Chapter 3 Stakeholders and Corporate Social Responsibility

Understanding Business Ethics Stanwick and Stanwick 1st Edition

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Ethical Thoughts
A business that makes nothing but money is a poor kind of business.
Henry Ford, founder of Ford Motor Company

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When is Fair Trade Not Fair Trade?

Fair trade log represents that farmers have received a fair wage for their work through the higher prices that were charged for the product Fair Trade products are available at 16 national retailers, including Sams Club, Kroger, Wegmans, Whole Foods Market (www.transfairusaa.org)
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When is Fair Trade Not Fair Trade?

Underlying questions:
Where does the additional money for every pound of coffee go? What about the fixed rates for pounds of coffee?

Costa Coffee took advantage of the Fair Trade image by adding 18 cents to every cup of coffee, even though fair trade coffee only cost them between one and two cents extra per cup

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Stakeholder Theory Development

Berle
all the powers given to a corporation are to be used to create benefits to the interests of the shareholders Argued that managers within a corporation should consider themselves trustees and guardians of the investments made by the shareholders

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Stakeholder Theory Development

Dodd:
Not only should the interests of the shareholders be considered, but corporations also need to recognize their obligations to the community, to their workers, and to the consumers Argued that corporations are allowed to become legal entities because they serve a purpose to the community instead of just providing opportunities for financial gain by its owners.

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Stakeholder Theory Development

Friedman
The Social Responsibility of Business is to Increase its Profits Argued that in a free market system in which people are allowed to own property, the executives of the company need to be considered as the employees of the shareholders Argued that the only social responsibility that a manager has is to ensure that the companys resources are optimized to enhance the level of profitability of the firm
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Stakeholder Theory Development

Freeman
Believed a stakeholder was any individual or group that can impact or be impacted by the actions of the firm Definition encompasses any individual or group that has a vested interest in the operations of the firm

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Stakeholders
Any group that has a vested interest in the operations of the firm
Include: employees, suppliers, stockholders, customers, the government, local communities, and society as a whole

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Moral Managers
Defines a managers response to stakeholders three approaches
Immoral
not only does not care how his/her decisions impact the stakeholders, but the actions are actively counter to what is the right and ethical thing to do Focus only on the goals of the of the company Considers laws as constants or barriers that are ignored in the company
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Moral Managers
Defines a managers response to stakeholders three approaches
Amoral
Manager who is considered ethically neutral Ethical considerations are not contemplated in the decision making process

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Moral Managers
Defines a managers response to stakeholders three approaches
Moral
Those managers who understand the relevance of considering ethical issues when they are making decisions

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Lessons to be learned from Stakeholder theory from literature

1. Corporations are facing increasing pressures to respond to their stakeholders 2. Corporations have a legal basis for responding to a wide range of stakeholders 3. Corporations are being led by executives no longer guided by the principles of their professions 4. Corporations respond to powerful stakeholders with legitimate, urgent claims 5. Corporations can improve the bottom line by responding to stakeholder concerns
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Identifying Stakeholder Accountability

Power: the extent to which the organization can influence or impose its will on the stakeholder group Legitimacy: the assumption that the actions of the corporation are desirable, proper or appropriate within the limits of the corporation Urgency: the degree to which the issues raised by the stakeholder must be dealt with in a time sensitive manner
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Stakeholder Impact on Organization

1. Stakeholders establish expectations (explicit or implicit) about corporate performance 2. Stakeholders experience the effects of corporate behaviors 3. Stakeholders evaluate the effects of corporate behaviors on their interests or reconcile the effects of those behaviors with their expectations. 4. Stakeholders act upon their interests, expectations, experiences, and evaluations.
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2007 GE Citizenship Report

Our engagement efforts seek to communicate with a diverse set of stakeholders on matters that affect global business. Every year, GE hosts hundreds of investor meetings, multi-stakeholder dialogues and roundtable discussions to solicit feedback and share insights with nongovernmental organizations, industry and financial analysts, community leaders, customers, suppliers and employees. http://www.ge.com/company/citizenship/stakehol der/index.html
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Ford Motor Company

Our stakeholders those who affect Ford or are affected by us are numerous. A closer look, however, shows that we have sustained, interdependent relationships with several distinct categories of stakeholders: our employees, customers, dealers, suppliers, investors and communities. Also important is our relationship to "society," including government, nongovernmental organizations (NGOs) and academia.
http://www.ford.com/aboutford/microsites/sustainabilit y-report-2006-07/relContextStakeholders.htm

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Stakeholder Communications
Vision and mission statements Open houses Public service announcements Public newsletters Town meetings

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Triple Bottom Line Reporting

