Fannie Mae - An "Honest" Company?

It seems these days, the terms Fannie Mae and "fraud" go hand in hand. But let's not jump to conclusions just yet.

For more than a decade, Fannie Mae achieved consistent, double-digit growth in earnings. In an interview, I would have asked them, "How? How are you guys doing it?"

To add on to that, in the same decade, Fannie Mae's mortgage portfolio grew by five times to $895 billion. When numbers are that big, it is inevitable that they will be examined a lot more carefully. The result when a company focuses on profits and greed? Bad business decisions. Take a look at how their top executives were banking. But, we all know that wouldn't last long.

Between January 2008 and March 2012, Fannie and Freddie would lose a combined $265 billion, more than 60 percent of which was attributable to risky products purchased in 2006 and 2007. In the end, you might say they got what was coming to them. Unfortunately, this affects everyone else around them.

However, let us recall the eight questions Jennings devised to determine the character of Fannie Mae's soul-- can it still be called an "honest" company? It is easy to say the answer is "no." As Jennings (2012) notes, their objective goal increase of $6.46 was enforced no matter what risks were involved. They most certainly do not have a sense of propriety as they held their own internal audits. They were able to hide from the public's eye for a good while as their desires for profits quickly turned into a ruse. In addition, when prompted with little bits of negative disclosure, Fannie Mae was quick to dismiss or cover up their actions. For this debacle to occur with a build up of several years, Fannie Mae had their chance at redemption at earlier times, but had to wait to be discovered by official means in the end.

Indeed, Fannie Mae is not an honest company. However, presently, they are doing much better post-collapse, but still a long ways to go.

References

Jennings, M. (2012). Business Ethics: Case Studies and Selected Readings (7th ed.). Cincinnati: West Educational Pub.

How to Measure Corporate Social Responsibility

Now that we've taken a look at a few different perspectives on corporate social responsibility, it is time to see how we can measure it. Some say there are benefits, others say everybody loses. Who is to say? Well, let's consider how Jennnings attempts to measure social responsibility. Jennings suggests there are eight questions that should be answered about a company to determine the character of its soul (Jennings, 2012):

1. Does the company comply with the law?
2. Does the company have a sense of propriety?
3. How honestly do product claims match with reality?
4. How forthcoming is the company with information?
5. How does the company treat its employees?
6. How does the company handle third-party ethics issues?
7. How charitable is the company?
8. How does the company react when faced with negative disclosures?

How do these compare with traditional measures of social responsibility?

For starters, these questions follow a strict guideline-- one that many large companies attempt to hide behind, whereas traditional measures may not be so strict. For example, let's say company X spends $100,000 on efforts to plant new trees. The public may view it as a good and charitable deed, labeling company X a "socially responsible" company. However, when put under the eight-questions lens, a dark truth may quickly surface. Indeed, some companies actually intentionally hide behind their social image to avoid detection in their unethical activities and scrutiny from the public (Glavas, 2014).

But, as Jennings (2012) has mentioned, "no company is ethically perfect." This is why she devised these eight questions to look at a company's soul from an objective standpoint, whereas a traditional view may overlook many of these questions and assume the wrong conclusion.

It is important to be aware of what goes on behind the scenes before making any proper judgments.

References

Glavas, A., & Kelley, K. (2014). The Effects of Perceived Corporate Social Responsibility on Employee Attitudes. Business Ethics Quarterly, 24(2), 165-202.doi:10.5840/beq20143206

Jennings, M. (2012). Business Ethics: Case Studies and Selected Readings (7th ed.). Cincinnati: West Educational Pub.

The Voices of Corporate Social Responsbility - What is that?

What is that?

According to Marianne Jennings (2011), "The theory of corporate social responsibility (CSR) holds that the primary responsibility of a corporation is to benefit society, i.e., companies should always act in the best interests of stakeholders and not just be accountable to their shareholders."

This definition sounds good as do many marketing schemes that advocate for a greener tomorrow, more jobs, and no animal-testing. Of course, often times, there is more to these statements than meets the eye, and brings up the question-- What does it mean to be "socially responsible" and to what extent should businesses partake in this task?



Let's start by analyzing the views of the late Dr. Milton Friedman. Frankly put, Friedman (1970) believes the social responsibility of business is to increase its profits. Here's why:

• Profitable business activity benefits society in numerous ways such as job creation, new goods & services for customers, profits for shareholders, and economic growth.
• Corporate executives can only act as agents to their shareholders.
• If this sense of responsibility is left too broad, he brings in the "tax argument" and it is “intolerable as a matter of political principle” and is anti-democratic.

Similarly, since we mentioned shareholders, Edward Freeman (1994) shares similar thoughts with his Stakeholder Theory. Freeman states that the shareholders or stockholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them. The catch to his theory is that other parties are involved including governmental bodies, political groups, trade associations, trade unions, communities, financiers, suppliers, employees, and customers. In the end, for both Friedman and Freeman, the main objective of CSR is to satisfy the needs of shareholders.

In contrast, let's take a look at Entine & Jennings' views on the matter. As mentioned earlier, Jennings' definition of CSR not only addresses the needs of the shareholders but also that of the stakeholders. The problem is... not every stakeholder is the same. Jennings and Entine point out several flaws with CSR including:

• Does not provide resolution when stakeholder interests are at odds.
• Only applies to large companies.
• "Rain-forest chic" used as a screen for buying decisions (Entine & Jennings, 1998).

So, clearly, many flaws have been identified with the system, and it is still being developed today. What are your thoughts on Corporate Social Responsibility?

References

Friedman, M. (1970). The Social Responsibility of Business Is to Increase Its Profits. New York Times Magazine, (32-33), 122-126.

Jennings, M. (2012). Business Ethics: Case Studies and Selected Readings (7th ed.). Cincinnati: West Educational Pub.