Law and the Fiduciary Duties of Business Managers, Case Study Example

Joseph Johnston argues, in his article, Natural Law and the Fiduciary Duties of Business Managers that…”Simply put, stakeholder theory sounds good in social theory but will not work in practice.”

Explain his reasoning

According to Joseph Johnson article, stakeholder theory is depicted as one that can work well in social theory but fail in practice (Joseph and Johnson, 19).  In addition, this is because most natural laws and fiduciary regulations mainly originate from the various moral procedures that involve trust through human social interactions (Joseph and Johnson, 18). Besides, this is common in many societies including Roman society, Chinese and American society. As a result, any obligations and norms that the society value will influence their ethical nature and moral judgment thus, becoming a natural law. In this sense, natural law can be defined as the procedure that involves the guidance of human behavior and conduct on the basis of man being a social being, rational and even having the will and freedom to do what he or she want (Joseph and Johnson, 15).Therefore, human beings are naturally social by nature and can cooperate with others through guidance by ethical rules and rational thinking. In that sense, the human beings can reason in order to think appropriately and to act according to both God’s rules and the rule of the law. On the other hand, it is clear that human law is usually very unjust therefore it usually very difficult to put into practice due to some aspects of lawlessness. In addition, some human social laws also lack agreement with nature, cannot be universally applied and sometimes contribute to wrongdoing. However, the concept of the nature of natural law theory is usually based on the rationality of man, his or her free will to do what he wants. Moreover, man is a social, free and rational creature thus, can reason well in all situations. Furthermore, stakeholder theory asserts for various contractual obligations which put into consideration the application of social justice which establish order and give fair and stable human relationships in all social settings  (Joseph and Johnson, 7).As a matter of fact, internalization of social trust provides  important values to organizations, corporations and even individuals in the society. In addition, this mainly promotes fiduciary principle leading to honesty, respect and protection of community resources and various organizations properties from harm. This also applies to the use of standard justice and good faith by stakeholders in business and even in human personal relationships. As a result, the social relationships will include honesty, fairness, more faith and loyalty which are the basis of the natural law and the laws of God. Therefore, managers and other stakeholders in business enterprises should aim at providing affirmative action of social justice, trust, good faith, care and honesty that avoid inflicting injury on others in their corporations. Good faith is the ability to deal with others through honesty and proper moral conduct, hence is a principle of natural law and fiduciary duties (Joseph and Johnson, 14). Besides, loyalty is the capacity that involves placing the interest of others first before one’s own interest. In that sense, directors and other stakeholders in corporations should place their interest secondary to the interest of the corporations. Care and practical reason should also be applied by directors and other stakeholders of corporations in order to provide objective decision making and problem solving. Moreover, directors of corporations should involve in fiduciary duty of disclosure in matters dealing with shareholders activities. As a result, this will reduce chances of false information and promote good faith and loyalty in corporations. Besides, it calls for managers of various corporations to involve in various social responsibilities such as environmental protection, sustainable use of natural resources and power sharing with stakeholders in major decision making process, in corporations. Furthermore, this will enable managers to treat stakeholders with respect through the use proper ethical standards.

Finally, despite the stakeholder’s theory putting into consideration the use of good faith, loyalty, care and duty of disclosure, it is very difficult for these practices to work in social theory (Joseph and Johnson, 6).

Do you agree or disagree?  Make sure to explain your reasons and use course materials to support your argument.

In my opinion, I do agree that stakeholder’s theory is good when used in social relationships but will not work well in practice. Besides, in the recent past there have been a lot of corporate governance scandals in various corporations due to lack of adherence and failure of various corporations to involve duties such as good faith and loyalty. In addition, most records show that despite the availability and use of stakeholder’s theory in social set ups, there are still conflicts in the management of various corporations (Joseph and Johnson, 3). Furthermore, failure to put into practice of these theories have been witnessed in a number of  societies including American and Chinese society where managers have involved in fraudulent accounting methods to manipulate corporations funds. Moreover, this indicates clearly that it is very difficult to put this theory into practice as managers constantly fail in their duties of care, honesty, good faith and loyalty in various corporations globally (Joseph and Johnson, 12).

Steven Kellman provides a critique of the cost/benefit analysis and whether it leads to a “flawed ethical result.”

Do you agree or disagree with his analysis? Make sure to explain your reasons and use course materials to support your argument.

Cost- benefit analysis can be defined as well organized system that helps in decision making thinking process (Kelman, 1).  As a result, cost benefit analysis involves a presumption that only activities whose benefits outweigh their cost should be undertaken. In addition, determining benefits involve the expression of all benefits and costs using a common scale. Furthermore, cost- benefit analysis decision making require the use of special decision makers to give proper cost benefits data analysis. On his part, Kellman provided his analysis mainly in consideration of environmental safety and health regulations from the viewpoint of ethical theory. From his article, it was clear that, in environmental safety and health regulations, there are instances where the cost outweighs the benefits but still qualify as right decision making process. Moreover, in cases where the benefits outweigh the cost, it is significant that main resources and data cost benefits calculations be undertaken appropriately (Kelman, 4).

