On June 26, 2004, China CCTV reported a serious pollution accident caused by Baiwen, a pharmaceutical company in Guiyang, China. On June 8th, residents near the factory noticed “black snow” in the sky. Some began to have respiratory problems. The Guiyang environmental protection office started an investigation and found that the incident was caused by the factory: they neglected to install equipment required to get rid of the sulfur and other chemicals. This led to the leaking of large amount of sulfur. The local government then ordered the factory closed for further investigation.
After a month, the company installed the required equipment. The local government then released them from prosecution and fined the company 150,000 RMB.
One must know what duties he or she has toward his or her organization, as well as which duties the organization has toward the society to which it belongs, before he or she can begin to practice. In a community, reinforcement of good practices and punishment of the bad practices set a boundary and helps us define what virtues are. An ethical person, confronted with a choice, does not calculate the impact virtue will have. Being virtuous, in and of itself, is good. Being uncompromisingly committed to being trustworthy, courageous, etc is then the only way to be sure that you are doing the right thing.
By installing the required equipment, it is true that the pharmaceutical company was doing the right thing to protect the citizens from harm, but social morals and laws played a significant role in driving the company to do so. If there were no punishment, would the company have adopted the same solution? It’s plausible that the company might have done the same thing out of empathy, but it is more likely that without local government’s punishment, the company would disregard the residents’ rights and only care about their profits. Beneath the company’s fear of being punished is the fear of losing face and reputation. Reputation is closely related with their position in business. Bad reputations means losing of shareholders, customers and government support. The company, hence, had no choice but take action to protect their reputation. We see from this case that social norms and rules help the society shape virtues and behavior. Through society’s rewards and punishments, we obtain the habituation of telling what is virtuous and practice virtuous moral characters.
Society is based on lawful practices. Thus, maximizing profits cannot be the only goal of companies. Socially responsible companies who perform lawfully will benefit the society as a whole. Goodwill, in the long-run, will win a good reputation for the company and therefore return more profits to the shareholders. The pharmaceutical company’s initial behavior was irresponsible, and shows that disregarding social responsibilities has a negative effect on the company. The company is responsible for the harm it does to other people and also has the responsibility of protecting the environment. This is the basic law that the company should recognize. The public interest is very important. Reputation is crucial. Fortunately, the director of the pharmaceutical company corrected the mistake it made. Though the decision to install the equipment might decrease their profits, the company would regain its’ reputation and in the long-run benefit shareholders.
There are several other feasible solutions. First, the local government can appropriate money to help the company install the required equipment. In return, the factory might pay higher taxes every year. In this way, shareholders, employees and residents would not be directly involved in creating a solution: the only two parties that would need to compromise are the local government and the factory. This is a “win win” solution for both parties. The local government can collect more taxes and the factory can solve the pollution problem from the root without too much burden. The other feasible solution is to search for substitute equipment. Or, the factory could make a down payment on the equipment and pay the balance in say, 30 years. In this way, the factory won’t have a large economic burden and the quality of their products can still be guaranteed. The third option is that the pharmaceutical company can add the cost of installing the pollution equipment to their product costs. This will probably cause some complaints by customers. But since the products of this factory will be of better quality than those of other pharmaceutical companies in the city, the customers may accept this change. At the same time, all the other parties’ rights would be protected.
Corporations have duties to shareholders. Managers are in an agency relationship with shareholders and must operate lawfully. Shareholders’ benefits are paramount. They have the right to require the company to maximize return on investment. Decision makers have to minimize harm done to the shareholders. However, maximizing profits should not be company’s only aim. Companies that do not obey social morals and laws are doomed to fail. Being responsible to citizens, society and the environment might sometimes conflict with short run profits, but will do more good in the long-run. Besides the duty to shareholders, companies also have duties to stakeholders. Stakeholders whose basic rights are violated should be given priority. Solutions that produce the greatest ethical utility are optimal. To realize excellence, habituation of virtuous behaviour is required. The reinforcement of good practices and punishment of bad practices is critical in shaping our understanding. Companies should follow the socially responsible path and implement in the decision making processes. Only by doing so can companies maximize profits over the long term.
