Applying Entine and Jennings Eight Question Model to Fannie Mae

Created during the Roosevelt administration as a shareholder-owned corporation with a federal charter Fannie Mae was a very unique business venture when created by the federal government in 1938.  The purpose of Fannie Mae was to increase affordable housing and increase investments into the housing market.

            On the surface Fannie Mae appeared to be an outstandingly ethical company, “In 2004, Business Ethics magazine named Fannie Mae the most ethical company in the United States” (Jennings, 2012, p. 121).  As time went on the over inflated market that Fannie Mae had created around its self began to crumble, all the unethical activity’s it was engaging in began to surface.

            In applying the eight question model provided by Entine and Jennings to determine the soul of a company it becomes quite apparent that Fannie Mae was anything but ethical.  In asking only the first two questions in Entine and Jennings list it is plainly illustrated that Fannie Mae was operating unethically.

Question one asks “Does the company comply with the law?”, no Fannie Mae did not comply with the law.  In 2006, the Office of Federal Housing Enterprise Oversight filed a 101 civil suit against the CEO, CFO, and additional members of the Board of Directs at Fannie Mae for falsely meeting bonus requirements and manipulating earning.  Jennings (2012) states that between three individuals at Fannie Mae the suit asked for $115 million in returns for incentive plan payouts and additional $100 million in penalties, in the end the suit settled for $31.4 million..   When faced with the civil charges the individuals from the board of directors at Fannie Mae issued a statement that suggested the settlement was not an acknowledgement of wrongdoing but an agreement to disagree. (Jennings, 2012).   

Questions two, “Does the company have a sense of propriety?” no Fannie Mae did not operate with a sense of propriety.  In 2012 the Federal Housing Finance Agency stated that Fannie Mae was preparing to address complaints from appraisers, consumers and others in regards to violations of the Home Valuation Code of Conducts.  The complaints being addressed were to complains of lenders pressuring appraiser to overvalue a home so a loan could get done (Berry, 2012, p. 175)

Berry, K. (2010). Fannie, Freddie New Appraisal Sheriffs in Town.  American Banker, 175 (F319),7.

Jennings, M. M. (2012). Business Ethics: Case Studies and Selected Readings, Seventh Edition. South-Western Cengage Learning, Mason OH.

Entine and Jennings Eight Questions and Traditional Measures of Social Responsibility

Entine and Jennings illustrate the unique difference between an eight question model to determine the soul of a company opposed to the traditional measures of social responsibility.  The eight question model serves to identify the soul of a company but not based on the icons of corporate social responsibility opposed to the traditional measures of social responsibilities.

Corporations now recognize that engaging in and advertising certain aspects of social responsibility can be a great marketing tool and significantly increase corporate image.  A study published in the International Journal of Organizational Innovation states;

Corporate social responsibility has a significantly positive effect on corporate image, service quality, and purchase intentions.  Other than protecting the interests of various interested parties (employees, shareholders, consumers, suppliers, governments, and environment) corporations also need to abide by laws.  Corporations can enhance their corporate image by actively giving to charitable and social welfare events or giving back to society and caring for minorities. (Chun-Chen, Szu-Wei, Cheng-Yi, & Pei-Chen, 2014 p. 79)

Entine and Jennings suggest that merely using corporate social responsibility as a means to determine whether or not a business is ethical is very insufficient. Social responsibility blurs the lines of reality that define business ethics by not being able to closely exam the objective of a corporation outside the contexts of a political issues or a self-defined and self-governed parameter.

            In using only measures of corporate social responsibility such as environment or political views consumers can miss the relevant business data that would suggest a company is operating very ethically.  Entine and Jennings provides examples of relevant business data as close examination of operations and products.

            Lastly Entine and Jennings supply their eight questions that help determine the soul of a company.  These questions help to determine the soul of a company by looking past the current political issues and evaluating the basic level of operations and organization has established.  The answers to the following questions will tell a great deal to the level of honesty and integrity a company operates under.

1.      Does a 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?

Chun-Chen, H., Szu-Wei, Y., Cheng-Yi, L., & Pei-Chen, H. (2014). The Relationship Among Corporate Social Responsibilitiy, Service quality, Corporate Image and Purchase Intention. International Journal Of Organizational Innovation, 6(3), 68-84.

Jennings, M. M. (2012). Business Ethics: Case Studies and Selected Readings, Seventh Edition. South-Western Cengage Learning, Mason OH.

Social Responsibility of Business A Contrast of Entine and Jennings to Friedman and Freeman

In an attempted to assess corporate social responsibility the prescribed reading by Jennings discusses the contrasting views on the topic from Entine and Jennings to those of Fridman and Freeman.  Although these views vary so much at one could suggest that it is similar to comparing the idealistic to the realistic, both groups do share the similarity in suggesting that judging a corporations entire ethical prowess on social responsibility is not remotely close to an accurate representation.

Milton Friedman assumes the position that a business cannot hold social responsibilities; only individual people can hold responsibilities.  Friedman states “A corporation is an artificial person and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities, even in this vague sense” (Jennings, 2012, p. 91).  Moving forward Friedman suggests that it is necessary to define what social responsibility of business means to the individuals within the business.  The individuals within a company that have responsibility are businessmen and women.  As a member of a corporation they are an employee of the business.  Their direct responsibilities are to fulfill the needs and goals of the business, not those of society.

The perspective of Freeman is similar to that of Friedman in the aspect that the social responsibility of business rests upon individuals, or in Freemans case the group of individuals supporting the company, stakeholders.  In an article by Steib, Addressing Freeman’s Stakeholder Theory, Steib defines the theory as a redistribution of benefits and important decision-making abilities to stakeholders.  Stakeholders are defined as “Groups who have a stake or claim in the firm” (Jennings, 2012, p. 96).  Stakeholders include suppliers, customers, employees, stockholders, and the local community. Freeman suggests that if these individuals have the decision making power of the company they will readily use the corporation to fulfill social responsibilities.

Entine and Jennings take a much different perspective on the social responsibility of business.   They suggest that company now recognize the public is choosing to support companies that are “environment friendly” and represent themselves in a socially ethical way.  “’Rain-forest Chic’ is a label coined in the popular business press for the increasingly popular corporate branding strategy of capitalizing on consumer use of environmental issues as a screen for buying decisions” (Jennings, 2012, p. 101). Entine and Jennings continue on to suggest, in a very realistic fashion, that no company or individual is perfectly ethical 100% of the time and state that looking beyond a constantly changing political world will help in determining the true soul of a company.

Jennings, M. M. (2012). Business Ethics: Case Studies and Selected Readings, Seventh Edition. South-Western Cengage Learning, Mason OH.

Stieb, J. (2009). Assessing Freeman’s Stakeholder Theory.  Journal Of Business Ethics, 87(3), 401-414. Doi:10.1007/s10551-0089928-4