In response to recent events, there is a lot of pressure and new regulations placed on companies to use moral criteria in making business decisions. Some observers have expressed concern that too much emphasis on ethics and regulation will lead to less aggressive and competitive behavior, which could have an adverse effect on profitability and shareholder returns. Students, do you agree or disagree? Why or Why not? Examples?
Answered Essay: In response to recent events, there is a lot of pressure and new regulations placed on companies to use moral criteria in making business decisions.
Expert Answer
I would not agree with the view of some observers that too much emphasis on ethics and regulation will lead to less aggressive and competitive behaviour, which could have an adverse effect on profitability and shareholder returns.
By giving emphasis on ethics and regulation the companies tend to operate in regulated environment, which is safer from shareholders point of view.
The companies which are ethically strong tend to attract more employees, customers, stakeholders. Hence the company would perform very well in terms of turnover and profitability. Higher turnover and profitability would lead to maximization of shareholder wealth and creates a healthy competitive market.
By following the regulation which are applicable to the company the company would not be exposed to heavy fines and penalties, hence there would be better business environment, which leads to maximization of shareholders wealth.
For example: Companies following the CSR (Corporate Social Responsibility) initiative, would have good moral and ethical ground which would benefit company in long run and helps to maximize the shareholders wealth.
And companies by following all the corporate governance standards and regulations, they would be making good internal management decisions and company would be governed by sound internal management. Which would increase the shareholders wealth and would lead to create a competitive world.
