Management discretion : Weighing the positive and negative ethical implications

ORLAINE APRIL T. TOLENTINO, MBA

ABSTRACT

This article aims to assess the positive and negative effects of management discretion and how it becomes an issue of morality in the organization. It identifies the moral arguments and limitations on the exercise of management discretion, how it becomes unfavorable and detrimental to an organization, and how it is perceived on a positive light which promotes common good. The author concludes that although the exercise of management discretion has been negatively perceived, there is a strong conviction that man is has an innate ability to make moral judgments.

Keywords: Management directions, ethical implications, positive use, abuse of discretion

INTRODUCTION

Discretion is plainly defined as an exercise of one’s own authority and judgment (Webster’s Third International Unabridged Dictionary). Sandilands (n.d.) provides a deeper sense to the definition and says that discretion it is “the ability to make a judgment, a choice or a responsible decision.” The etymology of the word date back to the 13^th century where the word dyscrecyounne was first introduced and understood as the "ability to perceive and understand," and later on was given meaning in the mid-14^th century as a "moral discernment, ability to distinguish right from wrong" (Online Etymology Dictionary, n.d.). The understanding of discretion as a moral discernment is supported and explained further through the theory that “man is a thinking being who acts with purpose and reason… and knows whether his actions are right or wrong/good or bad… and that man is a free being who acts according to his will and volitions and he has the capacity to exercise his choices and to choose and do what is good” (Abun, D. 2013). Discretion therefore, can be understood as moral judgment.

The terms Management Discretion, Management Prerogative, or Employer Discretion are commonly used interchangeably in the business world. These terms imply the right of an employer to make decisions that are deemed beneficial to the operation of the business. Discretionary powers are most often vested to high-ranking officers in a company who include department heads, managers, and directors who have a direct hand in the management of the company’s business operations. They may have the discretion on the company’s finances, discretion to hire or fire employees or discretion on the disclosure of company information.

Limitations to the exercise of discretion

The right to exercise discretion in making business decisions, however, is substantially bounded by the policies of each organization and by enacted laws. Every company has its written or unwritten rules stating the limits or each manager’s authority – often in the form of a job description or appointment letter. These limitations serve as the control measure in the exercise of discretion in decision-making. Issues related to abuse of discretion most frequently arise when managers over-step these limitations. In order to avoid this, the company’s top management must spell out clearly its rules and define the manager’s decision-making limits. In such cases that the manager makes decisions out of his capacity, top management must stand firm to impose the corresponding disciplinary measure to the erring manager.

Positive Use

Although the view on discretion varies from person to person, the exercise of discretion is pre-supposed to benefit the interest of the organization. Lord Scarman (n.d.), an English judge and barrister, who served as a Law Lord of England called discretion as “the Art of suiting action to particular circumstances.” Further, the idiom “Discretion is the better part of valor” is generally understood to mean the avoidance of problems or unnecessary risks by thinking carefully and exercising caution before taking action.

According to Espedal, B. (2013), “Managerial discretion is generally seen as a leadership capacity that affects organizations’ ability to adapt to new and changing demands and circumstances.” When exercised correctly, discretion becomes both an advantage and leverage for an organization to adapt to the consistent developments in the business world.

In addition, a study entitled “In Search of Informed Discretion: An Experimental Investigation of Fairness and Trust Reciprocity”, which was written by Victor S.Maas, Marcel van Rinsum and Kristy L.Towry and published in The Accounting Review revealed that that most managers are driven by powerful, non-selfish motives that include a strong preference for fairness. Although the use of managerial discretion is often associated with favoritism, the study revealed that managers have an inherent interest in fairness and trust reciprocity.

Above all, ethical consideration must be taken into account in order to maximize the benefit of management discretion, citing the statement of Acosta, P. (2015) to wit:

“For one, as in all cases involving the use of management prerogative, it must be exercised in good faith for the advancement of the employer’s interest, not for the purpose of defeating or circumventing the rights of the employees under special laws or under valid agreements”

Abuse of Discretion

Discretion when exercised without careful consideration of facts and law constitute an abuse and raises the issue morality. One of the areas in an organization which is most concerned with regards to the use of discretion is human resources. The use of discretionary measures in the selection and appointment, performance appraisal, promotion, and employee discipline and termination, are often regarded with issues of morality.

