Response to Classmates Discussions

Week 1 Classmate Discussion 1 Response

Guided Response: Respond to at least two of your fellow students’ or instructor posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words and be respectful of others’ opinions and beliefs that differ from your own. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.

Below are two of my classmate with the week 1 of their discussion that I need response to their name are Jamie Choate and Deanna Cohen

Deanna Cohen

As the population gets older and millennials become a larger portion of the market companies have to take into consideration and adapt to their consumer preferences in order to remain successful. "Millennials prefer to do business with corporations and brands with pro-social messages, sustainable manufacturing methods and ethical business standards," (Landrum, 2017).

Personal ethics is often tied to agency theory which is essentially the relationship between owners and management and how effectively management pursues the best interst of stockholders (Block, Hirt & Danielsen, 2019). When thinking of an example of unethical personal business practices, the first situation that came to mind was the Wells Fargo fake account scandal. In 2016 the company fired 5,300 people and replaced their CEO among other responses to discovering due to unrealistic sales goals their employees were operating extremely unethically. “Beyond opening as many as 3.5 million unauthorized bank and credit card accounts, Wells Fargo has admitted to charging customers for mortgage fees they didn't deserve and forcing them into car insurance they didn't need. Some people even had their cars repossessed as a result” (Egan, 2018). These practices have damaged the company reputation and ultimately lowered its value. "There's no question that Wells Fargo's scandals are responsible for seriously eroding shareholder value," (Egan, 2018). Wells Fargo should have been examining their sales goals and their attainability to ensure they were incentivizing the proper ethical actions from their employees. I believe that Wells Fargo learned the value of ethical practices in terms of their reputation which took years to build and one scandal to destroy. I personally would never use Wells Fargo because my distrust in the organization gives other banks a competitive advantage.

As mentioned earlier, with millennials becoming a larger portion of the market corporate social responsibility (CSR) is increasingly important for a sustainable business model encouraging firms to invest in improving their social, economic and environmental context to create value for consumers (Green and Peloza, 2011). CSR has the ability to have a short-term impact, by encouraging purchase intentions, and a long-term effect, by helping to develop the firm’s reputational capital, which can provide a competitive advantage (Bianchi, Bruno, & Sarabia-Sanchez, 2019). One example of positive CSR in the financial industry is the decision made by BNP Paribas to no longer finance coal mining. The bank has been surveilling producers since 2017 in the hope that they would begin investing in renewable forms of energy, but after two years later they found no evidence to support that companies changed their strategies leading the bank to no longer finance those businesses (Laidlaw, 2019). In this case, I don’t believe anything needed to be done differently. One thing they could learn from this situation and put in place moving forward is a certain requirement for companies they finance to have environmentally conscious energy sources. That being said, each investment and their operations would likely need individual reviews.

The Sarbanes-Oxley Act (SOX) is a law created to protect investors from fraudulent financial reporting by mandating strict reforms to existing securities regulations and imposing harsh penalties on those who break the law. The most controversial portion of the SOX is section 404 which “requires that companies document, test, and assess procedures for monitoring their internal systems; that managers file a special ‘management report,’ in which they evaluate the firm’s internal control system on financial reporting; and that the outside auditor attest to the management’s assessment of the companies controls” (Albuquerque & Zhu, 2019). The enactment of this law does promote ethical behavior because requirements create transparency and accountability for those who do not make ethical business decisions.  Other ways to ensure strong ethical business decisions is to create incentive programs for employees that specifically reward ethical decisions. Making the awards attainable & significant while acknowledging these employees frequently will encourage the desired behavior throughout the company.

 

References:

Albuquerque, A., & Zhu, J. L. (2019). Has Section 404 of the Sarbanes-Oxley Act Discouraged Corporate Investment? New Evidence from a Natural Experiment. Management Science, 7. https://doi-org.proxy-library.ashford.edu/10.1287/mnsc.2018.3090

Bianchi, E., Bruno, J. M., & Sarabia-Sanchez, F. J. (2019). The impact of perceived CSR on corporate reputation and purchase intention. European Journal of Management & Business Economics, 28(3), 206.

Block, S. B., Hirt, G. A., & Danielsen, B. R. (2019). Foundations of financial management (17th ed.). Retrieved from https://www.vitalsource.com

Egan, M. (2018, September 7). The two-year Wells Fargo horror story just won't end. Retrieved February 27, 2020, from https://money.cnn.com/2018/09/07/news/companies/wells-fargo-scandal-two-years/index.html

Green, T. and Peloza, J. (2011), “How does corporate social responsibility create value for consumers?”, Journal of Consumer Marketing, Vol. 28 No. 1, pp. 48-56.

Laidlaw, J. (2019, May 24). To reduce coal exposure, BNP Paribas cuts ties with Polish electricity producers. Retrieved June 28, 2020, from https://www.spglobal.com/marketintelligence/en/news-insights/trending/O_bb5QSjZcK6opd9WElDpA2

Landrum, S. (2017, March 17). Millennials Driving Brands To Practice Socially Responsible Marketing. Retrieved March 1, 2020, from https://www.forbes.com/sites/sarahlandrum/2017/03/17/millennials-driving-brands-to-practice-socially-responsible-marketing/#26e9efc84990

Lee, K. H., & Shin, D. (2010). Consumers’ responses to CSR activities: The linkage between increased awareness and purchase intention. Public Relations Review, 36(2), 193-195.

