compare and contrast the Mondragon Cooperative Corporation (MCC) with a traditional capitalist corporation of your choice and determine how the treatment of these stakeholders impacts on ethical outcomes.
Assignment 3
| Description | Marks out of | Wtg (%) | Due date | |
| Assignment 3 – Essay | 100 | 30 | 16 May 2016 |
Issues concerning shareholders and employees are of critical importance to the good functioning of any organization. In an academic essay format, compare and contrast the Mondragon Cooperative Corporation (MCC) with a traditional capitalist corporation of your choice and determine how the treatment of these stakeholders impacts on ethical outcomes.
Word length: 2,500 words
This essay requires you to investigate the ethical treatment of shareholders and workers in a traditional, capitalist corporation of your choice and compare and contrast your findings with the treatment of these stakeholders in the Mondragon Cooperative Corporation. Please choose an organization that you admire for its ethical behaviour rather than one, such as Enron, that behaved so reprehensively that its only value these days is a “whipping boy” for ethicists.
As such, you need to investigate those issues that present as ethical dilemmas for these stakeholders and these are mentioned at considerable depth throughout chapters 6 and 7 of the Crane and Matten (2010) text. The 1982 BBC documentary “The Mondragon Experiment” is an excellent source of information about the origins and nature of the MCC and how the underlying principles upon which it based are made practical. This film can be found on You Tube (http://www.youtube.com/watch?v=2zMvktpKDmo . Further information about how Mondragon has progressed to the current day can be found on the corporation’s website at <http://www.mondragon-corporation.com/eng/ >.
Suggestion as to how to organise your essay
This suggestion about you could approach this essay is just that – a suggestion. In other words, you are encouraged to organise your essay as you wish, presumably with a view to making the best case for your specific argument. Like all academic essays, you are required to make an argument that is convincing and well-supported by references. Again, what follows is not meant to prescriptive, just a suggestion about how you might proceed.
Firstly, review Module 2 to identify the issues that provide the fundamental points of difference between corporations and workers’ cooperatives such as Mondragon. It may be a good idea to read a little more widely to consider the political ideologies that underpin the establishment of these organizations. Doing so provides your essay with a sound theoretical foundation as to how human beings are conceptualized by those ideologies and how they relate to the major normative theories (See Fig. 3.2, p. 98, Crane & Matten, 2010). From this, good students will be able to get an appreciation and better understanding of the ethical foundation of the MCC. This is important because the major challenge in this essay is to determine how these points of difference (ideologies) manifest as ethical problems in both Chapters 6 and 7 of the Crane and Matten text.
The first paragraph in the body of the essay should outline the contrasting political ideologies and concepts of human beings and the points of difference and how they impact in terms of creating ethical dilemmas for both shareholders and workers. Subsequent paragraphs should be focussed on the relevant ethical dilemmas outlined in the text and discussion should ensue as to how these issues can/may be resolved by adopting an alternative ethical position in the way we organise.
You should be aware that you write the introductory paragraph and the concluding paragraph last. Good students will find a strong definitive position about the nature of organizing and allude to essential criteria that will facilitate ethical behaviour for both shareholders and workers. Critique of both, the chosen corporation and the Mondragon Cooperative Corporation, will be essential for a high mark.
Graduate attributes tested and developed
G1 – Demonstrate applied knowledge of business ethics and practice.
G4 – Evaluate, synthesise & critically review theoretical frameworks with other evidence to provide solutions to real-world problems.
G7 – Comprehend and address complex ethical dilemmas.
G8 – Demonstrate an understanding of complex sustainable dilemmas and the need for responsible leadership.
G11 – Communicate professionally & effectively in both oral and written communication to various audiences to achieve targeted outcomes.
Submit your assignment
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- To EASE, for marking. EASE is the university’s system for electronically submitting assignments, and getting them back with feedback after they’ve been marked. There is a link to EASE on StudyDesk, or you can go directly to <ease.usq.edu.au >.
Submit your assignment to Turnitin
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How to understand your Turnitin report
Turnitin will give you a similarity percentage and a report on all the copied material in your assignment. To access the Turnitin report, click on the link ‘Similarity’. The Turnitin report may take a few minutes, an hour, or even a day to appear.
