LESSON 23:
EMPLOYEE’S OBLIGATION TO THE FIRM
In the last lecture I explained the Rational Organization. All of
us understand that both employees as well as employers have
duties towards each other and towards the organization. It is a
mutual thing. You must have heard that if you want respect and
love from somebody then even you have to give that person love
and respect. Nothing comes just like that.
In this lecture we are going to study the employee’s obligation
to the firm and the ways in which employees fail to live up to
the duty to pursue the goals of the firm.
Points to be covered in this lesson:
Conflicts of Interest between the Employee and the
Firm
In the rational view of the firm, the employee’s main moral
duty is to work toward the goals of the firm and to avoid any
activities, which might harm those goals. To be unethical,
basically, is to deviate from these goals in order to serve one’s
own interests in ways that, if illegal, are counted as a form of
“white collar crime.”
As administrator of the company’s finances, for example, the
financial manager is entrusted with its funds and has the
responsibility of managing those funds in a way that will
minimize risk while ensuring a suitable rate of return for the
company’s shareholders. Financial managers have this contrac- tual
duty to the firm and its investors because they have contracted to
provide the firm with their best judgment and to exercise their
authority only in the pursuit of the goals of the firm and not for
their own personal benefit. Finan-cial manag- ers fail in their
contractual duty to the firm when they
misappro-priate funds, when they waste or squander funds,
when they are negligent or fraudulent in the preparation of
financial statements, when they issue false or misleading
reports, and so on.
There are several ways in which the employee might fail to live up
to the duty to pursue the goals of the firm: The employee might
act on a “con-flict of interest,” the employee might steal from the
firm, or the employee might