The Business/Society Relationship

The Business/Society Relationship
1 1 The Business/Society Relationship 1

Chapter One Objectives
2 Chapter One Objectives Characterize business, society, and their relationship to each other Describe pluralism and identify its strengths and weaknesses Clarify how our pluralistic society became a special-interest society Identify and discuss factors leading up to the criticism of business Identify the major criticisms of business and characterize business' response Identify the major themes of this book: managerial approach, ethics, and stakeholder management 2

Chapter One Outline Business and Society
Business Defined Society Defined The Macroenvironment Role of Pluralism Weaknesses and Strengths of Pluralism Business Versus Multiple Publics and Systems Our Special-Interest Society Business Criticism and Corporate Response Factors in the Social Environment Criticisms: Use and Abuse of Power Response: A Changing Social Environment and Social Contract Focus of the Book Managerial Approach Two Broad Classes of Social Issues The Ethics Theme Structure of the Book Summary Chapter One Outline Business and Society Society as the Macroenvironment Our Pluralistic Society Our Special-Interest Society Business Criticism and Corporate Response Focus of the Book Structure of the Book Summary

Introduction to Chapter One
The Business and Society Relationship Specific incidents versus broad societal concerns Firestone tires versus discrimination Questions arise as to the behavior of the firm Is the firm’s behavior ethical? Is the firm’s behavior socially responsible? What is the firm’s correct response? What is the role of the firm in society?

Business and Society Relationship
Business is the collection of private, profit-oriented organizations. Society is a broad group of people and other organizations, interest groups, a community, a nation. Business and society interrelate in a macroenvironment as stakeholders. Business Community Consumers Owners Government Employees

Society as the Macroenvironment
The macroenvironment is the total societal context in which the firm resides and is composed of four segments: Social Economic Political Technological

Society as the Macroenvironment
Four segments of the Macroenvironment Social environment focuses on demographics, lifestyles and social values Economic environment focuses on the economy Political environment focuses on the legislative process, election process and the interaction between firms, politics and government Technological environment focuses on the changes in technological advancement

Pluralistic Society Diffusion of Power Strengths
Prevents concentration of power Maximizes freedom of expression Disperses individual allegiances Creates diversified set of loyalties Provides checks and balances Weaknesses Pursuit of self-interest Proliferates organizations and groups with overlapping goals Forces conflicts to center stage Promotes inefficiency

Business and Selected Stakeholder Relationships
Community Consumers Owners Government Employees Environmental Groups Local State General Public Federal Unions Corporate Raiders Older Employees Private Citizens Women Minorities Institutional Investors Civil Liberties Activists Consumer Activists Product Liability Threats

Special-Interest Society
Special interests make life more complex for business Special interest groups number in the tens of thousands Special interest groups each pursue their own limited agenda Special interest groups are more active, intense, diverse and focused Special interest groups attract a significant following increasing revenue and power

Social Environment, Criticism, and Corporate Response
A Changed Social Contract Increased Concern for Societal Environment Business Criticism Affluence Education Awareness Factors in the Social Environment Rights Movement Rising Expectations Entitlement Mentality Victimization Philosophy

Business Criticism Factors in the Social Environment
Affluence and education Awareness through television Revolution of rising expectations Entitlement mentality Rights movement Victimization philosophy

Society’s Expectations versus Actual Social Performance
Society’s Expectations of Business Performance Social Problem Social Performance: Expected and Actual Social Problem Business’s Actual Social Performance 1960s s Time

Business Criticism Power
Use and abuse of power Business power refers to the ability or capacity to produce an effect or to bring an influence to bear on a situation or people Iron Law of Social Responsibility In the long run, those who do not use power in a manner society considers responsible will tend to lose it

Business Criticism Levels and Spheres of Corporate Power
Macro Level Intermediate Level Micro Level Individual Level Economic Social/Cultural Individual Technological Environmental Political Levels Spheres

Business Criticism Response
Elements In the Social Contract Laws or Regulations: “Rules of the Game” Society or Societal Stakeholder Groups Business Two-Way Shared Understandings of Each Other Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved 1-16