The report will almost certainly identify some copying that isn’t a problem, such as references, material you have put in quote marks, and common phrases. If your report shows 10% or 15% copying, it probably isn’t a problem. We don’t look at the number; we look at the assignment itself.
Sometimes Turnitin identifies copying that seems strange. For instance, Turnitin may tell you that part of your assignment was the same as part of another student’s assignment from an American university. Even though you’ve never seen that student’s assignment, this is still a problem, because it usually means that both of you have copied some text from the same source, for example, a book. Turnitin might be wrong about the place you copied words from, but it will be right to say you have copied. If you find Turnitin identifying any copying that isn’t acceptable, you are able to delete the assignment you uploaded, change it, and submit the new version to Turnitin.
Criteria for assignment 3
| Compare and Contrast Rubric | ||||
| Category | 1 | 2 | 3 | 4 |
| Purpose & Supporting Details | The paper compares or contrasts, but does not include both. There is no supporting information or support is incomplete. | The paper compares and contrasts items clearly, but the supporting information is incomplete. The paper may include information that is not relevant to the comparison. | The paper compares and contrasts items clearly, but the supporting information is general. The paper includes only the information relevant to the comparison. | The paper compares and contrasts items clearly. The paper points to specific examples to illustrate the comparison. The paper includes only the information relevant to the comparison. |
| 40 Marks | ||||
| Organisation & Structure | Many details are not in a logical or expected order. There is little sense that the writing is organized. | The paper breaks the information into whole-to-whole, similarities-to-differences, or point-by-point structure, but some information is in the wrong section. Some details are not in a logical or expected order, and this distracts the reader. | The paper breaks the information into whole-to-whole, similarities-to- differences, or point-by-point structure but does not follow a consistent order when discussing the comparison. | The paper breaks the information into whole-to-whole, similarities-to-differences, or point-by-point structure. It follows a consistent order when discussing the comparison. |
| 20 Marks | ||||
| Transitions | The transitions between ideas are unclear or non-existent. | Some transitions work well; but connections between other ideas are fuzzy. | The paper moves from one idea to the next, but there is little variety. The paper uses comparison and contrast transition words to show relationships between ideas. | The paper moves smoothly from one idea to the next. The paper uses comparison and contrast transition words to show relationships between ideas. The paper uses a variety of sentence structures and transitions. |
| 20 Marks | ||||
| Grammar & Spelling (Conventions) | Writer makes more than 4 errors in grammar or spelling that distract the reader from the content. | Writer makes 3-4 errors in grammar or spelling that distract the reader from the content. | Writer makes 1-2 errors in grammar or spelling that distract the reader from the content. | Writer makes no errors in grammar or spelling that distract the reader from the content. |
| 20 Marks | ||||
Chapter 6
Shareholders and Business Ethics
Lecture 6
Overview
The nature of shareholder relations to the corporation
Analysis of the rights and the duties of shareholders
Specific ethical problems and dilemmas arising in the relation between companies and their shareholders
The ethical implications of globalization on shareholder relations
The notion of shareholder democracy and the accountability of corporations to their shareholders and other stakeholders
The differences in shareholder roles and corporate governance in various parts of the world
Perspectives on how shareholders can influence corporations towards sustainability
Shareholders as stakeholders
Understanding corporate governance
Crucial problem: separation of ownership and control
Peculiarities of corporate ownership
Locus of control
Fragmented ownership
Divided functions and interests
Rights and duties in firm-shareholder relations
Rights of shareholders
The right to sell their stock
The right to vote in the general meeting
The right to certain information about the company
The right to sue the managers for (alleged) misconduct
Certain residual rights in case of the corporation’s liquidation
Duties of managers
Duty to act for the benefit of the company
Duty of care and skill
Duty of diligence
Corporate governance
Corporate governance definition
Describes the process by which shareholders seek to ensure that ‘their’ corporation is run according to their intentions. It includes processes of goal definition, supervision, control, and sanctioning. In the narrow sense it includes shareholders and the management of a corporation as the main actors; in a broader sense it includes all actors who contribute to the achievement of stakeholder goals inside and outside the corporation
Corporate governance: a principal-agent relation
Shareholder and stakeholder relations: Different frameworks of corporate governance globally
Ethical issues in corporate governance
Executive accountability and control (I)
A separate body of people that supervises and controls management on behalf of shareholders
