The paper explores the question, of how businesses should weigh their obligations to the public and to shareholders?’ with reference to ethically questionable conduct of Telstra’s deceptive advertising. The paper argues that both public and shareholder interests are important to business. Business has a social responsibility to conduct its affairs as a good citizen and should be treated accordingly. Management’s role is to maintain the health of an organisation and balance the conflicting claims of multiple stakeholders (public & shareholders). This implies more than just adhering to the law, which does not produce instant justice or ethical behaviour but acting in accord with the common good. Therefore, the combined benefit or common good as defined in the Virtue Theory should be the criterion in which the measure business obligation to these two stakeholders.
It was reported in the Courier Mail that Telstra was forced to withdraw a Television advertisement, which deceptively passed off old footage of a Texas flood victim, portraying her as a victim of the Katherine flood disaster. The advertisement also used footage of real Katherine flood victims without their consent, which added to the surviving victims’ grief. Errol Simpler of the Australian purported that this case could be viewed as a barometer of the ethical and moral climate in the advertising and telecommunication industries.
Assessing the ethical and moral worth of this type of action in terms of Kantianism and Utilitarianism moral philosophies, leads to the conclusion that current standards are deficient. In business, Kantianism emphasises the importance of adhering to organisational ethics policies and/or adhering to both societal regulations and laws. Climates characterised by a high level of Kantianism are less likely to be associated with behaviour that is ethically questionable. Telstra’s actions have circumvented the three pillars of Kantianism; duty, universalisability and respect. Actions were not for public good but self-serving, and people were not respected or considered.
Looking at this case from a utilitarian perspective, where morality is defined by the maximisation of overall good or social benefit, the only parties intended to benefit from the action were the businesses themselves. A utilitarian climate is likely to encourage management to evaluate the behaviour in light of any possible negative consequences to others. Adherence to this philosophy may have lead to avoidance from behaviour that was ethically ambiguous.
Corporations as social institutions owe responsibilities to society and are to an extent chartered by society. Two theories, which explore these responsibilities, are the Stakeholder Theory and the Social Contract Theory.
Stakeholders are individuals (public), who benefit or are harmed, and whose rights are violated or respected by corporate actions. The Stakeholder Theory implies that management have a fiduciary relationship with all constituencies (employees, customers, and society) therefore stakeholders should factor in company decisions. This theory is a form of utilitarianism, which is to determine the value of an act on the basis on consequences. Stockholders have rights to demand performance from management; and stakeholders have rights to make reasonable claims.
The main criticism of the Stakeholder Theory is, that stockholders are owed certain rights and privileges because they own shares in the organisation, thus their interests should be given priority. The problem is, that the prioritisation of stockholder interests is commonly at the expense of stakeholder welfare. Accordingly, the law has evolved to effectively constrain the pursuit of stockholder interests at the expense of stakeholders. Ensuring that claims of customers (product safety laws), local communities (ecology and town planning laws) and employees (employment laws) are taken into consideration. Nevertheless, as can be observed in the Telstra incidence, the law is reactive and not proactive.
The Social Contract Theory offers an explanation of why stakeholder interests should be considered. The Social Contract Theory is a revision of the Stakeholder Theory along Kantian lines. It stipulates that stakeholders groups have a right, not to be treated, as a means to an end thus must participate in the organisational decisions, which affect them. Moreover, society grants a firm the right to position itself within society and in turn it benefits economically, and from its social contributions. In return for the firm’s acceptance into society, firms are expected to act as a good citizen, as is any member of society.
Business is a central activity in society where people interact to exchange goods and services for their mutual advantage. Human dignity is expressed in the sum of a person’s activities, particularly in the field of work. Since we spend a large part of our lives working for corporations, then business is one of the main vehicles for expression of work. Moreover, since the value of a person is above that of economic and social development, it is ultimately human dignity (virtue) that is the major criterion by which to judge the real progress of business and society.
Profit earned by firms is simply, a means to an end and should not be viewed as an end in itself. When profit becomes an end in itself, humanity is poorly served because most are overlooked. However, without profit its associated benefits are not possible. Management’s role then is to maintain the health of the organisation and balance the conflicting claims of multiple stakeholders. Support from each of these stakeholders is vital for business to function, and an imbalance of these relationships will put the survival of a business in jeopardy. Mismanagement of the relationship means that business has violated an implicit social contract and should expect to be distrusted, ostracized or to have punitive measures invoked.
The Virtue Theory, which promotes the cultivation of virtue or common good, is a concept advocated by the writer to guide organisational decisions and weigh stockholder and public obligation. The former traditional theories outlined provide guidance in weighing stockholder and public obligations, but can inadvertently pit stockholder and community interests against each other. Whereas, stockholders, organisations and society each have a comparative vested interest. Thus, the objective of business should be the development of the community at large in which all people develop.
Aristotle remarked that the chief or ultimate good for human beings is human potentialities, which are achieved by promoting the common good. Too often, has the financial perspective taken precedence over the people perspective. In the Telstra incidence, this is basically what has taken place.
Moral minimalists hold the view that as long as business operates within the rules set by government (law) it can shape its strategy without reference to anything but the aggressive pursuit of profit. Profits are a requirement of business and in fact, it is part of the operational definition of a going concern. Moreover, the absence of profit will ultimately produce business failure. However, as stated above the law cannot be relied upon to prevent injustice or unethical behaviour and profit pursuit does not have to produce an abdication of public responsibility. Actually, there is increasing evidence that shows that enhanced corporate social performance increases corporate financial performance. Arioon stated that,
Companies that have seriously adopted ethically driven or people-centered strategies have seen clear gains in productivity, sales and profits, customer service, retention rates, reduction in absenteeism, positive impact on employee morale, increased and timely launching of products.
Therefore, in reality what is in the best interests of the public is also in the best interests of the shareholders. Hence, the theory of ‘economic rationalism’ pursued by some organisations and displayed in this case is fundamentally flawed.
Corporations practice “justice” when they act in a socially responsible manner (that is, contribute to the material well-being of society, to provide meaningful life experiences for its employees). Corporations that cannot move beyond self-interest will find themselves struggling to survive since an organisation’s performance is directly related to its ability to effectively manage its stakeholder relationship.
In conclusion, the paper briefly discussed the unethical actions of Telstra’s in terms of the two main moral philosophies in society, Kantianism and Utilitarianism. Actions of this nature are unjustifiable basically because they are intended to benefit business only without consideration of all parties affected (profit before people). Business is an industry within society, which is influential in shaping the moral and ethical climate of society. Hence, human dignity (virtue) is the major criterion by which to judge the real progress of business and society.
The Stakeholder Theory implies that business management have a fiduciary relationship with all constituencies and the Social Contract Theory explains that society allows business to operate within society for mutual benefit. Hence, business actions that fall short of that of a good citizen (breach the contract) should be punished accordingly. These traditional theories provide guidance in weighing stockholder, public obligations but can inadvertently pit stockholder and public interests against each other. Whereas, in reality stockholders, organisations and society each have a comparative vested interest. The Virtue Theory promotes the cultivation of virtue or common good. Accordingly, stockholder and public obligations should be weighed in view of the common good not individual enhancement. Finally, stockholder prioritisation (profit maximisation) at the expense of stakeholders is flawed economics because corporation’s survival is contingent of its ability to effectively manage the stakeholder relationship.
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