Financial Reporting and Ethics - The Institute of Chartered ...

SOCIAL AND ENVIRONMENTAL ISSUES IN ETHICSbecause according to the advocates, it is only when business focus onprofit that business will provide good service that consumers want, whichwould then promote the societal well-being. This was propounded byAdam Smith, to whom this theory is traceable. He maintained that thefree pursuit of self-interest without the intent to benefit the society will,as if directed by an invisible hand, bring about more social benefitthan if visible hands (government intervention) try to intervene andbring about just results In The Wealth of Nation, this view was articulatedthus:It is not from the benevolence of the butcher, the brewer or thebaker, that we expect our dinner, but from their regard to theirown interest… He…neither intends to promote the publicinterest, nor knows how much he is promoting it … and bydirecting that industry in such a manner as its produce may beof the greatest value, he intends only his own gain, and he is inthis, as in many other cases led by an invisible hand to promotean end which was not part of his intention. Nor is it always theworse for society that it was no part of it. But by pursuing hisown interest he frequently promotes that of the society moreefficiently than when he really intends to promote it.The stakeholder theory which opposes the shareholder theoryprimarily began as a response to the belief that the owners of share orstock should be the prime beneficiaries of the organisations. That is tosay that the firm should be run in such a way as to maximise the wealthof shareowners. The stakeholder theory, on the other hand, suggeststhat there is a multiplicity of groups having a stake in the operation ofthe firm, all of whom merit consideration in the management’s decisionmaking and whose needs must be met. This is clearly an attempt to“redefine the purpose of the firm; this is to serve as a vehicle forcoordinating stakeholder interest”. In other words, the concern of thebusiness managers ought to go beyond profit to include helping societygain a greater sense of the meaning of community by honouringindividual dignity and promoting overall welfare and accommodatewider stakeholder interests.Professor Merric Dodd of Harvard Law School disagreed with Berle’sthesis and of course the shareholders theory. He posited in his view thatbusiness corporation is an economic institution which has a social serviceas well as a profit-making function. The ideal purpose of the corporationand of course the corporate managers, he argued is not confined tomaking money for shareholders. In his view, it is more secured jobs forthe employees; better quality products for customers and greatercontributions to the well-being of the community as a whole.249