Shareholders and Business Ethics: Module-9
Shareholders and Business Ethics: Module-9
Module-9
Crucial problem: separation of
ownership and control
• Rights of shareholders
– The right to sell their stock
– The right to vote in the general meeting
– The right to certain information about the company
– The right to sue the managers for (alleged) misconduct
• Duties of managers
– Duty to act for the benefit of the company- 2 LEVELS: short term
financial performance & long term survival of company. Shareholders
decide which level the company want to perform.
– Duty of care and skill- managers seek to achieve most professional
and effective way of running the company.
– Duty of diligence- expected level of active engagement in the
company affairs.
Corporate governance
Corporate governance definition
Various rules, processes and structures that enables shareholders to exercise
directions and control over managers. It ensure that ‘their’ corporation’s run
according to their intentions.
It includes processes of goal definition, supervision, control, and sanctioning.
It includes all actors who contribute to the achievement of stakeholder goals
inside and outside the corporation
SCANDALSDOCUMENTARY :
https://www.youtube.com/watch?v=kg4gDrzQAok
TOPSCANDALS: https://www.youtube.com/watch?v=8UwSUDvWBBU
Apple scandal:
• The biggest scandal to hit Apple in recent years is undoubtedly the
‘batterygate’ of December 2017.
• This started when a Reddit user reported that a software update had
reduced the performance of their iPhone but that this had corrected
itself when they replaced the battery. This post led to a lot of press
coverage, with some commentators suggesting that Apple was trying to
force users to upgrade by deliberately slowing devices as they aged. Tim
Cook issued a statement on the matter a week after the news broke,
confirming that the software was designed to throttle performance but
claiming that the intent was only to prevent unexpected shutdowns,
which could affect devices with older batteries. The company offered a
discount on battery replacements as a gesture of goodwill for those
affected.
Corporate governance: a principal-agent relation
Facebook scandal
• Facebook’s biggest scandal hit in March 2018, when the Guardian and New York
Times reported that a firm called Global Science Research had harvested data
from millions of Facebook users in 2013 – without their explicit consent.
• This was possible because a previous version of Facebook’s privacy policy had
allowed apps to access data about users’ friends – such as their name, birthday
and location. This had enabled Global Science Research to gather information
about 87 million Facebook users even though only around 30,000 people had
actually used their app. These details were later sold to Cambridge Analytica, who
used it to create highly-targeted ads to encourage users to vote for Trump and
Brexit.
• The furore surrounding this scandal was so serious that Mark Zuckerberg was
called to answer questions in front of Congress in the US.
Corporate governance: a principal-agent
relation
• Shareholder is a principal who contracts
management as an agent to act in their
interest within the boundary of the firm.
• The Framework shows relation between firm,
manger and shareholder
• Olympus (2011) CEO – Michael Woodford -$1.5 billion
• 140 years old UK Co-operative bank (2013) – 4.6 billion customers
• GM (2014) Recalled 2.5 millions cars- ignition switch problem
Corporate governance: a principal-
agent relation
Principal: Agent:
Goals of Shareholder value Sales, market Profit for owners Long term Long term Long term
ownership Short term profits share, headcount Long term ownership ownership ownership
Long term ownership Growth of market Sales, market Profit for owners
ownership shares share
• The first rule to keep in mind is that joining two companies’ ethics and
compliance programs is about more than paper and numbers. It is also about
culture.
• A second rule to keep in mind throughout the process is that ethics and
compliance issues, including cultural issues, need to be addressed as they arise.
• Task is to provide a ‘true and fair view of the firm – i.e. bridge
informational asymmetry
• ‘Best-in-class’ approach
• Family of indexes comprising different markets and regions
(e.g. Asia-Pacific sub-index added in 2009)
• Companies accepted into index chosen along following
criteria:
– Environmental (ecological) sustainability
– Economic sustainability
– Social sustainability
• Criticisms of index:
– Depends on data provided by the corporation itself
– Questionable criteria used by index
– Focuses on management processes rather than on the actual
sustainability of the company or its products
Rethinking sustainable corporate ownership: alternative models?
• Government ownership:
– Part of the landscape in many parts of the world. Resurgent in the
wake of the late-2000s financial crisis (esp. banks and cars).
• Family ownership
– Families may have longer-term goals, but may not treat
stakeholders any better than MNCs
• Co-operative ownership
– Hybrid businesses, not owned by investors or managers
– Owned and democratically controlled by workers or customers
– Not set up to make profit but to meet the needs of members
– Spanish Mondragon co-operative has made a striking contribution
to sustainability while staying highly profitable
Alternative Models II: Social Purpose
Corporations