This assignment is aimed at inculcating diagnostics skills in deciphering and assessing real life case study on ethics. Further it also allows students to have first-hand exposure in preparing practical solutions to advice corporates on good governance.
Watch the movie above using the link below: httos://www.youtube.com/watch?v=iPhF YwWvoM
Upon viewing the film "Barbarians at the Gate," based upon a novel by the same title, you will be able to get a small glimpse into the hostile world of corporate life in the mid to late 1980's in the US. At first glance you will be astonished to witness the lack of morals and ethics within this community, but upon further investigation you may also deduced that this incredible greed is what drove the economy. Without this greed, corporate America would have never grown to their immense size.
In the complex global business environment of the 21st century, companies of every size face a multitude of ethical issues. Businesses have the responsibility to develop codes of conduct and ethics that every member of the organization must abide by and put into action. Fundamental ethical issues include concepts such and integrity and trust, but more complex issues include accommodating diversity, decision-making, compliance and governance. Based on the above movie and the contention of contemporary moral and ethical stakeholder expectations critically discuss key themes, issues, cause and consequences that has been portrayed in the Movie based on true events of Nabisco takeover. Your discussion should include:
2. Critical Ethical and moral principles/theories/concepts that corporations should be deliberately conscious about.
3. Corporate values and stakeholder expectations.
4. Contentious non ethical corporate actions and its impact.
5. Reconciliation and rationalization of corporate values towards conformity of ethical business conduct.
6. Economic and social cost of to the firm and its stakeholders.
7. The need to establish harmonious relationship with all stakeholders: the dependent theory.
8. Lesson learned from this case study.
9. Demonstrate how the incorporation of ethical principal Into core corporate value system would allow for good governance and business sustainability whilst maintaining and safe guarding stakeholder expectations.
Ethics is the tool that determines the right and wrong while morals are standards of decent behavior. Ethics and morality are guided by core values and controls the behavior of employees and their directors in the organization. Business code of ethics and morals outlines how ethics should uphold the corporate values in an organization in every decision making procedure. When leaders consider ethical concepts in the decision-making program, they prevent ethical problems from occurring as well as promote fairness. For example, in this case, leveraged buyout of Nabisco which was sold at $25 billion was the highest in 1988 which according to Hope Lamberts was a reflection of ‘True Greed.’ The leaders According to Mika (61), business code of ethics is what builds a good ethical footing for every organization and its crucial in every decision-making process. Leaders need to uphold the code of conduct in every decision they make, to promote positive behavior among all stakeholders of a firm. Ethics and morals theories and their impacts on an organization are analyzed in explicit details. Also, non-ethical corporate actions and their diverse impacts to a company are outlined.
To investigate the process of takeover
This report investigates the process of the organization take over after the leveraged buyout of Nabisco and its overall change of management.
To find out how morals and ethics are violated and their impacts
The report seeks to find out the violations of moral and ethical value in Nabisco Corporation's theories that exist on the corporate value system. The report finds outs out the impacts of violating the ethics and morals in the company.
To identify ethical and moral issues present.
This report identifies the moral and ethical issues present in Nabisco during the period of the leveraged buyout. The issues that surface during this process.
To examine the corporate values that shape ethics and morals.
The report seeks to fully examine the core values in an organization that help in shaping the behavior of all members of the organization
Description of case
A leveraged buyout is a process in which a company is purchased by private buyers. The private buyers take over the company fully. To facilitate the buyout, finances are acquired from debt, and the buyers provide a very small percentage of finances. In this case, Nabisco which was manufacturing cigarette and processing food (Oreos, Ritz crackers, 62) used to make significants earnings, however, its stock stagnated for long. Due to this reason F. Ross Johnson, the Chief Executive of the company tried various strategies that would help improve the stock price but failed to make any impact. Lastly, he decided to sell the company through leveraged buyout to enable the shareholders to regain their money (Lampert, 48)
Mr. Johnson and several other top executives of the company with the support of Investment and brokerage house of Shearson Lehman Hutton announced their desire to buy Nabisco for $ 17 billion. Bidding was open to other parties so that the highest bidder would buy the company. Mr. Johnson faced no competition since his bid was higher than the stock market price by a third. This alarmed other potential bidders from the Wallstreet. The advisory fee was hiked to approximately $200 million pushing the bidding of the company to $ 25 billion. This was the turning point of ‘Barbarians at the Gate’ and True Greed’’
This Leveraged buyout present moral hazards in various sectors. One of the hazards arises from the greed of the financial firm that provides funding. This financial firms may be carried away by the lucrative deals presented and offer a lot of money more than the firm can be able to pay off in case the business fails (Perry 21). These firms cross their ethical line, where they are supposed to advise the owners of the firm being leveraged accordingly and put their interests aside but instead, they see an opportunity of making a great deal out of it. This violation is evident where the bank wants to have a better look at their balance sheet as well as having self-interests in the company at hand.
