Article 1: Goldman chief alleges Rajat Gupta violated confidentiality code
Source: The Economic Times, 24th March, 2011, <http://economictimes.indiatimes.com/news/international-business/goldman-chief-alleges-rajat-gupta-violated-confidentiality-code/articleshow/7778275.cms>
This article covers the ethical issue of insider trading among the business houses. The topic of insider trading uncovers the violation of basic ethical practices and code of conduct of a company. According to H.E Leland (Leland, 1992), “insider trading is a practice of providing valuable and confidential information which is not available to the public about the company to its competitors or in the outside market which can benefit the information seeker”.
The information seeker gains by the given information by trading in the company’s stocks or bonds and thus by providing the information provider violates the basic bond of trust of its company (Friedman, Andrew & Samantha, 2002).
In this particular case, Mr. Rajat Gupta has been alleged to provide information about the company’s future transactions to another company. In this case, Mr Gupta confirms confidentially to Mr the hedge fund industrialist Mr Rajaratnam that, the company might acquire an insurance company such as AIG or a commercial bank such as Wachovia (Friedman, Andrew & Samantha, 2002).
Business ethics refers to the code of conduct which should be followed in each & every organization. It refers to the applied ethics which should be practiced in an organization. Ethics refers to the way, the organizations deal with their employees, shareholders, customers, stakeholders, etc (Friedman, Andrew & Samantha, 2002).
The corporate should keep in mind the various through which they should satisfy the need of their stakeholders, thereby, not sacrificing or compromising with the stake of their employees in the company (Friedman, Andrew & Samantha, 2002).
A responsible organization is one which does not fail to work accordance to the code of conduct laid down by the organization. In this particular article, Mr Gupta was not working in accordance to the code of conduct or the fair game of the business (Friedman, Andrew & Samantha, 2002). He broke out the rules, by leaking out one of the secrets of the organization i.e. the plans of the company to acquire either an insurance company or a commercial bank which would help them to sustain within the global markets & broaden their scope in the current market scenario (Friedman, Andrew & Samantha, 2002).
This article is based on one of the most important theories of the business ethics i.e. the Agency theory of Business Ethics. The agency theory could be defined as “a basic trouble that arises in the organizations due to the one’s own deeds (Friedman, Andrew & Samantha, 2002). This arises when there is a mismatch between the goals of the organizations managers & the goal of the shareholder. There might be a possibility that, there might be certain personal goals of the manger which competes with the owner’s objective of maximizing the shareholder’s wealth. Thus, there arises a conflict amongst the firm’s assets as well as the manager’s interests leading to an unhealthy environment, which makes it imperative for the employees to take certain decisions which could be against their will” (Friedman, Andrew & Samantha, 2002).
This article might be associated with the Agency theory of the Business Ethics. According to this, there are two actors involved in the business – agent and the principal.
Principal can be described as the owner of the business and the agent as the manager who runs the business for the principal. There is a basic premise that both of these work to maximise their own self interests and the motives. This leads to the conflict of ideas as the agent will work to maximise his interests not the business or not the principal (Gjesdal, 1982).
Under the agency theory of business ethics, the parties involved look into their self interests i.e. they try to maximize their wealth. The agency theory leads to provide a critical view towards the ethics practiced in the corporate world (Leland, 1992).
This theory explains that there exists a relationship based on the contract between the principal and the agent and both of them work for maximising their end of the contract. Also there are no statements defining the nature of the contract (Leland, 1992).
In such a competitive environment, competition not only occurs between the companies’s but also amongst the employees of the company. Most of the employees in the organization compete within themselves to be at the top, get recognition, salary hikes, etc (Leland, 1992).
The act of insider trading clearly shows how agent tries to maximise his own profits at the expense of the principal. This shows the violation of business ethics of respecting the company’s code of conduct and confidentiality (Leland, 1992).
There have been actions taken against Mr. Rajat Gupta for breaching the company’s confidentiality. He was working for Goldman Sachs when this alleged information sharing took place. He has been charged under the US Securities and Exchange Commission (SEC) according to the news article. The charges against him are yet to be proven and the proceedings are still going on against him in the issue (Leland, 1992).
As a manager, some of the recommendations to the organization would have taken the same proceedings against the employee (Leland, 1992). Strict actions need to be taken to set an example and to prevent such incidents in future for the company. In addition to that, as a manager I would have taken some preventive and corrective actions also as an employer to instil positive business ethical practices in the employees (Leland, 1992).
A guideline should be issued by the top officials of the organization, which should contain various corrective steps to be taken up by all the employees of the company. If any employee does not abide by the rules laid down, then he/she should be penalized (Friedman, Andrew & Samantha, 2002).