The case of Dumisa vs The University of Durban Westville (2001, 7 BALR 753) tackles an issue on promotion where the employer decided not to promote the employee, Dumisa, citing the latter’s failure to meet the promotional policy criteria. And while there was no issue on the promotional policy criteria, it was found that the employer made a previous promise to consider the employee for promotion creating an expectation on the part of the employee. There is a question therefore as to what grounds does a manger have the discretion to decide that whether an employee is not suitable for promotion?

The “Endo” (coined term for End-of-Contract) is one of the recent issues of unfair labor practice in the Philippines, to which President Rodrigo R. Duterte has vetoed the bill that seeks to prohibit the practice of labor-only contracting method. A majority of companies in the Philippines who employ a large number of workers practice labor-only contracting, wherein the tenure of the said workers is up to six (6) months. However, to avoid a labor law granting permanent tenure on the sixth month of service of the employee, these companies hire their workers up to five (5) months only. The bill has been snubbed by many business groups and they argued that “Job contracting as an exercise of management prerogative and business judgment is anchored on two constitutional rights: right and freedom to contract and right to property.”

CONCLUSION

The question whether management discretion is beneficial or detrimental to a business is debatable.  On the point of view of the business owner, they may rightfully look at discretion more positively. After all, no business owner would execute a decision or an action that may be detrimental to his business. However, there is an underlying issue whether the person who posess such discretionary power has the adequate knowledge and experience, and the morality to make responsible and sound and responsible decisions. According to the great Greek philosopher, Socrates, knowledge of good and evil and its criteria are imbued in man and he can differentiate between the two if he desires so. Considering this innate ability to determine good and bad, and if a person possesses the qualities of a strong moral leader, he is likely to make moral judgments that is aimed towards common good.

REFERENCES

1.Sandilands, Tracey. (n.d.). What Does Discretion Mean in the Business World? Small Business - Chron.com. Retrieved from http://smallbusiness.chron.com/discretion-mean-business-world-50093.html

2.   

   Israelstam, Ivan. (2014) Management Discretion: How far does it stretch?

Retrieved from http://www.hrpulse.co.za/editors-pick/231598-management-discretion-how-far-does-it-stretch

3. Karlsson, T. S. (2018) Searching for managerial discretion: how public managers engage managerialism as a rationalization for increased latitude of action.

Retrieved from https://www.tandfonline.com/doi/full/10.1080/14719037.2018.1473475

4.      Acosta, P. (2015), Management prerogative must be exercised in good faith, The Manila Times.

Retrieved from https://www.manilatimes.net/2015/10/29/legal-advice/dearpao/management-prerogative-must-be-exercised-in-good-faith/226288/

5.      Cigaral, I. N. (2019) Why Duterte vetoed the anti-endo bill, Philstar.

Retrieved from https://www.philstar.com/business/2019/07/26/1938064/why-duterte-vetoed-anti-endo-bill

6.      Cigaral, I. N. (2019) Upsetting key campaign promise, Duterte officially vetoes anti-endo bill, Philstar.

Retrieved from https://www.philstar.com/business/2019/07/26/1938050/duterte-vetoes-anti-endo-bill#0yyf8CcFoAXXbx6K.99

7.      Abun, D. (2013) Be A Moral Judge Of Your Action.

Retrieved from http://dameanusabun.blogspot.com/2013/12/the-act-that-deserves-moral-judgment.html

8.      Espedal, B. (2013) Is managerial discretion good or bad for organizational adaptiveness? Retrieved from https://journals.sagepub.com/doi/abs/10.1177/1742715013514879?journalCode=leaa#

9. Rinsum, M. v. (2013) Informed Discretion in Performance Evaluations, Rotterdam School Of Management, Erasmus University.

Retrieved from https://discovery.rsm.nl/articles/detail/87-informed-discretion-in-performance-evaluations/

10.  The Labor Code of The Philippines http://www.chanrobles.com/legal4labor.htm

11.  Leslie Scarman, Baron Scarman (b.1911-d.2004) on Wikipedia https://en.wikipedia.org/wiki/Leslie_Scarman,_Baron_Scarman

12.  Merriam-Webster Dictionary https://www.merriam-webster.com/dictionary/discretion

13.  Online Etymology Dictionary https://www.etymonline.com/word/discretion

Analyzing the ethical arguments against insider trading

by: Daryl Fritzie Ann A. Ang, CPA

Abstract

This article identifies the real reason why insider trading is unethical and morally wrong. It examines the principal ethical arguments for treating insider trading as morally wrong: the claim that the practice is unfair, the claim that it harms ordinary investors and the society as a whole, the claim that it involves with proprietary rights or “misappropriation: of information and the claim that it is deceptive.  The author concludes that each of these arguments has some serious deficiencies; no one of them by itself provides a sufficient reason for insider trading to be unethical.  The author determined that the most persuasive moral basis for wrongness of insider trading is that it undermines the fiduciary relationships that lies at the heart of the business.

