CH -11 CORPORATE GOVERNANCE AND OTHER STAKEHOLDERSBibek Prajapati
CH -11 CORPORATE GOVERNANCE AND OTHER STAKEHOLDERS
FOR CS PROFESSONAL, CA,CMA, MBA
Stakeholder Concept
• Recognition of Stakeholder Concept In Law
• Stakeholder Engagement
• Stakeholder Analysis
• Types of Stakeholders
• Caux Round Table
• Clarkson Principle of Stakeholder Management
• Governance Paradigm and Stakeholders
• Stakeholders provide resources that are more or less critical to a firm’s long-term success. These resources may be both tangible and intangible. Shareholders, for example, supply capital; suppliers offer material resources or intangible knowledge; employees and managers grant expertise, leadership, and commitment; customers generate revenue and provide infrastructure; and the society builds its positive corporate images.
• A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interest of the company, its employees, the community and the environment.
• Stakeholder engagement leads to increased transparency, responsiveness, compliance, organizational learning, quality management, accountability and sustainability. Stakeholder engagement is a central feature of sustainability performance.
• Primary stakeholders are those whose continued association is absolutely necessary for a firm’s survival; these include employees, customers, investors, and shareholders, as well as the governments and communities that provide necessary infrastructure.
• Secondary stakeholders do not typically engage in transactions with a company and thus are not essential for its survival; these include the media, trade associations, and special interest groups.
• Customers are considered as the king to drive the market and they can sometimes exercise influence by consolidating their bargaining power in order to get lower prices.
• The lenders put a check and balance on the governance practices of an organization to ensure safety of their fund and as a societal responsibility.
• The organization which builds a mutually strong relationship with its vendors improves its overall performance in the marketplace.
• The society provides the desired climate for successful operation of a company business. If society turns against the company, then business lose its faith in the eyes of other stakeholders be it government or customer.
“Ensuring Competitive Advantage and Sustainability: an Overview of Obligation...inventionjournals
Corporate Governance is a buzz word in the field of economic administration, regulatory framework and behavioral sciences. The subject of corporate governance has its relevance and significance to varied stakeholders in different ways. In fact, Corporate Governance is a form of obligation, which a corporate body has towards shareholders, employees, customers, Government, Public and towards the Society. Organizations, which are known for good governance by fulfilling all these obligations with a proper blend, are the lead players for the others to follow for securing better and effective competitive advantage. Keeping in mind these varied obligations, Organizations and corporate bodies regularly updating their policies and practices especially for continued competitive advantage but the process of updating is not so easy, they have to find it in a pro-active manner to withstand in the market. The present research paper with this in view aimed at understanding the framework of corporate governance and its role in securing better and effective competitive advantage from the ambit of various stakeholders with a broader consideration from the angle and obligation of Sustainability and Corporate Social Responsibility. Further, the study remarked the changing nature obligations for existence of corporate bodies under dynamic environment. The research paper also differentiated the gap between theory and practice in adoption of sustainability practices. Finally, the research paper ends with some suggestions and ways for better and good governance for organizational sustainability.
This presentation is for my students under Master in Business Administration Course code of Business Policy MBA106. The information is all about the roles and managing of corporate under the corporate governance.
CH -11 CORPORATE GOVERNANCE AND OTHER STAKEHOLDERSBibek Prajapati
CH -11 CORPORATE GOVERNANCE AND OTHER STAKEHOLDERS
FOR CS PROFESSONAL, CA,CMA, MBA
Stakeholder Concept
• Recognition of Stakeholder Concept In Law
• Stakeholder Engagement
• Stakeholder Analysis
• Types of Stakeholders
• Caux Round Table
• Clarkson Principle of Stakeholder Management
• Governance Paradigm and Stakeholders
• Stakeholders provide resources that are more or less critical to a firm’s long-term success. These resources may be both tangible and intangible. Shareholders, for example, supply capital; suppliers offer material resources or intangible knowledge; employees and managers grant expertise, leadership, and commitment; customers generate revenue and provide infrastructure; and the society builds its positive corporate images.
• A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interest of the company, its employees, the community and the environment.
• Stakeholder engagement leads to increased transparency, responsiveness, compliance, organizational learning, quality management, accountability and sustainability. Stakeholder engagement is a central feature of sustainability performance.
