Type of paper: Essay

Topic: Company, Ethics, Firm, Business, Theory, Law, Stakeholders, Money

Pages: 5

Words: 1375

Published: 2020/11/27


An ethical issue is a problem, an opportunity or a situation that is identifiable and one that gives discretion to a person to choose from a myriad of actions to implement. These actions may be analyzed as right, wrong, ethical or unethical (Jackson, 1996). As a result, such a choice involves weighing the monetary gains to be made against what a person may consider to be appropriate behavior as dictated by professional skills and judgment. The best way to determine whether a situation or an opportunity is ethical or not is to, look at it from a customer’s or competitor’s point of view (Jackson, 1996).
Therefore, it can be said that, the best solution to an ethical problem is to uphold the most important values within a business and legal setup to the greatest extent possible while violating the least number possible. Ethical decisions may be influenced by several factors and their evaluation may also a number of theories such as the stakeholder’s theory, shareholders theory, and corporate social responsibility.

Shareholders Theory

The shareholder’s theory focuses on profit maximization as the main goal of a firm. That is, the business has only one social responsibility, and that is of utilizing all of its resources and engaging in activities that are designed to increase its profit while staying within the rules of the game and operating in a free and open competition (Cragg, (n.d). This is the view of Friedman which is based on three basic assumptions.
That is, the human, social and environment costs of doing business should be taken care of from within the firm as required by law. Any other costs should be externalized. The second assumption is that self-interest serves as the prime human motivator and thus individuals will act in a way that is deemed rational to maximize the value for society and efficiency.
The last assumption is that a firm is involved in numerous contracts and a greater emphasis is placed on the contracts that have the greatest impact on the firm’s profitability. Thus, according to the shareholders’ theory, managers act as agents while the owners of a corporation act as principals. As agents, managers have a responsibility and fiduciary obligation to maximize profits. These fiduciary obligations are ethical in nature and, therefore, the only obligation that managers have towards the stakeholders is to think strategically.

Stakeholders’ Theory

The stakeholder’s theory contradicts the shareholder’s theory in that it offers an alternative intention of the purpose of the firm. The theory suggests that, the firm’s purpose is to serve broader societal interests, beyond the economic value of profit maximization of the shareholders. As such, the theory argues that, managers have a moral obligation to consider and balance the interests of all the stakeholders (Cragg, (n.d).
That is, business and organizations depend on stakeholders in order to survive and achieve their goals. The stakeholders, therefore, have a stake in the business. They include the primary social, secondary social, primary non-social and secondary non-social. Primary social stakeholders include shareholders and other investors, customers, local communities, employees and managers and suppliers and business partners. Secondary social stakeholders include government regulators, trade bodies, competitors and media.
Primary non-social stakeholders include the natural environment, future generations, and non-human species. Lastly, secondary nonsocial stakeholders include animal welfare organizations and environment interest groups.
The stakeholder’s theory is based on two paths of normative and instrumental theories. Normative stakeholder’s theory is based on the traditional view of the stakeholders having no pre-eminence in the operations of a firm. On the other hand, instrumental stakeholder’s theory functions as a subset of the shareholders theory. This is because; it links the stakeholder’s management with wealth creation. Furthermore, stakeholder’s theory may take three approaches to strategic, synthesis and multi-fiduciary approach.
The strategic approach views the stakeholders as a way of generating profit shareholders while the multi-fiduciary views the organizations as having a financial obligation to all stakeholders, not just the shareholders. Synthesis approach combines both the strategic and multi-fiduciary approaches of the firm having a moral and ethical duty to stakeholders but the fiduciary element remaining to shareholders only.