Dual structure of leadership
executive directors: are actually responsible for running the corporation
non-executive directors are supposed to ensure that the corporation is being run in the interests of the shareholders
Anglo-Saxon model: single-tier board
European model: two-tier boards, lower tier = executive directors, and upper tier = ‘supervisory board’
Executive accountability and control (II)
The central ethical issue here is the independence of the supervisory, non-executive board members
No directly conflicting interests ensured by:
Typically drawn from outside the corporation
No personal financial interest in the corporation
Appointed for limited time
Competent to judge the business of the company
Sufficient resources to get information
Appointed independently
Executive remuneration
‘Fat cat’ salary accusations
E.g. average CEO salary in Britain £6.5m (highest CEO salaries in 2008: Europe, €77m, USA, $84m)
E.g. average annual pay rise for CEOs 11%
CEO increases outstrip shareholder returns
Ethical problems with executive pay:
Performance-related pay leads to large salaries that cause unrest within corporations
Influence of globalisation on executive pay leads to significant increases
Board often fails to reflect shareholder (or other stakeholder) interests
Ethical aspects of mergers and acquisitions
Acceptable if results in transfer of assets to owner who uses them more productively
Central concern is managers who pursue interests not congruent with shareholder interests
Executive prestige vs. profit and share price
Two ethically-questionable options for managers (Carroll and Buchholtz, 2008)
Seduced with golden parachute for cooperation
Greenmailing to secure post-merger job
Hostile takeovers – concern when shareholders do not want to sell
Intentions and consequences of mergers and acquisitions
Restructuring and downsizing
The role of financial markets and insider trading
Speculative ‘faith stocks’
‘dot-com’ bubble (companies not made any profit but worth billions on the market)
Ethical issue: bonds based entirely on speculation without always fully revealing amount of uncertainty
Insider trading
Insider trading occurs when securities are bought and sold on the basis of material non-public information (Moore 1990)
Ethical arguments (Moore, 1990)
Fairness
Misappropriation of property
Harm to investors and the market
Undermining of fiduciary relationship
Insider trading can erode trust in the market in the long term; hence its illegality
The role of financial professionals and market intermediaries
Two crucial professions: Accountants & credit ratings agencies
Task is to provide a ‘true and fair view of the firm – i.e. bridge informational asymmetry
Five main problematic aspects of financial intermediary’s job:
Power and influence in markets
Conflict of interest (e.g. cross-selling)
Long-term relationships with clients
Size of the firm
Competition between firms (danger of corner-cutting)
Private equity and hedge-funds
Rise of private equity and hedge funds exacerbate issues around transparency and shareholder control
Most general concern:
There are no longer many obligations for public information about a company once it has been taken private
Hedge funds do not have to report to regulators in the same way as other investment firms
Don’t even have to report fully to own investors
Suggestion is this lack of transparency hides systemic risk
Shareholders and globalisation
Global financial markets
Global financial markets are the total of all physical and virtual (electronic) places where financial titles in the broadest sense (capital, shares, currency, options, etc.) are traded worldwide
Ethical issues raised:
Governance and control
National security and protectionism
Speculation (see slide on Tobin tax)
Unfair competition with developing countries
Space for illegal transactions (see slide on money laundering)
Reforming corporate governance around the globe
Some important shortcomings in present systems of governance in many countries
Main tool in Europe is codes of governance, dealing with:
Size and structure of board
Independence of supervisory or non-executive directors
Frequency of supervisory body meetings
Rights and influence of employees in corporate governance
Disclosure of executive remuneration
General meeting participation and proxy voting
Role of other supervising and auditing bodies
Legal basis and power of these codes varies dramatically
And the crisis in late 2000s has seen deeper state involvement
US response – Sarbanes-Oxley
The Tobin Tax
Effort to impose control on global markets “Tobin Tax” – tax on foreign currency transactions
Not make impossible but impede international currency speculation
‘Robin Hood Tax’
Two main problems with tax:
Global enforcement
Does not differentiate between desirable and undesirable transactions
Combating global terrorism and money laundering
Deregulated social spaces are invitation for illegal financial activities
Money laundering estimated up to $1.5 trillion/year
IMF recommendations for banks to help reduction of money laundering
‘Know your customer’
Prevent criminals getting control of key positions in banks
Identifying and reporting unusual/suspicious transactions
Raise general awareness for regulators and staff
Shareholders as citizens of the corporation
Shareholder democracy
Idea that a shareholder of a company is entitled to have a say in corporate decisions
Supported by legal claim based on property rights
Can shareholders be a force for wider social accountability and performance?