• Primary stakeholders are those whose continued association is absolutely necessary for a firm’s survival; these include employees, customers, investors, and shareholders, as well as the governments and communities that provide necessary infrastructure.
• Secondary stakeholders do not typically engage in transactions with a company and thus are not essential for its survival; these include the media, trade associations, and special interest groups.
• Customers are considered as the king to drive the market and they can sometimes exercise influence by consolidating their bargaining power in order to get lower prices.
• The lenders put a check and balance on the governance practices of an organization to ensure safety of their fund and as a societal responsibility.
• The organization which builds a mutually strong relationship with its vendors improves its overall performance in the marketplace.
• The society provides the desired climate for successful operation of a company business. If society turns against the company, then business lose its faith in the eyes of other stakeholders be it government or customer.
“Ensuring Competitive Advantage and Sustainability: an Overview of Obligation...inventionjournals
Corporate Governance is a buzz word in the field of economic administration, regulatory framework and behavioral sciences. The subject of corporate governance has its relevance and significance to varied stakeholders in different ways. In fact, Corporate Governance is a form of obligation, which a corporate body has towards shareholders, employees, customers, Government, Public and towards the Society. Organizations, which are known for good governance by fulfilling all these obligations with a proper blend, are the lead players for the others to follow for securing better and effective competitive advantage. Keeping in mind these varied obligations, Organizations and corporate bodies regularly updating their policies and practices especially for continued competitive advantage but the process of updating is not so easy, they have to find it in a pro-active manner to withstand in the market. The present research paper with this in view aimed at understanding the framework of corporate governance and its role in securing better and effective competitive advantage from the ambit of various stakeholders with a broader consideration from the angle and obligation of Sustainability and Corporate Social Responsibility. Further, the study remarked the changing nature obligations for existence of corporate bodies under dynamic environment. The research paper also differentiated the gap between theory and practice in adoption of sustainability practices. Finally, the research paper ends with some suggestions and ways for better and good governance for organizational sustainability.
This presentation is for my students under Master in Business Administration Course code of Business Policy MBA106. The information is all about the roles and managing of corporate under the corporate governance.
A light explanation of Corporate Governance for those who want to have a quick understanding of the concept. This presentation was designed for a small team of mixed background individuals and enlightened them with the insight on the concept of Governance.
Determinants of CSR Disclosure: A Study on the Listed Fast Moving Consumer Go...inventionjournals
As the rising of the corporate social responsibilities (CSR) is becoming a concern since the millennium year, especially by large or public listed companies in Bursa Malaysia. However, there are not much of those companies willing to disclose their CSR information to the public. Therefore, this endeavour is to investigate the content of CSR in annual reports and examine the significant relationship between determinants and CSR disclosure of listed fast moving consumer goods (FMCG) companies in Bursa Malaysia. This is a quantitative research, which involve content analysis since it adopted annual reports as main data resources. CSR, financial, and organisation information are going to be extracted to reckon the relationships between the variables and CSR disclosure by using CSR index and multiple regression. Result based on the analysis indicated that only two variables were significantly correlated with the CSR disclosure, which namely profits earned and independent directors. The top three elements that the most disclosed by these companies are general philanthropy, community programs and employee welfare. This study is important and its helps company in business decision making as this provide the extent of CSR disclosure of the industry. In addition, this study can be as reference to other companies for future CSR implementation.
the effect of social responsibility and corporate imageIJAEMSJORNAL
Customers are one of the pillars of success in organizations and have been studied from different aspects. The aim of this study is scrutinizing the factors influencing brand equity in the tobacco industry in Tehran. Therefore, by referring to previous studies, dimensions and components of associated with variables have been identified and a standard questionnaire based on these variables has been used. The validity of the questionnaire has been approved by the elites of management and the reliability of them has been calculated through the software. The statistical population of research consisted of all customers of the tobacco industry in Tehran. In order to determining the sample size the Cochran formula, to the extent of 384 individuals, has been used. In order to test the research hypotheses Structural equation modeling through Lisrel software has been used. The results showed that different variables have significant impact on brand equity and customer loyalty is an important mediating factor in influencing on brand equity.
This is a pre-publication version of a paper that was accepted for presentation at the British Academy of Management 32nd Annual Conference on the 5th September, 2018.
