BUSINESS AND ITS
BY – ANUSHA JOSE, SEC-A ,ROLL-5 , 23-
RESPONSIBILITY TO INVESTORS
THE ETHICAL QUESTION
SHAREHOLDERS AND THEIR RIGHTS
ENRON- AN EXAMPLE
SHARE PRICE GAME
BUSINESS AND SHAREHOLDERS -
“A set of moral standards for judging whether
something is right or wrong”
“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
Responsibilities to Investors
Investors or shareholders or owners
PERSONS WHO BUY SHARES OF A COMPANY
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
THE ETHICAL QUESTION ??
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.”
SHARE HOLDERS AND THEIR
Shareholders risk their hard earned money by
supplying capital to companies
a. The right to sell their stock.
b. The right to attend general meetings.
c. The right to vote and elect in general
d. The right to correct information about the
e. The right to sue mangers for their
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
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
GREATEST FRAUDS OF
AN EXAMPLE - ENRON
June -01 share price 500(price in US dollar).
was the most sought after company
July -01 Enron reports $618MM Q3 loss
Sep -01 Ken lay CEO reassures investors that
worst is behind.
Nov -01 Enron discloses massively overstated
Dec – 01 Enron files for chapter 11 bankruptcy
Jan -02 CEO Ken Lay resigns and company
Shareholders were very happy with their
investment in company as stock prices were
Shareholders rely on information provided by
companies, assured by independent auditors
and research reports by research analyst.
Shareholders faced heavy losses .
TWO MAJOR PROBLEMS:-
SHAREHOLDERS IDENTITY CRISIS:-
million of shares trade daily.
specific identity of shareholders changes by
directors feel that they are not responsible to
any specific shareholders, hence are casual.
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
SHARE PRICE GAME:-
1. Offensive strategy (maximizing investors
perception and confidence in sustained future
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
Some companies that do not pay
Business and shareholders-
Good relation between shareholders and
business can be brought by:-
a. Commit to independence loyalty and
b. Ensure transparency and fair disclosure.
c. Direct lines of communications.
d. Direct nominations by shareholders in
e. Electing and removing directors.
CORPORATE GOVERNANCE - Scott c.
BUSINESS ETHICS - Andrew
Prof V Sreeraman