Fannie Mae: The moral of the story is bankrupt.

According to Jennings (2012), Fannie Mae started out with admirable intentions; to increase the availability of affordable housing availability and attract investments within the housing market. What started out as federally funded in 1968 became a  shareholder-owned corporation.

Though Fannie Mae was once considered the most ethical company in 2004 by Business Ethics magazine and subsequently won the award many years later, it became one of the most scrutinized companies during the housing crash (Jennings, 2012). All of this did not come without warranted suspicion and doubt on what became a glare into what had once been considered an admirable company.

Based on what became apparent with Fannie Mae, it could not be labeled an honest company and did not use the eight questions as an ethical guideline or model to compare. This became clear as Fannie Mae was a company driven to earnings targets through a compensation system, which incentivized payouts to executives that used dubious tactics in regards to buying and selling mortgage assets (Jennings, 2012).

When you tie bonuses to business practices, those that are responsible for acting ethically are inclined to look at their own compensation and lifestyles and are drawn to act on their best interests, not the best interests of the public. We put the executives in a position to fail by rewarding them with compensation that would make acting unethically attractive. Congress was also in the back pocket of both Fannie Mae and Freddie Mac which did not help with exposing the unethical and illegal practices (Isidore, 2012).

Fannie Mae was not forthcoming with information and had no sense of propriety. This became clear when executives that were in place dismissed the financial risks to their shareholders regarding their exposure to the subprime loan and in turn, made it impossible to recoup the financial losses (Trumbull, 2011). Allegedly, Fannie Mae told their investors in 2007 that only 0.2% of their portfolio were dedicated to subprime loans. The SEC said that there was actually 11% of subprime loans (Trumbull, 2011). This blatant disregard for the investors only catapulted Fannie Mae into an even harsher spotlight.

Fannie Mae did not adhere to Jennings eight ethical guidelines. Though the company seemed to take care of their own employees financially and have not admitted failure, they did not comply with the law and have cost taxpayers over  $183.8 billion, making it the most expensive bailout during the latest financial crisis (Isidore, 2012).

This financial crisis has been a wake-up call to the public and has put in place a variety of new regulations and procedures that will ultimately dispel this type of wrongdoing in the future.

 

isidore, C. (2012, January 24). Freddie Mac: What it did, what went wrong. Retrieved November 23, 2014, from CNN: http://money.cnn.com/2012/01/24/news/economy/freddie_mac/

Jennings, M. M. (2012). Business Ethics: Case Studies and Selected Reading. Mason: South-Western Cengage Learning.

Trumbull, M. (2011, December 16). Subprime scandal: ex-Fannie Mae, Freddie Mac execs accused of fraud. Retrieved November 20, 2014, from Christian Science Monitor: http://www.csmonitor.com/USA/Justice/2011/1216/Subprime-scandal-ex-Fannie-Mae-Freddie-Mac-execs-accused-of-fraud

 

 

Why social responsibility doesn’t mean ethically inclined.

Social responsibility is the ability to honor ethical values while at the same time respecting the people, community and environment while still obtaining successful measures (Tsoutsoura, 2004).

Those organizations that deign to be socially responsible must go above and beyond what is considered the minimum legal stipulation and provide for the stakeholders welfare (Jennings, 2012).

According to Jennings (2012), Entine and Jennings focus on the character of a company as much as the ethical obligations of what social responsibility entails. A product might be on the market and profitable and in a general consensus, considered ethical from a traditional social responsibility standpoint. Utilizing Ernine and Jennings approach, a more in-depth and logical conclusion would need to be answered.  Do the product claims match with reality and how would the company react when faced with negative disclosures?

The philosophy of do unto others as you would have them do to you is further exaggerated by the stance that companies need to be more responsible to meet public demands (Enevoldson, 2012).  If an organization wants to thrive in a climate of social responsibility, they must adhere to social norms that are more elaborate than profitability or credibility (Enevoldson, 2012). This will help them on a larger scale meet the speculating eyes of the public.

Jennings states (2012), that Ernine and Jennings subscribe to a well-rounded approach that questions not only the ethical implications and legalities of the company but how the organization treats its employees and what type of information the company is willing to disclose. Social responsibility is a simpler approach and though treat others as you would like to be treated is a start, that view is broad and vague. Ernine and Jennings created eight questions to provide a pathway that is not only legal and ethical but provides insight and perspective from a charitable, employee-minded, morally adept and public persona.

When determining if a company is social responsibility, it is fair to consider the eight questions as a starting approach. However, it would be detrimental to the public’s well-being to assume that socially responsible is synonymous with a high degree of ethics. It is merely a beginning.

 

Enevoldson, N. (2012, February). What Is Social Responsibility? Retrieved November 20, 2014, from How To Become A Social Entrepreneur: http://www.imasocialentrepreneur.com/social-responsibility/

Jennings, M. M. (2012). Business Ethics: Case Studies and Selected Reading. Mason: South-Western Cengage Learning.

Tsoutsoura, M. (2004). Corporate Social Responsibility and Financial Performance. Berkeley: Haas School of Business.

Views of Entine and Jennings’ along with Friedman and Freeman

According to Jennings (2012), Entine and Jennings preface social responsibility as one that is not necessarily ethical but when measured by political outcomes, they might pass the test. They believe that some ethical standards are lost in the name of social consciousness. Just because a company adopts social responsibility does not mean it is ethical or more inclined to follow the laws of the land.

Jennings (2012) discussed Entine and Jennings focus on the argument that businesses are not people and cannot have social responsibility. Businesses are artificial people and cannot be held to the same standards. A business focuses on the bottom line which is to make as much money as possible and do so with the least amount of hassle. Friedman raises the question that there are two aspects to social responsibility for a businessman; principle and consequences. Our government focuses on a system of checks and balances with the encumbrance of taxes and the businessman in this case must decide how to spend the profit and acts as a judge and jury when dictating amounts and causes.

As Jennings points out (2012), their view differs vastly from Friedman. Friedman determines that social responsibility must encompass the socialist outlook that political mechanisms are the factor behind the distribution of resources. He points out that private competitive enterprise exists because people must be held accountable for their own actions and hinders those that try to use it to their own advantage by preying on those who have a disadvantage.

Jennings (2012) also alludes to the fact that many justify and rationalize their actions in the name of social responsibility but act in their own self-interests. Friedman refers to the fundamentally subversive doctrine that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” (Jennings, 2012).

Freeman focuses on the definition of stakeholders and those who are unaffected or affected by the corporation and are paramount to the success and outcome of the organization whereas management must balance out the needs and wants of the stakeholders and keep the nucleus of the company intact (Jennings, 2012).

Freeman, on the other hand, believes that managerial capitalism intends to maximize the profits and initiatives of stockholders (Jennings, 2012). The outlook maintains the greatest good for the greatest number of people and government should be absolved of any responsibility (Jennings, 2012).

Corporations have no reason to want or need to take responsibility for any detrimental effects of their actions, only the benefits they obtain (Jennings, 2012). The stakeholder theory Freeman references must provide the most return on investment to stockholders, ethical boundaries withstanding, because of the focus on the greater good (Jennings, 2012).

All of the views of social responsibility carry weight and opinion from their authors and the perspectives can be narrowed down to focus on individual organizations and the role they play in ethical business practices.

Jennings, M. M. (2012). Business Ethics: Case Studies and Selected Reading. Mason: South-Western Cengage Learning.

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