Three issues to consider:
Scope of activities
Adequate information
Mechanism for change
Two approaches to ‘ethical’ shareholding
Shareholder activism
Buy shares in company for right to speak at the AGM
Voice concern and challenge the company on allegedly unethical practices
Possibility of broad media attention by ‘disrupting’ the meeting
Issues:
Gets involved with ‘the enemy’
Only an option for reasonably wealthy individuals
Socially responsible investment (SRI)
Ethical investment is the use of ethical, social and environmental criteria in the selection and management of investment portfolios, generally consisting of company shares
Ethical investment
Examples of positive and negative criteria for ethical investment
Negative criteria
Alcoholic beverages production and retail
Animal rights violation
Child labour
Companies producing or trading with oppressive regimes
Environmentally hazardous products or processes
Genetic engineering
Nuclear power
Poor employment practices
Pornography
Tobacco products
Weapons
Positive criteria
Conservation and environmental protection
Equal opportunities and ethical employment practices
Public transport
Inner city renovation and community development programmes
Environmental performance
Green technologies
Ethical Investment
Main concerns with SRI movement
Quality of information
Most information provided by firms and is difficult to verify
Dubious criteria
See table in previous slide
Too inclusive
90% of Fortune 500 firms are held by at least 1 SRI fund
Strong emphasis on returns:
Usually, SRI fund managers screen for performance first, then select using ethical criteria
Firms taking longer-term perspectives and thus sacrificing short-term profitability therefore unlikely to be included
(See Vogel, 2005)
Shareholding for sustainability
The Dow Jones Sustainability
Group Index
‘Best-in-class’ approach
Family of indexes comprising different markets and regions (e.g. Asia-Pacific sub-index added in 2009)
Companies accepted into index chosen along following criteria:
Environmental (ecological) sustainability
Economic sustainability
Social sustainability
Criticisms of index:
Depends on data provided by the corporation itself
Questionable criteria used by index
Focuses on management processes rather than on the actual sustainability of the company or its products
Rethinking sustainable corporate ownership: alternative models?
Government ownership:
Part of the landscape in many parts of the world. Resurgent in the wake of the late-2000s financial crisis (esp. banks and cars).