Finally, according to Kellman cost -benefit analysis can sometimes lead to flawed moral results. Besides, cost -benefit analysis is sometimes inappropriate since it leads to adoption of several unsatisfactory moral practices.  He also provides some of the private decision making where cost benefit analysis involves a lot of lies, broken promises and even clear violation of human rights thus leading to flawed ethical results. However, other scholars also argue that cost- benefit analysis is just a guide to major decision making hence should be adopted in collective decision making under democracy. Moreover, Kellman also asserts that in processing dollar value on untraded assets will lead to flaws and biases leading to poor cost benefit analysis. As a result, this will reduce accountability and results into poor ethical standards. Besides, cost and benefits should be balanced to provide proper decision making. Therefore, cost- benefit analysis can lead to flawed ethical issues. As a result, there is need for better guidance on public policy decision making to include moral standards and human rights procedures. As a matter of fact, cost -benefit analysis usually does not involve ethical judgments (Kelman, 7).

Explain the value of corporate sustainability using case studies and examples from the class materials.

Corporate sustainability involves putting into considerations the needs of the corporation, stakeholders, employees and creditors through environmental protection and proper decision making. These also include advocating for the rights of others and providing social responsibility by corporate governance in order to improve corporate ethical standards and moral duties (Joseph and Johnson, 10). Moreover, it involves providing respect to all stakeholders in the corporate as well as other employees. Finally, corporate sustainability is crucial since it leads to more profit and shareholders gain in corporations. Besides, it allows the managers to adhere to fiduciary principle and the law of nature in treating stakeholders and other employees in their corporations (Joseph and Johnson, 7).

Explain Edward Freeman’s model of Stakeholder Analysis and how it applies to corporate social responsibility. Does it conflict with the fiduciary duties of management and the board of directors to maximize shareholder wealth? Explain your reasons.

Stakeholder theory is one of the management theories that include the use of business ethics and organizational planning in order to address moral values in managing of corporations. Besides, this theory was first put forward by Edward Freeman to advocate for stakeholders analysis in corporations to give corporate social responsibility. (Joseph and Johnson, 6). In addition, this theory involves stakeholder’s interest consideration in the management of the organization, thus calls for social corporate responsibility. In that sense, it takes into account the role and interest of stakeholders in corporations, hence support fiduciary duties and natural law with respect and honesty by the management. Furthermore, just like the fiduciary duties, this theory also argues that there are also important stakeholders in the corporations such as employees, suppliers and the general public. As a result, corporation’s management should involve in sustainability of the environment and other natural resources within the community through social corporate responsibility. Moreover, the theory regards even the competitors as one of the stakeholders in the business in order to provide adequate policies. Therefore, this theory regards and includes both resource integration and market research system in the management of stakeholders in various corporations. Besides, the theory advocate for proper treatment of stakeholders and other employees in companies with loyalty, social justice and good faith (Joseph and Johnson, 8).

Finally, this theory and fiduciary duties work in harmony. As a matter of fact, these two theories both advocate for consideration of all the stakeholders’ welfare in corporations as one the responsibilities of managers in creating shareholder’s wealth and profit.

Read the attached case study (Hosmer Case 3-1) and answer each of the following questions.

Using the Hosmer model, answer the following questions:

What groups will be benefited by shipping the defective wafers to the inner city?

The group that would be benefited for shipping of the defective wafers to the inner city is Sarah and Maria food department since they were able to sell their defective wafers instead of dumping them and got their money back

What groups will be harmed by shipping the defective wafers to the inner city?

The groups that will be harmed for shifting of defective wafers to the inner city are the people down in the ghetto who rarely notices expiry dates of luxury foods such as fruits, strawberries and raspberries.

What groups will be able to exercise their rights by shipping the defective wafers?

The groups that will be able to exercise their rights by shipping the defective wafers is the store chain in southern California who operate down in ghetto and can sell anything.

What groups will have their right ignored by this shipment?

Those who will have their rights ignored are the customers who will buy these defective wafers without noticing whether they are defective.

Express the moral problem so that everyone involved will believe that their particular interests (their well being and their rights) have been recognized and included.

The moral problem here is exploitation of customers where defective wafers are sold to customers without them noticing since the prices are reduced. Again customer’s exploitation occurs mainly to the poor who live in ghetto. This should be avoided in order to respect customer’s rights. In addition, stores should exercise moral standards in business

What are the economic outcomes?

The economic outcome of this shipment was positive since the store got its money back without dumping the wafers even though they were infested (Hosmer case,1).

What are the legal requirements?

The legal requirements for cases where defective wafers and other goods are used involve dumping of that foodstuff since legal requirement is that infested foods should not be sold to customers.

What are the moral duties?

Moral duties involves adhering to various moral standards such as respect and honesty in the process of marketing and selling of products and services

Works cited

Hosmer case.pp.1.

Joseph and Johnson .Natural Law and the Fiduciary Duties of Business Managers. pp. 5-17

Kelman Steven. Cost-Benefit Analysis: An Ethical Critique. AEI Journal on Government and Society Regulation. pp. 1-9. 1981