2. Chapter Key Points Explore the business community’s relationship to the broader society Define corporate social responsibility Contrast the stakeholder approach and the shareholder approach 3 The Corporation and Public Policy: Expanding Responsibilities

3. Chapter Issues  What is the proper role of business in society?  What criticisms can be raised against the corporate community?  What is corporate social responsibility? McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

4. Corporate Wealth  Of the globe’s 100 largest economic entities, 51 are corporations; only 49 are countries.  The 300 largest global corporations hold one-quarter of the entire globe’s productive assets.  72% of Americans say business has too much power over too many aspects of American life. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

5. Has America Committed its Soul to Corporate Values?  Business values include competition, profit seeking, reliance on technology and faith in growth.  Traditional humanist values include cooperation, individual dignity, human rights and meaningful service to society. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

6. Corporate Wealth and Politics: Enron  None of the key congressional committees investigating Enron and Andersen could muster a majority at their hearings, if campaign contributions from the powerful companies disqualified members.  2000 net income: $979 million  2000 federal income taxes paid: $0 McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

7. Corporate Wealth and Politics: Lobbying  The business community spent approximately $1.4 billion to influence Congress and the White House in 1998.  Reading: “Congress Helps UPS Win Route” McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

8. Corporate Wealth Also Affects…  Schools  Advertising on school buses  Free book covers with ads  Charitable organizations  Corporate ownership of radio stations  Sports  Advertising on players’ uniforms  Corporate sponsorship of college bowl games  America’s global relationships  Reading: “Rise of the Corporate Nation-State” McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

9. The Social Responsibility Continuum Welfare Long-Term Profit Maximization Company Maximization Interest (Good Deeds (Profit + (Profit) + Profit) Good Deeds) | McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

10. The Social Responsibility Pyramid Archie Carroll’s pyramid of corporate citizenship has, at its base, a corporation’s economic responsibilities upon which all other responsibilities must be progressively developed as the corporation matures:  Philanthropic Responsibilities: Be a good corporate citizen. Contribute resources to the community; improve quality of life. |  Ethical Responsibilities: Be ethical. Obligation to do what is right, just and fair. Avoid harm. |  Legal Responsibilities: Obey the law. Law is society's codification of right and wrong. Play by the rules of the game. |  Economic Responsibilities: Be profitable. The foundation upon which all others rest. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

11. Social Responsibility in Practice: Part I Business Ethics magazine's 2001 Best Corporate Citizens: Number 1: Procter & Gamble. P & G gives particular attention to international needs “including earthquake relief in Turkey, community building projects in Japan, plus contributions for schools in China, school computers in Romania, special education in Malaysia, and shore protection in France.” Number 2: Hewlett- Packard. “Its stakeholder service included generous support of community development and education, amounting to $58 million in 1999, and an extremely employee- friendly work environment. HP…provides a stunning 52 weeks maternity leave… But HP really shines in the area of diversity. Three women serve among the company's seven senior line executives, including Carley Fiorina, president and CEO…” McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

12. Social Responsibility in Practice: Part II Procter & Gamble and Honda were both harshly criticized for not doing more after 9/11 when in fact both had made major efforts but had intentionally avoided promoting those contributions. Source: Ronald Alsop, “Perils of Corporate Philanthropy,” The Wall Street Journal, January 16, 2002, p. B1 McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

13. Venture Philanthropy: Entrepreneurs Start or Buy Companies to Generate Profits for Charity  Paul Newman’s Newman’s Own has donated $115 million for hunger relief, for medical research and to fund camps for seriously ill children.  Ben Cohen’s Barred Rock Fund buys companies in low- income neighborhoods where he can raise wages and improve other employee benefits.  John Sage’s Pura Vida gives money to needy families in Costa Rica for food, clothing and medicine. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

14. Is Corporate Responsibility Good Business?  A 1999 review found 33 studies showing a positive relationship between socially responsible behavior and favorable financial performance, while 5 studies found a negative relationship and 14 found no effect or were inconclusive.  Another review of 27 studies found very convincing statistical evidence that the stock market punishes firms caught in illegal or socially irresponsible behavior by reducing shareholder wealth, at least in the short term. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

15. Stakeholder Model of Social Responsibility Alternative Approaches:  Manage stakeholders by influencing and perhaps trying to control their behavior  Collaborate with stakeholders in a mutually defined, cooperative, reciprocal relationship McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

16. Corporate Responsibility Standards  The Council on Economic Priorities developed the first global standard, SA8000 (social accountability 8000), that measures companies’ social and environmental records.  SGS-ICS, an independent Swiss certification agency, will accredit companies that meet the SA8000 standards in the areas of child labor, forced labor, health and safety, freedom of association, discrimination, disciplinary practices, working hours, compensation, and management systems.  The Global Reporting Initiative is developing consistent global guidelines for reporting the economic, environmental and social performance of corporations equivalent to financial reporting. McGraw-Hill© 2004 The McGraw-Hill Companies, Inc. All rights reserved.