The latest European Union’s (EU) guiding policies are encouraging big businesses and state-owned organisations to disclose their environmental, social and governance (ESG) performance. Many European member states have transposed the EU’s directive 2014/95/EU on non-financial reporting. This directive has presented a significant step forward toward the as its “comply or explain” approach has encouraged organisations to disclose a true and fair view on their organisations’ financial and ESG capitals. Hence, this paper makes specific reference to some of the corporations’ best practices as it identifies areas for improvement in corporate governance issues. It explains how three major European banks are following the recommendations of their national regulatory institution, as they have reviewed the roles and responsibilities of the corporate boards and management. In many cases, they have anticipated the regulatory, legal, contractual, social and market-driven obligations. This contribution contends that there are significant implications for financial services corporations who intend following the right path toward responsible corporate governance and ethical behaviours.
Presentation provides an overview of the theoretical concepts in corporate governance, few definitions, methods to measure it and a brief overview of recent developments in corporate governance in the Caribbean.
Value Creation Through Corporate Social Responsibility in Developing Countrie...Waqas Tariq
Consumer support for Corporate Social Responsibility (CSR) has been in practice for some years now and firms are demanded to seriously take CSR initiatives. This project has been compiled out of a wealth of literature that addresses the need and importance of CSR and business ethics in the society in great depth. A case study of CSR at Proctor and Gamble Pakistan was carried out by employing both the qualitative and quantitative data collection techniques to gather information so as to bring the attributes of triangulation in this research. The research findings outlined various views and beliefs of the respondents with regards to CSR initiatives by Proctor and Gamble Pakistan. The CSR awareness and societal veracities are the factors that encourage consumers to think ethically and make decisions in terms of who to develop associations with. The research shows a reflection of deductive approach and the researcher understood the inbuilt pros and cons of dependence upon secondary sources of information. It was attempted to adopt a hybrid strategy in this project but it mainly took a positivist look because of the nature of the questionnaire survey based upon close-ended questions aiming for quantitative data. The trend for CSR initiatives in developing countries is now growing at a decent pace and the recent advancements in technology and media have resulted in grown awareness among consumer groups to exert pressures on multinational companies to be apparent in their statements as well as practices.
The co-operative movement that was started to help the rural indebtedness has now made noticeable progress. The sector has grown in size and expanses, resulting in creating a space for itself in the economic framework of the country. Professionals like chartered accountants can too contribute to the nation by serving such cooperatives and reaching out to society. With their excellent technical and soft skills, they are well fitted for the role of assistance to cooperatives banks, multi-state cooperative societies, cooperative societies, and can serve the cooperative sector ultimately serve the nation.
A light explanation of Corporate Governance for those who want to have a quick understanding of the concept. This presentation was designed for a small team of mixed background individuals and enlightened them with the insight on the concept of Governance.
Determinants of CSR Disclosure: A Study on the Listed Fast Moving Consumer Go...inventionjournals
As the rising of the corporate social responsibilities (CSR) is becoming a concern since the millennium year, especially by large or public listed companies in Bursa Malaysia. However, there are not much of those companies willing to disclose their CSR information to the public. Therefore, this endeavour is to investigate the content of CSR in annual reports and examine the significant relationship between determinants and CSR disclosure of listed fast moving consumer goods (FMCG) companies in Bursa Malaysia. This is a quantitative research, which involve content analysis since it adopted annual reports as main data resources. CSR, financial, and organisation information are going to be extracted to reckon the relationships between the variables and CSR disclosure by using CSR index and multiple regression. Result based on the analysis indicated that only two variables were significantly correlated with the CSR disclosure, which namely profits earned and independent directors. The top three elements that the most disclosed by these companies are general philanthropy, community programs and employee welfare. This study is important and its helps company in business decision making as this provide the extent of CSR disclosure of the industry. In addition, this study can be as reference to other companies for future CSR implementation.
the effect of social responsibility and corporate imageIJAEMSJORNAL
Customers are one of the pillars of success in organizations and have been studied from different aspects. The aim of this study is scrutinizing the factors influencing brand equity in the tobacco industry in Tehran. Therefore, by referring to previous studies, dimensions and components of associated with variables have been identified and a standard questionnaire based on these variables has been used. The validity of the questionnaire has been approved by the elites of management and the reliability of them has been calculated through the software. The statistical population of research consisted of all customers of the tobacco industry in Tehran. In order to determining the sample size the Cochran formula, to the extent of 384 individuals, has been used. In order to test the research hypotheses Structural equation modeling through Lisrel software has been used. The results showed that different variables have significant impact on brand equity and customer loyalty is an important mediating factor in influencing on brand equity.
