Would the Entine and Jennings model mean that Fannie Mae could be labeled an “honest” company?

http://chartpoppers.com/fannie-mae-otc-fnma-hedge-fund-rally-dead-cat-bounce-and-spectacular-gains/

Fannie Mae did not comply with the laws or regulations and in this answer alone Fannie Mae would not be labeled an honest company, at least not for the years around 1995 to 2008.  Perhaps when Fannie Mae started in 1938 the organization was compliant with the laws and regulations set forth for such an organization.  But when it “was rechartered as a shareholder-owned corporation with the responsibility of obtaining all of its capital from the private market” (Jennings, 2012, p. 121) in 1968 the honesty within the company in my opinion starts to be questionable.  For the simple fact that now in order to gain its capital it would be up to individuals in a market, where the shareholders would either profit or lose money depending on the performance of the organization.   Even though they were named “the most ethical company in the United States” in 2004 they did not obtain this title honestly, sure their customers (the ones obtaining the loans for mortgages) were happy with them because “from 2004 to 2006, the company operated without a permanent chief risk officer” (Jennings, 2012, p. 130) leaving the risk taking to then-CEO Daniel Mudd who had an internal reputation of sidestepping warnings of wrong doings.  The company was not forthcoming with information, instead they tried to cover up the truth, or manipulate it to their advantage in order for the senior officers of the organization to benefit buy gaining a substantial AIP Award Bonus.  Once these bonuses were announced the greed the senior officers obtained distorted their obligation to be forth coming with information and comply with the laws and regulations.  Employees of Fannie Mae, even some of the upper level managers, expressed their concern with the organizations accounting practices and other business relations.  For example Louis Hoyes voiced his opinion of ‘moving’ $40 Million of income in order to meet the goals set in order for the senior level officers to obtain their bonuses etc.  Even though he questioned the ethics behind the deal, and voted no on the ideal. “No further action was taken on the question raised; the deal went through as planned, and the income was shifted to another year.”  For me, it doesn’t take the mindset of an accountant to make the assumption that ‘shifting money to another year’ sounds not only unethical but illegal.  So for me I would say based on Entine and Jennings model, Fannie Mae is not an ‘honest’ organization, and in order to be deemed an ‘honest’ organization in my books they have a long ways to go and a lot to prove.

 

References

Jennings, M. (2012). Business ethics: Case studies and selected readings. Australia: South-Western, Cengage Learning.

Entine and Jennings’ Eight Questions Vs. Traditional Measures of Social Responsibility

In traditional measures of social responsibility “businesses profit by being responsive to society and its needs” (Jennings, 2012, p. 112) whereas Entine and Jennings views creates a ‘soul’ perspective of the organization.  By ‘soul’ perspective Entine and Jennings basically have the idea that an organization should only participate in the bare minimum in order to comply with the law, stay honest and forthcoming, treat their employees well, and its charities.  Traditional ways of social responsibility pretty much focus on one groups benefits and generally for the purpose of creating the most profits for the owner or shareholders.  Entine and Jennings focuses on the whole society and organization as one entity and in order to complete the cycle each portion that makes up the society and organization must equally benefit in order to succeed.  Entine and Jennings states the need for an organization to be honest and forthcoming with information that is of importance to the employees and society, whereas some traditional measures would only allow information to be released if it was forced to do so in order to keep a company shareholders pockets more heavily lined.  Traditional measures generally used a balanced scorecard that measured its social responsibility by four perspectives;

• Financial perspective – how does the firm look to shareholders?

• Customer perspective – how do customers perceive the firm?

• Internal business perspective – what must the firm excel at?

• Innovation and learning perspective – can the firm change and improve to make its vision come true? (Aras & Crowther, 2010, p. 93)

By Entine and Jennings standards these four perspectives do not meet the qualifications of ‘social’ respnsibilities, and even Aras and Crowther state that “the balanced scorecard fails to incorporate environmental and social aspects of an organisation”, however they mention that “Figge et al. (2002) suggest that their concern with the balanced scorecard is that the logic of all the four perspectives are ‘almost exclusively in the economic sphere’ (p. 274)”. (Aras & Crowther, 2010, p. 95)  Entinte and Jennings has a more rounded view of how to determine an organizations social responsibility by defining its ‘soul’.  These eight questions that make up the characteristics of an organizations soul per Entine and Jennings;

Questions to ask:

• Does the company comply with the law?

• Does the company have a sense of propriety?

• How honestly do product claims match with reality?

• How forthcoming is the company with information?

• How does the company treat its employees?

• How does the company handle third-party ethics issues?

• How charitable is the company?

• How does the company react when faced with negative disclosures?

Found on page 104 of:

Jennings, M. (2012). Business ethics: Case studies and selected readings. Australia: South-Western, Cengage Learning.

Entine and Jennings’ Views in Contrast with Friedman and Freeman

After reading the articles by Milton Friedman, R. Edward Freeman, Jon Entine and Marianne M. Jennings I have come to the conclusion that all deem it favorable for organizations to “devote resources to providing amenities”(pg 94) for the community in which the organization resides.  Freeman’s views are characteristic to the old saying ‘pat my back and I’ll pat your back’ meaning that an organization must contribute to the overall well-being of a community for the community to support the organization.  “The local community grants the firm the right to build facilities and, in turn, benefits from the tax base and economic and social contribution of the firm.” (Jennings, 2012, p. 100)  Friedman only advocates social responsibility if it “(a) makes it difficult to recruit and retain employees; or (b) offers the prospect of adverse publicity or litigation that diminishes its ability to compete” (Jennings, 2012, p. 102-103). Entine and Jennings mention that “business and business ethics are much more complex than the breeziness of social responsibility” (Jennings, 2012, p. 102), so Entine and Jennings are on the same page with Friedman that the social responsibilities need to be monitored closely.  It appears that Entine and Jennings feel that businesses can get too carried away with helping the community to the point where the organization will suffer because they have been blinded to the health of the organization by ‘beefing up’ the communities health.  If an organization is not careful they will give away all of their profitable resources and this will in turn hurt the employees of the organization which will also contribute to the downfall in the health of the community.  Organizations and communities need each other in order to maintain a healthy presence.  Organizations have the free will to the extent it will help the community and while helping the community will help their organization helping the community too much will harm both the community and the organization.  Entine and Jennings are correct when they say that social responsibility is a very complex portion of an organizations survival, it has to be approached with statistics and careful planning in order to create benefits for the organization and community alike.

References

Jennings, M. (2012). Business ethics: Case studies and selected readings. Australia: South-Western, Cengage Learning.

Assessing Corporate Social Responsibility

Questions to ask:

• Does the company comply with the law?
• Does the company have a sense of propriety?
• How honestly do product claims match with reality?
• How forthcoming is the company with information?
• How does the company treat its employees?
• How does the company handle third-party ethics issues?
• How charitable is the company?
• How does the company react when faced with negative disclosures?

Found on page 104 of:

Jennings, M. (2012). Business ethics: Case studies and selected readings. Australia: South-Western, Cengage Learning.