Business Society and Corporate Values There Has Essay

  • Length: 7 pages
  • Subject: Business
  • Type: Essay
  • Paper: #33251369

Excerpt from Essay :

Business Society and Corporate Values

There has indeed been a great deal of discussion regarding CEO compensation, which is rightly viewed as being completely out of line. The core problem and cause of inflated CEO salaries cannot be attributed to a single reason, but is rather the result of a range of inter-connected factors. What is definitive is the fact that these salaries have inflated over time; this is in part due to the fact that greed is a progressive, boundless factor. "According to the Economic Policy Institute, in the late 1970s, total compensation of chief executives in large American corporations was 35 times that of the average American worker. In 2007, it was 275 times that" (Borger, 2007). These facts alone demonstrate that there is good reason to be in a state of alarm. The reasons for such severely inflated and remarkably unjust salaries are a result of the following factors: insufficient governance, market pressures, company fortunes, rewards for previous performance and a combination of fixed and contingent components (Borger, 2007). For instance, in the sense that weak governance has compromised CEO compensation certain dynamics occur such as board members deciding the salary of a given CEO, but many of the board members are friends of the CEO and who owe the CEO for getting them the board position in the first place (Borger, 2007).

Market pressures are another factor which manifest high salaries for CEOs: "Stock options only become very valuable IF the stock price goes up. That is why they are often used -- CEOs benefit when the shareholders benefit" (Borger, 2007). Also, some CEO compensation might actually be declining because the bulk of their compensation is in the company stock: this is generally because standard compensation doesn't often include wealth from stock ownership or fluctuations in the value of unused stock options (Borger, 2007). One also needs to bear in mind that the given compensation for a CEO for any given year may encompass rewards for past performance, such as years when the stock price soared. Some argue that these salaries simply aren't as inflated as they seem, because of the fact that they're so heavily founded on stock prices. "The executive is already very tied to the company fortunes through his employment. If he were paid only a fixed salary, then he would be very risk averse so he could keep the company in business. By making some of his compensation contingent on the stock price, it gives him some incentive to take on risky projects that have potential to increase the shareholder value" (Borger, 2007).

Simply put, the implications of a system like this mean that workers are in a disempowered position and that greater regulation is needed. The workers and shareholders need to be able to dictate how much CEOs make. Copying a system like the one Coca cola has in place could help: "The Coca Cola Co. has instituted a significant new plan for compensating its directors: they will not receive payment unless the company meets its financial targets" (Journo, 2006).

Case 10: Home Depot

As a publically traded corporation, one the reasons that Home Depot can justify giving so much to charity is the fact that it does so strategically, to help bolster its image. "Last week's announcement from the Home Depot Foundation suggests that even with sales slumps and layoffs, the nation's largest retailer of home improvement products still views charitable giving as good business" (Witkin, 2010). Thus, as a publically traded company (and one which has subsisted through the recession of the last five years), Home Depot is a company which truly sees this charity as essential to its long-term business success. "In fact, during an economic downturn may be the best time for companies to burnish their reputations through cause marketing campaigns, according to Wendy Liebmann, chief executive at WSL Strategic Retail, a consulting company. In a recent NY Times article, Ms. Liebmann referenced a list of 10 reasons shoppers consider a store their favorite, and supporting "the community or worthwhile causes" came in number 8 on the list. 'The key, as we come out of this recession, is that we don't trust many people anymore,' Ms. Liebmann added, so 'retailers feel the need to present themselves as good citizens' to counter that" (Witkin, 2010). Home Depot is demonstrating that they're a company who understands that even during a recession they have the duty of keeping up their image and constantly appearing as a good friend to the world at large. The company is smart to give to organizations that foster the image of building and re-building like community parks, housing and at-risk youth programs; however, they could also stand to give money to schools in the inner-city which are under-funded and which need renovations.

Case 12: Insider Trading at the Galleon Group

Information gathering techniques like Rajaratnam's are extremely common on Wall Street, which is precisely why he was sentenced to 11 years in prison. "No one harbored any illusion that Galleon founder Raj Rajaratnam was going to beat the rap for insider trading, but the courts sent a shock message to Wall Street on Thursday by sentencing the hedge fund billionaire to 11 years in prison, one of the longest prison terms in history for insider trading" (Choudhury, 2011). Choudhury refers to Rajaratnam as being Wall Street's whipping boy, which is true. "Insider trading involves material information -- something that would cause an investor to change his or her view of a publicly traded security -- as well as nonpublic information... " (Boselovic, 2011). The investor can also acquire nonpublic information from a certain company's CFO, or by creating his or her own forecast by gathering small pieces of info from company suppliers, past staff members or others: this entire case with Mr. Rajaratnam sends a very clear message to all involved about acceptable and unacceptable information gathering techniques (Boselovic, 2011). One of the strongest things that can be done to curb these processes is to have stronger and harsher punishments for people who engage in these practices (as is done with Rajaratnam) and to force a greater degree of transparency.

Case 13 - GlaxoSmithKline (GSK)

Greed was essentially the sole reason which was responsible for GSK's failure in preventing ethical issues connected to integrity failures. As one writer, in lieu of the scandal declared, "I'm incensed. Not because this vindicates a conviction that pharmaceutical companies are staffed by profit-hungry liars and cheats, but precisely because I know that they are not: that so many of their scientists, and doubtless executives and marketers too, are decent folk motivated by the wish to benefit the world. They have been degraded" (Ball, 2012). However, what this viewpoint fails to consider is the fact that while big pharma companies might not be staffed by liars and cheats, they might be led and controlled by liars and cheats. Individuals controlled by greed are the sole reason as to why the ethical meltdown and integrity failure were able to happen. Aside from hiding any studies which presented the drugs that they made in a bad light, the company also took extreme risks with hurting the health of individuals all over the world in a secret and fraudulent manner (Ball, 2012). For instance, it pushed the anti-depressant drug Paxil (which is only allowed for adults) to children (Ball, 2012). The company also marketed drugs for other uses which had not been given formal approval; it also suppressed scientific studies that it considered unsuitable (such as an increased risk of heart attacks via the drug Avandia) (Ball, 2012). This company also flew doctors to exotic and luxurious locales, drowning them in perks to essentially boost the numbers of prescriptions written for its drugs (Ball, 2012).

Case 14 - Hospital Corporation of America (HCA)

The organization and ethical leadership problems which resulted in the misconduct were that the HCA was afflicted by corruption and greed: the answers are as simple as that. HCA had to pay $1.7 billion in fines and repayment to balance the charges for defrauding the government back in 2000 (Chatterjee, 2012). One of the fundamental agreements was that the HCA had unlawfully bulled Medicare, Medicaid and TRICARE for claims made by the payment of kickbacks and other forms of compensation to doctors in a trade of sorts for the referral of patients (Chatterjee, 2012). The company also had to sign a contract with the government which stipulated that they would report fraud immediately; however, in spite of this agreement, there is indication that little has changed (Chatterjee, 2012). The most recent charges indicated that "a defendant, already caught once defrauding the government, has apparently not changed its corporate culture,' Michael Hirst, a former assistant United States attorney in California, told the New York Times" (Chatterjee, 2012). The procedures that are coming under scrutiny are diagnostic catheterization and cardiac stents; the Medicare payout for these procedures can range from $3,000 to $10,000 for each procedure (Chatterjee, 2012). The only way that…

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