Is Maximization of corporate profit the mission or main purpose of a corporation? What are other “purposes” and obligations? Present an in-depth “Ethical Guidebook” for executives and managers in a large corporation. Give your comments or examples which supports this case.
This post will be end on 28th monday midnight. The leader of this post was Hema Madda.
The blog discussion was extented one more week upto 5th Monday Midnight.
Wow! This week’s blog topic is extremely difficult to respond to…however, to be completely objective I think a corporation is only as successful as the products or services they sell…so for me, I think the real question is, are we the consumers, making ethical choices and allowing a company to profit?
So, when you ask if the main purpose or mission of a corporation is maximization of profit, the answer (generally) is yes!…
Let’s look at the definition of the words purpose and mission.
http://www.merriam-webster.com/dictionary/purpose
http://www.merriam-webster.com/dictionary/mission
purpose – a: something set up as an object or end to be attained.
mission – 4a: a specific task with which a person or group is charged, c: a preestablished and often self-imposed objective or purpose
Considering profit and market share are generally widely deemed the definition of being “successful”. I think a corporation’s mission (in general) is to make a profit.
However, a consulting firm I worked for, ARCADIS, does have core values.
http://www.arcadis-global.com/About+Us/Core+values/
“Core values
At ARCADIS we use our core values as a touchstone for our daily work. These values, integrity, entrepreneurship and agility help guide our actions and decisions.
Integrity
We take pride in being a reliable partner to our clients. We provide our clients with services that achieve their legitimate goals, while being honest and fair, and respecting laws and culture of the countries in which we operate. We provide our colleagues with a supportive environment that encourages them to make appropriate, ethical and conscientious decisions that impact our business in a positive way.
Entrepreneurship
We understand what drives our clients’ business and we create innovative solutions tailored to their specific needs. We apply the best practices of our firm for our clients around the world.
As colleagues we are entrepreneurial as we apply the collective knowledge and full capabilities of our organization to create profitable growth through new business opportunities.
Agility
We demonstrate a sense of urgency in responding to our clients’ needs and we are resourceful and creative in overcoming obstacles. We react quickly to the needs of our colleagues, by respecting them as clients and we are eager to continuously improve our performance.”
There appear to be $$ signs in the “core values” above.
Regarding, other purposes and obligations?…I’m not sure if corporations feel obligated to do anything more than make sure the corporation is successful. Individuals may feel compelled to do more, but that doesn’t mean the corporation as a whole feels similarily.
As evidenced by the statistics on giving, the majority of giving is done by individuals…not corporations.
http://www.nptrust.org/philanthropy/philanthropy_stats.asp
Ethical Guidebook.
A lot of what Scott mentioned for his Guidebook I would adopt, including the following.
1.)Freedom of Association- religion, organizations, charities, and politics.
2.)Environmental and Socially Responsible actions
3.)Human Rights
4.)Charitable Donations through Corporate giving and matching programs.
5.)Healthcare opportunites
6.)Retirement Education and Retirement investment opportunities.
Once again, as a consumer you support all of the ethical and unethical behavior of businesses!…so ultimately you have the power to decide what’s acceptable and what’s not.
For example, following public pressure, businesses will change their business practices.
Example: McDonald’s changed the menu and marketing due to public pressure from consumers regarding unhealthy food and a documentary film.
http://www.naturalnews.com/000960.html
So if you want corporations to change, you have to make changes yourself!
If you don’t want to support environmental impacts and inhumane factory farming, stop purchasing those products and buy from local sustainable farmers.
I think it just as much the consumer’s responsibility as it is a corporations.
Educate yourself on where your products come from, and don’t support companies that don’t represent your ethics.
Knowmore.org is a terrific consumer advocate website.
http://www.knowmore.org/
They also support ethical consumerism.
http://www.knowmore.org/wiki/index.php?title=Ethical_Consumerism
The website has links to pages that address broad categories of concern in an issue-based format.
They also encourage debate about the issues through the discussion pages attached to each article.
In my Ethical Guidebook I would also adopt the following (obtained directly from the Knowmore.org website and following link):
http://www.knowmore.org/wiki/index.php?title=Issues
Worker’s Rights Abuses
Millions of workers around the world still exist under inhumane working conditions. In the new global economy, corporations from developed countries are more frequently moving their production to developing countries, where they can take advantage of cheap labor and sweatshop conditions. Workers endure extremely long hours in labor intensive jobs with low wages and often unsanitary, unsafe conditions. In many countries there is little or no labor law enforcement, and many workers are prevented from joining unions to advance their own interests. Also, trade agreements exist in many countries which deregulate labor practices and allow corporations to dictate how they treat their employees based on profit as opposed to human rights standards.
