Multi-nationals are uniquely placed due to the fact that they cross borders. Indeed, different countries often have trade agreements with other countries/the rest of the world that makes it significantly easier for companies to penetrate foreign markets. However, there has been a huge debate on whether these multi-nationals have to be regulated by the government, or they should self-regulate. One of the key issues concerning regulation came up when several employees in Chin committed suicide while working on Apple products1. The fact that multi-nationals work in different countries, hence, are managed by different governments at the same time, also makes the option to be regulated by the different governments difficult. This essay looks into some of the pros and cons of government regulation versus those of self-regulation for multi-nationals. Further, a discussion on which of the two options is better will be given.
Multi-national companies should self-regulate due to the adverse negative impact government regulation would have on the industries, and the additional fact that there are already numerous treaties and laws that govern both trade and labor relations globally that can be used to monitor and guide multi-national activities in host countries.
Why Governments Should Regulate Multi-National Companies
It is important to note that national or government regulation of multi-national companies has often been misunderstood to mean that the governments interfere with the workings of the company. However, the actual meaning of the term is that the government monitors and provides parameters for business engagement. It should be noted that one of the key benefits of governments regulating multi-national companies is that it levels the playing field. This is due to the issue of competition. Arguably, if all the multi-nationals are guided by law in regards to their interactions in the host country, they will create healthy competition among themselves. This is critical for the economy of the host country. It will not only ensure growth but also indicate stability and in doing so, attract more investors. Looking at it in this light, therefore, shows that the regulation of multi-national companies by government is a good thing.
Secondly, one can argue that governments regulating multi-national companies also ensure that employees are treated well. Additionally, one can argue that several host countries have a threshold for local involvement, especially in terms of labor, that the multi-nationals have to adhere to. This premise means that these companies are encouraged (by the government) to hire more locals than foreigners to get the needed support from the communities2. Further, this acts as a way of creating a sense of ownership among the society members. Therefore, this not only benefits the local government but also the multi-national in question. This is due to the fact that when the society fully accepts the company, and takes ownership of the same, then they will support the business to succeed. This is one of the reasons several multi-nationals consider partnerships with local companies to penetrate a market well.
It is important to note that the wellbeing of employees is a key aspect of government and multi-national companies’ relationships. The example that has been mentioned of Apple and Chinese laborers is just one of the few3. The fact that these multi-nationals have the leeway to treat their employees how they want has led to various lawsuits. It is important to note that some multi-nationals do not extend their branches to all countries, but have partners that do certain aspects of the businesses for them. This is significantly common among first world countries that outsource labor intensive work to developing nations, and China. However, due to the fact that there is no government regulation of such businesses, the companies in the host countries take advantage of their people.
Despite the numerous advantages of having governments regulate multi-nationals, there are a few limitations of the same. Notably, one of the limitations is that the government might interfere with the company’s activities. As mentioned previously, the multi-nationals would have to be regulated by different governments. This creates a difficult environment for the global company to function as different governments will most likely also have different needs in relation to attaining positive political goodwill. One can argue that the liberalism theory best suits people who support this school of thought. Watson explains that liberalists believe that governments or states should work together to ensure prosperity, while at the same time, also lower risks of conflict4. In an ideal world, this would indeed ensure that the governments work together for the benefit of the whole community, including the business community. However, some may argue that regulation of international firms is motivated by other selfish political needs, making it dangerous.
Why Multi-National Companies Should Self-Regulate
One key reason why multi-national companies should self-regulate is the political influence that would be infiltrated into the company structure. This is especially true for companies that are deemed too powerful. Further, one can note that political interest in multi-nationals varies from one country to the other. However, on numerous occasions, different countries can be grouped due to similar interests. For instance, multi-nationals can group first world countries and third world countries differently. One of the reasons for this is the fact that first world countries tend to have more expensive labor compared to developing countries. It is due to this that multi-nationals often outsource human resource to developing countries. Arguably, government regulation might affect such freedoms due to the different interests of the different governments. For instance, whereas a country like China would agree to have lower pay for their staff, a third world country like Nigeria would not, and so forth.
Additionally, multi-nationals should self-regulate due to their different and diverse interests and company objectives. Governments must form policies of trade5. These are normally covered under the trade deals that these governments have with one another and are supported by both liberalism and constructive theories6. The system has so far been sufficient due to regional trade agreements. For example, commonwealth countries have their system which makes it easier for multi-nationals from one commonwealth country to be hosted in other commonwealth countries. However, allowing governments to regulate multi-national companies will mean getting into different deals with the different host governments to both penetrate and operate in their markets. This appears untenable and costly for the multi-nationals. Further, it does not address how the same regulations would affect online multi-national companies.
It can be argued that another reason why multi-national companies should self-regulate is the impact of the opposite on the different fields. Debatably, it can be stated that self-regulation pushes the companies involved in a space to advance it. This expansion can be done in various ways. First is through active competition where different multi-nationals use self-regulation as a means of attracting clients. In this instance, companies tend to target the weaknesses of their competitors and use their self-regulation measures to resolve the viewed weakness and use it as a strength in their marketing strategy. Secondly, the expansion of the field also occurs due to the fact that the self-regulation measures that are viewed as best practices are adopted from one multi-national company to the next. This ensures that, for example, issues of employee relations are standard and well managed within that specific field due to the self-regulation measures.
One of the disadvantages of companies self-regulating is that there are no standard guidelines or protocols that apply to all companies in regards to regulations. A case study can be given to explain further. In 2019, there were several instances of Boeing 737 MAX airplanes crashes, leading to loss of life7. Arguably, the crashes were due to a failure of the company, Boeing, to properly self-regulate. It is important to note that the self-regulation also affects the whole industry. In the case study provided, Boeing blamed the airports for not training their staff on their newly installed technology, which led to the crashes. It can be argued that if the industry and the company were both regulated by government, the introduction of new technology would automatically require new training for all pilots and other related staff.