Focus of Book Managerial approach Ethics theme
Stakeholder management theme

Structure and Flow of Book
Chapter 1 • The Business/Society Relationship Structure and Flow of Book BUSINESS, SOCIETY, AND STAKEHOLDERS The Business and Society Relationship Corporate Citizenship: Social Responsibility, Responsiveness and Performance The Stakeholder Approach to Business Part One STRATEGIC MANAGEMENT FOR CORPORATE STAKEHOLDER PERFORMANCE Strategic Management and Corporate Affairs Issues Management and Crisis Management Part Two Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved 1-18

Chapter 1 • The Business/Society Relationship Structure and Flow of Book BUSINESS ETHICS AND MANAGEMENT Business Ethics Fundamentals Personal and Organizational Ethics Business Ethics and Technology Ethical Issues in the Global Arena Part Three EXTERNAL STAKEHOLDER ISSUES Business, Government and Regulation Business’s Influence on Government and Public Policy Consumer Stakeholders: Information Issues and Responses Consumer Stakeholders: Product and Service Issues The Natural Environment as Stakeholder Business and Community Stakeholders Part Four Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved 1-19

Chapter 1 • The Business/Society Relationship Structure and Flow of Book INTERNAL STAKEHOLDER ISSUES Employee Stakeholders and Workplace Issues Employee Stakeholder: Privacy, Safety, and Health Employment Discrimination and Affirmative Action Owner Stakeholders and Corporate Governance Part Five Cases Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved 1-20

Selected Key Terms Affluence Business Business ethics Business power
Economic environment Education Entitlement mentality Ethics Iron Law of Responsibility Macroenvironment Pluralism Political environment Revolution of rising expectations Rights movement Social contract Social environment Social problem Society Special-interest society Stakeholders Technological environment

2 Corporate Citizenship, Social Responsibility, Responsiveness, and Performance Search the Web One of the leading organizations promoting corporate responsibility is Business for Social Responsibility : 1 1

Chapter Two Objectives
Explain corporate social responsibility (CSR) Provide business examples of CSR Differentiate social responsibility and responsiveness Explain corporate social performance (CSP) Relate social performance to financial performance Describe the socially conscious investing movement 2 2

Chapter Two Outline The CSR Concept
The Corporate Social Responsibility Concept Historical Perspective on CSR Corporate Social Responsibility The Four-Part Definition of CSR Arguments Against and For Corporate Social Responsibility Arguments Against CSR Arguments for CSR Corporate Social Responsiveness Ackerman and Bauer’s Action-Orients View Sethi’s Three-Stage Schema Frederick’s CSR1 and CSR2 Epstein’s Process View Other Views Measurable Dimensions of Responsiveness Corporate Social Performance Carroll’s Corporate Social Performance Model Usefulness of the Model to Academics and Managers Wartick and Cochran’s Extensions Wood’s Reformulated Model Nonacademic Research on Corporate Social Performance Social Performance and Financial Performance Socially Conscious or Ethical Investing Summary Chapter Two Outline The CSR Concept Arguments For and Against Corporate Social Responsibility Corporate Social Responsiveness Corporate Social Performance (CSP) Nonacademic Research on CSP Social Performance and Financial Performance Socially Conscious or Ethical Investing Summary

Introduction to Chapter Two
The focus in this chapter is on corporate social responsibility, which involves responsibilities outside of making a profit and the key questions for corporations include: Does business have a social responsibility? If so, what is the extent and type of the responsibility? Search the Web One of the leading corporations promoting corporate responsibility is Proctor and Gamble:

Corporate Social Responsibility (CSR)
Preliminary definitions of CSR The impact of a company’s actions on society Requires a manager to consider his acts in terms of a whole social system, and holds him responsible for the effects of his acts anywhere in that system

Corporate Citizenship Concepts Corporate social responsibility – emphasizes obligation and accountability to society Corporate social responsiveness – emphasizes action, activity Corporate social performance – emphasizes outcomes, results

Business Criticism/ Social Response Cycle Factors in the Societal Environment Criticism of Business Increased concern for the Social Environment A Changed Social Contract Business Assumption of Corporate Social Responsibility Social Responsiveness, Social Performance, Corporate Citizenship A More Satisfied Society Fewer Factors Leading to Business Criticism Increased Expectations Leading to More Criticism 2-7

Historical Perspective Economic model – the invisible hand of the marketplace protected societal interest Legal model – laws protected societal interests