Even more alarming, an estimated 250 million children between the ages of 5 and 14 are working around the world. Unable to go to school, these children face little hope of escaping poverty in their future. Advocating for Worker’s Rights is essential to ensuring worker’s protection, strengthening worker’s voice, and ending abuses that violate people’s rights and dignity. KnowMore.Org believes that without standards for workers everywhere, the security and freedom of workers anywhere is at risk.
Also highlighted in this section will be issues of due & equal rights/compensation for all employees, adequate and equal health care, job safety, and the ability of Worker’s to form unions or labor organizations if they should so desire.
Human Rights Abuse
“Human rights abuses, once committed primarily by repressive governments, are increasingly carried out in the corporate interest.” -Corpwatch.org
While there is a bit of overlap between Worker’s and Human Rights issues (after all, Workers Rights Issues are Human Rights Issues), this category is meant to represent those Human Rights Issues which do not fall under the Worker’s Rights umbrella.
Human rights are specifically addressing people affected by the company, while Workers Rights are specifically addressing people who work for the company.
For example, companies continuing to do business in Burma are supporting a Human Rights crisis; as are companies that traffic in African “Blood Diamonds”. From Nestle’s Marketing practices leading to infant death in the third world to Bayer’s involvement with the holocaust, Human Rights have often fallen victim to the will of mega-corporations.
Environmental Concerns
Corporations are perhaps best known for their negative impact on the environment. Whether through the form of air and water pollution, or through razing rain forests for new materials – corporations are threatening our planet’s very ability to survive.
Political Influence
In April 2002, BP/Amoco CEO Lord John Browne announced that BP was voluntarily ending all contributions to political candidates around the world. “We must be particularly careful about the political process–not because it is unimportant–quite the reverse–but because the legitimacy of that process is crucial both for society and for us as a company working in that society,” Browne announced. “That’s why we’ve decided, as a global policy, that from now on we will make no political contributions from corporate funds anywhere in the world.”
Is it possible to ban corporate money from politics? The United States already has. The 1907 Tillman Act, still on the books, says that it is “unlawful for any national bank, or any corporation…to make a contribution or expenditure in connection” with a federal election. Unfortunately, the act was full of loopholes, and corporations have found many ways around the Tillman Act over the years, including now-illegal soft money contributions to federal candidates, Political Action Committees (or PACS), and the bundling of individual donations from multiple employees and executives.
KnowMore.org believes that if citizens are ever to truly reclaim their Democracy, corporate money & influence must be totally removed from politics.
Business Ethics
Business ethics refers to corrupt business practices – ranging from price-fixing, insider trading, bribery, false advertising, excessive compensation to CEOs, to willfully creating dangerous or defective products. Business Ethics also includes the ways company handle human resources (Worker Rights), endanger the lives of people and their communities (Human Rights), source their materials in ways that harm the environment (Environmental Impact), and pay lobby groups in order to get corporate-friendly laws passed (Political Influence).
You are right about the conscientious approach consumers must take when supporting and buying products. It is hard to imagine most people researching where and how a product is manufactured. I guess essentially you would only put your energy into larger purchases. If you spent the time researching everday items, well your new job would have to be exactly that. Lots of great info and links.
Candice, You did a very good research on this topic. Your post is straight forward and pretty interesting.
Maximization of coporate profit is one of the main purpose of a company, but more importantly the ethical way. There should be a vision and a mission statement of a company before a dollar is talked about. Sticking to that purpose is the most important thing to do. If done properly, money will come you way. If it doesn’t you should go back to the basics of your goal and correct than instead of correcting anything to increase your profit. When money becomes the integtal part of the company, then decisions are made based off of money and the company can go in the wrong direction. The main purpose of a company should be what they are made for, serving the people with their product or service. The biggest guideline in the book would be to stick to your mission statement and vision. Then it would be to implement at all costs until achieved. After both of those, it would be appropriate to have financial measure because that is needed for the company to run. AIG is an example of how much trouble they got into due to loss of direction. They started paying their top level employees millions more than deserved for one reason or the other and that got them into a lot of other trouble. Coke in the late 1980′s moved away from their mission and changed their formula to beat Pepsi on the sweeter drinks too (they were already #1 at that time) and went down big time. They did that for the greed of money, which is one of the negative core values. They had to change it back and start making what they did intially. So with these examples in mind, it is extremely important to not have money as your #1 goal for the company.
It is the purpose that counts and stick to the vision.
