UNIVERSITY OF BRADFORD / MDIS

Ethics in Business and

Society Assignment
A literature discussion on Stakeholder Theory

Thai Dang Thi UOB 11033041 FIN G1043500K
4/8/2014















[Type the abstract of the document here. The abstract is typically a short summary of the
contents of the document. Type the abstract of the document here. The abstract is typically a
short summary of the contents of the document.]
The principles of utilitarianism were first presented by philosopher, John Stuart Mill
(1806 1873). Based on its main principle, a decision is regarded as ethical once its
consequences lead to the greatest amount of good for the greatest amount of people
affected. One must evaluate all the possible outcomes from negative to positive then
select the outcome that results in the greatest utility for greatest number.
Utilitarianism relatively uses utility as an economic parametric measurement, a
business is considered as utilitarian ethical if it aggregates the highest utility for each
person involved, this principle is accepted and widely applied in modern corporation
nowadays. This principle assembles of the common economic term cost-benefit
analysis.

In the early stage of economic industrial period, Adam Smith originated the
fundamental literature on managerial capitalism, within his infamous work Wealth
of Nations, initially presenting Invisible Hand idea, which is considered as a
basic principle of free market. This principle is applied and extended in Milton
Freidman doctrines of managerial capitalism and shareholder theory in
following years. According to Invisible Hand idea (Smith, 1776), the system of
free market brings benefits to its society at the unintentional actions of any economic
agents. In the pursuit of their interests, they make exchanges with others, negative or
positive, with good intentions or not, these actions lead to the improvement of
society. The morality of free market does not require people do good things to each
other. The wealth of society comes from people who want to achieve good things on
their behalves.
In agreement of this principle, Freidman extended to his shareholder theory about
the corporation social responsibilities (CSR). As he stated: There is one and only
one social responsibility of business to use its resources and engage in activities
designed to increase its profits so long as it stays within the rules of gameengages
in open and free competition without deception or fraud(Friedman, 1970).
Freidman ironically denied the existence of corporate social responsibilities, as
business has no responsibilities, especially to society. The sole responsibility of
corporation is to maximize its shareholders interests, let alone interests of other
parties involved in business activity. Corporate executive is regarded as thief by
devoting shareholders money for general social interests since the actions might
result in reducing profitability or conflicting with shareholders interests.
Furthermore, Friedman stated that corporation carry out CSR merely to profit-
maximization, under the cloak of social responsibilities (Friedman, 1970), that is
corporations employ CSR just to promote their self-interest but not on altruistic
manner to do good to society.

Freidmans shareholder theory was the fundamental principle for early managerial
decisions, but it is currently in general disfavor by philosophical scholars and
corporations. In contrary to shareholder theory is Freemans stakeholder theory.
According to Freeman, managers bear fiduciary obligations to stakeholders
(consumers, suppliers, employees, local communities, society), who have stake or
claim on the firm. Stakeholders are those groups of people who are vital to the
survival and success of corporations. Unlike shareholder theory, stakeholder theory
is widely accepted and applied in modern corporations nowadays and it is commonly
considered as the strategic principle for long-run profitability of corporations. There
have been undisputed arguments between stakeholder theory and shareholder
theory in both philosophical aspects and economic aspects.

There are moral arguments based on Kantianism, while shareholder theory take the
interests and needs of stakeholders except shareholder as means to the ends,
stakeholder theory take the interests and needs of all the corporate stakeholders as
ends. According to Bowie (1999), respecting humanity helps corporation enhance
profitability, which we should view as results of good business practices but not a
goal of business, therefore, focusing in moral issues like equitable workplaces, non-
coercing relationships with employees, corporation philanthropy. Profitability
depends on the balanced cooperation of the stakeholders. Manager ought to solve
these disputes between stakeholder groups, to satisfy the interests of all parties.
Profits are not the purpose of corporation but rather than a condition of its future
existence. Corporations have spoken the language of stakeholder theory, which is
widely accepted and applied by management of top MNEs. A study by Great Place
to Work Institute proved that investments on top companies on social responsibility
compensate annual returns higher than average returns ratio in the market. Whatever
the theoretical merits of Friedmans position, the reality is that at most international
corporations, corporate philanthropy is a part of their business code of conducts.

Relatively, Crane (2007) provides several reasons on why corporation ought to
employ CSR, (1) Corporation must pay responsibility to all the social problems they
cause while pursuing their own interests; (2) Corporation heavily replies on the
distribution of all the stakeholders, not just shareholders, hereby, it should take the
all their interests and goals into its account; (3) Corporation with low perceived
reputation on business ethics and code of conducts might be confronted with
unexpected consumer actions or boycotts, likewise, corporation which is perceived
as socially responsible is often rewarded with higher amount of consumer and their
loyalty; (4) Corporations have huge influential impacts in society either from their
provision of products or business activities but they must be responsible to all their
consequential effects on society; (5) Corporations play powerful roles in society,
therefore they ought to behave socially responsible on their behalves.
In the vivid realistic representation of Flat world idea from Freidmans famous
winning-award book, The world is flat (2005), points out a global fact that
corporation must carry on obligation to society as part of its existence, since
corporation that operate in flat world is no longer possible to exploit outsourcing
cheap labor, creating environmental degradations or dumping industrial waste in less
developed countries without receiving any media attention requiring corporation
responsibilities. Generally, MNEs are embedded in a complex adaptive set of global
connected system of politics, economics, cultures, which is constantly required to
reveal all publicity disclosure of business activities.

In conclusion, there are empirical evidences in economic market that stakeholder
theory actually contributes to the bottom line and that corporation ought to seek win-
win position with corporation philanthropy and that is giving money away actually
making more money.
























REFERENCES

1. Anon., 2002. Happy Companies Make Happy Investment. Fortune, p.162.
2. Bowie, N.E., 1999. Business Ethics: A Kantian Perspective. 1st ed. Oxford: Wiley-
Blackwell.
3. Bowie, N.E. & Werhane, P.H., 2004. Management Ethics. Jornal of Academic
Ethics, 2(3), pp.287-91.
4. Crane, A. & Matten, D., 2007. Business Ethics: Managing Corporate Citizenship
and Sustainability in the Age of Globalization. 1st ed. Oxford: Oxford University
Press.
5. Evan, W.M. & Freeman, E.E., 1988. A Stakeholder Theory of The Modern
Corporation: Kantian Capitalism, Volume 3. Prentice Hall.
6. Friedman, M., 1970. The Social Responsibility of Business is to Increase its Profits.
New York Sunday Times Magazine, p.32.
7. Friedman, T.L., 2005. The World Is Flat: A Brief History of the Twenty-first
Century. 1st ed. New York: Farrar, Straus and Giroux.
8. Fritzsche, D.J., 2005. Business Ethics, A Global and Managerial Perspective. 2nd
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9. McWilliams, A. & Seigel, D., 2001. CSR, A Theory of The Firm Perspective.
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10. Narveson, J., 2003. The "Invisible Hand". Journal of Business Ethics, 46, pp.117-
27.
11. Smith, A., 1776. The Weath of Nations, Books IV. 1st ed. Chicago: Chicago
University Press.
12. Werhane, P.H., 2008. Mental Models, Moral Imagination and System Thinking in
the Age of Globalization. Journal of Business Ethics, 78(3), pp.463-74.