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IAI Actuarial Core Principles · Business Finance · Ethical responsibilities of owners and managers

A manufacturing company can cut costs by discharging untreated effluent, which would raise profits but harm the local community. Which statement reflects the ethical responsibility of managers towards stakeholders?

Managers should take account of the legitimate interests of stakeholders such as the community and act lawfully and ethically, rather than maximising short-term profit by causing harm or concealing it, since ethical conduct also protects long-term value.

  1. AManagers owe duties only to shareholders and may ignore every other party
  2. BManagers should consider the legitimate interests of wider stakeholders, such as the community, and act within the law and ethical standards, not just maximise short-term profitCorrect
  3. CManagers should ignore the law if penalties are lower than the savings
  4. DManagers should hide the discharge from regulators to protect the share price
  5. Managers should shift responsibility to the auditors

Explanation

Stakeholder-oriented governance expects managers to behave ethically and lawfully, balancing the interests of shareholders with those of communities, employees and others. Breaking the law or concealing harm is unethical and ultimately damages long-term value.

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