Additionally, in every code of business ethics, there is the policy of fair dealing. This policy demands that there should be honesty and integrity in dealing with everyone in the organization (Chen 54). In this case, there was a violation of this policy where directors were not honest in telling the stakeholders what their plans on selling out the company were. These directors breached the code of conduct.
Chronology of events
When a company considers leveraging its company, it is due to its reduced productivity. In the case of Nabisco, the company’s share price remained stagnant for long and the company had to be sold so that the shareholders could recover their money. The executive opted to do it through leveraged buyout since it could enable the company to fully compensate the shareholder.
Moral and ethical issues present
There are various ethical and moral theories and concepts that organization owners and other stakeholders should consider. This helps in determining and creating the behavior of the members of the organization (Fischer 67). In every corporation, there are principles of morals and ethics that every member of the firm should adhere to. The ‘mother’ of the principles of ethics is integrity. In this case, Nabisco executives lacked integrity and that why they did not consider what stakeholders were bringing on the table. All members starting from executives to the subordinates should uphold the following principles; fairness, responsibility, trustworthiness, responsibility, respect, and citizenship (Shaw 118) in their performance. Making the right decisions in an organization is guided by these ethical principles. However, in making the right decisions, top executives must act accordingly. Employees’ behavior is determined by how the management behaves (Group 127). That is why executives have additional principles, that is; accountability, leadership, and reputation.
There are various theories in ethics that help in the judgment of ethical dilemmas and situations (Beauchamp 4);
This theory is entailed in judging whether the act was ethical rather than the result of the act. It judges by considering whether morality is equal to reasoning (Jost 185). It is not ideal for decision making as it does not clearly outline where to draw the line of judgment.
These rights consider how one should be treated by the others.in business, this theory determines how members of an organization treat each other.
This theory is concerned with how moral the product of an action is (Mill 15). Utilitarianism view all individuals to be equal in the organization and emphasizes on doing good to a large number of individuals.
This theory emphasizes on the subjectivity of the wrong and the right. It states that ethics are dependent on the group of people or society (Velasquez 9). However, in some instance, it believes in universalism of ethical standards.
Rawls’s theory of justice
This theory believes that individuals are rational and they value their good. It’s guided by two principles; one is that inequality is acceptable when it applies to everyone and secondly, everyone should have equal chances just like others (Rawls' theory of justice'.).
Every corporation should be keen on these principles and theories to facilitate the best behavior among members of the organization and to improve on the decisions made on different strategies.
Analyses the ethical and moral issues using the context of cause-effect and outcome
Corporate values and stakeholders’ expectation.
Every stakeholder in the business understands the business agreement to the success of the organization. That’s why as an executive, it usually very crucial to look into the stakeholder's expectation to ensure that their needs are met by the organization. Corporate values and stakeholders expectations should align. For the success of the organization, it needs the commitment and trust of stakeholders. It is very important to involve stakeholders in the decision-making process in the organization; this is where their suggestions are considered. One major factor that led Nabisco to violate the business code of ethics is because they failed to consider the expectations of its stakeholders. These stakeholders hoped to be considered in the organization's decisions, but the executives did not.
One of the corporate values is communication; this tool is very crucial in ensuring a good relationship with stakeholders in the organization. Stakeholders have different expectations and values of the company, and whenever there is a change in the strategies made by the firm, stakeholders should be informed. This is where the value of communication chips in (Belasen 83). This tool promotes transparency and good governance in the firm.
Corporate values are what shapes an organization’s culture, and strengthens the mission and vision of the business. Establishing cores values that align with the stakeholders’ expectations has various benefits; first, these values assist in the decision making procedure. Secondly, values create a competitive advantage to an organization through creating awareness of the identity of the organization to its current and potential clients. Lastly, these corporate values help in selling the credentials of the organization to job seekers, making the company acquire the best workforce. These values act as the basis of ethical consideration in the organization (Fisher, 147). Some of the corporate core values that align with the stakeholder's expectations include;
This value involves treating employees equal and ensuring that there is fairness when it comes to organization’s resources.
