Business Ethics & Sustainability

Topic – 1
Business, Society, and Stakeholders
 LEARNING OUTCOMES
• LO1: Define sustainability and its relevance to business
 OUTLINE
• The Business and Society Relationship
• Corporate Social Responsibility, Citizenship, and Sustainability
• The Stakeholder Approach to Business, Society, and Ethics
The Business and Society Relationship
 Business and Society
Business and Society

Business Defined Society Defined

Business may be defined as the Society may be thought of as a

collection of private, commercially community, a nation, or a broad
oriented (profit-oriented) organizations, grouping of people with common
ranging in size from one-family traditions, values, institutions, and
proprietorships (e.g., DePalma’s Italian collective activities and interests.
Café, Half-Moon Outfitters, and
Taqueria del Sol) to corporate giants
(e.g., Coca-Cola, UPS, Microsoft, Apple,
Google, and Delta Airlines).

• As such, when speaking of business and society relationships, this may be referring to business
and the local community, business and the country as a whole, global business, or business and a
specific group of stakeholders (consumers, employees, investors, environmentalists).
 Society as the Macroenvironment

• The environment of society is a key element in analyzing business and society relationships. At its broadest level, the
societal environment might be thought of as a macroenvironment that includes the total environment outside the firm.
• The macroenvironment is the comprehensive societal context in which organizations reside.
• Understanding that business and society relationships are embedded in a macroenvironment provides us with a
constructive way of understanding the kinds of issues that constitute the broad milieu in which business functions.
 A Pluralistic Society
• Pluralism refers to a diffusion of power among society’s many groups and organizations.
• The key terms in this definition are decentralization and diversity.
• Figure 1-2 depicts in graphic form the points of interface between business and some of the
multiple publics, systems, or stakeholders with which business interacts.
• Stakeholders are those groups or individuals with whom an organization interacts or has
interdependencies.
Business Criticism and Corporate
Response
• Figure 1-3 illustrates how certain factors or
social forces that have arisen in the social
environment have created an atmosphere in
which business criticism has taken place and
flourished.
• Though a fair degree of resistance to change
has been apparent on business’s part, the
more positive responses on the part of
business have been
• (1) an increased awareness and concern
for the social environment in which it
operates and
• (2) a changed social contract (relationship)
between business and society.
Corporate Social Responsibility, Citizenship,
and Sustainability
 Corporate Social
Responsibility as a Concept

• Figure 2-1 illustrates the business criticism–social response cycle,

depicting how the concept of CSR grew out of business criticism,
the increased concern for the social environment, and the changed
social contract.
• Figure 2-1 also clarifies that businesses’ commitment to social
responsibility has led to increased corporate responsiveness toward
stakeholders and improved social (stakeholder) performance—
ideas that are developed more fully in this chapter.
• The growth of social responsibility practices has brought about a
society more satisfied with business. However, this satisfaction,
despite reducing the number of factors leading to business
criticism, has at the same time led to increased expectations that
have resulted in more criticism.
• The net result is that overall levels of business social performance
and societal satisfaction should increase with time in spite of this
interplay of positive and negative influences. Should business not
be responsive to societal expectations, it could conceivably enter a
downward spiral, resulting in significant deterioration in the
business and society relationship.
 Corporate Social Responsibility as
a Concept
• In Figure 2-2, a summary of
the various terminologies
that are in use today are
presented along with a brief
indication of their emphases.
These terms will be
developed further in later
discussions.
 A Four-Part Definition of CSR
• CSR = The social responsibility of business
encompasses the economic, legal, ethical,
and discretionary (philanthropic)
expectations that society has of
organizations at a given point in time.

