Business Ethics

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Business Ethics

  1. 1. BUSINESS ETHICS- BUSINESS AND ITS SHAREHOLDERS BY – ANUSHA JOSE, SEC-A ,ROLL-5 , 23- 4-09
  2. 2. TOPICS DISCUSSED:- 2  ETHICS  BUSINESS ETHICS  STAKEHOLDERS  RESPONSIBILITY TO INVESTORS  THE ETHICAL QUESTION  SHAREHOLDERS AND THEIR RIGHTS  ENRON- AN EXAMPLE  CORPORATE GOVERNANCE  SHARE PRICE GAME  BUSINESS AND SHAREHOLDERS - RELATION
  3. 3. ETHICS:- 3 “A set of moral standards for judging whether something is right or wrong” BUSINESS ETHICS “Business Ethics means conducting all aspects of business and dealing with all stakeholders in an ethical manner…” The purpose of ethics is to enhance business and its relationships both inside and outside of the organization
  4. 4. Major Corporate Stakeholders 4
  5. 5. Responsibilities to Investors 5 Investors or shareholders or owners PERSONS WHO BUY SHARES OF A COMPANY Businesses follow:-  proper accounting procedures, provide information to shareholders about financial performance,  protect shareholder rights and investments  Proper financial management  Generate profits and pay dividends to share holder
  6. 6. THE ETHICAL QUESTION ?? 6 The first and foremost ethical obligation of every business is to make profits for its shareholders , creating value for shareholders and increasing its stock prices. “But how much profits to make, the means and methods of making it, and at what cost and how the profit earned should be properly distributed -----is the ethical question.”
  7. 7. SHARE HOLDERS AND THEIR 7 RIGHTS Shareholders risk their hard earned money by supplying capital to companies SOME RIGHTS:- a. The right to sell their stock. b. The right to attend general meetings. c. The right to vote and elect in general meetings. d. The right to correct information about the company. e. The right to sue mangers for their
  8. 8. Corporate Governance 8 Corporate governance describes the process by which shareholders seek to conform that “their” corporation is run according to their intentions.  define relationships between a company’s management, its board, shareholders and other stakeholders  provide a structure through which the company’s objectives are set, and how they are achieved and monitored  recognize the value of business ethics and corporate awareness of society interests to reputation and long-term success
  9. 9. GREATEST FRAUDS OF 9 HISTORY  WORLDCOM -02  ENRON -01  ADELPHIA -02 AN EXAMPLE - ENRON June -01 share price 500(price in US dollar). was the most sought after company share. July -01 Enron reports $618MM Q3 loss Sep -01 Ken lay CEO reassures investors that worst is behind. Nov -01 Enron discloses massively overstated
  10. 10. Enron (contd) 10 Dec – 01 Enron files for chapter 11 bankruptcy protection Jan -02 CEO Ken Lay resigns and company declared bankrupt.  Shareholders were very happy with their investment in company as stock prices were rising.  Shareholders rely on information provided by companies, assured by independent auditors and research reports by research analyst.  Shareholders faced heavy losses .
  11. 11. TWO MAJOR PROBLEMS:- 11  SHAREHOLDERS IDENTITY CRISIS:- million of shares trade daily. specific identity of shareholders changes by sec. directors feel that they are not responsible to any specific shareholders, hence are casual.  INSIDE TRADING:- stock option to employees, and directors. they gain access to inside information unknown to other shareholders they become wealthy by selling their stock at inflated prices when things are about to be unfavorable
  12. 12. SHARE PRICE GAME:- 12 1. Offensive strategy (maximizing investors perception and confidence in sustained future growth):- a. set aggressive growth targets and commit publicly to meet them b. adjust business practices c. move stock prices temporarily 2. Defensive strategy ( minimize investor perception of risk):- a. make earning growth appear as smooth as possible.
  13. 13. Some companies that do not pay 13 dividends.  CISCO  WARNER BROTHERS  EBAY  DELL COMPUTERS  SUN MICROSYSTEM
  14. 14. Business and shareholders- 14 relation  Good relation between shareholders and business can be brought by:- a. Commit to independence loyalty and care. b. Ensure transparency and fair disclosure. c. Direct lines of communications. d. Direct nominations by shareholders in board. e. Electing and removing directors.
  15. 15. REFERENCES. 15  CORPORATE GOVERNANCE - Scott c. newquist  BUSINESS ETHICS - Andrew crane Dirk matten Prof V Sreeraman www.wikipedia.com www.financialperspective.com

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