This is a pre-publication version of a paper that was accepted for presentation at the British Academy of Management 32nd Annual Conference on the 5th September, 2018.
The latest European Union’s (EU) guiding policies are encouraging big businesses and state-owned organisations to disclose their environmental, social and governance (ESG) performance. Many European member states have transposed the EU’s directive 2014/95/EU on non-financial reporting. This directive has presented a significant step forward toward the as its “comply or explain” approach has encouraged organisations to disclose a true and fair view on their organisations’ financial and ESG capitals. Hence, this paper makes specific reference to some of the corporations’ best practices as it identifies areas for improvement in corporate governance issues. It explains how three major European banks are following the recommendations of their national regulatory institution, as they have reviewed the roles and responsibilities of the corporate boards and management. In many cases, they have anticipated the regulatory, legal, contractual, social and market-driven obligations. This contribution contends that there are significant implications for financial services corporations who intend following the right path toward responsible corporate governance and ethical behaviours.
Presentation provides an overview of the theoretical concepts in corporate governance, few definitions, methods to measure it and a brief overview of recent developments in corporate governance in the Caribbean.
Value Creation Through Corporate Social Responsibility in Developing Countrie...Waqas Tariq
Consumer support for Corporate Social Responsibility (CSR) has been in practice for some years now and firms are demanded to seriously take CSR initiatives. This project has been compiled out of a wealth of literature that addresses the need and importance of CSR and business ethics in the society in great depth. A case study of CSR at Proctor and Gamble Pakistan was carried out by employing both the qualitative and quantitative data collection techniques to gather information so as to bring the attributes of triangulation in this research. The research findings outlined various views and beliefs of the respondents with regards to CSR initiatives by Proctor and Gamble Pakistan. The CSR awareness and societal veracities are the factors that encourage consumers to think ethically and make decisions in terms of who to develop associations with. The research shows a reflection of deductive approach and the researcher understood the inbuilt pros and cons of dependence upon secondary sources of information. It was attempted to adopt a hybrid strategy in this project but it mainly took a positivist look because of the nature of the questionnaire survey based upon close-ended questions aiming for quantitative data. The trend for CSR initiatives in developing countries is now growing at a decent pace and the recent advancements in technology and media have resulted in grown awareness among consumer groups to exert pressures on multinational companies to be apparent in their statements as well as practices.
The co-operative movement that was started to help the rural indebtedness has now made noticeable progress. The sector has grown in size and expanses, resulting in creating a space for itself in the economic framework of the country. Professionals like chartered accountants can too contribute to the nation by serving such cooperatives and reaching out to society. With their excellent technical and soft skills, they are well fitted for the role of assistance to cooperatives banks, multi-state cooperative societies, cooperative societies, and can serve the cooperative sector ultimately serve the nation.
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
Treatment of stakeholders in capitalistic approach and cooperative approach to business
1. European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.6, No.23, 2014
Ethical Consequences: Treatment of Stakeholders in Capitalistic
Approach and Cooperative Approach to Business
Ashok B. Das
MBA, PGD in Business, University of Southern Queensland, Australia
Abstract
The study illustrates an interpretive glimpse on ethical concern in business corporations. The challenge towards
Capitalistic approach to business has given birth to model called Cooperative approach to business. It has been
deeply studied and analysed that both entities incur ethical dilemmas due to their nature of business operations.
This paper intends to compare capitalistic approach to business (Microsoft Corporation) with Cooperative
approach to business (Mondragon Corporation) to identify the ethical consequences that arise from how each
entity treats various stakeholders. In recent chaotic business environment, surprisingly, a massive portion of
students and many other target audiences in relation with business studies have been lacking the comparative
awareness related to ethical consequences in a business that concerning individual profit maximization and a
business that concerning social responsibilities across the borderline. This paper flashed characteristics of both
approaches so that it can be addressed easily.
Keywords: Business Ethics, Capitalistic Corporation, Cooperative Corporation, Ethical Dilemma, MCC.