My Position
It is my position that despite the disadvantages, that multi-national companies should self-regulate. One of the reasons why I believe this is the best action is the adverse effects government regulation has on industries. It is common knowledge that governments all over the globe have various forms of bureaucracy. Arguably, these bureaucracies will stall or rather negatively affect industries if the government were to regulate multi-nationals. It is critical to note that it is due to the current self-regulation that different industries have grown and, arguably, become better in terms of service provision and quality of products. For instance, the field of technology has grown tremendously due to the leeway to self-regulate. Additionally, different types of innovation companies have also grown due to the fact that they self-regulate. It is critical to note that, as mentioned previously, self-regulation supports healthy competition that pushes the field forward.
It is also arguable that the regional trade deals and treaties are enough to offer policies and guidelines on how businesses should be run within that specific region. For instance, there are various treaties under WIPO that dictate issues such as copyright and trademark rights. Individual countries also have labor laws and investor guidelines under both their foreign affairs and trade dockets. Therefore, if the counter argument on self-regulation is based purely on the importance of the government to monitor and offer guidelines in the industry, then this should be covered in the regional treaties and the national labor and trade laws8. Further, several governments already adhere to the United Nation’s regulations in regards to human rights, which might be a cause of concern for countries that offer labor to the multi-nationals.
On the same note, it is critical to note that there is currently a lot of pressure on third world countries to offer man power for the multi-nationals. As explained previously, the international community has been concerned about how manpower is misused by multi-nationals in the developing nations. Although some numerous treaties and laws protect workers, the fact that manpower is an outsourced service makes it challenging. This is due to the fact that the alleged ill-treatment of the workers happens in their own countries. The blame is often placed on the multi-national company working with the local firm that provides the manpower and not the locals. This has been a key element of debate in why governments should regulate companies. However, one can argue that national labor laws are different in various countries. Companies can, however, have better labor laws that local firms, or rather companies that are associated with the multi-national have to also adhere to work seamlessly.
An example can be given to explain the premise further. The company, Apple, that was used as a case study previously, does not mistreat its employees in its American and UK offices. However, when they outsourced labor to China, the Chinese company mistreated its staff to the point that several committed suicide. If Apple had made sure that the company they outsource to also appreciated the importance of labor laws as depicted in Apple’s home office, this problem would not have arisen. Despite this failure on Apple’s part, government should not regulate multi-nationals. Arguably, this is a problem that can easily be resolved by the companies, as more people are becoming aware of their rights. It is now common to find communities calling out multi-nationals for environmental degradation activities and ensuring that their environment is protected. These accountability measures do not necessarily need to involve government regulation.
Bibliography
Brawley, R. Mark. Power, Money, and Trade Decisions that Shape Global Economic Relations. Toronto: University of Toronto Press, 2015.
Brett, Christophers. “Risking Value Theory in The Political Economy of Finance and Nature. Progress in Human Geography, vol. 42, no. 3, (2018): 330-349.
Cruz Silveira, Bruno and De Oliveira Dias, Murillo. “Crashed Boeing 737-Max: Fatalities or Malpractice?” Global Scientific Journals, vol. 8, no. 1, (2020): 2615-2624.
Oatley, Thomas. Debates in International Political Economy. 2nd ed. Raleigh, NC: Pearson, 2012.
Oatley, Thomas. International Political Economy. 6th ed. New York, NY: Routledge, 2019.
Merchant, Brian. “Life and Death in Apple’s Forbidden City.” The Guardian, 2019.
Watson, Matthew. “Historicising Ricardo’s comparative advantage theory, challenging the normative foundations of liberal International Political Economy”. New Political Economy, vol. 22, no. 3, (2017): 257-272.
Footnotes
Brian Merchant. “Life and Death in Apple’s Forbidden City.” The Guardian, 2019.
Mark R. Brawley. Power, Money, and Trade Decisions that Shape Global Economic Relations, (Toronto: University of Toronto Press, 2015) 285.
Brian Merchant. “Life and Death in Apple’s Forbidden City.” The Guardian, 2019.
Matthew Watson. “Historicising Ricardo’s comparative advantage theory, challenging the normative foundations of liberal International Political Economy”. New Political Economy, vol. 22, no. 3, (2017): 257.
Oatley Thomas, International Political Economy. 6th ed, (New York, NY: Routledge, 2019), 137.
Christophers Brett. “Risking Value Theory in The Political Economy of Finance and Nature. Progress in Human Geography, vol. 42, no. 3, (2018): 339.
Bruno Cruz Silveira and Murillo de Oliveira Dias. “Crashed Boeing 737-Max: Fatalities or Malpractice?” Global Scientific Journals, vol. 8, no. 1, (2020): 2618.
Thomas Oatley, Debates in International Political Economy, 2nd ed. (Raleigh, NC: Pearson, 2012), 95.
The video explains the events leading up to the 2007-2008 financial crisis. The country’s economy collapsed under the weight of subprime mortgages and the trade of unregulated derivatives. The government could have prevented or mitigated the credit crisis through regulation. By 2003, analysts and experts had warned of a looming crisis, which gave the state the chance to act early, but it did not take it. For instance, it could have raised lending rates, thereby slowing down the boom. The Federal Reserve set the lending rate at 1%, which was not lucrative to investors (Jarvis, 2009). This pushed them to devise other methods of making more money.
The government should also have instituted more stringent regulations measures against banks. The crisis happened because banks gave mortgages to people who would otherwise not qualify for one. The mortgages did not require collateral or proof of income. Consequently, lending to people who were not creditworthy resulted in mass default (DeLong, 2018). The state could also have mitigated the effects of the crisis. After the problem occurred, they should have bailed the banks out. For instance, Congress could have voted to buy the collateralized debt obligations when the underlying asset (mortgages) started to plummet. Government regulation could have averted the crisis or abated its effects once it occurred.
