The challenge of any organization, whether federal or nongovernmental, profit or non-profit, and the hallmark of its success thereof, is its ability to strike a balance between its ethical and managerial obligations. Moral obligations imply acting in a certain way and imposing specific policies that mind the wellbeing of the larger population by ensuring it does not infringe on their rights whatsoever. It only means doing the right thing for others, but to what extent is this right? What is the right thing in the first place? How much should it influence the organization's policies and operations? Managerial obligations, on the other hand, means acting with the shareholders in mind, and ensuring that any plan, which is adopted impacts the organization's profitability positively. This is because finding a balance between optimizing profits while at the same point being mindful of the general population can be a challenging task.
Exon Valdez allowed for the oil spillage in Alaska because it felt the cost of cleaning up the spillage would be relatively low compared to the cost of upgrading their systems that would have prevented the spillage in the first place. It acted towards maximizing the shareholder value while neglecting its ethical responsibility by introducing a harmful substance into the ecosystem. But the organization did not just have to clean the aftermath; the American judiciary heavily fined it for the act. Incurring these costs meant stirred controversy on the organization's obligations to its shareholders as well as the ethical responsibilities. The latter meant it had to initiate the process of compensating for the damage it had done since that was the ‘right thing.' It would be expected that such acts of benevolence should be initiated by the shareholders; after all, it is their money that is being used. But the organization, in this case, acted on its management capacity without giving the shareholders the opportunity to decide if that is what they would have preferred (Keown, Martin & Petty, 2017, p. 10).
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In as much as management run the organization on behalf of the shareholders, and their chief duty is to protect the interest of the shareholders, some decisions like acts of charity lie with the shareholders. This move, therefore, meant that Valdez having decided to incur these costs negatively reflected on the profitability of the organization and failed in protecting the rights of the shareholders through working towards increasing their revenue. It minimized the shareholder’s value. On the other hand, having taken responsibility for its actions to compensate for the damages caused, Valdez reflected its commitment to its ethical obligations. Ethics, in this case, was about facing the consequences. Perceiving "laws as a set of rules that reflect the values of a society as a whole," (Keown, Martin & Petty, 2017, p. 16) abiding by a set system meant that Valdez was doing the right thing. But again this scenario had another insight into the shareholder value. This is because ethical behaviors influence the trust a particular category has on a phenomenon; this move ensured that the trust bequeathed upon the organization, which would have otherwise been destroyed by the unethical behavior of not taking responsibility, was retained. This in the long term ensures the organizations maintain its clientele while possibly gaining the trust of a newer and broader client base. The result would be increased operations of the organization that would maximize on the shareholder value.
However, one looks at it, the positive results of this move outweighed the short term consequences suffered by the shareholders. The act to incur the costs of cleaning up the spillage bestowed trust on Valdez and would create a long-term positive impact on the profitability of the organization, thus protecting the rights of the shareholders. In as much as ethical obligations may seem to affect shareholder right protection negatively; it is key when dealing with a long-term strategy that includes gaining client trust and loyalty as part of boosting its services. This is because, for holistic profitability, quality production is one of the factors thereof, not the only factor. The other factors are customer loyalty and trust.
References
Keown, A., Martin, J., & Petty, J. (2017). Foundations of finance (8th ed., pp. 10-12, 16, 17). Boston: Pearson.