These will make sure that any breach of business ethics does not happen in the future. (This action has not been mentioned in the article (Friedman, Andrew & Samantha, 2002). So in the absence of data, it is being assumed). For this, proper definitions of the company’s policies and practices would be distributed to the employees since their induction. Sessions would be taken regularly regarding positive business ethics and dos and don’ts regarding the company’s code of conducts. Regular checks and audits would take place to keep a check on the practices being carried out by the employees (Leland, 1992).
The major stakeholders affected by this incident are the shareholders itself because of loss of faith in the company. The company’s reputation as an ethical employer and its employees following ethical practices could have been tarnished (Friedman, Andrew & Samantha, 2002). But the company acted and the civil proceedings against the accused show that company is committed to curb the practice of insider trading. The other stakeholders affected by the incident are the employees itself. The article is clear example of how the statement of company’s policy on insider trading is not being followed by its top executives. If the Chief doesn’t follow these practices, then such acts give a wrong signal to all the employees in the company (Leland, 1992).
When this alleged transaction took place, Mr. Rajat Gupta was the Chief of the company. So this act affects employees internally. Externally, as the company’s reputation is tarnished it loses its brand as the employer of choice. This affects its potential in attracting future employees (Leland, 1992). This company is a financial company. So the act affects its customers also. The company deals with the financial instruments, thus, if something of this happens it hampers the growth of the organization which would in turn lead to fall in the share prices of Goldman Sachs (Leland, 1992). This would further lead to a decrease in the number of investors relying on the particular brand (Goldman Sachs).
In the stock market, it is essential to maintain trust among the customers for any company. This act might affect the credibility of the company to perform well in the market. There would be a negative impact on the customers as well. The shareholders would also be affected badly (as mentioned in the above paragraph) (Friedman, Andrew & Samantha, 2002).
Government in the big picture will not be affected directly. But indirectly, the Government might implement some laws and Acts to strictly deal with these violation of business ethics in future (Leland, 1992). This will prevent happenings of such nature and will also provide companies preventive actions to deal with the culprits. The role of Government as a stakeholder in this case is very important as it would decide the nature & context of ethics in business practices for the companies and its employees (Leland, 1992).
The government should lay down certain guidelines as well as rules & regulations for the organization which should be followed by all the companies which would help them in near future to avoid such kind of incidents, which would in turn reflect as well as hamper the growth of the big brands (Leland, 1992).Various business houses have been acquainted with a bad reputation in the market. The major reason for them to earn a bad reputation in the market is due to the violation of the various business ethics, rules & regulations being laid down by the people of the organization (Friedman, Andrew & Samantha, 2002).
In the above case, it could be seen that some people, have the urge of making money only, when they are into business. Their main motive is just to earn as much money as possible. Violating rules as well as not following the ethics laid down by the organization is not of their concern.
It must be noted that making huge amount of money is not wrong but, the way the individuals make it should be right. The manner in which the business portrays them should of the utmost importance, as it would reflect their image (Friedman, Andrew & Samantha, 2002).
Abiding by the business ethics laid down by the organization is a must. There are various factors which need to be taken into consideration (Friedman, Andrew & Samantha, 2002). It must be noticed that, the company should adhere to the correct or the right ways of doing a business.
Sometimes when the companies make huge sum of money, they do not pay much of an attention towards the ethical norms they would be following. They are least bothered whether the enterprise is using certain ethical norms or not. The enterprises are busy printing the high bundles of cash. There are many companies who used to follow certain specific norms, but due to the high amount of competition within the firms & all the firms striving hard to reach at the top they have to break certain rules. The number of companies who are using the ethical norms in order to decreasing day by day There are many companies that pride themselves in their correct business ethics, but in this competitive world, they are becoming very few and far between.
The government should take into consideration that every organization which is being operated in this environment is to earn & make certain amount of profit. But, it must be noted that the profit earned should be within the boundaries & no illegal or unfair trade practices should be followed. The government should formulate some law & all the organizations should abide by it (Friedman, Andrew & Samantha, 2002).
According to Friedman, it is necessary & the overt duty of the business tycoon that, the business houses are free to make as much money as possible but, should be accordance to the basic norms of the society, abiding by both the law as well as those alive in ethical custom” (Friedman, Andrew & Samantha, 2002).
Article 2: BP oil spill executives are denied bonuses
Source: Financial Times, 31st March, 2011, <http://www.ft.com/cms/s/O/d6425f24-45cd-11e0-acd-8-00144feab49a.html#axzz1HnzWspBt>.
This article is an after discussion of the oil spill which happened in Gulf of Mexico last year. The disastrous oil spill by British Petroleum affected the environment as well as the company’s reputation in a huge way. This article covers the basic ethical issue of stakeholder theory (Leland, 1992).