Economic Responsibilities + Legal Responsibilities + Ethical Responsibilities +

Philanthropic Responsibilities =
Total Corporate Social Responsibility
 Traditional Arguments against and for CSR
Classical
to maximize shareholder wealth
Economics

Business Not managers are oriented toward finance and operations and do not have the
Equipped necessary expertise (social skills) to make social decisions

Arguments Dilutes Business If managers were to pursue CSR vigorously, it would tend to dilute business’s
against CSR Purpose primary purpose

Too Much Power business already has enough power—economic, environmental, political, and
Already technological—and so why place in its hands the opportunity to wield additional
power?
Traditional Global by encouraging business to assume social responsibilities, businesses might be
Arguments Competitiveness placed in a vulnerable position in terms of global competition
against and
for CSR Enlightened Self- if business is to have a healthy climate in which to operate in the future, it must
Interest take actions now to ensure its long-term sustainability
Warding Off
Government be socially responsible is to ward off government intervention and regulations
Arguments in Regulations
Support of
CSR business has a reservoir of management talent, functional expertise, and capital,
Resources
and because so many others have tried and failed to solve societal problems,
Available
business should be given a chance
Proaction Better proacting (anticipating and initiating) is more practical and less costly than simply
than Reaction reacting to problems that have already occurred
 Corporate Social Performance

• For many years now, there has been a trend toward making the concern for social, environmental and ethical issues more
and more practical and results-oriented.
• The responsiveness thrust was a step in this direction. Another step has been to integrate these concerns into a corporate
social performance (CSP) model.
• The performance focus suggests that what really matters is what companies are able to achieve—the results or outcomes of
their acceptance of social responsibility and the adoption of a responsiveness viewpoint. Performance is a bottom-line
concept.
The Social Performance and
Financial Performance
Relationship
 Sustainability—Profits, People,
Planet
• Corporate
sustainability is the
goal of the triple
bottom-line approach.

• The goal of sustainability is

to create long-term
shareholder value by taking
advantage of opportunities
and managing risks related
to economic, environmental,
and social developments
 Socially Responsible, Sustainable,
Ethical Investing
• socially responsible, sustainable, or ethical investing, today it is
sometimes called impact investing, or environmental, social, and
governance (ESG) investing.
• This success documents that there is a growing body of investors who
are sensitive to business’s social and ethical (as well as financial)
performance.
• Studies of social investing have demonstrated that investors do not
have to give up financial performance to achieve social performance.
• The industry has been growing consistently and is now considered to
be a part of the mainstream of investing.
The Stakeholder Approach to Business,
Society, and Ethics
 Who Are Business’s Stakeholders?
• from the point of view of a highly pluralistic society, stakeholders include not only these
groups, but other groups as well. These other groups include the community, competitors,
suppliers, special-interest groups, the media, and society, or the public at large. Regulators,
activists, and geographic communities, customers, partners, employees, and environment
also have been identified as stakeholders. The communities that we live in are stakeholders.
Three Views of the
Firm: Production,
Managerial, and
Stakeholder
• Figure 3-2 depicts the
evolution from the
production view to the
managerial view of the firm
Three Views of the
Firm: Production,
Managerial, and
Stakeholder
• Figure 3-3 illustrates the
stakeholder view of the firm.
• The diagram in Figure 3-3 is
called a stakeholder map
because it charts out a firm’s
stakeholders.
Primary and Secondary
Stakeholders
 Important Stakeholder Attributes:
Legitimacy, Power, Urgency

• How do managers decide which stakeholders deserve their attention?

Stakeholders have attributes such as legitimacy, power, and urgency.
• A typology of stakeholders has been developed based on these three attributes. When these three attributes are
superimposed, as depicted in Figure 3-4, seven stakeholder categories may be created.
• Other research has suggested that at least one other criterion should be considered in addition to legitimacy, power, and
urgency—proximity.
• The spatial distance between the organization and its stakeholders refers to proximity, and it is a relevant consideration in evaluating
stakeholders’ importance and priority
 Stakeholder Approaches:
Strategic, Multifiduciary, and
• A major challenge embedded in the
Synthesis
stakeholder approach is to determine
whether it should be seen primarily as a way
to manage better or as a way to treat more
ethically those groups known as stakeholders.

• Both of these concerns have

sustainability implications. This issue
may be addressed by considering
the stakeholder approach used.
Stakeholder
Management
• Figure 3-5 presents a
schematic of the decision
process outlining the five
questions and key issues
with respect to each. The
feedback loop suggests
that this is an ongoing
process.
Effective Stakeholder
Management
Strategic Steps toward Global
Stakeholder
REFERENCE
 REFERENCE

• Archie B. Carroll, J. A. B., & Buchholtz, A. K. (2018). Business & Society:

Ethics, Sustainability, and Stakeholder Management (10th ed.).
Cengage Learning.