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Think Macro, Act Micro: Finance Capitalism and Ethics Action Methods Prepared by Saad Alshammari...
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Transcript of Think Macro, Act Micro: Finance Capitalism and Ethics Action Methods Prepared by Saad Alshammari...
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Think Macro, Act Micro: Finance Capitalism and Ethics Action Methods
Prepared by Saad AlshammariCourse Study of OrganizationsDate October 4, 2011
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Background of Author
• Richard P. Nielsen
• Professor in organizational Studies Department: Boston College
• More than 75 publications
• Author of renowned book “The Politics of Ethics: Methods For Acting, Learning, and
Sometimes Fighting, With Others In Addressing Ethics Problems in Organizational Life”
• Served on Editorial board of Business Ethics Quarterly
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Introduction to article
• Organizational & political economic systems cause unethical behavior
• Linkage between capitalism and unethical behavior
• Currently, finance capitalism triggers unethical behavior
• Think at macro level & apply at micro level
• Solution is effective ethics actions & intervention methods
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Capitalism
“The system in which people are free to use their private without outside interference. It is known as free enterprise (or free
market) system” (Robert Patrick Murphy, 2007)
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Types of capitalism
• Small family owned business capitalism
• Large family owned business capitalism
• Managerial capitalism
• State-owned enterprise capitalism
• Finance capitalism
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Modern finance capitalism
• Current era is of finance capitalism
• Begin in 1980 and dominant in 2000
• Financial institutes own individual & family shares indirectly
• Examples are mutual funds, pension funds & investment banks
• Governments are trying to increase social & political control over financial institutes
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Forms of Finance Capitalism
• Shareholder value capitalism
• Hedge fund capitalism
• Private equity leveraged buyout capitalism
• High leveraged banking
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Shareholder value capitalism
• Shareholders have great influence upon management decisions
• Focus upon shareholder value maximization
• Managers cannot satisfy all shareholders
• Dissatisfied top shareholders can replace management
• Short term high performance pressure upon managers
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Hedge fund capitalism
• Highly leveraged companies
• High risk high return (either profit or loss)
Risky investments such as;
• High risk & high yield corporate bonds• Credit default swaps• Securitized investment vehicles
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Private Equity-Leveraged Buyout (PE-LBO) capitalism
PE-LBO firms operate this way;
• Buy publically traded companies with borrowed money
• Change it into private and make it highly leveraged
• Restructure acquired company in one to four years
• Resell the company
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High leveraged banking
• It is ‘originate and distribute’ model of banking
• Banks borrow from depositors and other financial institutions
• Banks lend from 5 to 10 times their capital
• Many debt products contain high risks
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Ethical Issues
Finance capitalism has negative affects upon
• Financial & Economic System
• Transparency
• Social control
• PE-LBO normally cuts employment costs
• PE-LBO destroy wealth producing and economic development
capacity 1
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Ethical Issues• Misrepresentation of sales, costs and profits
• Delay expenditures to enhance short term profits
• High debt borrowings and debt assumptions
• Sacrifice long term strategic goals
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Ethical Actions and Intervention Methods
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Win-Lose Forcing Methods
• Top down Ethics Codes
• Publicity Blow the Whistle
• Secretly Below the Whistle Outside the Organization
• Secretly Blow the Whistle Inside the Organization
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Win-Win Methods
• Win-Win Negotiation
• Ethical Networking
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Dialog Methods
• Ethics Arguments/Reasons
• Dialogic Conversation Structures
• Dialogic Organizational Structures
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Internal Due Process System
• Investigation & Punishment System
• Grievance and Arbitration System
• Mediation System
• Employee Board System
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Alternative Institution Building
• Hiring New Management
• Hiring New Lower Level Employees
• Constructing Ethics Based Judgment System
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Social Movement Methods
• Win-Loose Actions Against Anti-Reforms
• Dialog to discover reform opportunities
• Win-Win Development of support for reform movement
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Future Trends & Applications
• Recent economic crisis was result of finance capitalism
• Restructuring the economic system 2
• Governments are intervening in their financial systems
• No strong focus upon identified ethical issues’ resolution 3
• Trends are changing towards customer-driven capitalism 4
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Personal Experience & Observations
• Companies still behave unethically to increase shareholders’ wealth
• Private companies believe in high risk and high return
• Companies have high risk appetite
• Companies follow ethics only to increase business value
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References
1. O'Toole J. and Vogel D., (2010). Two and a Half Cheers for Conscious Capitalism. California Management Review. Vol. 53, No. 3, pp. 60-76
2. Dorre, K., (2011). Capitalism, Landnahme and social time régimes: An outline. Time & Society. Vol. 20, No. 1, pp. 69-93
3. Bageac, D. Furrer O. and Reynaud E., (2011). Management Students’ Attitudes Toward Business Ethics: A Comparison Between France and Romania. Journal of Business Ethics. Vol. 98, No. 3, pp. 391-406
4. Heracleous, Loizos & Luh. L. L., (2011). The Myth of Shareholder Capitalism. Harvard Business Review. Vol. 88, No. 4, pp.21