Kunal, I think now a days every company is thinking how to make profits with out quality of product. you are right.If we offer a best quality to customer, money will come to their company. If they won’t they won’t get the money from customers.
UTC Blog “Corporate Profit
Fall 2009
Prepared for Dr. Prem Chopra
By Frank R. Holcomb
Maximization of corporate profits is one of the purposes and obligations to the share holders but it is not the mission or main purpose of an ethical corporation. With the guidance of Dr. Prem Chopra’s trilogy I will present an ethical guide book for executives and managers to use in a large corporative setting.
A key point to remember about business ethics is that in spite of the codes of ethics, ethics programs and special departments, corporations do not make ethical decisions. Individuals make the ethical choices. A business should provide the environment or atmosphere for acting ethical. It is the people of the business that put ethics into practice. To determine if your actions are ethical, compare them to these eight basic guidelines for ethical business operations listed below.
Doing What’s Right: Ethical Action
1. Is it legal?
2. Does it comply with the company rules and regulations?
3. Is it in sync with the organizational values?
4. Will you be comfortable and guilt-free if you do it?
5. Does it match the stated commitments and guarantees?
6. Would I do it t my friends and family?
7. Would it be okay for someone to do it to me?
8. Would the most ethical person you know do it?
These are practical and useful test of your ideas and actions. You should not limit these to only your business dealings. Acting ethically is not something you turn on and turn off. Acting ethically is part of everything you do.
Obviously, you are expected to get results for your organization and for your customers. However, you are also expected to get those results legally and morally, by being ethical. If you lose sight of the distinction, you jeopardize your job, your business and your career.
By considering respect, responsibility, and result before taking action you will avoid the following common rationalizations for not doing what’s right.
“Everyone else does it”
“They’ll never miss it”
“Nobody will care”
“The boss does it”
“No one will know”
“I don’t have time to do it right”
“That’s close enough”
“Some rules were meant to be broken”
“It’s not my job”
Using these eight guidelines and avoiding rationalizations will help you take action that is ethical. (Chopra, P., 2009)
Examples of Unethical Behavior in Business:
It now seems clear that, particularly for the financial industry, more regulations are inevitability. The roots of our current malaise lye in the deregulation boom of the nineties when the NASDAQ jumped from “453 in 1991 to a high of 5132 in 2000”. Unfortunately, not only did we get the growth that came from that, but the energy deregulation also gave us Enron. The telecom deregulation gave us WorldCom, and we are today paying the price for banking deregulation” (Time Magazine, Business Ethics, 2009).
Enron’s mistake was being cash oriented and not ethics based. Enron squeezed cash out of California by billing them for services they did not provide. The result was a “67% increase in electric bills over the 2000 cost of electricity. Enron’s Portland, Ore., law firm describes “schemes became know, the result would be a public relations disaster” (). One of the memos stated “now being used by other market participants” to indicate that “other are doing it” therefore justifying their actions for unethical behavior (Castellano, J. F., Rosenzwig, K., and Roehm, H. A., 2009, Pg.37-41).
The Federal Energy Regulatory Commission (FERC) last week asked 150 energy companies whether they had engaged in trading schemes like Enron’s and three firms Calpine, CMS and Dynegy revealed they are the subjects of SEC investigations. (Elliot, J., 2009, pg.567-576)
References:
“Beyond the Nexus,” Prem Chopra, Brook of Life Press, First Edition, 2008
http://bb3.utc.edu/webapps/portal/frameset.jsp?tab_id=_2_1&url=%2fwebapps%2fblackboard%2fexecute%2flauncher%3ftype%3dCourse%26id%3d_14644_1%26url%3d
Castellano, Joseph F., Kenneth Rosenzwig, and Harper A. Roehm “How Corporate Culture Impacts Unethical Distortion of Financial Numbers.” Management Accounting Quarterly 5.4 (2004): 37-41.
Chuang, Chiulien. “The Ethical Reasoning Abilities of Accounting Students” The Journal of American Academy of Business March 2005: 200-207.
Elliot, John. “Business Schools and Social Responsibility: A Dean’s Perspective” Business and Society Review 109.4 (May 2004): 567-576.
Time Magazine, “Business Ethics in the News”, retrieved 2009
http://www.time.com/time/magazine/article/0,9171,237028-2,00.html
You make a good point about individuals making the ethical choices, not a corporation. I think corporate executives would think a little harder about some of the ethical choices that they are presented with if it was them personally and not the company, whose reputation was on the line. I know individuals, especially CEOs, also take some heat, but in some cases, they can sort of hide behind the corporation and let it take the blame for the wrongdoing. That spreads the responsibility out to however many employees the company has and directs it away from the people who are responsible for the decision in question. You don’t feel quite as bad if the company is responsible and your name is left out of the conversation.
