Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 3-1 Chapter 3 Stakeholders and Corporate Social Responsibility Understanding Business.

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 3-1

Chapter 3 Stakeholders and Corporate

Social ResponsibilityUnderstanding Business Ethics

Stanwick and Stanwick

1st Edition


Ethical Thoughts

• “A business that makes nothing but money is a poor kind of business.”– Henry Ford, founder of Ford Motor Company


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 Sam’s Club, Kroger, Wegman’s, Whole Foods Market (www.transfairusaa.org)


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


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



• 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.



• 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 company’s resources are optimized to enhance the level of profitability of the firm



• 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


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


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


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


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


Lessons to be learned from Stakeholder theory – from literature1. Corporations are facing increasing pressures

to respond to their stakeholders2. Corporations have a legal basis for responding

to a wide range of stakeholders3. 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


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


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.


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 non-governmental organizations, industry and financial analysts, community leaders, customers, suppliers and employees.”

• http://www.ge.com/company/citizenship/stakeholder/index.html


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/

sustainability-report-2006-07/relContextStakeholders.htm


Stakeholder Communications

• Vision and mission statements

• Open houses

• Public service announcements

• Public newsletters

• Town meetings


Triple Bottom Line Reporting

• Expands traditional financial reporting to include environmental and social reporting


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


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


Stakeholders: Suppliers

• Many companies want their suppliers to demonstrate the same commitment to ethical issues that they themselves do.

• Example: Intel’s 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


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


Stakeholders: Government

• Derives from compliance issues

• Government has the authority to ‘punish’ the firm through fines and possible prison sentences for employees


Stakeholders: Local Community and Society

• Focuses on ‘quality of life’ issues


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


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


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


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


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


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


Ten Commandments of Social Responsibility

1. Thou shalt be proactive in taking action to correct problems before they impact the company

2. Thou shalt seek input from all impacted stakeholders in any problem that needs to be addressed

3. Thou shalt use industry standards as a benchmark and voluntarily internally regulate our corporate behavior

4. Thou shalt admit to the public when mistakes have taken place

5. Thou shalt be active in supporting community social programs


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 company’s social responsibility agenda


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


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 markets3. Promoting respect for human rights goes hand in

hand with development of rule law4. Promoting respect for human rights is good for a

company’s image, both at home and in the host country


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


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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Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 3-1 Chapter 3 Stakeholders and Corporate Social Responsibility Understanding Business.

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