It involves acting with honesty in the organization so that all stakeholders are aware of what is happening within the organization.
It involves taking proper maintenance of the organization’s facilities as well as looking after all interested parties and looking into their needs.
Health and safety
This value involves providing a workplace free of accidents for the sake of all stakeholders.
This value involves empowering employees in their line of work to gain morale
This value calls for all members of the organization to be accountable for any decision in the organization. For example, in Nabisco this value lacked among stakeholders, this is because they were not involved in the decisions pertaining the leveraged buyout.
Impacts of non-ethical corporate actions
Organizations give so much attention to ethics due to the knowledge of what violations of ethics could cause them. In one way or another, there various non-ethical issues that members of an organization may be involved in. For example, in this case, the executive members of Nabisco Corporations engage in a leveraged buyout, which in itself was a breach of the corporate code of conduct (Haddad 33). The directors assumed the opinions of the other members and went ahead to leverage. As a result, the organization is faced with bankruptcy with over $50 million debt. This action has caused the organization to ruin the company’s reputation. This in return has resulted in the loss of customers as well as the employees. The leveraged buyout caused the downfall of the organization.
A major impact that occurs after undertaking non-ethical issues can cause the company to incur extra costs if their actions get to the media. Social media is a valuable tool both in building or ruining an organization. If the violations of ethics by an organization get online, it affects how people view the organization. Social media can lead to a destruction of the organization. The impact of non-ethical actions is a complete downfall of the company.
One of the major non-ethical action executives engage in is a leveraged buyout. This action imposes various impacts, both positive and negative in the organization. First, there is the impact on the organizational structuring. A positive outcome is where an organization may be able to change the management under the private sector to the better managerial team as well as employees. However, this action has a negative impact on employees when an organization has to lay off some employees to reduce cost. This leads to an increase in unemployment levels in the surrounding society. Secondly, in every leveraged buyout, the company may benefit from financial returns acquired if the business does well (Gaughan 28). On the other hand, bankruptcy may occur, where, if the interest returns are less than the debt of financing its operations. This has been the case for Nabisco where it is facing a financial crisis. Lastly, leverage buyout may lead to the complete buyout of the original management. This could have a positive impact on preventing the downfall and shut down of an organization. However, the same management may lead to mismanaging the company assets leading to decrease in productivity (Gaughan 77).
Reconciliation and rationalization of corporate values
Rationalization entails poor reasoning in the name of proper reasoning where there are matters in negligence. Rationalization is the standard thought in the workplace, but one that imposes more harm than good. There is always a need for the organization to embrace good reasoning skills to take the organization to a successful level. This is where reconciliation of the corporate values is needed to produce better results.
To avoid major setbacks in the organization such as bankruptcy, downsizing, and financial mismanagement, an organization needs to rethink its corporate values (Locke 7). Focusing on corporate values helps to enhance the way the organization runs. Embracing and reconciliation of various values reap various benefits such as; corporate values can breed accountability in the organization and create a flow of events. When an action does not align well with goals of the organization, corporate values can hold the concerned accountable. Secondly, reconciling corporate values in the organization helps in the proper decision-making process and creating acceptable paths that should be followed in arriving at decisions. This helps the management to involve all the members of the organization in making strategies and decisions (Locke, Re-crafting Rationalization: Enchanted Science and Mundane Mysteries). For example, there was a rationalization of corporate values in Nabisco, and that was the reason why executives never consulted other stakeholders on their opinions over leveraged buyout. Thirdly, reconciliation of corporate values creates a deeper relationship with the organization. When organizations adopt corporate values, they unify people in the organization, and less internal conflicts occur. This is because it ensures that there is respect for everyone in the organization. Lastly, corporate values boost performance leading to higher productivity. For example, in Nabisco, the company would never experience low prices which lead to the company being leveraged if at all they adopted the corporate values. This would have resulted in the company doing better in dealing with their problems rather than leveraging (Mellen 110).
For an organization to be able to maintain its corporate values and using them in every organizational practice, it is wise to form a special committee in the top management to be in charge of every corporate value and to ensure that corporate values are well practiced and applied in the business.
Social and economic cost to stakeholders and organizations
A leveraged buyout may result in various social and economic cost to various stakeholders and the organization as a whole.
Operations in the organization
Various economic costs affect the organization after the buyout. There are changes in marketing as well as increasing productivity due to the new management (Parboteeah 35). This leads to more improved financial management policies.