I. Introduction
Adhering to corporate social responsibility in an increasingly competitive business environment has become
challenging for modern entities. For instance, the requirement for the business to provide a specific minimal
level of returns to shareholders even during harsh economic environments could lead to an entity’s engaging in
imprudent practices [1]. In this respect, the organization tries to make a trade-off between the value delivered to
the customer and that delivered to the shareholder. Alternatively, businesses facing adverse economic conditions
are likely to result into employee cuts to sustain their profits thus leading to high levels of unemployment in
society. Such a concern of Capitalism of maximizing profits even at the expense of the social good has
increasingly been challenged in the recent times. Although some propositions deem that capitalism tempered
with conscious social initiatives results into a net positive impact on society in the long term [2], opposing
propositions have considered it unlikely for capitalistic entities to sustain such a social concern in the long term
[3]. Such concerns with capitalistic entities have led to evaluation of other models of businesses e.g. cooperative
businesses, which could offer alternatives for a better social organization.
II. Ethical Dilemmas of Modern Corporations
Modern corporations face a challenge of balancing contrasting interests of various stakeholders. Shareholders
(investors) for instance require the entity to offer them higher returns on their investments through increased
profitability that betters the market value of their shares. Customers, on the other hand, require high quality
products, which may require the organization to incur additional costs thus lowering its profitability. Similarly,
the entity’s employees demand better remuneration and working conditions, which increases an entity’s costs
thus lowering its profits. Compounded by adverse economic environment, which impedes organization’s
initiatives to generate additional revenues, the entities face a dilemma as to establishing an effective equilibrium
among the contrasting stakeholder interests. Establishing such a balance could lie in the political-economic
ideology from which the entity derives its organizational approach.
One such political-economic ideology is capitalism, which is based on an endeavour to achieve
maximum profits, annihilate the competition and advance private property [4]; [5]. Traditional capitalist
corporations thus strive to achieve maximum profits even when such achievement may deter the enhancement of
society in which they operate. They seek to operate in a monopolistic environment [5]. Ethical practices do not
form a core concern for such corporations, with their ethical considerations coming only when the failure to
initiate ethical programs, threatens the achievement of their core purpose of profit maximization [1]. Accordingly,
in such corporations, the interest of the shareholder takes precedence over all other interests, with a potential
outcome being the increase in inequality in society [4].
An alternative to capitalistic organization is cooperative organization. Cooperative entities derive their
approach from a catholic social doctrine that opposes the concepts of laissez faire capitalism (propagated by
Adam Smith) and those of revolution and state collectivism (propagated by Karl Marx) [6]. The social doctrine
emphasizes the importance of principles such as open membership, democratic control, payment of limited
interest on capital and distribution of surplus in accordance with the trade conducted [6]. In accordance with such
a doctrine, employees of the entity serve as its shareholders thus reducing the conflicting interests that would
arise were they not part of the shareholders [6]. However, one form of cooperative entities, the producer
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2. European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.6, No.23, 2014
cooperatives, could fail to achieve long-term growth due to difficulties presented by the inability of its
employees to raise adequate capital to support the entity’s optimal operations [6]. Accordingly, even such
cooperatives could eventually attract capitalists to ensure their survival.
The choice between a capitalistic and a cooperative mode of organization thus appears to present a unique
challenge in itself – the generation of adequate capital to support the organization’s operations. With regard to
capitalist entities, the challenge is in finding an incentive to attract investors who agreeable to an equivalent
concern for the interests of other stakeholders in the organization. That is, will investors commit their funds in an
entity that does not guarantee them a superior consideration in formulating its initiatives? With respect to
cooperative entities, the challenge lies in getting adequate capital to ensure the entity’s survival, without seeking
additional financing that renders them vulnerable to a capitalistic transformation. Accordingly, the next section
compares and contrasts a capitalist entity (Microsoft Corporation) and a cooperative entity (Mondragon
Corporation) to identify the ethical consequences of stakeholder treatment in both entities.
III. Comparison of Mondragon and Microsoft Corporation
Mondragon Cooperative Corporation is the standard example for effective organization through cooperative
principles. Unlike capitalistic investor-owned firms such as Microsoft, cooperative firms such as Mondragon
Corporation encourage participatory and democratic decision-making within the entity [7]. Mondragon
Corporation comprises more than 100 distinct cooperatives and over 150 businesses, which have joined
voluntarily to form a corporation that operates in more than 65 countries and employs more than 85,000 people
[7]; [8]. It operates in a democratic fashion with democracy in the organization being conceptualized as one worker
one vote regardless of the share of the capital owned [7]. It was started in 1956, and from its headquarters in
Spain, the organization has grown to operate a multilevel network of training centres, finance services, retail
businesses and production businesses [8].
