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A Major perspective on accounting (financial reporting) regulation as being required to protect the public interest
Introduction
Financial regulation is simply some form of supervision or regulation that subjects the financial institutions to some form of restrictions, requirements, and guidelines with the aim of maintaining the financial system integrity. This can either be handled by the government or the non-governmental organizations. It is an ethical and social responsibility of any institution to ensure that they do transparent financial reporting. Ethics and Corporate Social Responsibility (CSR) in organizations are overlapping concepts that are increasingly being debated upon and have attracted arguments in academic discourse for sometime now. The significance of ethics and Corporate Social Responsibility in organizations and the relationship that they portend for organizational structure and management cannot be overlooked (Leat, 2007). This is especially because; they are seen as important issues that function to bring justice in organizations. Becker (2009) notes that the search for justice and broadened organizational performance in the work place in line with business and professional ethics are closely toed to corporate social responsibility.
Regardless of these needs, philosophers, other scholars and thinkers alike, have not authoritatively arrived at a consensus about what ethical standards entail, and this can be more challenging when one looks at the types of organizational structures and personality differences that exist in business entities today (Horrigan, 2010). Thus drawing distinction between ‘the right thing’ and ‘the wrong thing’’ at the work place remains, at best an uphill task and not a straight forward matter. Organizational Behavior experts have tried to study the dynamics that these issues depict, with a view to bringing about organizational justice. This is more anchored on the fact that today, managers have been accused of overstepping their mandate, and unethical behavioral patterns have been cited both managers and their juniors (Becker, 2009). This paper addresses the fact that a major perspective on accounting (financial reporting) regulation as being required to protect the public interest.
A Major perspective on accounting (financial reporting) regulation as being required to protect the public interest
The responsibility that a business play in the society in which it is carried out has been subject to various kinds of debate. While is reckoned that the primary responsibility of any business enterprise is to maximize the profits for the shareholders, others feel that a business should go far beyond just profit maximization to embrace issues such corporate social responsibilities. Zain (2008) gives a comparison of the divergent views of Milton Friedman and Archie Carroll concerning the responsibility of business in a society. She asserts profoundly that:
‘The basic responsibility of a firm is to maximize profits. This relays its fiduciary duty [or responsibility] to safeguard the interests of its shareholders’’ (Zain, 2008, Para 11). According she argues that theorists like Friedman leave it at that, an aspect which she views with a pinch of salt. She posits that emphasis needs not only to be put in serving the interest of the shareholders who will only enjoy a handsome return, but organizations must go beyond grain. She believes that social responsibilities must be performed by businesses entities. She reinforces this by arguing that ‘a firm’s primary responsibility is to maximize shareholder revenue and should overcome all hindrances in the environment to do so’ (Zain 2008). This calls for not mistreating the employees of an organization even if the primary aim should be shareholder profit maximization. Provided the firms operate within the regulations that are provided for by the pre-defined legislation, and having taken into account the interest of the shareholders, all the other supposed roles should automatically be fulfilled. Friedman argues that if business organizations simply capitalize on profit maximization while operating under the established legal procedures, then the firm is assured a continued business life as there will be funds for inventory maintenance and expansion (Zain, 2008).
In his (Friedman’s) view, the management of a firm or business enterprise that engages in additional social responsibility may be faced with difficulties in executing its duties to be able to continue with the growth as well as development of the firm. This is an issue that Zain dismisses Friedman points out ‘that open and free competition without deception or fraud is the only responsibility of firms. By taking on social responsibilities, the firm may compromise their profitability and therefore shortchange shareholders’ (Zain, 2008, Para 6). This assertion according to Zain violates the fundamental human nature and must not be taken as a clarion call.
Zain (2008) agrees that Archie Carroll has a larger view of the supposed responsibility of business. In the context of the socio-economic school of thought Carroll considers the responsibility of business as four-fold and extends beyond shareholder’s profit maximization. In his view, business plays economic roles, ethical roles, legal roles as well as other voluntary roles that help shape the society in general (Zain 2008, para.5). The first responsibility in this model is in line with Friedman’s profit maximization. To be able to contribute to the macro-economic development, businesses need to emphasize on the maximization of their profits by capitalizing on their strength and market opportunities (Velasquez, 2012). Businesses need to embark on thorough market and marketing research so as to identify what types of products to deal in, how much to keep in inventory and when to do so. Secondly, the government has the role of providing certain regulations in relation to the business activities to be undertaken as well as the mode of operations. Abiding by these laws and regulations is also a responsibility business (Hoffman, Frederick & Schwartz, 2001).
As Zain (2008) described ‘legal responsibilities are those that are defined by the authorities and firms are required to abide by them in a strict and disciplined manner’ (para.7). The other set of responsibility that Carroll considers fundamental in the operations of a business enterprise is ethical responsibility. He believes there should be some set of moral standards from which the management of an organization should draw its governing principles. In striving at the maximization of profits of shareholders, the employees of the organization may be forced to work extra hours (Crane & Matten, 2010). Ethical considerations will see the employees receiving remuneration that is proportional to the amount of extra work done. Business management needs to employ ethics in ensuring the employees work under conducive environment. They need to have that sense of humane in handling the employees (Zain 2008, Para 8). Finally, the last set of a firm’s responsibility according to Carroll include carrying out other activities within or outside the firm, but under the firm’s directives, that has the main aim of alleviating members of the society from poverty.
