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Business and Professional Ethics - Assignment

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Added on  2020-05-28

Business and Professional Ethics - Assignment

   Added on 2020-05-28

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Running head: BUSINESS AND PROFESSIONAL ETHICS
Business and Professional Ethics
Name of the Student
Name of the University
Author Note
Business and Professional Ethics - Assignment_1
1
BUSINESS AND PROFESSIONAL ETHICS
In the contemporary era, corporations have ceased to be only a legal device that is used
merely to carry out private business transactions. There has been a growing controversy with
respect to the purpose of a corporation in the modern era. On one hand, several scholars have
undertaken extensive research to assert that the sole objective of business corporations is to
maximize the wealth of the shareholders of the corporations. On the other hand, there is a
growing need expressed by the broad business community, which includes social and
environmental activists, customers, institutional shareholders, government regulators and
businesses themselves for the corporations to be accountable for the environment and the
community that is affected by the corporations. This gives rise to two corporate theories that are
contradictory to each other, namely, the shareholder value theory and the stakeholder value
theory. This essay entails critically analyzes the corporate theories that states the purpose of the
corporations in light of the arguments and views of Evan and Freeman, Kenneth Goodpaster
and Milton Friedman. The essay shall further discuss about the probable strength and weakness
of their respective views and arguments with respect to the moral obligations and social
responsibilities of business corporations.
As per the shareholder value theory, the business corporations purport to optimize the
financial returns for the shareholders of the corporations. This is a dominant economic theory
used in business where optimization of shareholder wealth is established as purpose of the firm
in the financial, economic and legal theories. According to Nobel Laureate Milton Friedman
(1970) argues that a corporation purports to optimize financial return for shareholders. He sternly
believes that a corporation is usually operated and owned solely for the advantages of the
shareholders. Friedman believes that the sole responsibility of a business corporation is to use its
resources and involve in activities that are designed to accelerate in profits provided the
Business and Professional Ethics - Assignment_2
2
BUSINESS AND PROFESSIONAL ETHICS
corporation is engaged in activities. Such activities amounts to free and open competition and is
debarred of any fraud or deception.
Three fundamental assumptions can be adduced in support of the shareholder view of the
firm. Firstly, the environmental, social and human expenses that are incurred while carrying on
the business operations internalized as per the requirements of law and all the other expenses
should be externalized. This shareholder value theory states that the sole purpose for carrying out
the business is to increase cash flow for the shareholders and the revenue along with reduction in
risk and minimization of cost. He asserted that to enhance the revenue, it is important to sell
products that are more expensive to the society than the expenses is incurred in the costs o the
products like sport utility vehicles.
Secondly, he believes that self-interests are a form of human motivator as it influences
human significantly. It is a well-established fact that organizations and people shall act
reasonably as per their own self-interest with the objective to optimize value and efficiency for
the community altogether. According to Friedman, the modern economic theory is established on
essential assumption that individuals act reasonably for their respective self-interests. According
to Tricker and Tricker 2015, the arguments and viewpoints of Friedman is similar to that of
Adam Smith. However, Carroll (2015) argues that this self-interest acts as human motivator’
may give rise to a conflict between the managers (agents) and the shareholders (principals) in a
corporation owned by the public as managers would act as per their self-interest and not as per
shareholder’s interest.
Thirdly, Friedman argued that corporate firms are primarily ‘nexus of contracts’ where
priority is given to those contracts that tend to have the most significant impact on the
Business and Professional Ethics - Assignment_3

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