Family ownership
Families may have longer-term goals, but may not treat stakeholders any better than MNCs
Co-operative ownership
Hybrid businesses, not owned by investors or managers
Owned and democratically controlled by workers or customers
Not set up to make profit but to meet the needs of members
Spanish Mondragon co-operative has made a striking contribution to sustainability while staying highly profitable
Summary
Principal-agent relationship between managers and shareholders
Divergent interests and unequal distribution of information institutionalises some fundamental ethical conflicts in governance
Shareholders have considerable opportunities to use their power over supply to influence corporations to behave more ethically
Shareholders can play a role in driving corporations towards enhanced sustainability by their investment decisions at the stock market
Chapter 7
Employees and Business Ethics
Lecture 7
Overview
The specific role of employees among the various stakeholder groups
Core ethical topics of employees’ rights and duties
Ethical issues and problems faced in business-employee relations
The duties of employees and the company’s involvement in enabling employees to live up to their duties
The notion of corporate citizenship in relation to employees
Basic issues and problems of managing employees in the context of globalization
Explore the notion of corporate citizenship in relation to employees
The implication of sustainability for workplaces and for specific working conditions
Ethical issues in the firm-employee relation
Management of human ‘resources’:
an ethical problem between rights and duties
The term ‘human resource management’ and its implications have been a subject of intense debate in business ethics
Humans treated as important and costly resource
Consequently, employees are subject to a strict managerial rationale of minimising costs and maximising the efficiency of the ‘resource’
Rhetoric and reality in HRM
Rights of employees as stakeholders of the firm
Duties of employees as stakeholders of the firm
Discrimination
Discrimination in the business context occurs when employees receive preferential (or less preferential) treatment on grounds that are not directly related to their qualifications and performance in the job
Managing diversity prominent feature of contemporary business
Extensive legislation
Institutional discrimination: discrimination deeply embedded in business
Women in top management positions
Female Directors in FTSE 100 Companies 2000-2008
Sexual and racial harassment
Issues of diversity might be exploited to inflict physical, verbal, or emotional harassment
Regulation reluctant
Blurred line between harassment on one hand and ‘joking’ on the other
Influenced by contextual factors such as character, personality, and national culture
Companies increasingly introduced codes of practice and diversity programmes (Crain and Heischmidt 1995)
Equal opportunities and affirmative action
How should organizations respond to problems of discrimination?
Equal opportunity programme
Generally targeted at ensuring procedural justice is promoted
Affirmative action (AA) programmes: deliberately attempt to target those who might be currently under-represented in the workforce
Recruitment policies
Fair job criteria
Training programmes for discriminated minorities
Promotion to senior positions
Reverse discrimination
In some cases, people suffer reverse discrimination because AA policies prefer certain minorities
Justification for reverse discrimination
Retributive justice: past injustices have to be ‘paid for’
Distributive justice: rewards such as job and pay should be allocated fairly among all groups (Beauchamp 1997)
Stronger forms of reverse discrimination tend to be illegal in many European countries
Employee privacy
Four different types of privacy we may want to protect (Simms 1994)
Physical privacy
Social privacy
Informational privacy
Psychological privacy
Health and drug testing
Highly contested issue
Three main issues
Potential to do harm
Causes of employee’s performance
Level of performance
Despite these criticisms, such tests have increasingly come common in the US
Electronic privacy and data protection
Increasingly relevant as technology advances and electronic ‘life’ becomes more important
Computer as a work tool enables new forms of surveillance
Time and pace of work
Usage of employee time for private reasons
E-mail and internet
Issue of privacy in situations where data is saved and processed electronically
Data protection
Due process and lay-offs
Ethical considerations in the process of downsizing
Right to know well ahead of the actual point of the redundancy that their job is on the line
Compensation packages employees receive when laid off
Employee participation and association
Recognition that employees might be more than just human ‘resources’ but should also have a certain degree of influence on their tasks, job environments, and company goals – right to participation
Financial participation – allows employee share in the ownership or income of the corporation
Operational participation can include a number of dimensions:
Delegation
Information
Consultation
Codetermination
Evolution of trade union membership
Working conditions
Right to healthy and safe working conditions one of the very first ethical concerns for employees
Dense network of health, safety and environmental (HSE) regulation
Main issue is enforcement and implementation
Newly emergent HSE issues relate to changing patterns of work
Ethical issues in the context of:
Excessive working hours and presenteeism
Flexible working patterns
Excessive working hours and presenteeism
Excessive work hours
Thought to impact the employee’s overall state of physical and mental health
‘Presenteeism’
phenomenon of being at work when you should be at home due to illness or even just for rest and recreation (Cooper 1996)
