Would the model mean that Fannie Mae could be labeled an “honest” company? Why or why not?

            Based on the methods and practices of mortgage lending at the time of the latest mortgage crash in the 2007-2008 timeframe, Fannie Mae was operating within both the law and current ethical standards. Unlike other lending agencies of the time, Fannie Mae was not funding true sub-prime mortgages. The purpose of Fannie Mae was to assist people of modest means buy houses through loans they may not otherwise have qualified for. The only thing Fannie Mae could be criticized for is being too lenient in granting loans to those with limited income (Poli, 2014). Based on this article from Poli Mortgage Group, Fannie Mae could not be accused of operating in a dishonest fashion but fell victim to the practices of other less scrupulous institutions.

            John Griffith also defends Fannie Mae in an article for “Center for American Progress". John writes that Fannie Mae fell victim to companies such as Lehman Brothers and Bear Stearns who package mortgage securities that were high risk and sold them as low risk. Fannie Mae lost market share and eventually lost over $265 billion during 2006-2007 (Griffith, 2012).

            This contrasts greatly from the more complete story of Fannie Mae from 1983 through 2008 as told by Entine and Jennings. Fannie Mae was formed under federal charter in 1938, is to increase first time home ownership, raise minority ownership, reduce homelessness and expand affordable home availability” (Jennings, 2012, p. 121). Later in 1968 Fannie Mae restructured into a stakeholder owned Corporation dependent on private investors (Jennings, 2012, p. 121).  GAAP (Generally Accepted Accounting Principles) were not followed. Also Fannie Mae used a computerized amortization schedule that maximized Fannie Mae earnings for higher yields for the purpose of attracting more investment funds. Executives of Fannie Mae are accused of using variations in bookkeeping and rates to hide volatility in earnings for the purpose of misleading investors in thinking that their investment was far more stable than it actually was. Further, executives are accused of working to show profits that would ensure they received bonuses. Mr. Mudd, CEO at the time in 2006 instructed officers of Fannie Mae to take risks to build earnings or leave (Jennings, 2012, p. 121-130).

            All of this may seem unethical unless one is of the same mindset as  Albert Carr who believes that bluffing or misdirection in business is moral as he likens business to poker where this is simply gamesmanship (Jennings, 2012, p. 49). Or perhaps Friedman and Freeman who believe that company officers work for the stakeholders and should only be concerned with meeting the needs required by the stakeholders, in this case creating consistent return on investment (Jennings, 2012, p. 100-101). It seems that regardless of opinion were they honest or not based any ethical standard, Fannie Mae officers were guilty of being overly greedy throughout the company history, leading to tremendous lose for shareholders and taxpayers alike (Jennings, 2012, p. 123, Griffith, 2012).

References:

Griffith, J. (2012). 7 Things You Need to Know About Fannie Mae and Freddie Mac.
Retrieved from http://americanprogress.org/issues/housing/report/2012/09/06/36736/7-things-you-need-to-know-about-fannie-mae-and-freddie-mac/

Jennings, M. M. (2012). Business Ethics: Case Studies and Selected Readings, (7th ed.).   
Retrieved from http://www.coursesmart.com/9780538473538/firstsection#X2ludGVybmFsX0J2ZGVwR            mxhc2hSZWFkZXI/eG1saWQ9OTc4MDUzODQ3MzUzOC9paQ==

Who Are Fannie Mae and Freddie Mac? (2014). Retrieved from      http://www.polimortgage.com/fannie-freddie-role-in-mortgages

What is the difference between Entine and Jennings’ eight questions and traditional measures of social responsibility?

            The measure of corporate social responsibility (CSR) can often be at odds with corporate responsibility to its stakeholders. Entine and Jennings eight questions are very good at measuring both social and corporate responsibility but ignore the fundamental responsibility to the stakeholders (Jennings, 2012, p. 104). Stakeholders invest in the corporations with expectation of receiving a return on that in vestment. A corporation that is charitable may gain social acclaim but they do so at the expense of the stakeholders return on investment (Friedman, 1970). Maintaining a large workforce when fewer workers are needed is good for the local economy but again, this is done at the expense of the stakeholders. Edward Freeman takes the concept of stakeholder to another level by including anyone who depends on the profitability of the company as a stakeholder including employees, suppliers and customers all of whom could suffer if the company does not profit and fails. This idea of expanding the concept of stakeholder further supports the social moral imperative for the company to make a profit (Jennings, 2012, p. 96-97). Complying with laws, producing good quality products that meet the expectations of the customer and treating the employees well, are good practices for both social and corporate responsibilities. Demonstrating a sense of propriety by doing the right thing when dealing with ethical issues when they arise with suppliers and customers. When the press or competition discloses negative information about the company the company management should be willing to present the information required to mitigate the damage done and defend the stakeholder’s interest. If the company has done something wrong, full disclosure will be better accepted than hiding the truth. A company demonstrating a proper sense of propriety and doing the right thing can hold true to traditional measures of social responsibility and ease the pressures felt by management while keeping the company profitable and fulfilling the obligations to all the stakeholders (Posner & Schmidt, 1993, p. 346).