Financial deregulation poses a greater danger than too much of it. The economic system cannot be relied upon to manage itself. For instance, without restriction, some parties can gamble with too much risk in the stock markets. Government intervention could have prevented the major crises witnessed in history, such as the 1929 and 2008 crises. Although too much control might stifle the economy, too little restriction can cause economies to collapse. Law is essential because it holds businesses accountable, prevents scandals, and averts crises.
References
DeLong, J.B. (2018). Could the 2008 financial crisis have been predicted and avoided? World Economic Forum. Web.
Jarvis, J. (2009). The crisis of credit visualized. [Vimeo].
In the recent past, numerous scandals involving corporate board members have been witnessed, most of which have led to huge losses to investors. Some scholars have found a close connection between the scandals and self-regulation, which is evident in many contemporary organisations. Generally, the directors of a company are supposed to maintain a fiduciary relationship with shareholders (Hasan & Omar 2015).
They are not supposed to make any secret profits. However, in the recent past, directors have been colluding with auditors to defraud the shareholders and investors at large. It is believed that issues such as the independence granted to the directors and the lack of diversity within the boards are to blame for the escalation of the problem. In the light of the highlighted views, this paper investigates the causes of irregularities within the companies’ boards to determine if the intervention of the government may help to avert such abnormalities. To achieve the objective, the paper adopts a literature review approach in which articles supporting the intervention of the government and those opposed to such interventions are reviewed.
Literature Review
Arguments Supporting Government Regulations
Hassan and Farouk (2014) argue that self-regulation of the corporate boards can contribute to business malpractices, which predispose shareholders to risks of loss of their money. In the past, Chief Executive Officers (CEOs) headed most corporations. Such bosses were not answerable to the government. In other words, the CEOs acted independently, a situation that led to numerous business malpractices. Nepotism, which refers to the practice of exercising favouritism in the process of hiring of the workforce, was a common phenomenon in the traditional corporations due to the lack of government regulations (Jaskiewicz et al. 2013).
Corporation heads have been accused of hiring members of their family, as opposed to hiring people from diverse communities (Jan 2016). Sceptics such as Jan (2016) argue that many company officials come from the CEO’s families. Nepotism can be beneficial for a company if familial or friendly relationships of board members improve knowledge management and leadership, but the approach can be problematic and even detrimental to business (in case family members are promoted without merit) and society (Jaskiewicz et al. 2013). The latter aspect refers to diversity issues.
Indeed, labour laws in some developed countries (for example, the United Kingdom) require organisations, whether public or private, to embrace diversity in the workforce (Dembo & Rasaratnam 2014, Ozeren 2013). Under the traditional systems, CEOs had the power to influence the recruitment process. When given such power, CEOs may choose to appoint their confidantes to gain more control over a firm’s affairs (Jan 2016; Jaskiewicz et al. 2013). In such cases, diversity is not reflected, hence confirming the challenges that the self-regulation of company boards can pose.
Isaac (2014) observes that organisations with the board of directors that are comprised of at least one independent director tend to make better decisions compared to those that do not have an autonomous administrator. This claim indicates that the independence of the board is essential to the operations of a firm. Additionally, other scholars such as Dembo and Rasaratnam (2014) assert that diversity in company boards is essential to the protection of the shareholders’ interests. Diversity in the administrative centre entails to the practice of hiring employees who are obtained from varied cultural and ethnic settings. Casalino, Ciarlo, and Lombardo (2014) assert that workforce multiplicity is crucial to a firm’s performance since it ensures that the concerned business benefits from the different ideas from the workforce.
Some diversity examples include various ethnic backgrounds, age, and tenure. In their study of 1,489 American companies, Harjoto, Laksmana, and Lee (2015) demonstrate that inclusive boards which incorporate people who are diverse with respect to the mentioned features tend to be more compliant with corporate social responsibility guidelines. Moreover, Torchia, Calabrò and Morner (2015) demonstrate in a study of almost 400 Norwegian companies that diverse backgrounds and even personalities in board members, while having the potential for causing conflict, increase their creativity to a statistically significant extent, which is a positive outcome. To sum up, there is extensive evidence to diverse boards being beneficial for companies and the society, which implies that this diversity should be promoted by multiple means, possibly, including governmental actions.
Conversely, although workforce diversity leads to amplified performance, it needs to be properly managed to avert the various effects that it may have on a company (Qian, Cao & Takeuchi 2013). If not well tackled, diversity may attract conflicts in the workplace and develop various forms of bias in employees, which may lead to diminished performance (Kulik 2014). Based on the stated setbacks, businesses need to manage diversity to mitigate any associated challenges.
One of the strategies used by managers to alleviate diversity issues is functional flexibility, which presupposes training various employees multiple skills to make them suitable to work in different departments within a company (Machado 2016). The presence of flexible employees in a business makes departmental reshuffles possible, a situation that reveals how people from different organisational units interact to mitigate any threatening challenge.
To support the argument that the government should regulate the composition of corporate boards, Casal and Caspar (2014) explore the case of Bacardi- Martini, a UK-based company. The performance of the company has received acclaim to the point of getting extensive coverage in the news; also, it increased shareholders’ value throughout the past decades. The company employs about 550 workers in all its subsidiaries. However, according to Casal and Caspar (2014), an interview with the company’s HRM reveals that the company experiences various challenges regarding human resources. The challenges include diversity issues, conflict of interest between managers and the employees, and diminished morale among the workforce.
To overcome the challenges, the firm embraced diversity in its corporate board in which people from both genders were incorporated (Devillard, Sancier-Sultan & Werner 2014). This approach is known to be beneficial from multiple perspectives, including those related to performance, reputation, morale, and legal requirements (Kamalnath 2015). The strategy ensured that the business remained competitive against the backdrop of the heightening competition in the industry.
Both the employer and the employees benefitted from the arrangement, which made the company attractive to the stakeholders. For the employer, the practices led to increased profits while workers benefitted from augmented salaries (Devillard, Sancier-Sultan & Werner 2014). The example can be viewed as an illustration of a successful improvement of the board through the designation of its contributors.
