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The Corporation and External Stakeholders
Managing Moral Responsibility in the Marketplace
Business Ethics: A Stakeholder and Issues Management Approach, 4e, Joseph W. Weiss Copyright ©2006 by South-Western, a division of Thomson Business & Economics. All rights reserved.
Top 10 Best Corporate Citizens Who Serve Stakeholders Well (2004)
1. Fannie Mae 2. Proctor & Gamble 3. Intel Corporation 4. St. Paul Companies 5. Green Mountain Coffee Roasters Inc. 6. Deere & Company 7. Avon Products, Inc. 8. Hewlett Packard 9. Agilent Technologies 10.Ecolab Inc.
Figure 4.1: External Stakeholders, Moral Stakes, and Corporate Responsibilities
Source: Based on the Caux Round Table’s Principles for Business. The principles are printed in Business Ethics magazine, 52 S. 10th St. #110, Minneapolis, MN 55403.
Reputation 2.Competitive Advantages for Socially Responsible Firms 1. Ability to attract quality employees . Successful social investment portfolios 3.
The Social Contract A set of rules and assumptions about behavior patterns among the various elements of society Often involves a quid pro quo (something for something) exchange Often based on implicit as well as explicit agreements between a corporation and its stakeholders .
Covenantal Ethic Related to the social contract Central to a stakeholder management approach Focuses on the importance of relationships between businesses. and stakeholders . customers.
Pragmatic Principles Make a profit ---------- Act justly Cause no avoidable or unjustifiable harm Prevent harm when possible “Ought implies can” Moral minimum standard .
open disclosure Social costs and benefits Consumer pays for consumption and effects on society Social involvement in core competency areas .Moral Basis for Social Responsibility Trustee for society’s resources Two-way open system.
Compensating directors with both cash and stock 6. Prohibiting retired CEOs from continuing board membership 7. Regularly evaluating itself and the CEO’s performance 4. . Assigning independent directors to the majority of members who meet periodically without the CEO 1. Prohibiting directors from serving as consultants to the companies which they serve 5. Setting tenure rules for board members 3.“Best Practices” for Corporate Governance Separating the role of chairman of the board when the CEO is also a board member 2.
The Role of Laws and the Regulatory System in Corporate Governance Regulate competition Protect consumers Promote equity and safety Protect the natural environment Ethics and compliance programs to deter and provide for enforcement against misconduct .
Summary of the Sarbanes-Oxley Act Establishes an independent public company accounting board to oversee audits of public companies Requires one member of the audit committee to be an expert in finance Requires full disclosure to stockholders of complex financial transactions Requires CEOs and CFOs to certify in writing the validity of their companies’ financial statements Prohibits accounting firms from offering other services. while also performing audits . like consulting.
enabling investors to know how their stocks influence decisions Provides whistle-blower protection for individuals who report wrongful activities to authorities Requires attorneys of companies to disclose wrongdoing to senior officers and to the board of directors. for financial officers Provides a 10-year penalty for wire and mail fraud Requires mutual fund professionals to disclose their vote on shareholder proxies. if necessary . registered with the Securities and Exchange Commission (SEC).Summary of the Sarbanes-Oxley Act (con’t) Requires ethics codes.
the firm should not go public or use investors’ funds .Cons and Pros of Sarbanes-Oxley Cons Pros It is too costly Government costs also increase to regulate the law It impacts negatively on a firm’s global competitiveness CFOs are overburdened and pressured by having to enforce and assume accountability by the law An exodus will occur of public companies returning to private ownership The costs of implementing is minimal compared to the costs of not having it The changes required to implement this law are difficult The data does not support the argument that this law presents a competitive disadvantage to global firms Financial officers who complain about the requirements of SarbanesOxley may in fact be suffering from the lack of internal controls they had before If a company uses the SarbanesOxley Act as a reason to not go public.
1991 Original Seven Criteria of the Revised Guidelines 1. if appropriate . Employed consistent disciplinary mechanisms 7. including modifying the compliance plan. Established steps to effectively communicate the organization’s standards and procedures to all employees 5. Took steps to ensure compliance through monitoring and auditing 6. Appointment of compliance officer(s) to oversee plans 3. When an offense was detected. Established standards and procedures capable of reducing the chances of criminal conduct 2. took steps to prevent future offenses. Took due care not to delegate substantial discretionary authority to individuals who are likely to engage in criminal conduct 4.
Responsibility toward Consumers Duty to inform fully and truthfully Duty not to misrepresent or withhold information Duty not to force or take undue advantage of through fear or stress Duty to take “due care” to prevent foreseeable injuries .
access information Right to be heard (complain) Right be to compensated for harm .Consumer Rights Right to safety Right to free and rational choice Right to know.
and sophistication of choice in buying and selling of products and services) . knowledge.Free Market Theory Minimal moral restraints Full competitiveness with entry and exit Relevant information available to everyone Accurate reflection of all production costs in prices (assumes an equal balance of power.