Keywords: Insider trading, insider, inside, morality, moral rights, conflict of interest

Introduction

Behind every great fortune, lies a great crime, so said the French novelist Honore de Balzac. Could this be more pronounced in stock markets around the world where the most brilliant minds perpetrate the most sophisticated financial crimes?

With the recent explosion in insider trading activity, an important set of moral issues is brought to the fore.  Are inside traders glowing examples of selfish criminals exploiting society and the economy for personal gain, with no regard for the effect on others? What are the moral implications of insider trading?

Insider trading phenomena is controversial and is bringing a lot of discussion around itself.  Some claims that it is both unethical and illegal to use information, which is not putted into public knowledge, while others argue that insider trading increases market efficiency and does not cause any harm to anybody.

So the question remains, should insider trading be legal or illegal in the stock market? If it was to be legal, is it then considered moral or immoral as a practice? This article will discuss the morality of insider trading and stating numerous principal ethical arguments against insider trading.

Insider Trading

“Insider trading” as the term is usually used, means the act of buying or selling a company’s stock on the basis of “inside” information about the company.  “Inside” or :”insider” information about a company is confidential or proprietary information about a company that is not available to the general public outside the company, but which would have a material or significant impact on the price of company’s stock (Velasquez, 1998).

Donaldson (1990) also defined insider trading as “exploiting advance knowledge of an important development to buy or sell stock before the public knows about it” – is illegal and is almost universally thought to be immoral.  However, the concept of insider trading itself, as well as the immorality of insider trading may be more difficult to explain than is generally thought.

Accordingly, insiders really do exploit their knowledge.  There are three forms of evidence supporting this phrase.  First, there have been well-publicized convictions of principals in insider trading schemes.  Second, there is considerable evidence of “leakage” of useful information to some traders before any public announcement of that information.  A third form of evidence on insider trading has to do with returns earned on trades by insiders (Bodie, Kane and Marcus, 2013).

Ethical Arguments against Insider Trading

Fairness

Probably the most common reason to thinking that insider trading is unethical is that the information advantage of the insider really is “unfair or unjust”.  According to Moore (1990), there are two versions of the fairness argument: the first argues that insider trading is unfair because two parties do not have equal information; the second argues that insider trading is unfair because the two parties do not have equal access to information.

Taking first the unequal information, it states that insider trading is unfair since the two parties to a transaction do not have equal information.  According to this view, both parties should have the same material information about the conditions that are essential for this transaction.  The second argument is that the information is not available to the shareholder to ascertain the suitability of buying and selling securities in the marketplace.  This argument is more concerned that this information should be public in the sense that hard work on the part of potential dealers in the market will be able to extract it (Teacher, Law, 2013).

In addition, the stock market depends on the assumption that all information relevant to potential investors is public.  The stock market is supposed to be a fair market, one in which everyone potentially has equal access to all information.  It is claimed that the general public’s faith in the stock market would undermined if there was a general belief among investors that the stock market is rigged, or at least the plaything of a privileged few insiders.  Such a belief can be the result of evidence of widespread insider trading, or stock manipulation (Donaldson, 1990).

According to Daniel Fischel, a teacher of corporate law at the University of Chicago, argued that the idea that the stock market should be a level playing field, with everyone having equal access to information and an equal chance to profit, is rubbish.  Obviously, a market professional who spends all his time analyzing stocks is going to have an advantage over the casual investor, and there’s nothing illegal about that.  The point in fairness argument is not whether you knew but whether you could have known.

Proprietary Rights

Some argue that inside trading involve misappropriation of information, a form of stealing.  It is frequently argues, under the rubric of a view known as the “agent-principal thesis”, that employees or outside consultants are implicitly or explicitly obligated to maintain the privacy and secrecy of information gleaned while on the job (Donaldson, 1990).

