Business ethics is a moral responsibility

Ethical business practices are standards of conduct related to moral judgments applicable to people who are engaged in trade-related positions (Gitman, 2012). Shareholders and stakeholders are two different groups of investors who have a vested interest in the success of a company. Shareholders are investors who are not employees of the company, but have bought shares (shares) in a company in the hope that their investment will grow. Stakeholders are customers, employees, owners, creditors, suppliers, who actually do the work of the company or have a direct economic impact on the success of the company (Gitman, 2012).

Ethics play an important role in the success or failure of a company. For example, if a company deliberately records profits or losses on its financial statements to present a more favorable picture to its shareholders instead of the actual financial data, shareholders will lose confidence in the company and sell their shares. In addition, if stakeholders are treated unfavorably or are not paid on time, turnover and the inability to obtain credit will also affect the company’s bottom line. Some argue that executives only have a duty to please their shareholders, because that group provides much of the cash needed for operations (Gitman, 2012). However, if stakeholders are dissatisfied with operations, an important cog is missing and will ultimately cause the business to fail.

An example of misrepresentation to investors is the 2008 bank failures and housing market crash. Mortgage securities are actual mortgages sold by mortgage brokers, packaged as securities, offered by financial institutions for investment (Brigham & Ehrhardt, 2011 ). Mortgage securities contributed to the global economic crisis by being presented as less risky than the mortgage actually contained in the security. (Brigham and Ehrhardt, 2011). Investors bought these securities expecting a healthy return on their investment, but instead they were buying mortgages that were at risk of default. These mortgages were risky because lenders were unable to repay the loan due to variable interest rates or fraudulent lending practices by mortgage banks that misrepresented customer information. In addition, when demand for housing began to fall due to the large number of mortgage defaults and unemployment, house prices plummeted and the number of short sales and foreclosures forced several bank closings. Lending has slowed dramatically, affecting American businesses, individuals, and other countries around the world.

Executives have a primary responsibility to both their shareholders and stakeholders to ensure maximum profit and growth within a company. It is the duty of a company’s executives, managers and officers to maintain a high ethical standard so that both shareholders and stakeholders have confidence in the company and want to remain investors and committed to its objectives. Both groups have a large influence on the earnings per share of a company’s stock, and both are important in the growth and maximum profit of a company.

Reference

Brigham, E., Ehrhardt, M. (2011). Financial Management: Theory and Practice
(13th ed.) Ohio: Cengage Learning. ISBN-13: 978-1-133-66500-7

Gitman, Lawrence J. & Zutter, Chad J. (2012). Principles of Managerial Finance. 13
Edition. Prentice Hall.