Global Business Today, 5e

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(No Transcript)
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Chapter

• Stakeholders, Ethics, and Corporate Social
  Responsibility

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Learning Objectives

• Identify stakeholders in an organization.
• Describe the most common types of ethical issues
  managers confront.
• Explain how managers can incorporate ethical
  factors into their decision making.
• Outline the main segments for and against
  corporate social responsibility.
• Explain what managers can do to behave in a
  socially responsible manner.

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Stakeholders
Government
General public
Employees
Customers
Distributors
The Firm
Creditors
Suppliers
Shareholders
Local communities
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Evaluating Stakeholders Claims
Identify stakeholders interests and concerns
Identify claims stakeholders place on the
organization
Identify Stakeholders
Take actions, starting with those that address
the claims of the most important stakeholders
Weight stakeholders by their importance to the
firm
Identify actions to satisfy claims of various
stakeholders
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Question

• Identify and evaluate the stakeholder claims for
  your university.

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Business Ethics

• Accepted principles of right or wrong governing
  the conduct of businesspeople.
• Principles of right and wrong are codified into
  laws
• Tort law
• Contract law
• Intellectual property law
• Antitrust law
• Securities law
• Many actions, although legal, may not seem ethical

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Are We Ethical?
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Source Fast Company, May 2005
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Ethics in Management

• Most issues arise due to potential conflict
  between the goals and the rights of stakeholders.
• Stakeholders have basic rights that should be
  respected, and it is unethical to violate those
  rights.

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Ethical Rights of Stakeholders

• Shareholders right to timely and accurate
  information about their investments
• Customers right to be fully informed about the
  products and services they purchase
• Employees right to safe working conditions,
  fair compensation, and to be treated in a just
  manner

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Ethical Rights of Stakeholders (cont)

• Suppliers right to expect contracts to be
  respected
• Competitors right to expect that a firm will
  abide by the rules of competition and not violate
  antitrust laws
• Communities right to expect companies will not
  violate the basic expectations of society

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Corporate Wrongdoers

• Martha Stewart served five-months sentence for
  lying to government investigators about a
  suspicious stock sale. Her companys sales sunk.
• Tyco International CEO, Dennis Kozlowski became
  a poster boy for excess with 2 million birthday
  party. Charges Stealing 600 million form the
  company and the shareholders
• Former CEO of Enron, Bernard Ebbers Charges
  conspiracy, securities fraud, making false
  regulatory filings, ring leader in an 11 billion
  accounting fraud

Source Business Week, January 10, 2005
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Ethical Issues of Managers

• Self-dealing
• Information manipulation
• Anticompetitive behavior
• Opportunistic Exploitation
• Substandard working conditions
• Environmental degradation
• Corruption

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Examples of Self-dealing

• Senior managers who treat corporate funds as
  their own personal treasury
• Senior managers who use their control over the
  compensation committee of the board of directors
  to award themselves multimillion-dollar pay
  increases or stock option grants that are out of
  promotion with their contribution to the
  corporation
• Instances where individual managers award
  business contracts not to the most efficient
  supplier but to the one that provides the largest
  kickback

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Self Dealings

• Lacrad International sold gospel music and
  religious sermons on CDs. The owner Rodney Dixon
  admitted to a judge that most of his business was
  a lie. The companys revenue never exceeded
  100,000 per year, however, he told lenders that
  revenues were in millions to get a 2.25 million
  loan for a corporate jet.
• Former Tyco Internationals CEO Dennis Koslowski
  became a poster boy for excess with stories of
  his 2 million birthday party and 6,000 shower
  curtain during his last trial.

Source Fast Company, May 2005 Business Week,
January 10, 2005
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Corruption

• The Foreign Corrupt Practices Act was enacted in
  1977.
• What is considered gift in one country can be a
  bribe in another.
• Only 34 cases have gone to trial since the law
  was enacted. Most are settled out of court with
  fines and penalties.
• InVision Technologies allegedly bribed crooked
  officials in China, the Philippines, and Thailand.

Source San Jose Mercury News, March 13, 2005
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Roots of Unethical Behavior
Employees with poor personal ethics
Immoral leadership
Unethical behavior
Unrealistic performance goals
Unethical organization culture
Failure to consider ethical issues
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Philosophical Approaches to Ethics (1)

• Utilitarian approach the view that the moral
  worth of actions or practices is determined by
  their consequences
• An action is judged to be desirable if it leads
  to the best possible balance of good over bad
  consequences
• Committed to maximization of good, and the
  minimization of harm
• The best decisions are those that produce the
  greatest good for the greatest number of people

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Philosophical Approaches to Ethics (2)

• Rights theory the view that human beings have
  fundamental rights and privileges
• Something that takes precedence over, or trumps
  a collective good
• For example, since we have the right to free
  speech, we are also obligated to make sure we
  respect the free speech of others
• Certain people or institutions are obligated to
  provide benefits or services that secure the
  rights of others

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Philosophical Approaches to Ethics (3)

• Justice theories theories that focus on
  attaining a just distribution of economic goods
  and services
• A just distribution is one that is considered
  fair and equitable
• All economic goods and services should be
  distributed equally except when an unequal
  distribution would work to everyones advantage
• Veil of ignorance everyone is imagined to be
  ignorant of all his or her particular
  characteristics

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Question

• Jerry Jamesway, CEO, Jamesway International,
  believes that the best decisions are those that
  produce the greatest good for the greatest number
  of people. Jerry prescribes to which of these
  approaches to ethics?
• Opportunistic exploitation
• Rights theories
• Utilitarian
• Justice theories

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Behaving Ethically

• What managers can do to make sure that ethical
  issues are considered
• Establish an ethics officer
• Have leaders promote ethical behavior
• Develop strong governance processes
• Promote moral courage
• Consider ethical aspects of business decisions
• Promote an ethical organization culture
• Hire and promote ethical individuals

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Ethical Decisions

• It is considered ethical when a businessperson
  can answer YES to each of the following
  questions
• Does my decision fall within the accepted values
  or standards that typically apply in the
  organizational environment?
• Am I willing to see the decision communicated to
  all stakeholders affected by it?
• Would the people with whom I have significant
  personal relationship approve of the decision?

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Uncertainty

• Not all ethical dilemmas have a clean and obvious
  solution
• In these cases a premium is placed on the ability
  of managers to make sense out of complex messy
  situations and make balanced decisions that are
  as just as possible.

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Social Responsibility

• A sense of obligation on the part of managers to
  build certain social criteria into their decision
  making.
• When managers evaluate decisions, there should be
  a presumption in favor of adopting courses of
  action that enhance the welfare of society at
  large.

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Giving Back

• Mark Benioff, CEO, Salesforce.com
• 1 of equity into public charity
• 1 of time (4 hours per month) per employee to
  paid volunteerism
• 1 of profits to nonprofit organizations

Source Newsweek, April 18, 2005
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Arguments for SR

• Right way for a business to behave
• Need to give back to the society that helped make
  their company
• It can lead to better financial performance
• Ignoring this may generate ill will and opposition

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Global Labor Monitoring

• Nike, Patagonia, Gap and Five other companies
  have joined forces with six leading
  anti-sweatshop groups to devise a single set of
  labor standard with a common factory inspection
  system.
• Goal To replace todays overlapping hodgepodge
  of approaches with something thats easier and
  cheaper to use

Source Business Week, May 23, 2005
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The Friedman Doctrine

• Rejects the idea that businesses should undertake
  social expenditures beyond those mandated by law
• The firm should maximize its profits
• If shareholders want to use proceeds for social
  investments that should be there choice managers
  should not make that decision for them