Morality demands confidentiality of records, whether or not one signs a contract not to divulge such information.  From the moral point of view, one is not free to divulge such information casually, for personal profit, for monetary gain, or even to feel important.  Therefore, an insider who takes confidential information and uses to enrich himself is in effect a thief stealing what is not his.  Like, any common thief who violates the moral rights of those from whom he steals, the insider trader is violating the moral rights of all shareholders, especially those shareholders who unwittingly sell him their stock.

Harm

The argument from harm, popular among the law and economics scholars who dominate securities scholarship in law schools, is not a deontological argument.  Instead, it maintains that insider trading is wrong because of the social harm it causes, given that we understand “causing harm” expansively, as causing a failure to attain optimal social welfare or social good (Strudler, 2009).

Velasquez (1990) mentioned that both empirical and theoretical studies have shown that insider trading has two effects on the stock market that are harmful to everyone in the market and to society in general.  First, insider trading tends to reduce the size of the market, and this harms everyone.  This means that when people suspect that insider trading is going on in the market, the more they will tend to leave the market and the smaller it will get.  The second effect is that it increases the costs of buying and selling stocks in the markets and this is also harmful.  This means that when a specialist, an intermediary who buy and sell stocks for others, senses an insiders are coming to him, he would have to increase his fee he charges for his services to cover from potential future losses for the stocks he would have to hold for others which might later turn out to be worth for less.

Hence, other things being equal, the person with the best information about what is being bought or sold stands in the best position to find bargains and get the best price. Competing against inside traders, who possess superior information, thus increases the risk that one loses.  Ordinary traders will be hesitant at the risk of trading against insiders, and insider trading, then, will undermine confidence in the stock market and deter investment, increasing the price a company must pay to raise capital and hindering both a company's development and a society's economic growth.

Fiduciary Duty

A fiduciary duty is, roughly, a duty of utmost loyalty and trustworthiness that an agent may be said to owe to his principal.  These duties are a staple of legal analysis, have rich moral content, and consistently play a role in judicial thinking about insider trading.  One of the arguments against insider trading is the jeopardizing of fiduciary relationship of an agent and its principal.

Kennon (2019) argued that to be accused of insider trading, you must usually be someone who has a fiduciary duty to another person, institution, corporation, partnership, firm, or entity.  You can get in trouble of you making an investment decision based upon information related to that fiduciary duty that is not available to everyone else.

Donaldson (1990) also added that insider trading is generally conceived of as involving stock transactions based on privileged information gained by someone with a fiduciary responsibility to the company and its stockholders.

So, when an employee of a company fills a certain position within the organization, they cannot morally do what is immoral, even if they are expected or commanded to do so as part of their job. While filling any position in a company, individuals should remain moral beings and persons.  Immanuel Kant argues, “to act in the morally right way, people must act from duty”.  Individuals who do not act out of respect for the moral law do so because they lack duty to do so or choose to act outside of duty.  When individuals choose to act outside of their fiduciary duties, there arises a conflict of interest.

Deception

Courts have always seen insider trading as a kind of fraud, namely, securities fraud.  Historically, wrongful deception forms the heart of fraud.  On the deception argument, insiders deceived shareholders by buying stock from them while concealing material, nonpublic information relevant to the valuation of the securities (Strudler, 2009).

Deception can be understood as inherently wrong, apart from any harm it causes.  Indeed, a standard philosophical analysis of the wrong in deception identifies it as a vicious kind of manipulation.  One person may wrongly deceive another when he intentionally causes that person to have a false belief in a way that compromises the autonomy of his decision making, even if doing so benefits that other person.

Hence, honesty does not always require full disclosure in a competitive business environment, even when a failure to disclose denies benefits to others.  So we are left with the question: what is the moral basis for this duty to disclose? Nothing in argument from deception begins to answer this question, however, the fiduciary duties invoked as the basis of a duty to disclose in securities transactions.

Conclusion

Inside information exists for the benefit of the company and its shareholders.  It is therefore presumptive theft for an insider to trade on this information without the agreement of its owners.  Based on the arguments raised in this paper, we can now conclude that most of the arguments explaining the reasons why it is unethical really do not stand, except the argument regarding the jeopardizing of fiduciary relationships.  This is because fiduciary relationships are critical to the way business operates.  If insider trading were to be legalized, it would place a strain on the relationship between corporate insiders and shareholders and individuals would be much less likely to trust the corporate world and less likely to buy share and invest in companies. And that wouldn’t be good for the company, shareholders or for society in general.

