternalistic nature of dealing with the employees, where the benefits were not equally distributed. Companies such as Ford Motors were well known to practicing paternalism during their early days. There came a time when the worker felt that their rights were being violated and started to act out through radicalism. The fact that the American employers were not able to curb the opposition of the workers and achieve harmony meant that there was a clear movement by the workers to fight for those rights (Barton, 2011). This was also the time when in-house representation plans emerged for the workers to have a collective bargaining for their rights. Welfare capitalism also became the basis for the protection of the workers against exploitation by the employers. The initiative played a critical role as a resource for social control, hence, creating the path for the employers to act in an ethical manner towards the employees.
Corporate Social Responsibility
Bowen, concerning social responsibility, suggested the businessmen’s obligations to adopt the policies that are in line with the values and objectives of the society (Bowen, 1953). Corporate social responsibility has become an almost global norm in the business world. There are calls for businesses to act in a manner that is responsible to the stakeholders, environment and the society in general. Businesses are expected by all stakeholders to have a corporate social responsibility for them to be seen as operating in an ethical manner. While there is a lack of an effective manner of measuring how socially responsible a company really is, there is no doubt that companies have adopted what they understand as being socially responsible in their operations. It is in line with the expectations of the stakeholders that companies will have in place the framework for ensuring social responsibility. It is almost a requirement for businesses to be in operation and to be operating in an ethical environment.
With time, the focus of the business moved away from a sole economic model to one where responsibility for the society and the environment played an important role. Companies are expected to make a contribution to the wellbeing of the society while at the same time operating in such a manner that they protect the environment in which they are operating. There are many leading companies, including the Microsoft, which have major projects that are founded on the understanding of corporate social responsibility. Indeed, the corporate responsibility model appears to have sunk into the minds of all those intending to commence business operations (Tai & Chuang, 2014). The policy is among the initial considerations when one is beginning a business. The concept has become a norm to a point where specialized departments and units are set up in businesses to foresee the corporate social responsibility objectives. These departments ensure that the goals and objectives of the business as relates to corporate social responsibility are met.
Corporate social responsibility is the gauge that is used by the important stakeholders in making the important decisions on how to relate to the business. Investors are looking at the corporate social responsibility agenda in making the important decision to invest in a business (Tai & Chuang, 2014). Customers are looking at the corporate social responsibility agenda in making the decision on whether to buy from the business. The suppliers will base their decision to have a business interaction with the corporate based on the same. From this point of view, businesses have no choice but to embrace the corporate social responsibility ideal in order to maintain a positive reputation and image projected to the important stakeholders. Since 1953 when the definition by Bowen was proposed, major strides have been made in the implementation of corporate social responsibility in the world of business.