Question

A large multinational company has been developing a relationship with its overseas suppliers. One of its foreign suppliers is accused of labor rights violation. The press and public are outraged. However, the managers of this large multinational company believe that maximizing profits is acting on the best interest of their shareholders. Briefly contrast the managers’ action from the investing stakeholders’ interest versus non-investing stakeholders’ interest and from the business ethics perspective.

Answer 1

Maximization of profits is a traditional and narrow approach which will be aiming at the maximization of the returned by the firm in terms of the monetary resources and it will be increasing the Earning per share of the shareholders so they will be trying to focus upon maximization of the profit as the sole objective of the business and they will be trying to choose investment proposal which will be suiting their profit maximization criteria and they will be rejecting proposal which will be bringing lesser profit so it will be lowering their cost of capital in order to achieve the maximum objective and this will be leading to increase in the prices of the company because the company's profits will be increasing and this will be leading to increase in the overall capital holding and capital appreciation of shareholders who are investing in the shares of the company

In this case, the company is engaged with one of the accused supplier of labour rights violation but the company has proceeded itself to go through the contract because it was to maximize the profit and it was to act in the best interest of the shareholders but the company should be trying to to consider the interest of other stakeholders at profit maximization is not the most important thing because company should have focused for the wealth maximization that should have kept in mind the interest of non investing stakeholders in their company because there are various stakeholders like society and government along with other employees who are not engaged with directly profit making and they will be trying to to look up on the firm from the longer perspective, and it would have created the wealth for the company in the long run so the company had acted through the short sighted view of generation of the profit in the short run in order to please it's stakeholder and to increase the wealth of the shareholder in the short run, but it will be living to disruption in the business reputation from the longer term perspective and it will be leading to decrease in the organisational values from the longer term perspective and it will not be taking into the interest of non investing stakeholders in the organisation and it will just consider those shareholders who are investing in the company for the capital appreciation so it is a very narrow approach and the company has to face the consequences in the long run in terms of decrease in the value.

when we are considering the ethical perspective of the business then also the business is not acting upon the best ethical practice because it is engaging with such supplier who is accused of labour violation and the company should have refrain from engaging with such persons and entities to increase its business reputation and to be more ethical in nature