References

Bodie, Z., Kane, A. and Marcus, A. (2013). Essential of Investments (Ninth Edition). McGraw-Hill Companies, Inc. New York.

De George, R. (1999). Business Ethics (Fifth Edition). Prentice Hall, Inc. New Jersey.

Donaldson, T, (1990). Case Studies in Business Ethics (Second Edition). Prentice Hall, Inc. New Jersey.

Velasquez, M. (1998). Business Ethics: Concepts and Cases (Fourth Edition). Simon & Schuster Asia Pte Ltd:Singapore.

Kennon, J. (2019). What Is Insider Trading and Why Is It Illegal. https://www.thebalance.com/what-is-insider-trading-and-why-is-it-illegal-356337

Moore, J. (1990). What is Really Unethical About Insider Trading? https://page-one.springer.com/pdf/preview/10.1007/BF00382642?fbclid=IwAR3FZcPyboPXxct0mG9SHL2NoTQ5aGX0dUih7zuEUdbotM1BTPr3uySkhQI

Strudler, A. (2009). The Moral Problem In Insider Trading. https://repository.upenn.edu/cgi/viewcontent.cgi?article=1056&context=lgst_papers

Teacher, Law. (2013). Insider Trading: Legality & Morality. https://www.lawteacher.net/free-law-essays/company-law/insider-trading-legality-morality-company-law-essay.php?vref=1

Teacher, Law. (2013). Insider Trading: Legality & Morality. https://www.lawteacher.net/free-law-essays/company-law/insider-trading-legality-morality-company-law-essay.php?vref=1

Environment: The unaccounted cost of doing business

HEIDIE LONGBOY-PAGUIRIGAN, MBA

 ABSTRACT This paper argues that capitalists are often motivated by their self-interest and they mainly focus on the profits they may acquire from their business. With their avarice to maximize their profit or wealth, they tend to overlook the real costs and externalities caused by their economic activities. These unaccounted costs are attributed to the environment. The advent of growth and development made even worst the state of our life support system. Manufacturing companies, industries and other businesses are all contributors to excessive pollution in land, water and air due to their indiscriminate disposal of wastes, illegal discharge of untreated wastewaters, irresponsible release of greenhouse gases to the atmosphere and others. These capitalists ought to take into account these cost of pollution attributed to the course of their business. The moral obligation of the firm to third parties should be taken into great consideration especially if the action or decision will pose imminent peril to the general public. 

Keywords: Environment, Externalities, Social Cost

INTRODUCTION

The environment is everything we depend on. Whether it be the trees that give us oxygen, the land we live upon and the rivers that provide us with water. The environment is crucial for the society and businesses together. We all have a responsibility to conserve and protect the environment. And whether it be governments, businesses, consumers, workers or other members of society, each must contribute to stop the environment from polluting further (https://www.toppr.com/guides/business-studies/social-responsibilities-of-business/business-ethics-and-environment-protection/).

According to Gromko, G. (2013), businesses contributed $7.3 trillion - 13% of global GDP - in damages to the world's "natural capital" in 2009. That's the headline finding from the new The Economics of Ecosystems and Biodiversity (TEEB) for Business report on the unaccounted for costs of doing business. This figure is so high because of the value that ecosystems provide to human well-being.

When a business purchases a building or hires workers, these costs are privatized - only the business pays. However, when the costs of production are not paid for by the business (or government or community or individual), the costs are socialized. These "externalities" are what TEEB is measuring. Socialized costs don't have to be environmental, but that is what TEEB is focusing on. An easy example is a coal plant. The owner of the plant buys the coal, the plant itself, the machinery needed to operate the plant, and hires the people needed to run the plant. What the owner doesn't pay for is the damages done by production to society. These costs can be local - if particulate emissions from the plant damage nearby communities' health. Or they can be global - the CO2 emitted by the plant contribute to climate change and the associated costs (http://naturalcapital1.blogspot.com/2013/04/unaccounted-for-costs-of-doing-business.html).

As businesses are evidently the major contributor of pollution due to the operation of their economic activities, it is right and just for them to help in the repair of the environment; and heed their obligation to third parties particularly stakeholders living in that certain community.

It is significant to note that one renowned firm i.e., PUMA got a head start by being the first company to implement the Environmental Profit and Loss Account – the EP&L since 2011. With this, they treat the environment as an equal partner who bills them for providing clean water and air, restoring soils and the atmosphere, and decompose waste (https://about.puma.com/en/sustainability/environment).