Rules Governing Ethical Behavior

Corruption in the under-developed world is a daily activity which has led to the belief that in such countries such government payment to individuals is central to business survival and success. In some instances, companies engage in this practice of paying government officials in the form of bribes in order not to be at a disadvantage with their competitors. However, American companies in international businesses are guided by a serious of regulations such as foreign corrupt practices act, FCPA (mheducation.com, 2015).
This is an act that was adopted in 1977 in the United States of America. FCPA underlines the practices that are permitted and interdicted tom American economic agents involved in international and foreign markets. An example of the interdicted practices in the act are offering or paying some amount of money to different political parties or candidates or foreign public clerks which they may use in order to sustain the business. The act also forbids any forms of indirect payments if the firms in question have the knowledge that such payments may be used to perpetrate some illegal activity or some corruptive activities.
However, FCPA stipulate that lubrication bribes are permitted. Lubrication bribes are payments to officials in a foreign country and who are public clerks, used to persuade them to come up with and fasten a normal activity that is required by the government to the business. And although the act does not stipulate the percentage or the amount that should be given out as lubrication bribe, it requires that such payments be rigorously recorded and proper accounts maintained once such payments are made (mheducation.com, 2015).
Lubrication bribes may also be referred as facilitation payments that are not objected by the OECD.], organization for Economic Cooperation and Development. this organization adopted the FCPA that was passed by the united states but does not interdict facilitation payments made to expedite or facilitate routine government action.

Way to Solve an Ethical Dilemma

There are several steps that must be taken in order to solve an ethical dilemma. First, an individual or a firm must determine whether there is an ethical dilemma or not. An ethical dilemma will be magnified by the presence of conflict of interests, values, rights among others. After the determination, the firm should determine the key values and principles involved (NASW, 2015).
After values determination, the firm should rank the values and then ethical principles according to the most relevant to the least relevant. This relevancy is based on professional judgment and an individual should have reasons for prioritizing certain issues over others. Forth, the firm should come up with an action plan, that is consistent with the previously determined priorities and which are key and central to the dilemma.
In addition, one should discuss with the other workers about the possible consequences of taking that particular action and be able to justify the action plan. Lastly, the firm or the individual should implement the action plan based on the most appropriate and relevant skills and competencies (NASW, 2015).


It is evident that there is an ethical issue in our setup since there are conflicting values in terms of shareholders, stakeholders, government regulations among others. Though the firm does not violate the Pakistan’s laws in terms of employment and wages, it is constrained to adhere to American laws for firms involved in international business. The firm seeks to maximize its profits which are its major goal, but this can only happen if their report is passed by the official.
So in terms of ranking, the firm's goals are to maximize profits subject to government laws. Second, the form also seeks to meet international standards on labor laws and therefore employing children is not a priority. in addition, it is beyond the firms control what the Pakistan government does with the tax revenue and, therefore, its main responsibility is payment of taxes and not what the revenue does.
The location of the firm in Pakistan to take advantage of low costs is also permitted in international law, and so the firm has not violated the law in this front. This leaves the firm with three priorities; paying the bribe, adhering to American laws and maximizing profits. If the firm's operations are halted, it will not be able to maximize profits, therefore this eliminates this priority. This means that, the firm has to choose between paying the bribe and sticking to the American laws. The American laws only leave one option for the firm and that is facilitation payments. Therefore, the firm should pay the bribe in the form of the facilitation payment and document the payment for any legal process that may arise and for ensuring its continuity.


Cragg, W. (n.d.). Business Ethics and Stakeholder Theory. Business Ethics Quarterly, 113-113.
Guvenli, T., & Sanyal, R. (n.d.). Ethical Concerns in International Business: Are Some Issues More Important than Others? Business and Society Review, 195-206.
Jackson, J. (1996). An introduction to business ethics. Oxford [England: Blackwell.
Business ethics and social responsibility. Chapter 2
Ethics in international business. chapter 4.
National Association of Social Workers (NASW). Essential steps for ethical problem solving.

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Good Example Of Ethics Essay. Free Essay Examples - WePapers.com. https://www.wepapers.com/samples/good-example-of-ethics-essay/. Published Nov 27, 2020. Accessed April 17, 2021.

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