Page 138 - Introduction to Business

112 PART 1 The Nature of Contemporary Business

January 1, 2005. On May 15, 2005, he decides he’s going to buy his daughter a nice
new car as a college graduation present and sells his stock at $52 per share for a total
of $26,000. There is absolutely no evidence of any wrongdoing or misuse of
information in this situation. Nevertheless, the CEO must disgorge back to the com-
pany treasury the $1000 profit he made on the transaction.The intent behind Section
16(b) is to prevent even any appearance of impropriety in that short-term trading for
a profit by a corporate officer may be automatically presumed by many to be based
on inside information. Rule 16(b) thus works to reduce possible information asym-
metries between top corporate officials and ordinary shareholders.
reality What do you think about the Sarbanes-Oxley Act and all the new
CH ECK recently enacted regulations of corporate governance?

Stakeholder Model of Business Governance

LEARNING OBJECTIVE 5
Discuss the stakeholder model of business governance.

Ron Blackwell, the AFL-CIO’s director of corporate affairs, argued in a recent speech
that the core structure of U.S. corporations has undergone a drastic and negative
change during the past twenty years. Unlike in prior times, he asserted, companies
today have become “the private property of shareholders” and this results in “the
needs and rights of workers being sacrificed for a greater profit margin for the
shareholders.” Blackwell also argued for a change in the role of CEOs so that “they
serve the best interests of all parties, not just the shareholders.” 20
stakeholder model of business Blackwell is thus a proponent of what is known as the stakeholder model of
governance The business governance business governance. Proponents of this model believe that businesses exist to
model operating from the premise that
the purpose of businesses is to benefit benefit not just their shareholders but also all the various groups that have a mean-
all groups with a meaningful stake in ingful stake in their operations. Clearly employees are one such group, and proba-
them bly the most important one from Blackwell’s perspective. There are, however, also a
variety of other stakeholder groups. These include a company’s customers, suppli-
ers, creditors, trade associations, and so on.
The Coca-Cola Company is one company that has formally adopted a stakeholder
model of corporate governance. In the corporate governance section of its website, it
has a formal statement by its CEO stating “[F]undamentally, the Coca-Cola Company
is built on a deep and abiding relationship of trust between it and all its constituents:
bottlers, . . . customers, . . . consumers, . . . shareholders, . . . employees, . . . suppliers,
. . . and the very communities of which successful companies are an integral part. That
21
trust must be nurtured and maintained on a daily basis.” A diagram of the Coca-Cola
Company’s and its stakeholders’ constituencies would look something like Exhibit 3.3.
In sum, while the shareholder view of business governance takes the view that
the role of businesses is to make as much money as possible for their shareholders,
the stakeholder view of business governance takes the position that businesses
should be managed for the benefit of all their stakeholder groups and indeed that
positive, trusting two-way relationships should exist between the businesses and
those groups.

Businesses and Local Communities

Royal Dutch/Shell Group is a company that makes special efforts to consider
the impact of its business operations on the local communities in which it
does business. In particular, it is conspicuously sensitive about consulting

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