This good practice should be replicated by all establishments particularly those which operations have direct impact to the environment. Climate change as we know has been a universal plight that strikes all walks of life on earth, thus, it is just but fitting that the national government shall order the enactment of laws that mandates business establishments to be equally responsible to the society and environment as a whole by paying the pollution they create or contribute that worsen the quality of our environment.

Social costs and the Environment

Business activity has an impact on the natural environment to include resources such as timber, oil and metals which are being used to manufacture goods; manufacturing can have unintended spillover effects on others in the form of noise and pollution; and land is lost to future generations when new houses or roads are built on greenfield sites. The unintended negative effects of business activity on people and places are called social costs (https://www.bbc.co.uk/bitesize/guides/zkc9jxs/revision/1).

Social cost is the cost related to the working of the firm but is not explicitly borne by the firm instead it is the cost to the society due to the production of a commodity. The social cost is used in the social cost-benefit analysis of the overall impact of the operations of the business on the society as a whole and do not normally figure in the business decisions.

It is assumed that the disutility created through pollution is equal to the total private and public expenditure incurred by the firm to safeguard the public from the health hazards and social tension created by the production process. But however, these indicators, total cost, and public expenditure, does not give a true measure of the public disutility or the social cost (https://businessjargons.com/social-cost.html).

Ethical businesses are and should be careful to minimize the impact of their behavior on the environment. Further, government laws are used to protect the environment. For example, firms must apply for planning permission before building factories or offices on greenfield sites. Grants are available to encourage firms to locate on brownfield sites, run down areas in need of regeneration (https://www.bbc.co.uk/bitesize/guides/zkc9jxs/revision/1).

The moral obligations of business to third parties

Historically, the relationship between business interests and the community has been awkward. Connecting with community has often been viewed as a charitable thing to do and not necessarily core to ‘real’ business. There is a natural tension between the profit motive and social impact. However, when we consider that companies sit within the broader community and that the relationship is one of inter-dependence rather than independence, then there is a strong case for putting social strategies high on the corporate agenda. The real question is: how can it be done in a way that aligns the objectives of shareholders with the needs of community?

Milton Friedman, the 1976 Nobel Prize-winning economist, took a stance against the idea that companies had social responsibility, arguing that they should focus on maximizing profit within the ‘rules of the game’. Two decades later, Peter F Drucker, affirmed that profit was the primary motive for business, but not the only motive. He asserted that business has responsibilities to the communities it touches in the same way that a school has responsibilities that go beyond the primary goal of educational performance (https://www.theaustralian.com.au/business/business-spectator/news-story/the-moral-obligations-of-business/cb99ed9848c689bca65cbbe0655caf88).

Social responsibility is an ethical theory, in which individuals are accountable for fulfilling their civic duty; the actions of an individual must benefit the whole of society. In this way, there must be a balance between economic growth and the welfare of society and the environment. If this equilibrium is maintained, then social responsibility is accomplished (https://www.pachamama.org/social-justice/social-responsibility-and-ethics).

Why should business care about climate change?

Every year since 2011, the World Economic Forum’s Global Risks Report has identified climate-related risks as a top threat to business. In 2018, failure of climate change mitigation and adaptation was ranked within the top 10 global risks, alongside extreme weather events and natural disasters. Climate-related risks are wide-ranging, persist throughout value chains, and can be expected to pose severe financial threats to companies worldwide (https://www.bsr.org/en/our-insights/blog-view/climate-change-health-impacts-why-business-should-care-and-how-to-act).

As climate change progresses, it will continue to trigger more intense storms, drought, wildfires, sea-level rise, species extinction, and crop failure. While these devastating environmental changes come to mind first when discussing climate change, there’ll also be potentially disastrous downstream effects on businesses—and they don’t seem to be taking the threat seriously.

Most companies have a conservative view of the risks caused by climate change—companies’ predictions only scratched the surface of what experts predict might happen in global markets. For instance, while many companies included in their public disclosures that climate change might affect their supply chains, they rarely accounted for predictions that climate change will decrease average incomes and consumption, which would likely lead to decreased demand for products.

Polluter Pays Principle

Political pressure is mounting to make businesses pay for the damage they cause to the environment, and the latest UN study assessing the impact of the world's biggest companies is almost certainly the first stage in a concerted campaign to calculate how much damage is caused, what it is worth and ultimately how it can be stopped (Jowit, 2010).