Some examples of the government issuing helpful board-improving legislation can also be offered. Bhagat, Hirt, and Martin (2013) use the Sarbanes-Oxley Act to illustrate the need for governments to regulate the operations of the corporate boards. The mentioned Act was enacted to regulate the operations of companies following numerous scandals such as Enron and Layman Brothers. The companies’ fall prompted the US accounting body to make changes to its reporting standards. The changes were facilitated by the enactment of the Sarbanes-Oxley Act that defines the reporting standards.
The SOX Act is meant to improve the precision of commercial admissions to shield depositors. Under the Act, companies’ CEOs are held responsible for losses incurred by an investor who relies on their financial statements to invest in the corporation in question. The Act also establishes new reporting standards, penalties for failure to comply, the independence of auditors, and the limits of engagement between auditors and corporate managers. Under the Act, all companies in the US should provide an annual report on the effectiveness of their internal controls (Bhagat, Hirt & Kehoe 2013).
The Act also establishes an oversight board in every company to act as a watchdog for large companies. The oversight board is responsible for setting auditing standards, thus leading to uniformity in accounting systems that are used in different companies. The Act also prohibits auditors from offering additional services to their clients. Thus, their independence is maintained. Since its enactment, scandals were drastically reduced, as CEOs would fear to engage in such undignified practices to avoid liability. This outcome illustrates the effectiveness of government interventions in mitigating business malpractices perpetrated by the directors.
In a similar discussion, Agnihotri and Bhattacharya (2015) explore the issue of corporate governance in reference to India. India has lagged behind in the efforts to establish standard corporate governance principles for a long period of time, but the situation changed in 2011. That year, the country made an attempt at determining the rules that it would use to frame its corporate culture by passing the so-called ‘companies bill’ that contains the key governance principles which are approved by the Indian parliament.
The bill borrows much of its content from the UK corporate governance principles. As a result, it faced criticism because of the differences between the two countries: for example, the UK has an open market while India has a closed market. Before the ratification of this bill into an operational regulation, the Securities and Exchange Board of India (SEBI) played an oversight role in India’s business configuration (Pathak & Purkayastha 2016). The team established various suggestions that were executed in 2000.
The selected board has suggested the need to review the information about the principals that comprised the board of directors and insisted that the number of the supervisory and non-executive ones should have been roughly equal. The team also proposed the audit group to operate under the umbrella of a self-governing administrator. The stocktaking team was supposed to include no less than three administrators, with the financial regulator being regarded as an associate in the group. The fiduciary affiliation was eventually meant for the administrators. Their earnings were to be entirely revealed and permitted by the shareholders. Before the corporate governance laws were enacted, Indian companies could lose a lot of money to irresponsible directors. However, after the laws were enacted, cases of corporate scandals reduced drastically. This finding highlights the need for governments to intervene in the operations of company’s directors.
Apart from the examples of successful and reasonable regulations, several failures that can be attributed to the lack of regulation can be mentioned. For instance, Westphal and Bednar (2005) support the need for governments to regulate the composition of the corporate boards by claiming that such a move would increase the directors’ independence. The authors cite the fall of Enron to substantiate the view that the lack of government control contributes to the misuse of power by the board members. One of the reasons that led to the fall of Enron was fraudulent acts by the executives, which caused huge losses to the company. The corporation did not reveal the losses that were later witnessed from its contracts. The authors also focus on the unethical conduct of the company’s management.
Similarly, Bernstein (2015) supports the idea of government involvement in the recruitment of directors by analysing the case of Satyam. The company started to experience issues in 2009 after the decision to purchase a stake from the Matyas firms which was not approved by the shareholders; in fact, the stakeholders’ opinion was not solicited despite the legal requirement to do so. However, the decision received opposition from the shareholders, especially when they learnt that Matyas was owned by the family members of one of the managers (Marilen & Ana-Cristina 2013).
Ramalinga Raju, who was the executive director of the company at the time, also confessed to carrying out ghost transactions and ballooning profits. Such examples of shareholders being excluded from decision-making and harmed by a poor control over the managers of the company can be viewed as arguments for government interventions.
Arguments against Government Interventions
Other scholars in the field have argued against government’s interventions in the management of company boards. For instance, Daily et al. (1998) argue that a special body should be created to regulate the operations of directors, as opposed to engaging the government. The body should help to avoid the above-mentioned issues by clearly determining the specific obligations of the stakeholders, especially the owners and directors. The CEOs of companies should not be allowed to own many shares in a business since this move might give them the power to make influential decisions without involving other directors (Yu & Zheng 2014).
The directors’ recruitment should be carried out by a group of independent directors within the companies’ boards; the decision must be made through the analysis of the experience and skills of the potential directors to ensure a merit-based choice (Ahmed 2015). On the other hand, a limit must be chosen for the directors’ terms; a one-year period for every director should be appropriate. The end of the term does not mean that the director cannot service the company anymore, but the election process must be repeated. Each company should be required to establish a strong code of conduct that would be based on honesty, transparency, and integrity. Ongoing, regular assessments should be carried out to control the process and ensure that the provisions are carried out to the letter. This way, there will be no need to involve the government.
Another option that can keep the government out of the situation presupposes dealing with the above-mentioned issues with business tools. Although the numerous frauds that are committed by company directors are likely to have multiple causes and reasons, at least one of them, which is particularly prone to leading to deceptions, may be the fact that businesses tend to lack properly defined guidelines and rules that would control business conduct (Ricard 2015). Similarly, Ricard (2015) points out that the lack of a proper implementation of the rules may be another issue that causes frauds. Although cases involving deception cannot be fully controlled, they can be reduced by employing preventative measures, especially since it is possible to detect some of the reasons.