By Feinan Xu, Master of Accounting student at George Washington University.
After a month, the company installed the required equipment. The local government then released them from prosecution and fined the company 150,000 RMB.
One must know what duties he or she has toward his or her organization, as well as which duties the organization has toward the society to which it belongs, before he or she can begin to practice. In a community, reinforcement of good practices and punishment of the bad practices set a boundary and helps us define what virtues are. An ethical person, confronted with a choice, does not calculate the impact virtue will have. Being virtuous, in and of itself, is good. Being uncompromisingly committed to being trustworthy, courageous, etc is then the only way to be sure that you are doing the right thing.
By installing the required equipment, it is true that the pharmaceutical company was doing the right thing to protect the citizens from harm, but social morals and laws played a significant role in driving the company to do so. If there were no punishment, would the company have adopted the same solution? It’s plausible that the company might have done the same thing out of empathy, but it is more likely that without local government’s punishment, the company would disregard the residents’ rights and only care about their profits. Beneath the company’s fear of being punished is the fear of losing face and reputation. Reputation is closely related with their position in business. Bad reputations means losing of shareholders, customers and government support. The company, hence, had no choice but take action to protect their reputation. We see from this case that social norms and rules help the society shape virtues and behavior. Through society’s rewards and punishments, we obtain the habituation of telling what is virtuous and practice virtuous moral characters.
Society is based on lawful practices. Thus, maximizing profits cannot be the only goal of companies. Socially responsible companies who perform lawfully will benefit the society as a whole. Goodwill, in the long-run, will win a good reputation for the company and therefore return more profits to the shareholders. The pharmaceutical company’s initial behavior was irresponsible, and shows that disregarding social responsibilities has a negative effect on the company. The company is responsible for the harm it does to other people and also has the responsibility of protecting the environment. This is the basic law that the company should recognize. The public interest is very important. Reputation is crucial. Fortunately, the director of the pharmaceutical company corrected the mistake it made. Though the decision to install the equipment might decrease their profits, the company would regain its’ reputation and in the long-run benefit shareholders.
There are several other feasible solutions. First, the local government can appropriate money to help the company install the required equipment. In return, the factory might pay higher taxes every year. In this way, shareholders, employees and residents would not be directly involved in creating a solution: the only two parties that would need to compromise are the local government and the factory. This is a “win win” solution for both parties. The local government can collect more taxes and the factory can solve the pollution problem from the root without too much burden. The other feasible solution is to search for substitute equipment. Or, the factory could make a down payment on the equipment and pay the balance in say, 30 years. In this way, the factory won’t have a large economic burden and the quality of their products can still be guaranteed. The third option is that the pharmaceutical company can add the cost of installing the pollution equipment to their product costs. This will probably cause some complaints by customers. But since the products of this factory will be of better quality than those of other pharmaceutical companies in the city, the customers may accept this change. At the same time, all the other parties’ rights would be protected.
Corporations have duties to shareholders. Managers are in an agency relationship with shareholders and must operate lawfully. Shareholders’ benefits are paramount. They have the right to require the company to maximize return on investment. Decision makers have to minimize harm done to the shareholders. However, maximizing profits should not be company’s only aim. Companies that do not obey social morals and laws are doomed to fail. Being responsible to citizens, society and the environment might sometimes conflict with short run profits, but will do more good in the long-run. Besides the duty to shareholders, companies also have duties to stakeholders. Stakeholders whose basic rights are violated should be given priority. Solutions that produce the greatest ethical utility are optimal. To realize excellence, habituation of virtuous behaviour is required. The reinforcement of good practices and punishment of bad practices is critical in shaping our understanding. Companies should follow the socially responsible path and implement in the decision making processes. Only by doing so can companies maximize profits over the long term.
By Feinan Xu, Master of Accounting student at George Washington University.