Frank,By considering respect, responsibility, and result before taking action you will avoid the following common rationalizations for not doing what’s right.
“Everyone else does it”
“They’ll never miss it”
“Nobody will care”
“The boss does it”
“No one will know”
“I don’t have time to do it right”
“That’s close enough”
“Some rules were meant to be broken”
“It’s not my job”
These points make me think about the system. You got a very good points.
I think a corporation has two important areas of responsiblity aside from making profit. One of these is a responsibility to the area that their business takes place and the communities that are affected by their business. The second is a responsibility to their employees. A corporation should maintain the land that their business is conducted on and should not inconvenience the people in the surrouding communites. If a facility that is used by the public is taken over by a company, that company should replace that facility in a different location and make it better than it was before. The people in the area did not ask for them to come in and take over property, so they should not be negatively affected by the business. Also, the employees should be treated well. An employee should enjoy and be proud to work for a corporation. The benefits and compensation that they receive should represent the work that they do, not the minimum that the company can pay them and still keep them working.
Sometimes the community does ask for these corporations to come in. Look at Volkswagen. Chattanooga was willing to slap it’s Grandmother to get them to come here.
When I say community I mean on a little smaller scale than all of Chattanooga. Yes, the Chattanooga area wants Volkswagen to come in because it creates alot of jobs, but what about the people who have homes near the site of the new plant. I’m not exactly sure where it is in town or whether it is in an already commercial or industrial area. If you lived in a house in a secluded area and had privacy and natural surroundings, then someone built a car factory in your yard you are not gonna be happy about it, no matter how many jobs it brings to town. Or if they took over an area where there was a playground that you took your kids to or something like that. You would hope that the corporation would replace that facility, otherwise you would have some resentment toward that company because they disrupted your routine and now you have to find a new place.
The Volkswagon plant is on the old government ammunition site termed the “TNT” property between the areas of East Brainerd and Ooltewah. Granted, there are a few neighborhoods that back up to that property, alot of that property was sold off to build neighborhood, but from what I can tell, it does not look like the new car factory has encroached on to many toes. But your point is still valid on a general basis of most areas.
Thats true Scott, thats what we talked about in class as well last time. Expansion and taking over is what companies want to do right now. That is a first level of desire which correlates with the negative core values. There is a major difference between serving the community and expanding for more profit.
I agree with you Cade that a company should fulfill its obligation to be a good community partner, and treat its employees fairly. During boom times I think all companies try to maintain these obligations. The problem arises during economic downturns such as the one we are in now, what does the company sacrifice to maximize profits? I think we see a lot of companies placing profits first and neglecting both employees and the community to an extent.
I also agree corporations and companies should be community partners.
I agree the investors have responsibility to it’s community and environment, which for the long-term benefit of the investors
Cadewomack, I agree with you that One is a responsibility to the area that their business takes place and the communities that are affected by their business. The second is a responsibility to their employees. Your post was interesting.
I think the problem with society in general has created a company mindset that puts profits first. In a past company I worked for, refused to pay any invoices received in the last month of the fiscal year. The main reason was to close the books out showing a greater yearly profit. I did not think this was an ethical concept, because they were claiming a profit on goods already sold but not paid for.
Another thing they were doing was removing cash from the company by selling off real estate they owned, and leasing the property back for their usage. I never understood this concept until they sold off the company. The foreign investors had devalued the real property and sold it as an operating business, taking millions of dollars back to their country.
The accounting methods used to show a short term profit negatively impacted the overall worth of the company. For this reason I am always leary of the numbers shown on a profit and loss statement, and feal real property has move of a value than inventory.
That is a good point, Chuck. A lot of companies manipulate the books in order to show greater profits than they actually have. This serves no reason other than trying to impress the bosses who do not work there. To me this practice is extremely unethical and in the long term is not good for the business’ health.
Wow that is really shaddy Chuck. It is sad how a lot of companies only focus on profit. There is so much more to owning and running a successful company other than profits.
A friend of mine worked for a company and one of their employees was stealing thousands from them. Once the owner found out he fired the employee. Later on the IRS contacted the owner saying that they were way behind on their taxes. Apparently the crooked employee was pocketed money and saying that he was paying their taxes. This goes to show, one crooked employee can get a company in major trouble. The owner was held responsible and would’ve faced major consequences had he not paid Big Brother back.
Chuck, Good point.