For example, according to Dedman (2003), instances of fraud can be reduced by applying the following two approaches: preventative and palliative ones. A palliative control measure involves the alteration of the existing methods and the introduction of new ones. When it is properly carried out, this control option should be able to detect fraudulent activities. The alternative (preventative) measure refers to preventing such fraudulent activities before they cause significant harm, which seems to make it superior both from the short- and long-term perspectives. The mentioned measures already exist in current corporate laws, but it is difficult to check if they are well-implemented. If corporations could embrace the rules, there would be no need for the government to regulate the company directors.
The diversity issue can also be handled by organisational means. Adams and Ferreira (2009) observe that although diversity can create problems amongst the board members, it can lead to better performance if the multiplicity issues are well managed. Diversity management typically requires a code of conduct, which should contain all the guidelines on diversity-related behaviour for all the employees and employers. Non-compliance should involve penalties. This strategy ensures that employees remain committed to acting ethically to avoid the penalties, which they were part of their formulation (Ahern & Dittmar 2012).
In other companies, diversity problems are managed through the establishment of a healthy organisational behaviour. Organisational behaviour can be described as a particular field of management that refers to people’s conduct (Wood, Zeffane & Fromholtz 2015). A successful business has to manage its human resources in a most effective manner, which is crucial for gaining a competitive advantage (Armstrong & Taylor 2014). One of the objectives of organisational behaviour management is to remedy the diversity issues that may arise. In particular, organisational paradigms (for example, values and norms) and policies can be modified to improve the organisational behaviour with respect to minorities (Kulik 2014).
Some examples that are described by Ozeren (2013) deal with the organisations that implement policies which promote a safe environment for LGBT employees and employers; the results include an increased number of coming-outs and overall improvement of the performance shown by LGBT stakeholders.
The author uses these examples to criticise the policy of “don’t ask, don’t tell,” which he shows to be guided by the idea that the presence of LGBT employees and employers is likely to lower the morale of other employees. Instead, Ozeren (2013) reviews the evidence which shows that LGBT-friendly environments foster more open communication, increased job satisfaction, and better performance in non-LGBT people as well (p. 1206). This illustration can be used to explain the need for effective diversity management, demonstrate its potential positive outcomes, and indicate that organisations are capable of managing this issue without governmental incentives or interference.
The human resource is apparently one of the firm’s key assets that directly affect its output. Thus, human resource management is a priority for managers, which highlights the significance of effective work with the behaviour in an organisation. Therefore, this field of management can also be viewed as a tool that business can use to improve the conduct of their boards without governmental interference, although it can be implied that some governments might exert additional influence through the diversity-promoting laws that were mentioned above (Ozeren 2013).
Conclusion
In the recent past, various scholars have come out to support the intervention of the government in setting up corporate boards. The supporters of this school of thought argue that the government’s interventions can lead to diversity in the boards. Diversity is a crucial element of the board that is attributed to the good performance of a company. Conversely, in a situation where the board members have a commonality of interest, it is easy for them to manipulate each other to defraud a company.
However, other scholars in the field dispute the view on the grounds that government interventions may lead to bureaucracies in the recruitment process, a situation that may be harmful to companies. Additionally, the opponents of government interventions claim that diversity cannot guarantee good performance. This paper has reviewed the literature concerning the topic. It has found that the government’s intervention may be important in streamlining the operations of company boards while alternative solutions are also present.
Reference List
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The government and business participate in the process of executing their respective economic roles. The government plays the role of governing by controlling and directing people on how to carry out their economic activities.
The administration controls and guides various state parties or persons who have the power of developing the courses of action. Business entities constitute one of the parties within a state, which the government has a share in their operations.
Business entities encompass all organizations that engage in the trading of goods and services. Governments and business entities demonstrate a mutual relationship.
Businesses thrive in environments in which the government has established policies to guide their conducts through the enactment and development of authoritative rules or a condition that customarily governs behavior while not curtailing businesses’ fundamental freedoms.
For example, businesses must serve the interests of the communities. Thus, the government ensures equal public participation in business processes. Should the government engage in the regulation of all businesses, including their decision-making process and the setting of their policies?
This paper addresses the role of government regulation on businesses. The goal is to determine whether businesses should operate as free entities by ensuring deregulation.
The Role of the Government in Regulating Businesses
The government plays a proactive role in ensuring a fair play of businesses in the process of executing their functions. In all markets, the government regulates the conduct of business players. Indeed, even in liberalized markets, businesses should be monitored to avoid unethical practices among the competing entities.
The government safeguards the environment, promotes fair labor practices, and/or guarantees healthier working conditions while at the same time setting the minimum wage for workers. Businesses also have a responsibility of developing their self-regulatory models.
However, the government should play the ultimate role in ensuring that the set standards are met and that all stakeholders operate within the laid down regulations.
Organizations are established to perform different functions depending on whether they are profit-making or non-profit-making entities. For profit-making organizations, their strategies are developed consistently with the profit maximization behavior in mind.
Thus, business strategies are formulated in accordance with the need to enhance the performance of a firm in the short and long term. Rumelt, Schendel, and Teece (2009) provide evidence for this assertion by claiming, “As never before, strategic management academics have adopted the language and logic of economics” (p. 5).
The magnitude of profit is one of the most crucial parameters to measure business performance. In this context, neoclassical economics firms are characterized by profit maximization.
Such firms make products through the deployment of cost-analysis formulas that ensure that marginal revenues are equal to marginal costs. While increasing profit levels, minimal costs should be less than marginal revenues.
Without appropriate regulation, the profit maximization behavior may be explored as a business policy without paying ardent consideration to the negative consequences of their cost reduction strategies on stakeholders.
Therefore, the government needs to engage in business regulations to protect the interest of various stakeholders who may be harmed by a business entity when it is permitted to make decisions without appropriate guidance.
The government has interest in the regulation of businesses in the context of various issues such as health, safety standard in administrative centers, wages and salaries, advertising, imposition of taxes, and other items that relate to employee fundamental rights.