Historical Perspective Modified the economic model Philanthropy Community obligations Paternalism Search the Web Milton Hershey was a leading example of an individual who employed philanthropy, community obligation and paternalism To learn more about Milton Hershey and the company, school and town he built, log on to:

Historical Perspective What was the main motivation? To keep government at arms length Search the Web Businesses are interested in CSR and one leading business organization that companies can join is Business for Social Responsibility. To learn more about BSR, visit their web site at::

Historical Perspective From the 1950’s to the present the concept of CSR has gained considerable acceptance and the meaning has been broadened to include additional components

Evolving Viewpoints CSR considers the impact of the company’s actions on society (Bauer) CSR requires decision makers to take actions that protect and improve the welfare of society as a whole along with their own interests (Davis and Blomstrom)

Evolving Viewpoints CSR mandates that the corporation has not only economic and legal obligations, but also certain responsibilities to society that extend beyond these obligations (McGuire)

Evolving Viewpoints CSR relates primarily to achieving outcomes from organizational decisions concerning specific issues or problems, which by some normative standard have beneficial rather than adverse effects upon pertinent corporate stakeholders. The normative correctness of the products of corporate action have been the main focus of CSR (Epstein)

Carroll’s Four Part Definition CSR encompasses the economic, legal, ethical and discretionary (philanthropic) expectations that society has of organizations at a given point in time

Carroll’s Four Part Definition Understanding the Four Components Responsibility Societal Expectation Examples Economic Required Be profitable. Maximize sales, minimize costs, etc. Legal Obey laws and regulations. Ethical Expected Do what is right, fair and just. Discretionary (Philanthropic) Desired/ Be a good corporate citizen. Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved 2-16

Source: Archie B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders,” Business Horizons (July-August 1981). © 1991 by the Foundation for the School of Business at Indiana University. Used with permission. Pyramid of CSR Philanthropic Responsibilities Be a good corporate citizen. Ethical Responsibilities Be ethical. Legal Responsibilities Obey the law. Economic Responsibilities Be profitable.

CSR in Equation Form Is the Sum of: Economic Responsibilities (Make a profit) Legal Responsibilities (Obey the law) Ethical Responsibilities (Be ethical) Philanthropic Responsibilities (Good corporate citizen) CSR

Stakeholder View Stakeholder Group Addressed and Affected CSR Component Owners Con- sumers Employees Community Others Economic 1 4 2 3 5 Legal Ethical Philanthropic

Corporate Social Responsibility (CSR) Arguments Against
Restricts the free market goal of profit maximization Business is not equipped to handle social activities Dilutes the primary aim of business Increase business power Limits the ability to compete in a global marketplace

Corporate Social Responsibility (CSR) Arguments For
Addresses social issues business caused and allows business to be part of the solution Protects business self-interest Limits future government intervention Addresses issues by using business resources and expertise Addresses issues by being proactive

Corporate Social Responsibility (CSR) Business Responsibilities in the 21st Century
Demonstrate a commitment to society’s values and contribute to society’s social, environmental, and economic goals through action. Insulate society from the negative impacts of company operations, products and services. Share benefits of company activities with key stakeholders as well as with shareholders. Demonstrate that the company can make more money by doing the right thing.

Corporate Social Responsiveness
Evolving Viewpoints Ackerman and Bauer’s action view Sethi’s three stage schema Frederick’s CSR1, CSR2, and CSR3 Epstein’s process view

Corporate Social Performance
Carroll’s CSP model integrates economic concerns into a social performance framework

Extensions and Reformulations Wartick and Cochran’s extensions Wood’s reformulations Swanson’s Reorientation

Corporate Social Performance Nonacademic Research
Fortune's ranking of most and least admired corporations Council on Economic Priorities Corporate Conscience Awards Business Ethics Magazine Awards WalkerInformation’s Research on the impact of social responsibility

Corporate Citizenship
Corporate citizenship embraces all the facets of corporate social responsibility, responsiveness and performance

Social—and Financial—Performance
Perspective 1: CSP Drives the Relationship Good Corporate Social Performance Good Corporate Financial Performance Good Corporate Reputation Perspective 2: CFP Drives the Relationship Good Corporate Financial Performance Good Corporate Social Performance Good Corporate Reputation Perspective 3: Interactive Relationship Among CSP, CFP, and CR Good Corporate Social Performance Good Corporate Financial Performance Good Corporate Reputation

