The day-to-day affairs of a corporation depend highly on various people. It is important to note that a corporation has an influence on all these people, either directly or indirectly. However, each category of stakeholders in any corporation has diverse needs and expectations of the corporation. It is human nature that anybody will put his or her interests first in any given circumstances. As such, there are bound to be a conflict of interests whenever any scenario unfolds in a corporation. From the case study, the motor industry was on a verge of collapsing and all had to be done to revive the industry. However, ethics demand that each stakeholder should compromise a bit in such a scenario. Nevertheless, this was not really what happened in this case. Employees had to bear the larger burden while shareholders did not compromise in any way.
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It should be noted that employees, as stakeholders of a corporation, expect to be treated well. For them to give maximum output to the corporation, their remuneration should be commensurate to the work they do. Their needs should be satisfied first before anything. It is of importance to note that employees earn a living from the work they carry out. Moreover, whenever an employee feels that he or she receives less than his or her input, they are bound to reduce their output. On the extreme, they may choose to quit the corporation in search of better places to work.
On the other hand, shareholders expect their investments to earn them high returns. These can be achieved when a firm makes high profits because then it means that their dividends are high. For somebody who is concerned with the welfare of shareholders only, the main focus will be on how to increase return on investments. This is what Friedman advocates for. According to the theory by Friedman, the main reason why corporations are in existence is to increase the wealth of stockholders. It, therefore, follows that Friedman wants every resource of the organization to be directed towards enhancing the welfare of the shareholders even if it means shelving the interests of other stakeholders. Nonetheless, every stakeholder of the corporation needs to be considered when making any decision.
By all means, the motor companies in the industry are required to be bailed out because of the immense advantages they have to society. If they were allowed to go down, the impacts on the economy were bound to be massive. On the same note, the government could not just dump taxpayers’ money somewhere without first getting the commitment of the corporation in question. All avenues available for the corporation had to be exhausted before the government could come to its aid. But there needed to be a balance among the stakeholders as regards commitment to reviving the corporation. It is very unethical for an organization to heavily incline in one direction. All that was done was pushing employees to relinquish some of their financial benefits in order to save money to direct in different projects. This is against Freeman’s theory which requires that all stakeholders should be treated equally. Employees were in the end sacrificing their benefits for the sake of the company.
The process that was followed by the management in arriving at the solution as per the requirements of the government is commendable. To begin with, the management does not tyrannically impose decisions on employees regarding the reduction in various financial benefits. On the contrary, they engage the workers in negotiations through their union. It is important to note that involving employees in the decision-making process increases their confidence in the organization thus encouraging them to remain in the organization for a longer period. On the same note, the decision was about reducing the financial benefits that employees received. Unfortunately, there is no person who is happy with the downward movement in financial income. As such, involving an employee in negotiations ensured that any possible negative reception was averted while at the same time it enhanced transparency in decision making.
Employees need to know what is happening in the organization especially when it affects them. Arguably, involving employees in the decision-making process is a good way of showing them that they are valued by the organization. As Freeman argues, it could have been immoral and of utmost selfishness, if the employees were just informed of the cut in financial benefits through an internal memo long after the decision had been made. On the other hand, the employees union acted in good faith as was expected. The company was in a critical financial condition that required immediate solutions. These had to start from within the company itself. Acceptance of the cut in financial compensation that employees received depicted the goodwill the union had to the company. It could have been immoral if the employees could have insisted to have their financial benefits maintained while the company was on the verge of collapsing. It is not only the company that is supposed to care about the stakeholders, but also the other way round.
For the sake of the shareholders, the majority of whom are common taxpayers, the government decides to bailout the company. It should be noted that this was also for the good of employees who would be assured of a job after the financial crisis. Much as shareholders require dividends from the company and their assets safeguarded, employees also need to have an income in the long term. To achieve this long term goal, a balance can be made among all stakeholders. To address the prevailing financial crisis, shareholders could be urged to forfeit their dividends. Bonuses to directors and other senior staff also needed to be reduced after negotiations. This would act as an indicator to employees that they are not the only ones losing. Treating every stakeholder equally and with respect is critical in ensuring that a good relationship is maintained. The government was acting to save the assets that were bound to be lost in case the company went down.
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In this regard, the action of the government was prudent at that particular point in time. The move was not only beneficial to the shareholders, but to every stakeholder including the public at large. Though there are people who do not directly depend on the company in question, the businesses they own indirectly benefit from the company. As a result, managers being morally responsible had to find ways of keeping the company afloat.
However, the problem with the approach taken by the management and the government is that they have prioritized the affairs of shareholders over other stakeholders. It seems that they have taken the approach proposed by Friedman as opposed to Freeman’s approach. It is the argument of Friedman that shareholders’ needs must be satisfied before anything else. Organizational resources are there just to cater to the needs of shareholders. According to Friedman therefore, corporations have no ethical or moral obligations to society and other stakeholders.
It goes without saying that shareholders’ resources have to be safeguarded, it is wrong to do so by sacrificing the benefits of other parties. Sadly, this is what was done in this case. The government indirectly compelled employees to give up their financial benefits for the sake of the company and by extension shareholders. Nobody else was considered here. Managers’ pay was reduced while at the same time they were compelled to accept lower bonuses. Similarly, the government did not give the company any option other than to reduce the financial benefits that employees received. Interestingly, shareholders were not even mentioned in any of these strategies. They were left out as if they did not exist yet they were the main beneficiaries of the measures being taken. Freeman’s theory is absolutely disregarded. The measures are totally unfair and unethical.
It was the role of management to ensure that the company made it through the financial crisis. On the same note, the government has a moral obligation to assist in any situation to protect a company from going bankrupt. Nonetheless, this should be done while keeping in mind that all stakeholders are equally treated. The sacrifices taken by each group of stakeholders should be considered. Compelling only one group to bear the entire burden is completely wrong.