Chapter Five

The Corporation And External Stakeholders
Copyright © 2003 by SouthWestern, a division of Thomson Learning

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Chapter Topics
1. Managing corporate responsibility in the marketplace: crises and opportunities 2. Managing corporate responsibility with external stakeholders 3. Corporate responsibility and consumer stakeholders 4. Corporate responsibility in advertising, product safety, and liability 5. Corporate responsibility and the environment
Copyright © 2003 by South-Western, a division of Thomson Learning 2

1 in the text Classic corporate crises Corporate social responsibility refers to a business’s attention to and promotion of the welfare and goodwill of stakeholders. Figure 5. Evidence supports that corporations that are socially responsible have a competitive advantage in the following areas:    Reputation Successful social investment portfolios Ability to attract quality employees 3     Copyright © 2003 by South-Western. a division of Thomson Learning .Managing Corporate Responsibility in the Marketplace: Crises and Opportunities  Managing legal and moral responsibility in the marketplace can be a significant part of a corporation’s activities.

4 Copyright © 2003 by South-Western.  Social contract: a set of rules and assumptions about behavior patterns among various elements of society.  The social contract between a corporation and its stakeholders is often based on implicit as well as explicit agreements.Managing Corporate Responsibility with External Stakeholders  The stakeholder management approach views the corporation as a legal entity and a collective of individuals and groups. a division of Thomson Learning .

and preventing harm where possible. in addition to making a profit. customers. a division of Thomson Learning . The covenantal ethic focuses on the importance of relationships. unjustifiable harm. At a more general view. social as well as economic. 5   Copyright © 2003 by South-Western. and stakeholders. among businesses. causing no unavoidable.Managing Corporate Responsibility with External Stakeholders  The covenantal ethic concept is related to the social contract view and is also central to a stakeholder management approach. it is argued that a corporation’s obligations include. acting justly.

a division of Thomson Learning .Managing Corporate Responsibility with External Stakeholders  Five broad guidelines suggested by Keith Davis that business professionals should follow to be socially responsible include:      Businesses have a social role of trustee for society’s resources Business shall operate as a two-way open system with open receipt of inputs from society and open disclosure of its operations to the public Social costs/benefits shall be considered before proceeding The consumer shall pay for the costs of consumption Businesses have responsibilities where social needs exist 6 Copyright © 2003 by South-Western.

a division of Thomson Learning 7 . Methods used in this process include:    Environmental scanning Brainstorming Probability and impact matrix  Three organizational levels at which companies use issues management:    Corporate level Functional level Process-oriented Copyright © 2003 by South-Western.Managing Corporate Responsibility with External Stakeholders  Issues management should be a continuous strategic process that involves all business and functional units.

Corporate Responsibility Toward Consumer Stakeholders  Consumers may be the most important stakeholders of corporations.  Corporations have certain responsibilities and duties toward their customers and consumers in society:     Duty to inform Duty not to misrepresent Duty not to force or take undue advantage Duty to take due care to prevent any unforeseeable injuries 8 Copyright © 2003 by South-Western. a division of Thomson Learning .

Corporate Responsibility Toward Consumer Stakeholders  Related rights consumers have in their social contact with corporations include:      Right to safety Right to free and rational choice Right to know Right to be heard Right to be compensated 9 Copyright © 2003 by South-Western. a division of Thomson Learning .

There are several arguments regarding the free-market theory. 10   Copyright © 2003 by South-Western. and regulations that protect consumers and citizens. a division of Thomson Learning . The mixed market economy perspective include a balance between the private property systems and the government laws.Corporate Responsibility Toward Consumer Stakeholders  The free-market theory holds that the primary aim of business is to make a profit. policies.

Product Safety.Corporate Responsibility in Advertising. and Liability  The purposes of advertising include:   Inform customers about products and services Persuade customers to make purchases   The American Association of Advertising (AAA) has a code of ethics that help organizations monitor their own ads. a division of Thomson Learning . 11 Copyright © 2003 by South-Western. The Federal Trade Commission (FTC) and the Department of Labor (DOL are federal agencies appointed and funded to monitor and eliminate false and misleading advertising when corporate self-regulation is not used or fails to control harm done to consumers.

 FTC provides regulatory guidelines for on-line advertising Copyright © 2003 by South-Western.Corporate Responsibility in Advertising. and Liability  Advertising on the Internet presents new opportunities and problems for consumers.  At issue ethically is the unlimited availability of and exposure to explicit and other questionable content on ads and Websites. a division of Thomson Learning 12 . Product Safety.

and Liability  Moral responsibility for consumers in advertising can be viewed along a continuum. a division of Thomson Learning 13 . Product Safety.  Paternalism  Illusion of free choice  Enforcement of advertising  Bans on ads Copyright © 2003 by South-Western.Corporate Responsibility in Advertising.

Corporate Responsibility in Advertising. Product Safety. and Liability  Arguments for advertising: Introduces people to and influences them to buy goods and services  Enables companies to be competitive  Helps nations maintain a prosperous economy  Helps a nation’s balance of trade and debt payments  Enriches consumers’ lives  Consumers are not ignorant and do know the Copyright © 2003 by difference South-Western. a division of Thomson  Learning 14 .

Product Safety. a division of Thomson Learning 15 . and Liability  Arguments against advertising:     Cross the thin line between deception and puffery Tells half-truths Conceals facts Intentionally deceive with a profit goal in mind  Fast food industry advertising  Tobacco and alcohol advertising  Ethics and advertising  Advertising and free speech Copyright © 2003 by South-Western.Corporate Responsibility in Advertising.

Corporate Responsibility in Advertising. and Liability  Managing product safety should be priority number one for corporations.  The National Commission on Product Safety (NCPS) notes that product risks should be reasonable.  Three steps firms can use to assess product safety from an ethical perspective include:  How much safety is technically attainable?  What is the acceptable risk level?  Does the product meet standards? Copyright © 2003 by South-Western. Product Safety. a division of Thomson Learning 16 .

and Liability  Product liability doctrines:     Privity Negligence Strict liability Absolute liability Provide a level of compensation for injured parties Act to deter negligent marketing  Two broad purposes of product liability lawsuits:     33 states have laws in the making to limit liability and damages awards.Corporate Responsibility in Advertising. E-commerce and product liability 17 Copyright © 2003 by South-Western. Product Safety. a division of Thomson Learning .

a division of Thomson Learning .Corporate Responsibility and the Environment  The most significant environmental problems include:    Toxic air pollution Water pollution and the threat of scarcity Hazardous waste and land pollution Consumer affluence Materialistic cultural values Urbanization Population explosion New and uncontrolled technologies Industrial activities 18  Causes of environmental pollution include:       Copyright © 2003 by South-Western.

a division of Thomson Learning 19 .Corporate Responsibility and the Environment  A number of governmental regulatory agencies have been created to develop and enforce policies and laws to protect the general and workplace environments:  OSHA  CPSC  EPA  CEQ Copyright © 2003 by South-Western.

Corporate Responsibility and the Environment  An innovative trend in new ecology ethical thinking is linking the concepts of:    Green marketing Environmental justice Industrial ecology  The ethical principles of rights and duties regarding the treatment of the environment and multiple stakeholders are:   Rights of future generations Right to a livable environment  New assumptions and practices driving corporate changes toward the environment include:    International community Green marketing Environmentally friendly strategies 20 Copyright © 2003 by South-Western. a division of Thomson Learning .