Social and Financial Performance A Multiple Bottom-Line Perspective

Socially Conscious or Ethical Investing
Social screening is a technique used to screen firms for investment purposes

Selected Key Terms Business for Social Responsibility Community obligations Corporate Citizenship Corporate social responsibility Corporate social responsiveness Corporate social performance Economic, legal, ethical and discretionary responsibilities Paternalism Philanthropy Pyramid of CSR Socially conscious investing

The Stakeholder Approach to Business, Society and Ethics
3 The Stakeholder Approach to Business, Society and Ethics Search the Web Information on stakeholder theory can be found at the Clarkson Centre for Business Ethics at the University of Toronto: 1 1

Chapter Three Objectives
Define stake and stakeholder Differentiate between production, managerial, and stakeholder views of the firm Discuss three values of the stakeholder model Consider the concept of stakeholder management Identify the essence of stakeholder management Explain stakeholder management capability (SMC) 2 2

Chapter Three Outline Origins of the Stakeholder Concept
What Is a Stake? What Is a Stakeholder? Who Are Business’s Stakeholders? Production, Managerial, and Stakeholder Views Primary and Secondary Stakeholders Care, Strategic, and Environmental Stakeholders A Typology of Stakeholders Strategic, Mulitfiduciary, and Synthesis Views Three Values of the Stakeholder Model Stakeholder Management Who Are Our Stakeholders? What Are Our Stakeholders’ Stakes? What Opportunities and Challenges Do Our Stakeholders Present to Our Firm? What Responsibilities Does Our Firm Have to Its Stakeholders? What Strategies or Actions Should Management Take? Effective Stakeholder Management Stakeholder Management Capability The Stakeholder Corporation Summary Chapter Three Outline Origins of the Stakeholder Concept Who Are Business’s Stakeholders? Strategic, Multifiduciary, and Synthesis Views Three Values of the Stakeholder Model Key Questions of Stakeholder Management Effective Stakeholder Management Stakeholder Management Capability(SMC) The Stakeholder Corporation Stakeholder Power: Four Gates of Engagement Principles of Stakeholder Management Summary

Introduction to Chapter Three
Stakeholders Individuals and groups with a multitude of interests, expectations, and demands as to what business should provide to society

Origins of the Stakeholder Concept
What is a stake? An interest or a share in an undertaking and can be categorized as: Interest Right Ownership Legal Moral

Origins of the Stakeholder Concept
What is a stakeholder? An individual who possesses a stake

Who Are Business Stakeholders?
Government Employees Business Community Consumers Owners

Evolution and Development of the Stakeholder Concept Views of the Firm Production Managerial Stakeholder

Production and Managerial Views

Primary and Secondary Stakeholders Primary stakeholders are those stakeholders that have a direct stake in the organization and its success Secondary stakeholders are those that have a public or special interest stake in the organization

Core, Strategic, and Environmental Stakeholders Core stakeholders are essential to the survival of the firm Strategic stakeholders are vital to the organization and the threats and opportunities the organization faces Environmental stakeholders are all others in the organization's environment

Legitimacy, Power, Urgency: A Typology of Stakeholder Attributes Legitimacy refers to the perceived validity of the stakeholder’s claim to a stake Power refers to the ability or capacity of a stakeholder to produce an effect Urgency refers to the degree to which the stakeholder’s claim demands immediate attention

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Strategic, Multifiduciary, and Synthesis Views of Stakeholders
Strategic approach considers stakeholders primarily as factors managers should manage in pursuit of shareholder profits Multifiduciary approach considers stakeholders as a group to which management has a fiduciary responsibility Synthesis approach considers stakeholders as a group to whom management owes an ethical, but not a fiduciary responsibility

Three Values of the Stakeholder Model
Descriptive Instrumental Normative

Key Questions In Stakeholder Management
Who are our stakeholders? What are our stakeholders’ stakes? What opportunities and challenges do the stakes and stakeholders present? What economic, legal, ethical, and philanthropic responsibilities does our firm have? What strategies or actions should our firm take to best manage stakeholder challenges and opportunities?