Organizations increase their profits by pushing the maximum number of products to the market. This process involves promotion through advertising. Organizations can engage in unethical practices in advertising simply to make high sales if not controlled by the government.
This claim means that through regulation, the government ensures that all marketing efforts guarantee that the target audience gains the highest good from the products. This role is well played out by the US government through its regulation of business entities.
For example, FDA has different regulations on the advertisement of pharmaceutical products. In case of advertisements of products with claims, an organization must make a fair balance in the advertisement through the inclusion of the likely risks in “major statement’ and ‘adequate provision’ for access to ‘brief summary’” (Ventola, 2011, p.682).
This strategy helps to avoid the transfer of product risks to their intended consumers who are targeted by business entities’ advertising campaigns.
In the US, state and federal laws protect individuals and organizations’ intellectual properties (IP). Thus, one of the issues that relate to IP entails theft or infringement of copyright. The IP bears national and international perspectives.
National laws and regulations control and protect patents. International conventions guarantee that the licenses have specific rights while also ensuring that laws exist to enforce the rights in contractual relationships.
Legal litigation involving IP resolves the question of whether the defendant has copied the claimed work or invention or whether the plaintiff owns the claimed work.
Therefore, through regulation by means of legislation, the government ensures that the operations of a business entity do not lead to infringement of other state parties’ rights.
These expositions reveal how the government plays the role of ensuring a fair play in business practices and relations through the development and implementation of regulations with which business entities must comply.
The government plays an essential role in regulating businesses to ensure environmental sustainability. To this extent, companies are required by state organizations that are in charge of regulating business conducts, especially if they interfere with the environment, to ensure that they produce and distribute green products.
Indeed, ensuring sustainable modern supply chains is essential for businesses, especially following the heavy emphasis on producing and giving out green products in the effort to curb environmental degradation.
Adopting green business strategies is not only a measure for ensuring sustainable long-term business operations but also a measure for ensuring that an organization behaves and acts in a socially responsible manner.
This claim reveals how government regulation can help businesses to develop strategies for ensuring environmental cautiousness by setting acceptable standards in relation to waste generation and disposal.
Although individual states have environmental regulations, government agencies and international treaties may also create additional directives.
For example, in the US, the Environmental Protection Agency plays the role of enforcing various environmental laws that are enacted by the federal governments.
It accomplished this mission through inspections, enhancing, and ensuring transparency and accountability in business operations to the environment. It also guarantees compliance with the established laws.
Apart from the environment, the labor sector is another crucial area of government regulation. Businesses face the changing government regulations. In fact, employment and labor constitute one of the areas that the government has an interest in establishing rules in a bid to safeguard the interests and rights of workers.
In the US, employment and labor laws relate to the regulation of minimum wages, compliance with health standards, safety in the work environments, equality in terms of accessing employment opportunities, and privacy regulations among other issues.
One of the most important mechanisms for regulating employment and labor is ensuring employees’ freedom to choose to remain employed by a business establishment without any coercion. In the US, the government ensures that businesses respect this right through the employment-at-will doctrine.
With an exception of Montana, in all regions in the US, employment contracts are guided by the employment-at-will doctrine. In other nations, employment dismissals are based on reasonable causes.
States that retain the at-will-presumption assert that the law is essential in respecting contract freedoms and/or ensuring employer reverence. Instead of job security, most employers and employees prefer the presumption.
The employment-at-will doctrine holds that employers have the right and freedom of terminating employee(s) at any particular time for whatever reason they deem necessary apart from an illegal purpose and/or when an organization does not incur any liability.
The doctrine also allows employees to quit their jobs any time without giving any reason or having to issue a notification. Once they follow this path, they should not face any legal consequence.
Government regulations of conducts of businesses through doctrines such as the employment-at-will attract criticisms to the extent that some companies may capitalize on the available loopholes to disadvantage some employees.
For instance, the at-will presumption gives employers the freedom to alter employment terms without giving prior notice and/or without attracting any legal consequences. This observation means that employers can change wages and salaries and withdraw certain benefits without any legal liability.
Therefore, in the absence of any modification, the laws open employees to the vulnerability of arbitrary dismissals or being called for work without following any schedule to meet the employers’ needs.
In many states, including South Carolina, contractual terms modify the employment-at-will doctrine. For instance, employers and employees can enter into contracts with the provision for termination in an event of a cause.
In South Carolina and other states, apart from Montana, negotiations for contractual employment terms are mainly done with top-ranking employees only.
This situation leaves low-ranking employees with the collective bargaining as the only option for modification of the employment-at-will doctrine that is anchored in employment and labor laws.
This case suggests that the adherence to proper principles of protection of employee rights also requires not only government regulations through laws, but also the willingness of businesses to participate with goodwill in the development of policies for protecting employee employment relations.
Should the Government Intervene to Protect Culture, Enforce Minimum Wages, Safety Standards, and/or Prevent Unjust Discrimination?
Profit-making businesses embrace bargaining economic models in realizing their objectives. The model “presumes that an organization is a cooperative, sometimes competitive, resource distributing system” (Barney 2007, p.68.).
Competitiveness in the allocation of resources is enhanced through strategies, for instance, cost reduction in relation to the anticipated returns on investments.
In this context, Collins and Jerry (1996) reckon, “Decisions, problems, and goals are more useful when shared by a greater number of people with each decision-maker bargaining with other groups for scarce resources, which are vital in solving problems and meeting goals” (p.87).
The proclaimed goals refer to the aims and objectives of an organization as stipulated in the businesses’ action plans and terms.
Strategic plans establish action plans that are established in the implementation plan procedures (Barney 2007). The concept of cost reduction that is embraced in business strategic management approaches is analogous or even equal to the cost elements that are used in profit-maximization models.
For maximum profits, costs must remain low. In some situations, this process may involve the cutting down of labor costs and/or reduction of benefits provided to employees.
Therefore, the government needs to get involved to ensure that businesses provide wages and salaries that can enable employees to live a worthwhile life.