That is a definite responsibility aside from profit that I had not thought of. A publicly traded company certainly has the responsibility to be truthful to their shareholders and investors about the profit they are generating, regardless of the value of what those shareholders own. Accounting departments playing with the numbers, whether the actual techniques are legal or not, is not only being dishonest with your investors, but in the long run it is probably going to bring about hard times for the company.
The “purpose” of a corporation really depends on the type of corporation that it is. I believe that if a corporation is publicly traded, and essentially funded by the public, then the overall plan has to be for the purpose of profit. If a publicly traded corporation is to survive, then it must show profits in order to keep the same investors, as well as attract new investors.
If you are talking about a “non-profit” corporation, then the purpose shifts from making profits, to managing their surplus for future charities and/or projects that benefit the mission of the company and the local area. A major problem non-profit corporation’s face is deciding how to allocate their monies. Meaning, if they have secured a surplus, who should receive reasonable bonuses? If a non-profit shows advancement in pay to a great extent, then it could be accused of taking advantage of the funds given by the government and/or donors. There are other types of corporations in between these two types, but for the purposes of this blog I am going to stick to for-profit and non-profit types.
Well, I have not ever worked for a corporation, at least not to an extent of great importance. I had odd jobs when I was in high school and early college I suppose fell under the corporate level, but the positions I held were not significant enough for me to be involved with the knowledge of corporate responsibilities. I have worked for an LLC, “limited liability company,” which was owned by a single owner, which also happened to be a partner of a corporation. Although we were not a corporation, we did however exercise responsibility with the community. Of course, we had to; it was a commercial construction company where environmental responsibility is of high importance. We also donated to local charity events. We had employee’s that were members of other organizations such as labor unions, free mason, churches, and even golf clubs. We also employed people of many different ethnic backgrounds. Ethics was of high importance given that almost all of our jobs were of competitive bidding type, which brings into play bribery and preferential treatment. A lot of the bribery charges you hear on television or just imagine, can and probably happens in construction more often than one would like to think. I do not know of any instances in Chattanooga, but that does not mean it has not happened. It just means I do not know. I can tell you that there are some construction companies in Chattanooga that have their hands in the pockets of power that do get information on projects sooner than it is released to the public.
So back to my point that I have not ever worked at a high level of a corporation. I do not know a standard code of conduct off the top of my head. I am sure you can visit various websites that can give you great insight on the standard principles corporations should follow. I am just going to list some things I believe should hold true on a corporate level, not that I am correct and will think of everything, but here is a guide of ethics and obligations I think should be followed, at least for a publicly traded or government funded corporation:
1) Freedom of Association-meaning memberships of religion, clubs, organizations, charities, and politics.
2) Environmental Responsibility (locally and internationally)-leave it better than you found it principle; that includes aesthetically, recycle when economically viable, etc…
3) Human Rights (Locally and internationally)-that can be a broad spectrum of things from child labor, environment, harassment, religion, safety, education, forced labor, etc…
4) Charitable Donations-make a positive impact with the community you are involved with locally and abroad.
5) *Discrimination-do not exclude or eliminate potential or current employees for reasons to include race, religion, appearance, sex, and non-religious beliefs.*
6) Healthcare and Retirement-I think all companies should strive to assist or provide options of healthcare and retirement benefits.
7) Corruption-Do not participate or associate with any type of corrupt actions or business such as bribery, embezzlement, extortion, “cooked books”, etc…there are many types of corruption but those are of high importance. This should include reporting of corrupt activities (locally and abroad).
9) “Gut Check Responsibility”-If it feels wrong, then chances greater than none, it is wrong.
*Let it be noted that I do not believe in affirmative action, but it is the nature of the beast. I do not think it is right for companies to get incentives for hiring a percentage of minorities on a per project basis, as well as for general employment. I will always believe that you will in the end, get the best from hiring what you believe is the best.
The above guide of “purposes or obligations” to the public, employees, and shareholders may be too simplistic, but you can read into the little details and fill in the blanks. If a corporation follows these principles, and promotes good principles through example, it should not have any trouble in being successful financially and personally, so long as it is producing or managing a good product or service.
I agree with many of your points. I also agree that the policies adopted by a corporation do not need to be overcomplicated as long as they address all of the major points. In my mind, it is only those that have less-than-ethical intentions that would try to find loopholes and attempt to reinterpret rules like yours for selfish gain. Very good guidelines you have here…
And a quick note about affirmative action: I totally agree with your point. As an African-American that grew up in a very intolerant area, I think we have progressed far enough as a society to now be able to focus more so on the quality and qualifications of a candidate and less about their ethnicity. These are issues that, I think, will wane in gravity as time goes by, but I do have concerns for the Hispanics in America, that they might just become the “in” minority to be discriminated.