In the context of the broad social view, these theorist looks at the integration of the social demand by the business. They believe that businesses actually depend on the larger society for their existence, growth, as well as continuity. The social demands are simply the particular ways the society often interacts with the business and consequently giving it some level of prestige and legitimacy. Therefore, the corporate management is expected to take into consideration the social demands and subsequently integrating them in such a manner that the operations of the business are in accordance with the social values (Valor, 2005).
Even though, the above views seem to diverge, they initially have one observation in common and which is of utmost importance in arguing out the major responsibility of a business enterprise such as the drug company monopolies and profits in the case study. Both Carroll and Friedman seem to accept the opinion that a business’s main role is to maximize its values. They also go ahead to ‘advocate that such responsibility remain in line with social and legal standards and therefore the drug company monopolies and profits are not to engage in illegal activities as well as unethical activities’ (Zain, 2008). In the context therefore, the companies are not observing their corporate responsibility adequately since they are mainly focused on profits forgetting the social roles of ensuring that the companies helps individuals and eventually operating within the set social values.
Another important view that people have concerning business ethics is that good ethics means good business. The involvement of ethics in business is considered essential even to this date (Becker, 2009). In deed, this is a view that is consistent with the above view concerning conformity to a kind of legislation. Desirable qualities in a business like business courtesy, honesty, office etiquette, and transparency all derive their roots from good ethics. However, the chords of conduct need to be practiced by all the parties involved in the business set-up (Price, 2007). This has never been the case and the effect is a total lose on the side of the firms that maintain their morals. The few firms that abide by the set business rules often find their business progress slower than the other more powerful firms that do not follow the rules. ‘While in public life it is ultimately the law that sets enforceable limits to business leaders and their deals, the law is neither able or the best possible tool for the protection of the interest of the companies, shareholders, employees, and consumers’ (Becker, 2009, p.3). Thus, for a continued success in the business industry, legislation alone may not be sufficient. Instead, of more importance is a high standard of morals for all the stakeholders in the industry.
Conventional morality is concerned with the moral standards in a given societal setting. Those with conventional moral reasoning consider what the society say or feel about their behaviors. Participants here accept the social norms as provided in the society and are bound to them regardless of their consequences (Crane & Matten, 2010). Such conventional moral reasoning has the weakness in establishing its strength or appropriateness and there may be difficulties in abiding by them. Conventional morality is also subject to frequent changes, what is conventionally moral in one society can be immoral in an adjacent society, and it is still subject to debate (Becker, 2009). However, if all the business stakeholders in a given society were to act in the conventional manner, then the success of their businesses would not be threatened (Golan, 2005). Therefore, Pfizer as a company as a company being concerned with all the aspects of its stakeholders not forgetting its conventional morality is actually practicing corporate social responsibility to its very best. Concisely, Pfizer has complied with all the three viewpoints that include economic, socio-economic, and social viewpoints.
Finally, after the review of the literature and critical analysis of the case study, this paper is of the opinion that the social responsibility of company is significant not only to its productivity but also to its overall acceptance and relations with the larger society. Today, Corporate Social Responsibility is being taken seriously by many organizations such as Pfizer, especially because of globalization, competition and therefore a deliberate attempt to please and play meaningful roles in the lives of communities. In this quest, many organizations have executed concerted efforts in demonstrating and attempting to respond to both ethical and legal standards, and also by virtue of paying attention and incorporating values that ensure an enhanced welfare of communities and the society at large. The ways in which this is being executed include among others being involved in charity affairs, money donations, financing community projects, streamlining education and training, and involving in such project as water and sanitation, among others (Golan, 2008).
Conclusion
Financial regulation is significant aspect of the business community. The companies should not wait for the government to come up with regulations but rather act ethically and professionally. It is first worth noting that in as much as any business enterprise is charged with various responsibilities, the major responsibility that it has is to maximize the profits of the shareholders. This will boost their spirits and the business will have funds to push on. Secondly, a business that hopes to survive in the current and future local and global market need not to rely only on some forms of government legislation. Instead, it needs to ensure high level of universal morality in its entire leadership. This can be achieved by adhering to all the three viewpoints that include economic, socio-economic and social viewpoints.
References
Becker, K. (2009). Moral Leadership in Business A journal of International Business Ethics Vol.2 No.1
Beauchamp, R.T., Bowie, N.E. & Arnold, D.G. (2009). Ethical Theory and Business (8th ed.). Prentice Hall, Upper Saddle River: New Jersey (or earlier editions).
Crane, A. & Matten, D. (2010). Business Ethics, Oxford University Press: Oxford, UK.
Golan, P (2005). Employee relations The international journal, Volume 27, Issue 3 London: Emerald Group Publishing.
Hoffman, W., Frederick, R. & Schwartz, M. (2001). Business Ethics (4th ed.). McGraw-Hill: New York.
Horrigan, B. (2010). Corporate Social Responsibility in the 21st Century, Edward Elgar: Cheltenham, UK.
Leat, M. (2007). Exploring Employee Relations. Burlington: Elservier.
Price, A. (2007) Human Resource Management in a Business Context. London: Thompson Learning.
Velasquez, M.G. (2012). Business Ethics: Concepts & Cases (7th ed.). Pearson Education Inc., Upper Saddle River, N.J. (p212).
Valor, C. (2005), “Corporate Social Responsibility and Corporate Citizenship: Towards Corporate Accountability”, Business And Society Review, Vol. 110, No. 2, pp. 191-212
Zain, M. (2008). Social Responsibility in Business: Friedman and Carroll’s Differing Views on Business Responsibility, Cengage Learning.