Page 148 - Introduction to Business

122 PART 1 The Nature of Contemporary Business

separation of ownership (which rests with hundreds of account with respect to company operations in a
thousands of shareholders) and control (which rests variety of ways.
with the company’s CEO and a few other individuals).
This fractured nature of corporate ownership fre- LEARNING OBJECTIVE 6
quently gives shareholders relatively limited monitor- Describe the societal responsibility model of business
ing power over company officers and directors who governance.
control the company and who may tend to act in their
own self-interest rather than in the long-term interests The societal responsibility model of business gover-
of the shareholders. For example, a company CEO nance goes a step beyond the stakeholder model and
whose annual bonus depends on the maintenance of says that businesses operate for the benefit of, and
very high current levels of corporate profitability may have a responsibility toward, not just stakeholders but
not want to meaningfully invest in company research society in general. A number of large corporations have
and development that might best benefit shareholders adopted a societal responsibility model toward the
in the long-run but will hurt current profit levels. global environment by voluntarily reducing pollution
from their operations far beyond the levels required by
LEARNING OBJECTIVE 4 law.
Analyze different methods of solving the problems
and conflicts of interest engendered by the separa- LEARNING OBJECTIVE 7
tion of ownership and control in major corporations.
Explain the basic parameters of business ethics.
A wide range of private and public governmental mech-
Business ethics involves the application of ethical stan-
anisms exist for addressing the potential conflicts of
dards to business situations. Ethics invokes beliefs
interest that arise between shareholders and officers or about what is right and wrong, what is morally accept-
directors in large corporations. Increasingly, efforts are able and what is not. Unethical behavior involves
being made to better align the financial interests of behavior that is either illegal (e.g., CEO insider trading
shareholders and officers or directors by tying officer or in the United States) or morally unacceptable (e.g., in
director compensation to long-term corporate perfor- some circles reincorporating a company from Con-
mance. Various laws and regulations, such as those that necticut to Bermuda). Standards for defining unethical
outlaw insider trading by corporate officers and direc- business behavior vary widely throughout the world. In
tors, also help to reduce potential conflicts of interest many countries paying government officials bribes to
between corporate ownership and control.
obtain certain types of regulatory approval is consid-
ered morally acceptable or indeed even legal. In the
LEARNING OBJECTIVE 5
United States, however, this is not the case.
Discuss the stakeholder model of business
governance.
LEARNING OBJECTIVE 8
The stakeholder model of business governance takes Discuss the development of business codes of ethics
the perspective that businesses exist to benefit not and business ethics training.
just their shareholders but also all the various groups
(e.g., customers, employees, suppliers, etc.) that have Many businesses (especially large corporations) today
a meaningful stake in their operations. Many busi- are adopting formal written business codes of ethics.
nesses, for example, make special efforts to help the These codes may deal with a wide number of topics
local communities in which they operate. In some ranging from workplace romance, to personal use of
foreign countries a stakeholder model of governance company property, to possible employee conflicts of
is to some degree mandated by law. In Germany, all interest. Companies are also increasingly developing
large companies are required by law to have formal business ethics training programs, including
employee representatives on their board of directors Internet online courses. Business ethics portends to be
or supervisory board and to take workers directly into an increasingly important topic in years to come.

Chapter Questions
should you use? What factors enter into making
1. What is a whistleblower? What problems do this decision?
whistleblowers face in organizations? 3. What makes a corporation such a special business
2. You are establishing a business renting small entity?
dormitory-sized refrigerators to fellow college stu- 4. The state of Delaware is the most popular state in
dents. What type of business governance structure the United States for large company incorporation.

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