To achieve efficiency with such multiple businesses, Mondragon Corporation developed a distinct
model of management that integrates aspects of cooperative principles, and modern management practices [7].
For instance, Mondragon Corporation has various governing bodies such as Congress, General Assembly,
governing Council, and divisions that ensure effective coordination of activities throughout the corporation [8].
However, unlike capitalist entities, such governing bodies are not based on the financial contribution and sharing
framework e.g. holding company vs. subsidiaries, but on an agreement among members to share areas of
management necessary for effective coordination of operations [7]. Such a set-up implies that the cooperatives
and established management systems are the owners of the corporation rather than the corporation owning them
as would be the case of a parent company and its subsidiaries [7]. Additionally, absolute authority over the
cooperative’s assets is vested in the members, who vote for their desired candidates to occupy the positions in
the governing bodies or vie to be voted into such governing bodies [8].
Another core characteristic of the Mondragon Corporation is its concern for its employees. Employees
are shareholders in the entity and get to share in the profit distributions in addition to receiving their regular
salaries [7]. The arrangement to `have employees as joint owners prevents capital-labour conflicts, which would
occur in cases where the employee and shareholder interests conflict. Due to such an employee concern, the
Mondragon Corporation has established a corporate culture that promotes values such as cooperation,
commitment to management, social responsibility and fair distribution of wealth [7]. Commitment arises since
employees envisage that their work goes towards enhancing their consequences since a better performance
would better their share of the corporation’s profits.
Various significant differences thus exist between Microsoft and Mondragon Corporation. One of such
differences for instance regards the issue of businesses that comprise the respective entities. While Microsoft
controls component businesses based on the financial investment it has made on those businesses via acquisition
[9], in Mondragon Corporation the component businesses act independently with management being shared based
on a voluntary agreement. Similarly, while in Mondragon Corporation, each member has equal voting rights, in
Microsoft the voting rights are distributed according to the number of shares that one holds. In this respect,
minority groups such as the founder members, who own substantial amounts of capital [7], have a greater
influence on the running of the business compared to minority shareholders [10]. Although Microsoft also offers
its employees a chance to own the organization through the employee stock purchase plan [9], individual
employees lack the capacity to buy substantial amounts of stock to influence the decisions the entity enters into
[11].
The cost-cutting approaches targeted at the labour providers in Microsoft also differentiate it from
Mondragon Corporation. For instance, Microsoft has consistently shifted some of its operations to offshore low
wage countries thus resulting into the loss of jobs [12]; [13]. On the contrary, Mondragon Corporation engages a
multitude of individuals in the areas it conducts business thus helping in creating employment rather than
eliminating them [6].
Despite such differences, some similarities can be noted between Microsoft and Mondragon
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ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.6, No.23, 2014
Corporation. One of these is that both entities engage in significant social responsibility programs within the
communities they conduct business in. Microsoft has for instance engaged in various philanthropic activities that
for instance seek to enhance access to education facilities in some of its market [9]. Similarly, Mondragon
Corporation engages in education promotion activities that better the labour supply in the regions it conducts
business [6]; [7].
IV. Ethical consequences of stakeholders treatment in both Business Entities
The Cooperative approach to business enables it to balance different stakeholder interests to achieve sustainable
growth [14]. For instance, the corporation was rated among the 10 best places to work in Europe by Fortune
magazine in 2003 and has consistently featured in that list [11] through its approach to business operations; the
entity has met its moral responsibilities towards the individual employees, its component cooperatives and
society in which it operates [14]. This has been achieved through the commitment to business ethics as espoused
in its corporate values such as respect for members, personal development, educational programs, social security,
and distributive justice [14].
Accordingly, ethical consequences of treatment of stakeholders in Mondragon Corporation can be
identified with respect to different stakeholders. In respect to employees, their involvement in the corporation’s
decision-making processes and fair participation in profit distribution encourages them to commit to the entity’s
values and culture, thus avoiding cases of imprudent practices [7]. In respect to shareholders, the fair distribution
of profits among all members and the equal opportunities for engaging in the entity’s management avoids the
establishment of predominant shareholder group that engages in self-serving control of the entity’s operations [7].
Commitment to social responsibility does not only ensure the entity provides good quality products to its
customers, but also alleviates the economic situation of the society in which it operates [6]; [7].