The article highlights one of the worst nautical oil spills in the history. This incident occurred when the BP was trying to seal a well when an explosive took place at the Deepwater Horizon, killing approximately 11 workers (Friedman, Andrew & Samantha, 2002).
The explosive was so huge that, it leads an adverse effect, affecting the workers, employees as well as the shareholders. The huge power plant also faced various as well as high amount of punishment & fines from the government of United States. The huge power giant was solely made responsible to re-establish the damaged natural resources (Friedman, Andrew & Samantha, 2002).
This worst oil spills has lead to a much wider or an everlasting effects on the economy rather than the environmental disaster which could affect the world economy at large.
In this incident, the company BP would not pay any bonus to the executive directors who were involved in the worst oil spills which occurred in the Gulf of Mexico last year. But, at the same the UK oil group has awarded a partial payout bonus to two of the directors as they had met their specific targets during that period (Friedman, Andrew & Samantha, 2002). It is a case of sheer violation of the business ethics as, at one point of time the company is unwilling to pay their executive directors any bonus, but, on the other hand they are distributing a payout bonus to 2 of the directors for meeting up with their targets (Friedman, Andrew & Samantha, 2002).
In this regards, the stakeholder’s theory of business ethics should be taken into consideration. The stakeholder’s theory signifies that, all the people who are working in a particular organization, enterprise should be addressed with morals & values, so that they are highly motivated & work towards the accomplishment of the goals (Friedman, Andrew & Samantha, 2002).
This theory also states that, any type of decision which is taken by the company should be in accordance to the welfare of all the employees as it affects the decision making procedure of the employees. According to this definition, stakeholders refer to the customers, distributors, employees or even the Government of that particular country (Energy Tech, 2011).
According to stakeholder theory, any decision taken by the management or any business practice affects all the stakeholders of the company. These stakeholders include employees, customers, distributors or the Government (Donaldson & Preston, 1995).
In this particular incident, the stakeholder’s theory is one of the most appropriate theories of business ethics, as one of the supporting philosopher Charles Blattberg has highlighted the fact that the stakeholder’s theory could be criticised due to the following reasons i.e. it assumes the attention of almost all the stakeholders (including customers, shareholders, government, etc.) but, sometimes compromise or balance with the attention against each other (Energy Tech, 2011).
Blattberg says that “this is a product of its emphasis on negotiation as the chief mode of dialogue for dealing with conflicts between stakeholder interests”.
He recommends conversation instead and this leads him to defend what he calls a ‘patriotic’ conception of the corporation as an alternative to that associated with stakeholder theory.
The incident of oil spill that occurred in the Gulf Mexico affected the environment massively & thereby affecting the Government directly in the whole process.
One of the major elements for any organization is to satisfy its customers. In this particular incident, the huge explosion also affected by the customers at large, directly as well as indirectly. The company struggled with the loss in terms of reputation as well as tons of barrels of oil (Energy Tech, 2011).
The shareholders were the ones who were worst affected due to this accident as the share prices of the company were dropped by heavy amounts & there were talks all over regarding the BP’s takeover by some other renowned brand (Gjesdal, 1982).This article also highlights as to how the employees were also getting affected. A major cut in the bonuses of the executives shows how employees are affected according to the theory. According to R.E Freeman, there are some drawbacks in applying stakeholder approach to the context. (Freeman, 1994).This approach is not showing us any priority order in which stakeholders are getting affected. We are not able to prioritize the stakeholder which is affected most by the accident.
In this particular incident, as a manager some of the recommendations should be given to the company which would help them to recover from the huge amount of loss through which the company has been going through (Gjesdal, 1982).
The company should take into consideration that the stakeholders are one of the critical elements which would lead to a success for a company. Therefore, felling of belongingness as well as certain values needs to be imported. The company needs to see that they should not violate the ethics & work illegally (Gjesdal, 1982).
In this particular incident, it could be seen clearly that the executive directors who were involved in this incident were not given any kind of bonus whereas the two directors were paid partial payouts as they have met certain divisional targets (Proffitt, 2000).
This shows that there has been some discrepancy within the organization. This should be treated against the norms of the organization & the company’s should not carry such type of attitude while dealing with so many people in the organization. In this particular incident, it is clearly visible that there has been biasness between the executive directors as well as the two directors (Proffitt, 2000).
It is clearly mentioned in the article this oil spill was one of the most disastrous incident which lead to huge amount of losses. When the prices of the shares of the UK based giant power plant were decreasing at an increasing rate, how did the company manage to pay the two director’s (Proffitt, 2000). It is seen that the company did not have adequate funds to pay off its shareholders. They were cutting down their costs by not distributing the bonus to the executive directors but at the same time paying to the directors who have completed their targets (Proffitt, 2000).
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