Flexible working patterns
Another way of saying that management can do what it wants? (Legge, 1998)
‘Non-standard’ work relationships
Part-time work, temporary work, self-employment and teleworking (Stanworth 2000)
Less secure legal status for periphery workers
Potential for:
Poorer working conditions
Increased insecurity
Lower pay
Exclusion from training and other employment benefits
Fair wages
The basis for determining fair wages is commonly the expectations placed on the employee and their performance towards goals
Note discussion about excessive compensation for executives after the stock market collapse of 2008
Problems of performance-related pay (PRP)
Risk
salaries and benefits become less secure
Representation
individualized bargaining
Freedom of conscience and freedom of speech in the workplace
Normally guaranteed by governments
Situations in business where freedom of speech might face certain restrictions
Speaking about ‘confidential’ matters related to the firm’s R&D, marketing or accounting plans
Usually unproblematic, since most rational employees would find it in their own best interests to comply with company policy
Some cases where those restrictions could be regarded as a restriction of employee’s rights
Whistleblowing – can involve considerable risk
The right to work
Fundamental entitlement of human beings established in the Declaration of Human Rights
The right to work in a business context cannot mean that every individual has a right to be employed
The right to work should result in every individual facing the same equal conditions in exerting this right
Employing people worldwide
The ethical challenges of globalization
National culture and moral values
Different cultures will view employee rights and responsibilities differently
This means that managers dealing with employees overseas need to first understand the cultural basis of morality in that country
Raises the question of whether it is fair to treat people differently on the basis of where they live
Relativism vs. absolutism
Absolutism: ethical principle must be applicable everywhere
Relativism: view of ethics must always be relative to the historical, social and cultural context
The ‘race to the bottom’
Many critics argue that MNCs play a role in changing standards in countries
Globalisation allows corporations to have broad range of choice of location
Developing countries compete to attract foreign investment
Large investors tend to choose country with most ‘preferable’ conditions
Lowest level of regulation and social provision for employee
Leads to ‘race to the bottom’ in environmental and social standards
Argument that MNEs have a duty to promote minimally just social & political institutions where they operate if these do not exist, because of duty to avoid harm (Nien-hê Hsieh, 2009)
Migrant labour and illegal immigration
Growing mobility of workers is a recent phenomenon of globalization
Typically north-south, can also be in other regions (e.g. UAE)
Workers can also be attracted to particular industries in areas where there is no local labour (e.g. mining)
Numerous ethical issues here. Examples:
Migrant labour often leads to questionable social phenomena (e.g. drug use)
Migrants are often from poor countries; willing to accept pay & working conditions normally unacceptable in host country
Migrant workers are often in a country illegally (but a record of employment may later be the basis for legal residency)
The corporate citizen and employee relations
The corporate citizen and employee relations in a global context
Anglo-American and European models: differences
Continental Europe takes interest of employees into account to a greater degree than the Anglo-American model
‘Co-determination’
In developing countries
Level of regulation (or at least enforcement) is often poor, though employee protection often strengthens over time (e.g. China’s 2008 Labour Contract Law)
Corporate actions therefore often voluntary ‘good citizenship’
Ruggie’s framework for responsibility in human rights
Protect (states’ duty to prevent abuses)
Respect (firms’ duty to respect human rights)
Remedy (general duty to create systems to remedy abuses)
Towards sustainable employment
Re-humanized workplaces
‘Alienation’ of the individual work in the era of industrialised mass production
Brought tremendous efficiencies and material wealth, but have also created the prospect of a dehumanised and deskilled workplace
Attempts to re-humanize the workplace
‘empowering’ the employee
‘job enlargement’
‘job enrichment’
Success of such schemes contested
Suggested that ‘humanized’ approach might be more appropriate and effective in some cultures (e.g. Scandinavia) than others
Wider employment
Large numbers of unemployed people becomes the norm in many countries due to mechanisation
This threatens:
Right to work
Social fabric of particular communities
New technologies herald the ‘end of work’? (Rifkin 1995)
From sustainability perspective: ensure that what work exists is shared out more equitably
Green jobs
‘Green jobs’ are:
In industries making environmentally-friendly products
Workplace & organization of labour is also more environmentally sustainable
Gained attention in late 2000s; part of broader debate on restructuring economies to be more sustainable
Examples of specific measures:
Car-pooling
Paperless office
Video-conferencing rather than business travel
Home-based teleworking
Potential benefits are social, economic and ecological
Summary
Discussed the specific stake that employees hold in their organizations
Discovered how deep the involvement of corporations with employees’ rights can be
Corporate responsibility for protection and facilitation of these rights is particularly complex and contestable when their operations become more globalized
Considered corporate citizenship and employee relations in different contexts
