Chapter Five

The Corporation And External Stakeholders

Copyright 2003 by SouthWestern, a division of Thomson Learning

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

Managing Corporate Responsibility in the Marketplace: Crises and Opportunities

Managing legal and moral responsibility in the marketplace can be a significant part of a corporations activities. Figure 5.1 in the text Classic corporate crises Corporate social responsibility refers to a businesss attention to and promotion of the welfare and goodwill of stakeholders. 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 with External Stakeholders

The stakeholder management approach views the corporation as a legal entity and a collective of individuals and groups. 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.
4

Copyright 2003 by South-Western, a division of Thomson Learning

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. The covenantal ethic focuses on the importance of relationships, social as well as economic, among businesses, customers, and stakeholders. At a more general view, it is argued that a corporations obligations include, in addition to making a profit, acting justly, causing no unavoidable, unjustifiable harm, and preventing harm where possible.
5

Copyright 2003 by South-Western, 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 societys 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

Managing Corporate Responsibility with External Stakeholders

Issues management should be a continuous strategic process that involves all business and functional units. 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, a division of Thomson Learning

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

Corporate Responsibility Toward Consumer Stakeholders

The free-market theory holds that the primary aim of business is to make a profit. There are several arguments regarding the free-market theory. The mixed market economy perspective include a balance between the private property systems and the government laws, policies, and regulations that protect consumers and citizens.
10

Copyright 2003 by South-Western, a division of Thomson Learning

Corporate Responsibility in Advertising, Product Safety, 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. 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.
11

Copyright 2003 by South-Western, a division of Thomson Learning

Corporate Responsibility in Advertising, Product Safety, 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.
FTC provides regulatory guidelines for on-line advertising
Copyright 2003 by South-Western, a division of Thomson Learning 12

Corporate Responsibility in Advertising, Product Safety, and Liability

Moral responsibility for consumers in advertising can be viewed along a continuum.
Paternalism Illusion of free choice

Enforcement of advertising
Bans on ads

Copyright 2003 by South-Western, a division of Thomson Learning

13

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 nations 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

Corporate Responsibility in Advertising, Product Safety, 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, a division of Thomson
Learning

15

Corporate Responsibility in Advertising, Product Safety, 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, a division of Thomson
Learning 16

Corporate Responsibility in Advertising, Product Safety, 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. E-commerce and product liability
17

Copyright 2003 by South-Western, 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

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, a division of Thomson Learning 19

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