An organization may face bankruptcy, in the case of an inefficacy leveraged buyout. This may cause the company to incur extra economic costs as well as loss of their social reputation which could lead to a total downfall of the organization.
In every LBO, the company realizes savings on the tax accrued. This is mainly because there are revenues from interest deductions as a result of the buyout (Talks 81). This is one of the positive economic cost associated with buyouts.
There is a social cost that affects the stakeholders in the organization in the case of a violation of ethics and morals. First, the employees, feel neglected by the top management for not involving them in the decision-making process which leads to stakeholders being detached from the organization. Their commitment reduces towards the achievement of the firm’s goal. This may lead to employee turnover (Murthy 11). Secondly, after a buyout, for example, the organization may lay off some employees which may result in a couple of employees losing their job and leaving them feeling demoralized socially and emotionally. Stakeholders are important aspects of an organization, and if the organization loses them, it may economically incur huge losses.
Establishment of harmonious relationships with stakeholders.
Stakeholders are the most important tool for an organization. They determine the performance of business. The success of an organization depends on building and managing harmonious relationships with all the stakeholders. Stakeholders are responsible for influencing a positive outcome in every project in the organization (Ballard 95). They are various ways on how to establish and manage relationships with stakeholder;
First, Enhance communication. This is an essential tool for building any relationship. It is important to establish a clear and transparent communication tool in the organization. This enables all the stakeholders to be able to voice their opinions in the organization. Learn to listen to stakeholders to understand their needs.
Secondly, as a manager, always seek the guidance and advice of employees in the decision-making process. Stakeholders may offer assistance on how to make various decisions and arrive at the best. In building a harmonious relationship, there is need to always seek the stakeholders’ opinions before making any move.
Thirdly, to build a harmonious relationship with stakeholders, it first begins by building trust with them. This is achieved through keeping promises made to the stakeholders and treating them fairly in the organization (Salas 101). This helps to earn their trust, and in return, a relationship is achieved.
Lastly, respecting stakeholders builds a healthy relationship with them. This is through respecting their opinions and also by appreciating them. Stakeholders can be appreciated by recognizing their potential in business, no matter how small that potential is.
Incorporation of ethical principles into the corporate value system
Incorporating ethical principles in the corporate value system is important because it enhances the sustainability of the business as well as promote good governance. This aligns with maintaining the stakeholders’ expectations in the business. Ethical principles guide the way the executives behave in an organization and the values they uphold. This, in turn, makes them good leaders in the organization who considers the needs and opinions of the stakeholders (Managing Legal and Ethical Principles 14). When ethical principles are incorporated in the value system, it strengths the morals of every member of the organization.
Ethical principles such as honesty, transparency, and integrity are the core values that lead to making of good leaders (Cowton 3). Good governance in an organization upholds the democratic way of running the organization. This is because, leaders who uphold ethical principles, always listens to their subordinates and all the stakeholders in the organization. They learn how to consult and seek advice from them in any step pertaining the organization. On the other hand, this maintains the stakeholders’ expectations of the organization. It leads to motivated and satisfied stakeholders who feel a sense of ownership in the organization if they are treated right.
On the other hand, business sustainability arises from the stakeholders and the management incorporating the core values and upholding moral and ethical principles. Business sustainability is achieved by maintaining social risks, financial aspects as well as managing the opportunities that arise in the business. Ethical principles instill a discipline that helps in managing this aspect to achieve a sustainable organization. Stakeholders’ engagement, is one of the aspects that enhances business sustainability (Nicolescu 44). This involves engaging all the stakeholders in decisions and opinions concerning the organization. All customers, employees, and shareholders are important aspects in shaping the business. To achieve sustainability, an organization needs to exercise transparency with all its stakeholders.
The moral and ethical conduct in Nabisco Company during a business take over has been presented. A leveraged buyout of Nabisco Company presents hazards that occur as a result of violations of moral and ethical principles. There are various negative outcomes from the buyout that face the organization due to failure in adherence to ethics and moral aspects. This case study highlights the importance of a code of conduct in the decision-making process. Nabisco company leaders fail to adhere to the code of conduct in taking action in leveraging the company.
It is recommended that Nabisco Company should adhere to the business code of conduct to promote good governance in the entire organization. Corporate core values that guide the moral and ethics in the organization should be used in achieving a stronger bond between the organization stakeholders and those who govern them. Ethical principles should be fostered by a group of leaders in the organization who ensure ethics and morals are adhered to by everyone in the organization. The executives of the organization should choose the group of leaders to be in charge of business conduct in the firm.
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