Expands traditional financial reporting to include environmental and social reporting

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Stakeholders: Employees
Firm wants to attract, select and retain the best qualified employees Corporate culture can provide an advantage in this selection process Research supports that the more dissatisfied the employee, the more likely the employee will engage in unethical behavior See page 41 in text for inconsistent messages sent to employees
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Stakeholders: Employees
Employees, no matter what rank, should be empowered to do the right thing and become an ethical leader. Treatment of employees considered in several government regulations:
Equal Pay Act of 1963 Title VII of the Civil Rights Act of 1964 Age Discrimination in Employment Act of 1967 Americans with Disabilities Act of 1990 Occupational Safety and Health Act of 1970

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Stakeholders: Suppliers
Many companies want their suppliers to demonstrate the same commitment to ethical issues that they themselves do. Example: Intels Suppler Ethics Expectations:
The supplier must be in strict compliance with the law The supplier must have respect for competition The supplier must not have any actual or perceived conflicts of interest with any other party

Outsourcing assigning a function or task that was previously done within a company to an external third party
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Stakeholders: Customers
Critical areas in which ethical behavior must be the norm for customers to support the business
The manufacturing process Sales and quotes Distribution Customer service

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Stakeholders: Government
Derives from compliance issues Government has the authority to punish the firm through fines and possible prison sentences for employees

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Stakeholders: Local Community and Society

Focuses on quality of life issues

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Corporate Social Responsibility

The obligation companies have to develop and implement courses of action that aid in social issues that impact society
Legal responsibility, fiduciary duty, legitimacy, and charitable contributions

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Components of CSR
Economic Responsibilities
Based on the underlying foundation of why a firm has been creates, which is to develop economic value Firm has a responsibility to use the resources available to produce goods and services for society Examples: maximizing earnings per share, generating a high and consistent level of profitability, establishing and maintaining a strong competitive position, operating the firm at a high efficiency level

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Components of CSR
Legal Responsibilities
The laws and regulations that all firms are expected to abide by as they perform their daily functions. Examples: operating consistent with government and legal expectations; displaying complete compliance with all regulations

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Components of CSR
Ethical Responsibilities
Change over time because they are based on expectations of society Examples: meeting expectations of both social and ethical norms; ability to adapt to new or evolving ethical and moral norms; being a good corporate citizen

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Components of CSR
Discretionary Responsibilities
Those responsibilities in which society does not have a clear message to present to businesses as to what their courses of action should be Left in the hands of managers to make the proper judgment Examples: giving to charitable organizations; providing drug treatment programs; providing day care centers These are not considered unethical if they do not participate in these discretionary responsibilities
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Strategic Response to Social Issues

Varies from firm to firm Constant debate about who the corporation should be responsible to and what the corporation is responsible for Challenge is determining what extent of responsibility should be to each of stakeholder groups Feelings of trust and confidence must be established with stakeholder groups
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Ten Commandments of Social Responsibility

1. 2. 3. 4. 5. Thou shalt be proactive in taking action to correct problems before they impact the company Thou shalt seek input from all impacted stakeholders in any problem that needs to be addressed Thou shalt use industry standards as a benchmark and voluntarily internally regulate our corporate behavior Thou shalt admit to the public when mistakes have taken place Thou shalt be active in supporting community social programs

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Ten Commandments of Social Responsibility

6. Thou shalt be active in ensuring environmental sustainability in the actions of the company 7. Thou shalt be aware of any changes that occur in the corporate social environment 8. Thou shalt establish and maintain a formal corporate code of conduct 9. Thou shalt be committed to publicly supporting social causes 10. Thou shalt be profitable to financially support the companys social responsibility agenda
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Benefits from integrating CSR into Operations

Better risk and crisis management Good relations with stakeholders and interested communities Increased worker commitment Increased productivity Reduced operating costs Enhanced brand value and reputation Long term sustainability for the company and society
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The Role of Human Rights

Four positive reasons for promoting human rights:
1. Respecting human rights enhances worker productivity and management creativity it raises enterprise profitability 2. Promoting rights opens markets 3. Promoting respect for human rights goes hand in hand with development of rule law 4. Promoting respect for human rights is good for a companys image, both at home and in the host country

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Social Accountability 8000 Certification

Provides a way for companies to ensure that they are offering a humane workplace
Child labor Forced labor Health and safety Freedom of association and right to collective bargaining Discrimination Discipline Working hours Compensation Management systems
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Questions for Thought

Evaluate the Johnson & Johnson credo by researching the Tylenol Scare. When examining the working conditions in countries other than the United States, what ethically should be done to help change these conditions? When reviewing the notion of human rights, why would this be considered an ethical issue? Explain.
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