Motilewa, D.B. and Worlu, R.E. (2015), “Corporate social responsibility as a tool for gaining competitive advantage”, International Journal of Multidisciplinary Research and Review, Vol. 1 No. 1, pp. 16-24.

Porter, M. and Kramer, M. (2011), “La creación de valor compartido”, Harvard Business Review, Vol. 89 No. 1, pp. 32-49.

Jamie Choate

Ethics and Corporate Social Responsibility is at the forefront of the media today.  Companies are beginning to realize that in order to sustain operations they need to pay attention to long-term goals and understand how much the perception of their company impacts their bottom line (Henderson, 2018). Ethics and social responsibility is about doing what is right.  If either are violated, there can be severe consequences and long term effects detrimental to the company.  There are many examples where companies have failed in these areas in the past.

 

One example of unethical behavior is the Wells Fargo account fraud that occurred in 2016.  Wells Fargo employees opened more than 2 million unauthorized deposit and credit card account without the customers consent in order to meet sales targets (Comen & Frohlich, 2019). In addition, they transferred funds and from authorized accounts into the unauthorized accounts which racked up fees and charges unknowingly to the customers. As a result of the actions, the company was fined $185 million, over 5,000 employees were fired, the CEO was forced to retire, and the Better Business Bureau revoked its accreditation of the bank (Comen & Frohlich, 2019). 

 

The driver behind the scandal was unachievable sales goals placed on employees during a poor economic time.  It became accepted practice for employees to perform unethical actions to meet these goals which in turn got them and their management team promoted.  Management was aware of the deceitful practices and condoned the actions.  Employees and leadership should have been required to complete ethics training.  In addition, the leadership should have been required to complete performance management training.  Goals need to be realistic and employees should be able to achieve the goals by promoting the correct behaviors.

 

One example of negative Corporate Social Responsibility is the Volkswagen emission scandal that occurred in 2015.  Volkswagen deliberately set out to design a means to circumvent the emissions process to claim that it was producing environmentally friendly cars to gain an advantage over its competitors (Dans, 2015). Volkswagen installed software that would inject chemicals and lower emissions while being tested. Volkswagen was emitting over 40 times the legal amount of nitrogen oxide (Dans, 2015). The company did not care as long as they became the top car seller. 

 

As a result of the scandal, the EPA ordered Volkswagen to recall 482,000 diesel cars sold in the United States through a buy back program.  If all cars were sold back it would bring a cost to Volkswagen of approximately $14.7 billion. This image of Volkswagen was also tarnished and has resulted in a large decrease in sales.  The trust in the brand that was lost will cost them much more than what they would have made as the #1 producer of cars by scamming its customers.  Volkswagen should have adjusted their design to meet the federal regulations.  They should have documented their processes and spent money on engineering designs versus software to circumvent the process.  Trust in brand is hard to gain back.  It will take Volkswagen a long time to recover, if they ever fully recover.

 

The Sarbanes Oxley Act of 2002 (SOX) set up a five member Public Company Accounting Oversight Board with the responsibility for establishing auditing standards within companies, controlling the quality of audits, and setting rules and standards for the independence of the auditors (Block, Hirt, & Danielsen, 2019).

 

SOX requirements and protections (Murray, n.d.).:

· Executive and financial officers must certify they have reviewed the findings of annual and quarterly reports and that they are free of error. They must also certify that they are responsible of creating and monitoring financial controls within the company

· Prohibits personal loans to directors and executive officers to prevent a conflict of interest

· SOX establishes a code of ethics for senior financial officers

· SOX imposes fines and imprisonment for securities violations. Penalties apply not only to senior officers but also to anyone that knowingly alters, destroys, conceals or falsifies records with the intent to harm a legal investigation

· Provides whistleblower protection

 

The Sarbanes Oxley Act does promote ethical behavior, however promotion and implementation are two different things.  While the code of ethics is laid out, companies need to ensure that they are training their employees to follow that code and holding their leaders accountable for the standards laid out in the act.  There should also e processes put in place to ensure that the controls required by the act are being tested, implemented, and reviewed. 

References Block, S. B., Hirt, G. A., & Danielsen, B. R. (2019). Foundations of financial management (17th ed.). Retrieved from https://www.vitalsource.com

Cohn, M. (2017, July 24). As Sarbanes-Oxley nears 15-year anniversary, ethics fall short. Retrieved from https://www.accountingtoday.com/news/as-sarbanes-oxley-nears-15-year-anniversary-ethics-fall-short

Comen & Frohlich. (2019, December 20). The Biggest Corporate Scandals of the Decade. Retrieved from https://247wallst.com/special-report/2019/12/20/the-biggest-corporate-scandals-of-the-decade/3/

Dans, E. (2015, September 27). Volkswagen and the Failure of Corporate Social Responsibility. Retrieved from https://www.forbes.com/sites/enriquedans/2015/09/27/volkswagen-and-the-failure-of-corporate-social-responsibility/#2e693ae94405

Henderson, R. M. (2018, February). More and more CEOs are taking their social responsibility seriously. Harvard Business Review, 2–5. Retrieved from https://hbr.org/

Murray, L. (n.d.). Sarbanes Oxley Code of Conduct Requirements. Retrieved from https://smallbusiness.chron.com/sarbanes-oxley-code-conduct-requirements-4060.html