Under the principles of corporate social responsibility, businesses have a responsibility to ensure that they do not just serve their interest while ignoring the benefit of other stakeholders.
While this situation is expected to streamline business behaviors, checks are essential for businesses that fail to comply with corporate responsibility ethical requirements by exploring discriminatory policies, exploiting employees, and/or failing to ensure safety standards among other issues.
Therefore, the government needs to intervene to regulate businesses to enforce minimum wages, safety standards, and/or prevent unjust discrimination. Indeed, safety comprises an essential factor that many governments control across the globe. Protection may apply to workplaces and in products and services.
The US government ensures ardent regulation of businesses with respect to product safety. Product safety involves proper product labeling and description of packaged contents.
The ingredient that is described on the product label should not only match the contents, but also reveal the substances that are permitted by the Foods and Drug Regulation Administration (FDA) body. The FDA inspects mass-produced products to ensure that businesses meet this ethical requirement.
This plan ensures that unethical businesses do not sell unsubstantiated products, which may cause damage to their consumers.
The government has the responsibility of ensuring that businesses do not explore discriminatory policies while employing people or evaluating contracts bids. The 2009 data from the US Census Bureau depicted a close relationship between small business populations’ racial and gender characteristic.
According to the data, women represented 28 percent of all active contractors. This figure corresponded to 28 percent of their total share of the population of people who engage in small businesses that focus on contracting or subcontracting with federal governments.
From the context of minority groups, data from the same organization showed that persons of color accounted for 24 percent of all active small business contractors against their population of 20 percent in the overall population of small businesses.
This data indicates that small business owners have equal opportunities in winning a federal contract, irrespective of gender, or racial demographic characteristics.
Apart from the federal governments, even in private business establishments, the government has a responsibility for ensuring equality and fair play among different business industry actors.
It is essential for the government to ensure that organizations do not engage in practices that lead to the exploitation of employees in terms of salaries and wages by regulating minimum payments and/or denying benefits such as health insurance.
It also needs to intervene to guarantee that unjust discrimination does not occur. However, it is essential to note that some otherwise considered discriminatory practices are beyond the government control.
Female small industrialists encounter challenges that are articulated to business formation and equal engagement in government contracts.
In the effort to ensure that the businesses overcome these challenges, the US government has created policies such as affirmative action to increase the number of minority-owned small business firms that can secure government contracts.
For instance, it has established a policy that requires the reservation of 5% of all contracts that are awarded by federal governments to minority-owned small businesses (Trechiel & Scott, 2006).
Nevertheless, such policies do not necessarily translate into increasing the number of marginalized people-owned small businesses that engage in government contracting. Why does this situation occur?
Inequalities exist between men-owned and women-owned small businesses. The organization reveals that women-owned business revenue accounted for only 9 percent of the entire US economy in comparison with the 36 percent contribution from the revenue that was generated by the men-owned small business enterprise in 2011.
This observation suggests that in case women increase their revenue objectives to equalize with small businesses that are owned by men, they are likely to make a more significant economic impact. However, a scholarly question emerges on how this goal can be accomplished.
Trechiel and Scott (2006) suggest that women small business owners lack adequate “negotiating, assertiveness, and decision-making skills” (p.52).
Government regulations fail to resolve any inequality that arises from differences in expertise levels. Government regulation only provides legal processes that ensure that the best business owners in terms of skills and knowledge bases acquire contracts and opportunities to do business with it.
In the process of protecting employee interests, the government needs to take part in the development of policies for regulating business conducts. The plans should address the freedom of unionization.
Labor unions are essential in different nations. They ensure the protection of employee interests. They fight for better salaries and wages, reasonable working hours, and safe and conducive work environments for their members.
Labor unions also fight for unsuitable forms of labor, such as child labor. They ensure that employees gain health benefits. They also support people who are injured in work environments to pursue their rights through the payment of damages.
This claim suggests that the government needs to support the ordinary course that employees pursue through labor unions. Such a course reflects significant areas of concern to the government while developing employment and labor regulations.
Businesses have different cultures. As a way of making sure that all organizational stakeholders focus on common goals and objectives, it is essential for them to subscribe to a common form of thinking, interacting, and upholding values and norms.
Organizational norms, standards, and ways of thinking define an organizational culture, which needs to be aligned with the operations of a business entity.
Organizations’ cultural elements constitute some underlying assumptions that when adopted and observed by all stakeholders, especially the diverse workforce, can aid in enhancing the success of a business entity.
This claim suggests that any government interference with a business entity’s traditions through cultural regulation influences the variation of norms and values that differentiate business entities.
Thus, such regulations may create an inappropriate organizational cultural hegemony within a nation after considering that a culture is an essential aspect of business entities’ competitive advantage.
While it is crucial for governments to regulate some aspects of business, others such as culture are inappropriate. An alternative to government regulation of businesses entails allowing organizations to behave as good corporate citizens.
They need to self-regulate themselves in matters of cultures, policies on minimum wages, safety standards, and/or protection of employees against unjust discrimination.
An emerging question is whether organizations should protect culture, enforce minimum wages, safety standards, and/or prevent unjust discrimination through self-regulation.
Self-regulation of Businesses
Government regulations are important in ensuring that businesses balance the interests of different stakeholders rather than focusing on profit maximization behavior.
However, in the absence of government regulation, business entities also need to develop their internal mechanisms for ensuring protection of their cultures.
They need to shun from exploring policies that encourage unjust practices such as discrimination or failing to provide safe and healthy working environments for their employees.
A good functioning of an organization requires control and monitoring. One of the ways of ensuring self-regulation in business entails respecting the principle of corporate responsibility and corporate governance.
Corporate governance comprises one of the ways of controlling and enhancing the monitoring of business operations.
At its basic premise is the need to alleviate disagreements of interest among partners. This agenda is mostly accomplished through the enactment of various customs, laws, processes, policies and institutions, which have enormous repercussions in terms of affecting the manner in which businesses are controlled.