Problems with the Free Market Theory Resource-rich firms create unequal information Advertising is used questionably “Invisible hand” does not exist for all situations (imperfect markets) .
Five Goals of Government Policy Makers toward Consumers 1. Providing legislation to protect consumers against hazardous products 3. Providing laws to encourage competitive pricing 4. Providing consumers with reliable information about purchases 2. Providing laws to promote consumer choice 5. Protecting consumers’ privacy .
Consumer Protection Agencies 1. The Department of Justice (DOJ) enforces consumer civil rights and fair competition . The Consumer Product Safety Commission sets and enforces safety standards for consumer products 6. The Federal Trade Commission (FTC) deals with online privacy.U. The Food and Drug Administration (FDA) regulates and enforces the safety of drugs.S. and food additives. The National Transportation Safety Board (NTSB) handles airline safety 5. deceptive trade practices. foods. and sets standards for toxic chemical research 3. and competitive pricing 2. The National Highway Traffic Safety Administration (NHTSA) deals with motor vehicle safety standards 4.
External Corporate Responsibility Areas Advertising Product safety and liability Environmental concerns .
Advertising Inform vs. persuade (two purposes) FTC guidelines: (claims must be substantiated) Deception: Mislead customers Affect consumers’ behavior or decisions Substantial injury Injury not outweighed by other benefits Injury is reasonably avoidable Unfair: .
Pros and Cons of Advertising Pros Cons Informs consumers about products Enables companies to be competitive Increases consumption and spending. which in turn creates economic growth Helps a nation’s balance of trade and debt payments Customers pay for the images as well as the products Consumers are not ignorant. they have freedom of choice Thin line between puffery and deception Targeting unsophisticated buyers (children and youth) Intentional deception and half-truths .
etc. tobacco.. drugs) Child-focused advertising .g.Advertising Issues Pop-up and pop-under ads on the Internet Telemarketing School sporting events. firearms) Life-required products (e.. hallways.g. (obesity) Movie theaters Dangerous products (e.
Ethics and Advertising Is the consumer being treated as a means to an end or as an end? What and whose end? Whose rights are being protected or violated intentionally and inadvertently? At what and whose cost? Are consumers being justly and fairly treated? Are the public welfare and good taken into consideration for the effects as well as the intention of advertisements? Has anyone been harmed. and can this harm be proven? .
. and does it promote a lawful product? 2. Is the proposed restriction of commercial speech limited only to achieving the government’s purpose? 1. Does the proposed restriction of commercial speech assist the government in obtaining a public policy goal? 4. nontrivial. Is the government’s interest in banning or restricting the commercial speech important.Justice Powell’s Four-Step Test (Free Speech Argument) Is the ad accurate. and substantial? 3.
the consumer. and how can it be specifically obtained for this product or service? What is the acceptable risk level for society.Product Safety and Liability Marginal value of product = Marginal cost of life or function National Commission on Product Safety’s steps to assess product safety: How much safety is technically attainable. and the government regarding this product? Does the product meet societal and consumer standards? .
cribs. Ford Explorers) Drugs (Fen-Phen.) .External Review and Control 1972 CPS Act.. toys. governmental regulatory oversight) needed? Children’s products (car seats.) Automobiles (Firestone.e. highchairs. NHTSA. etc. FDA. etc. OSHA Why are external review processes (i. CPS Commission EPA.
Defective product delivered by manufacturer Absolute liability – the manufacturer is liable for not warning of product danger even though the danger was scientifically unknown at the time of production and sale of the product . Injury resulted from a product defect 3.Liability and Negligence Negligence – all parties can be held liable if reasonable care is not observed in producing or selling a product Strict Liability – the manufacturer is liable for a person’s injury or death if a product with a known or knowable defect gets to market 1. Injury happened 2.
Environmental Issues Toxic air pollution Water pollution Hazardous waste and land pollution Laws: The Federal Water Pollution Control Act of 1972 The Safe Drinking Water Act of 1974 and 1996 The Toxic Substances Control Act of 1976 The Resource Conservation and Recovery Act of 1976 Chemical Safety Information. and Fuels Regulatory Relief Act of 1999 . Site Security.
3. 4. 2. Consumer affluence Materialistic cultural values Urbanization Population explosion New and uncontrolled technologies Industrial activities .Causes of Environmental Pollution 1. 5. 6.
especially those they create Broader constituency than stockholders Impact more than just marketplace Serve a wider range of human values than just economic values .The Ethics of Ecology Responsibilities go beyond production of goods and services at a profit Include helping to solve important social problems.
Copyright 1990 by the Sloan Management Review Association. All rights reserved.Figure 4. Auster. p. . 9. Hunt and Ellen R. Permission granted by the publisher.” Sloan Management Review.7: 5 Stages of Environmental Corporate Commitment Source: Adapted from Christopher B. Winter 1990. “Proactive Environmental Management: Avoiding the Toxic Trap.