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Part One: An Overview of Business EthicsChapter 2: Stakeholder Relationships, Social Responsibility, and Corporate Governance © 2013 Cengage Learning. All Rights Reserved.
Relationships and BusinessBuilding relationships is one of the most important areas of business today Strong relationships associated with organizational success Stakeholder framework Helps identify internal and external stakeholders Helps monitor and respond to needs, values, and expectations of stakeholder groups Corporate governance: The formal system of accountability and control of ethical and socially responsible behavior © 2013 Cengage Learning. All Rights Reserved.
Stakeholders Define Ethical Issues in BusinessStakeholders: Those who have a stake or claim in some aspect of a company’s products, operations, markets, industry, and outcomes Customers Investors Employees Suppliers Government agencies Communities Stakeholders can influence and are influenced by businesses © 2013 Cengage Learning. All Rights Reserved.
Identifying StakeholdersPrimary stakeholders: Those whose continued association is necessary for a firm’s survival Employees, customers, investors, governments, and communities Secondary stakeholders: Are not essential to a company’s survival Media, trade associations, and special interest groups © 2013 Cengage Learning. All Rights Reserved.
The Stakeholder Interaction Model© 2013 Cengage Learning. All Rights Reserved.
A Stakeholder OrientationThe degree to which a firm understands and addresses stakeholder demands Three activities Generation of data about stakeholder groups Distribution of the information throughout the firm Organization’s responsiveness to this intelligence © 2013 Cengage Learning. All Rights Reserved.
Best Corporate Citizens© 2013 Cengage Learning. All Rights Reserved.
Social ResponsibilityAn organization’s obligation to maximize its positive impact on stakeholders and minimize its negative impact Four levels of social responsibility Economic Legal Ethical Philanthropic © 2013 Cengage Learning. All Rights Reserved.
The Importance of a Stakeholder OrientationSocial responsibility cannot be reactive Must be part of business strategy Is associated with Increased profits Increased employee commitment Greater customer loyalty Business ethics involves carefully thought-out rules of conduct that guide decision making © Cengage Learning. All Rights Reserved.
The Steps of Social Responsibility© 2013 Cengage Learning. All Rights Reserved.
Corporate CitizenshipThe extent to which businesses strategically meet their economic, legal, ethical, and philanthropic responsibilities Four interrelated dimensions Strong sustained economic performance Rigorous compliance Ethical actions beyond what is legally required Voluntary contributions to advance reputation and stakeholder commitment © 2013 Cengage Learning. All Rights Reserved.
Reputation Reputation is one of an organization’s greatest intangible assets with tangible value Difficult to quantify Very important © 2013 Cengage Learning. All Rights Reserved.
The World’s Most Ethical CompaniesTrader Joe’s Aflac Xerox General Mills Nike Best Buy Dow Corning Corporation Starbucks Ford Motor Company Target General Electric Salesforce.com, Inc. PepsiCo Barrett Jackson Auction Co. Whole Foods Market Patagonia Source: “2010 World’s Most Ethical Companies,” Ethisphere, Q4, 30–31. © 2013 Cengage Learning. All Rights Reserved.
Corporate Governance Formal systems of accountability, oversight, and control Accountability How closely workplace decisions align with a firm’s strategic direction Oversight A system of checks and balances to minimize opportunities for misconduct Control The process of auditing and improving organizational decisions and actions © 2013 Cengage Learning. All Rights Reserved.
Corporate Governance TopicsSource: “Corporate Alert: Top 10 Topics for Directors in 2011,” December 6, 2010, Corporate Governance Topics Source: Board%20Governance/Top%2010%20Topics%20for%20Directors%20in%202011_Akin_ pdf (accessed February 15, 2011). © 2013 Cengage Learning. All Rights Reserved.
Corporate Governance ModelsShareholder model Founded in classic economic precepts The maximization of wealth for investors and owners Stakeholder model A broader view of the purpose of business Includes satisfying concerns of stakeholders © 2013 Cengage Learning. All Rights Reserved.
Board of Directors Holds final responsibility for its firm’s success, failure, and ethicality of actions Increased demands for accountability/ transparency Trend toward “outside directors” chosen for expertise, competence, and strategic decision making Executive compensation is a growing concern © 2013 Cengage Learning. All Rights Reserved.
Demands for Accountability and TransparencyStakeholders demand that boards are answerable for their actions and transparent Directors chosen for expertise, competence, and diverse perspectives Qualified, knowledgeable, unbiased boards can prevent misconduct Interlocking directorate: Board members linked to more than one company © 2013 Cengage Learning. All Rights Reserved.
Executive CompensationMany boards spend more time discussing compensation than ensuring integrity of financial reporting systems How closely linked is executive compensation to company performance? Does performance-linked compensation encourage executives to focus on short-term performance at the expense of long-term growth? © 2013 Cengage Learning. All Rights Reserved
Changes in Corporate Governance© 2013 Cengage Learning. All Rights Reserved.
Implementing a Stakeholder PerspectiveAssessing the corporate culture Identifying stakeholder groups Identifying stakeholder issues Assessing organizational commitment to social responsibility Identifying resources and determining urgency Gaining stakeholder feedback © 2013 Cengage Learning. All Rights Reserved.
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