Eliminating conflicts of interest between businesses and employees requires firms to develop and implement policies that guarantee fundamental freedoms of employees, including unionization.
Corporate governance policies and other control structures may help to regulate employee conducts and decisions by defining what is ethically permitted. However, organizational culture may act as important regulator of employee decision-making processes.
Businesses owners need to effectively deploy strategic initiatives to instill an influential culture of loyalty, which helps to drive ethical decision-making processes among employees. Through utilitarianism as an appropriate ethical theory to influence business culture, self-regulating becomes possible.
For example, as a self- regulation mechanism, businesses can deploy utilitarianism to regulate employee cultures so that without government regulation, different stakeholders can act in a manner that guarantees utmost good for all.
In the formation of organizational cultures, governments’ influence is inappropriate after considering that regulations must apply harmoniously within different organizations. This situation creates a government-induced cultural hegemony in various businesses. Thus, they lack the opportunity to differentiate themselves.
Therefore, governments should not regulate organizational cultures, unless where such cultures pursue policies that are misaligned with the acceptable practices in corporate social responsibility and ethics such as failure to embrace organizational diversity, which may lead to discrimination of employees on racial, ethnic, and gender lines when remunerating them or giving various benefits.
Although organizations should not be regulated by influencing or protecting cultures, regulation is essential on other matters such as enforcing minimum wages, safety standards and preventing unmerited favoritism.
This position is held with reference to the various experiences in which businesses have pursued policies that disadvantage employees through their exploration, amid the existence of government regulations on these issues.
For example, over the last decade, some major manufacturing organizations have encountered criticisms over exploration of policies that have led to the re-emergence of sweatshops accompanied by discrimination and the paying of low wages.
Some business entities, especially in areas that are exempted from minimum wage laws and/or regions that are dominated by consistent denial of the freedom to unionize, employees are often subjected to poor working conditions and low pay. In such businesses, child labor is also high.
The current US government labor laws prohibit businesses from employing minors. The government also places legal requirements that improve the rights of workers, such as setting minimum wage and the number of hours per work shift.
This achievement has been realized through intensive struggles of labor movements against sweatshops that appeared during the industrial revolution. Such regulation ensures that organizations do not self-regulate themselves on matters that undermine the rights of the citizenry.
This position is perhaps correct considering that failure to comply with the established business conventions may not attract any legal liability.
In this context, Powell (2012,) asserts, “trade unions, minimum wage laws, fire safety laws, and labor laws have made sweatshops rare in the developed world” (p.452).
Nevertheless, such achievements have not eliminated sweatshops in the US, although the term is more related to manufacturing organizations in the developing nations.
This claim suggests the necessity of government regulation for businesses to ensure that they continue respecting human rights in their policies rather than just focusing on increasing their profitability by overworking employees or paying them low wages and salaries.
Businesses have the responsibility of motivating their employees, enhancing safe working environment, and/or guaranteeing job satisfaction. Therefore, government regulations on work environment standards also produce positive implications for businesses.
Employees who are treated poorly produce goods that fail to pass the quality test. Through government regulations, appropriate conditions are also created for businesses to benefit from employee commitment.
Self-regulation in some businesses gives them the freedom to explore policies that are not in agreement with employee safety and health. For example, it is common in China and other developing nations to find garment factories in which workers execute their daily routines in an environment that has fiber-dust enriched air.
Permitting businesses to pay their workers without following government-enacted regulations on minimum wages only creates the likelihood of companies to underpay them or keep on reviewing their salaries and wages upward and downward.
Such a situation exposes employees to business operational environment dynamics to the extent that they cannot plan their lives well. This claim is perhaps well evidenced by the case of Honduran garment manufacturing factory.
In 2003, employees at the factory were paid only USD0.24 for every shirt and USD0.15 for a long-sleeved t-shirt. Shirts went for USD50 in the retail market. This finding suggests that even if a worker makes 100 shirts in a day, he or she will still not afford a single shirt that he or she makes, notwithstanding other daily needs.
Therefore, the government needs to intervene to regulate Honduran garment in terms of imposing regulations on minimum wage and salaries.
For several years, Nike has faced criticisms for employing children in its Cambodia-based plants. However, the company refuted the accusations claiming that it was possible for people in Cambodia to fake their age by corruptly obtaining false documents.
The company uses a minimal portion of the cost of production of its pair of shoes (70 pounds) in the payment of labor.
Whether this assertion is true or not, government regulation of minimum wages and salaries can help to eliminate such negative accusations, which may impair the success of a business, especially where some nations prohibit the exportation or importation of products that are produced with child labor, discrimination, and/or in unsafe work environments.
Apart from the criticism for the violation of labor laws that govern the operation of manufacturing businesses in the US, other objections have been raised in other factories such as Addidas. Among the major concerns in these businesses are low wages and poor conditions of working in Asian-based production plants.
Bad working conditions pose a major threat to employee safety or occupational health. Therefore, the government needs to mediate to discourage self-regulation by putting in place regulations for enforcing minimum wages and safety standards while at the same time preventing unjust discrimination.
Conclusion
Businesses need to operate with policies that ensure that they defend the welfare of all their partners. Corporate governance and corporate responsibility may aid them to eliminate unjust discrimination, underpayment of employees, and the development of a business culture that undermines employee rights such as unionization.
However, businesses that seek to operate as good corporate citizens develop and implement such principles. However, this move may not serve interest of all businesses.
Therefore, by allowing the freedom of self-regulation on matters of minimum wages, safety standards, and preventing unjust discrimination, some businesses may exploit employees with the objective of making optimal profits.
Consequently, government regulation is relevant on issues such as minimum wages, safety standards, and preventing unjust discrimination. However, it is essential to create a nationwide business cultural hegemony. Thus, self-regulation of businesses on matters of protection of culture is essential.
Reference List
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