BUSI 101 Week 2 Discussion Board Forum 1 Replies Example

Discussion Board Forum 1 Replies: Responding to Classmates on Profit and Stakeholders

BUSI 101 Introduction to Business, Discussion Board Forum 1 Replies

Thread by [Student Name]

The classmates and their threads are composites; the studies, textbook and Scripture cited are real.

Reply to Brandon

Brandon, you argued that a company's only responsibility is to earn the highest return for its shareholders, since they own the business and take the risk. I agree that owners deserve a fair return; Nickels et al. (2018) describe profit as the reward for the risk a business takes, and without it no one would start a firm. I would add, though, that serving shareholders well over time requires attention to other groups.

Jensen (2002), who strongly defends value maximization, still argues that a firm cannot maximize its long-run value while ignoring employees, customers or communities, because each of them affects future earnings. A company that cuts training to raise this quarter's profit, for example, may lose skilled workers and customers next year. In that sense, caring for stakeholders is part of serving shareholders, not a departure from it. The textbook's own examples make the same point: firms that win loyal customers and keep good employees usually earn more over time than firms that treat both as costs to be minimized. Shareholders who plan to hold a company for years benefit from that loyalty as much as anyone.

Scripture also warns against short-term gain. Proverbs warns that money grabbed in a hurry shrinks, and that slow, steady gathering is what grows (English Standard Version Bible, 2001/2016, Proverbs 13:11). Profit squeezed out of people this year is often paid back with interest next year.

Do you think there is any situation where a manager should accept a lower return for shareholders, such as keeping employees on payroll during a short downturn? I ask because that choice tests whether a firm really believes its people are an investment or only says so in good times.

Reply to Jasmine

Jasmine, your thread argued that corporate social responsibility always pays because customers reward companies that do good. I share your view that businesses should care for their communities, and Nickels et al. (2018) give several examples of firms whose social commitments strengthened their reputations. I would be more careful about the word always.

Margolis and Walsh (2003) reviewed more than a hundred studies of the link between social and financial performance. About half of the results they examined showed a positive relationship, while the rest were mixed, not significant or, in a few cases, negative, and the authors warned that the research does not tell managers when or why social initiatives pay off. A small business that spends heavily on a cause its customers do not notice may simply lose money. The authors also pointed out that many of the studies measured social performance and profit in very different ways, which makes it hard to compare their results or to draw a single conclusion from them. That caution applies to the meta-analysis many of us cited as well, since an average across studies can hide large differences between industries.

That does not mean responsibility is a mistake. Jesus taught His followers to do good and lend, expecting nothing in return (English Standard Version Bible, 2001/2016, Luke 6:35). For a Christian owner, doing right is justified whether or not it raises profit, which is a stronger foundation than a promise that it always will.

How would you decide which social commitments a small business should make if it cannot be sure they will pay off? For example, would you favor causes connected to the business's own customers and neighborhood, or causes chosen for their importance regardless of any return?

References

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Jensen, M. C. (2002). Value maximization, stakeholder theory, and the corporate objective function. Business Ethics Quarterly, 12(2), 235-256. https://doi.org/10.2307/3857812

Margolis, J. D., & Walsh, J. P. (2003). Misery loves companies: Rethinking social initiatives by business. Administrative Science Quarterly, 48(2), 268-305. https://doi.org/10.2307/3556659

Nickels, W. G., McHugh, J. M., & McHugh, S. M. (2018). Understanding business (12th ed.). McGraw-Hill Education.