On the contrary, the capitalistic approach of Microsoft has had various negative effects on the entity’s
consequences. For instance, despite the entity’s continued profitable run [9], its implication in anticompetitive
practices and massive relocation of jobs to off-shore low-cost countries have dented its reputation [12]; [13].
Conversely, despite its numerous philanthropic programs in its recent history [13], the inability to generate
comparable profitability to its competitors such as Apple Inc. has seen it lagging behind in attracting investors
[15].
In Microsoft, ethical consequences in respect to employees are thus evident in respect to two aspects.
Firstly, by lacking adequate representation in ownership of the organization, the employees may not commit to
prudent business practices thus enhancing the vulnerability of the entity ethical pitfalls [1]. With the lack of
commitment to the corporate values, employees may for instance result into imprudent practices to sabotage the
entity’s reputation. Secondly, Microsoft’s profit-maximization focus, which has led to the movement of various
jobs offshore as a cost cutting measure, adversely affects the economic wellbeing of the individuals whose jobs
have been outsourced. Such a scenario implies that the organization focuses more on meeting the interests of the
investors at the expense of the other stakeholders, an aspect that leads to social inequality in society.
Even with its focus on shareholders, Microsoft may fail to attract such shareholders with lapses in
other social aspects that might influence the entity’s profitability in future. For instance, with customers being
mindful of the ethical practices of the entities they purchase from [1]; aspects such as Microsoft’s anticompetitive
practices could deter potential investors from investing in its shares. Establishing a balance of conflicting
stakeholder interest in Microsoft thus becomes challenging since, in a capitalistic economy, investors will be
seeking profit maximization, a goal that would be negated by acceding to employees’ need for higher
remuneration.
V. Cooperatives in addressing Potential challenges modeled by Capitalism
The Mondragon Corporation offers insight into the ability of cooperatives to solve social challenges posed by
capitalism. Although capitalistic organizations establish social responsibility programs to reduce the
inconsistency between shareholder’s profit-maximization interest and interests of other stakeholders, such an
approach is only temporal in addressing social equity [3]. This is for instance exemplified by the recent financial
crisis where corporates engaged in imprudent practices to extract supernormal profits at the expense of the
common good [16]. Such inability of firms to balance their profit maximization goal and corporate social
responsibility compels evaluation of alternative modes of doing business. Cooperatives offer such an alternative
since they provide a way for an entity to achieve growth while remaining committed to the social consequences
of its activities.
The effectiveness of cooperatives as an alternative to capitalistic corporations is evident from Mondragon
Corporation case. For instance, even with its high concern for employee’s welfare, Mondragon Corporation was
able to enhance its profits by 39 precent in the period 2001 to 2006 [17]. Such profitability, in addition to the
social benefits that the entity helps to achieve e.g. reduction in social inequalities by offering more people jobs at
the expense of achieving a profit-maximization goal, highlights the potential of cooperatives in balancing the
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4. European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.6, No.23, 2014
divergent interests of multiple stakeholders [18]. For instance, while employees benefit from increased
participation in decision-making and fair profit distributions, shareholders would benefit from increased
employee commitment to the organization’s goals, thus reducing the risk of imprudent practices occurring within
the entity. Such reduced risk in turn leads to the development of a positive corporate reputation that increases the
entity’s customer base.
VI. Conclusion
Various stakeholders play an important role towards the growth of an entity thus requiring the entity to establish
an effective balance among such stakeholder’s interests. Although capitalistic entities could achieve such a
balance through their corporate social responsibility programs, recent events such as the financial crisis have
highlighted that such initiatives may only achieve a temporary effect in enhancing social good. Accordingly, the
alternative forms organizing may prove necessary to achieve long-term effects. One such alternative is a
cooperative approach as exemplified by Mondragon Corporation. In this approach, entities incorporate their
employees into joint ownership of the corporation and use a fair process in distributing business surpluses to all
members. Such an approach enhances employees’ commitment to the corporate values thus reducing the risk for
imprudent practices within the organization. Accordingly, a cooperative approach could be the needed shift for
entities to contribute towards just a socially business and economic environment.
References
[1] Heineman, B. (2007). Avoiding Integrity landmines (1st ed., pp. 100-108). Harvard Business Review.
Retrieved from http://blogs.law.harvard.edu/corpgov/files/2007/11/hbr_heineman_avoiding-integ.pdf
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