References:

Jennings, M. M. (2012). Business Ethics: Case Studies and Selected Readings, (7th ed.).
Retrieved from http://www.coursesmart.com/9780538473538/firstsection#X2ludGVybmFsX0J2ZGVwRmxhc2hSZWFkZXI/eG1saWQ9OTc4MDUzODQ3MzUzOC9paQ==

Posner, B. Z., & Schmidt, W. H. (1993). Values Congruence and Differences Between the Interplay of Personal and Organizational Value Systems. Journal of Business Ethics, 12(), 341-347. Retrieved from http://eds.b.ebscohost.com.proxy1.ncu.edu/eds/pdfviewer/pdfviewer?vid=2&sid=7ade403f-7e24-4e85-873a-710425638c1b%40sessionmgr114&hid=115

Entine and Jennings refer to companies espousing environmental concern as practicing a form of business they call “rain forest chic” (Jennings, 2012, p. 101). Entine and Jennings find this this to be nothing more than capitalizing on peoples concern for the environment as a marketing strategy. This done by comparing their company against another company believed to unfriendly to the environment. This amounts to, we are good and they are bad so, you should buy from us (Jennings, 2012, p. 102). This comparison could be far from the truth in many instances. Bragging about green practices doesn’t make the company socially conscience. Friedman and Freeman certainly don’t believe that claiming to be environmentally conscience constitutes social conscience. In many cases espousing environmental concern is nothing more than marketing. However they do believe that if it is in the best interest of the stakeholders of the company operate in a green manner then they should do so, as that is their social responsibility to the stakeholders (Jennings, 2012, p. 102).

            Damian Miller wrote an article for Energy Policy describing how oil giants BP and Shell attempted to move into the Solar renewable energy market. In 1981 BP bought Amoco, another large oil company that owned fifty percent of Solarex, a major solar power manufacturer. BP bought the remaining half of Solarex from Enron in 1999 making BP one of the largest manufactures of solar power in the industry. Due to intense competition in solar energy from China, BP was forced to slowly reduce solar manufacturing due to the inability to make a profit as solar prices dropped. By 2011 BP had exited the solar energy market. BP has continued to invest in wind energy and biofuel spending nearly $100 million to buy Verenium, a biofuel company in the United States and $680 million to buy eighty three percent of CNAA an ethanol producer in Brazil (Miller, 2013, p. 53).

            Shell had a similar experience as BP when in 1997 shell invested $500 million in Holland based R&S Solar, later renamed to Shell Solar. Shell Solar entered a joint effort with Siemens in 2000 and in 2002 Shell had completely absorbed both companies. Shell was at this point the fourth largest producer of solar panels. By 2006 Shell Solar ran into trouble due to a shortage of silicon required to make solar cells causing Shell Solar to reduce production by fifty percent. Shell slowly started moving out of the solar industry but retained a fifty percent interest in an R&D venture with Saint-Gobain. It was estimated that by 2009, shell had invested over $1.25 billion in solar, wind and hydrogen energy (Miller, 2013, p. 53-54).

            BP and Shell as well as Amoco and Enron have been derided as being environmentally unfriendly simply because they are oil companies. Were these oil companies trying to show the public they were ecologically concerned or were they just trying to be profitable in the energy industry? The answer is yes on both accounts. These companies do want to be recognized as having social and ecologic ethics and do so at great cost and true effort. However, they also have a responsibility to protect the interests of the stakeholders and make a profit requiring these companies to perform a difficult balancing between these two ethical standards.

References:

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

Retrieved from http://www.coursesmart.com/9780538473538/firstsection#X2ludGVybmFsX0J2ZGVwRmxhc2hSZWFkZXI/eG1saWQ9OTc4MDUzODQ3MzUzOC9paQ==

Miller, D. (2013). Why the oil companies lost solar. Energy Policy, 60(), 52-60. http://dx.doi.org/10.1016/j.enpol.2013.05.043