The Polluter Pays Principle aims to deter and reduce greenhouse gas emissions by taxing the industries responsible for the emissions. The Polluter Pays Principle has received strong support from many member countries of both the European Union (EU) and the Organisation for Economic Co-operation and Development (OECD). The reasoning behind the principle is that those responsible for the pollution, either industry or person, should bear the cost of dealing with that pollution, removing the burden from the government, and in turn the taxpayers (https://www.worldatlas.com/articles/what-is-the-polluter-pays-principle.html).

However, Bergevin (2018) also cited that one of the issues surrounding the Polluter Pays Principle is the limited ability of the government in forcing those responsible to cover the costs of both preventative and remedial action. Although many countries around the world have enacted the Polluter Pays Principle into law, in reality, there are limited mechanisms in place to ensure those responsible fully engage in appropriate action in regards to environmental damage.

CONCLUSION

Venturing into business must always be coupled with moral responsibilities, not only to your employees, to your customers but above all should be to the environment. The latter has been the prime source of all amenities and raw materials needed by a certain business; ironically, it is also one of the most neglected assets because it is significantly undervalued by most of us.

Morality demands our deep concern to our stakeholders particularly our life support system – the environment, which will be directly or indirectly be affected by our decisions in our business operations. Considering the business’ primordial concern of profit maximization, it should also consider an ecologically-balanced environment, hence, pay the costs or damages it conveys to the society due to the production and operation of the business.

It is a given fact that a person’s self-interest benefits the society thru the job opportunities it gives to the people, the income it indirectly provides to the worker’s family and its contribution to economic prosperity in a certain community. However, a single business cannot stand alone without the existence of groups, organizations and individuals in the society; tantamount to saying that it will not prosper without the involvement and cooperation of third parties. This can be reflected to Pope Francis’ Encyclical Letter (2015) “Laudatu Si’, mi Signore” – Praise be to you, my Lord”, thus, “Because all creatures are connected. Each must be cherished with love and respect for all of us as living creatures are dependent on one another”. Further, given the opportunity to establish a business in a certain community, it is just and fair for us to return the favor to the society where we belong noting the fact that we are the stewards of God’s Creation.

REFERENCES

WEB ARTICLE

Bergevin, K. (2018). What is the Polluter Pays Principle? Retrieved from https://www.worldatlas.com/articles/what-is-the-polluter-pays-principle.html, downloaded September 21, 2019.

Gromko, D. (2013). Natural Capital. Retrieved from http://naturalcapital1.blogspot.com/2013/04/unaccounted-for-costs-of-doing-business.html, downloaded September 17, 2019.

Hu, J. (2018). Companies are seriously underestimating how climate change will affect business. Retrieved from https://qz.com/1490034/companies-corporate-disclosures-underestimate-climate-change/, downloaded September 26, 2019.

Jowit, J. (2010). Time to clean up: UN study reveals environmental cost of world trade. Retrieved from https://www.theguardian.com/environment/2010/feb/19/business-environmental-damage, downloaded September 17, 2019.

Oger, C. (2018). The Impacts of Climate on Health: Why Business Should Care and How to Act. Retrieved from https://www.bsr.org/en/our-insights/blog-view/climate-change-health-impacts-why-business-should-care-and-how-to-act, downloaded September 26, 2019.

Pope Francis. (2015). Encyclical Letter Laudato Si’. Retrieved from http://w2.vatican.va/content/francesco/en/encyclicals/documents/papa-francesco_20150524_enciclica-laudato-si.html, downloaded September 26, 2019.

Preston, P. (2011). The moral obligations of business. Retrieved from https://www.theaustralian.com.au/business/business-spectator/news-story/the-moral-obligations-of-business/cb99ed9848c689bca65cbbe0655caf88, downloaded September 21, 2019.

https://about.puma.com/en/sustainability/environment, downloaded September 17, 2019.

https://businessjargons.com/social-cost.html, downloaded September 21, 2019.

https://www.bbc.co.uk/bitesize/guides/zkc9jxs/revision/1, downloaded September 21, 2019.

https://www.pachamama.org/social-justice/social-responsibility-and-ethics, downloaded September 26, 2019.

https://www.toppr.com/guides/business-studies/social-responsibilities-of-business/business-ethics-and-environment-protection/, downloaded September 17, 2019.