Who are our stakeholders? Management must identify generic stakeholder groups and specific subgroups

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What are our stakeholders’ stakes? Determine the nature/legitimacy of a group’s stakes Determine the power of a group’s stakes Determine specific groups within generic groups

What opportunities and challenges do stakeholders present? Opportunities are to build good productive working relationships with the stakeholders Challenges are representative of how the firm handles the stakeholders

What economic, legal, ethical, and philanthropic responsibilities does our firm have to its stakeholders? Philanthropic Responsibilities Be a good corporate citizen. Ethical Responsibilities Be ethical. Legal Responsibilities Obey the law. Economic Responsibilities Be profitable.

Stakeholder/Responsibility Matrix Stakeholders Economic Legal Ethical Philanthropic Owners Customers Employees Community Public at large Social Activists Other

What strategies or actions should our firm take to best manage stakeholder challenges and opportunities? Should we deal directly or indirectly with stakeholders? Should we take the offense or the defense in dealing with stakeholders? Should we accommodate, negotiate, manipulate or resist stakeholder overtures? Should we employ a combination of the above strategies or pursue a singular course of action?

Types of Stakeholders Stakeholder Type 4 Mixed Blessing Strategy: Collaborate Stakeholder Type 3 Nonsupportive Strategy: Defend Stakeholder Type 1 Supportive Strategy: Involve Stakeholder Type 2 Marginal Strategy: Monitor High Low Stakeholder’s Potential for Cooperation With Organization Stakeholder’s Potential for Threat to Organization ?

Effective Stakeholder Management
Careful assessment of the five core questions: Who are our stakeholders? What are our stakeholders’ stakes? What opportunities and challenges do stakeholders present? What economic, legal, ethical, and philanthropic responsibilities does our firm have? What strategies or actions should our firm take to best manage stakeholder challenges and opportunities?

Stakeholder Management Capability Rational level Process level Transaction level

Stakeholder Corporation Stakeholder inclusiveness Stakeholder symbiosis

Stakeholder Power: Four Gates of Engagement
Awareness Knowledge Admiration Action

Principles of Stakeholder Management
Acknowledge Monitor Listen Communicate Adopt Recognize Work Avoid Acknowledge conflict

Principles of Stakeholder Management
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Selected Key Terms Rational level Core Stakeholders Stake
Stakeholder inclusiveness Stakeholder management capability (SMC) Stakeholder symbiosis Stakeholder view of the firm Strategic stakeholder Transactional level Urgency Core Stakeholders Environmental Stakeholders Legitimacy Managerial view of the firm Power Principles of stakeholder management Process level Production view of the firm

Strategic Management and Corporate Public Affairs
4 Strategic Management and Corporate Public Affairs Search the Web For insights into GlaxoSmithKline corporate social policies, visit its web site at:: 1 1

Chapter Four Objectives
Explain the concept of corporate public policy Identify the four major strategy levels and enterprise-level strategy Describe how a concern for social and ethical issues fits into the strategic management Relate the notion of social audits to strategic control Discuss the four major stages in environmental analysis 2 2

Chapter Four Objectives
Identify the major functions of public affairs departments Highlight trends identified with respect to the public affairs function Link public affairs strategy and organizational characteristics Indicate how public affairs might be incorporated into every manager’s job 2 2

Chapter Four Outline The Concept of Corporate Public Policy
Four Key Strategy Levels The Strategic Management Process Corporate Public Affairs Public Affairs as Part of Strategic Management Evolution of the Corporate Public Affairs Function Modern Perspectives of Corporate Public Affairs Public Affairs Strategy Incorporating Public Affairs Thinking into Managers’ Jobs Summary

Introduction to Chapter Four
The chapter provides a broad overview of how social, ethical, and public issues fit into the general strategic management process of corporate public policy and corporate public affairs

The Concept of Corporate Public Policy
Corporate public policy is that part of the overall strategic management of the organization that focuses specifically on the firm’s posture, stance, strategy or position regarding the public, social and ethical aspects of stakeholders and corporate functioning AIDS Affirmative action Sexual harassment Product safety Employee privacy

Corporate Public Policy as Part of the Strategic Management Process
Strategic management refers to the overall management process that focuses on positioning the firm relative to its environment Corporate public policy is the part of the strategic management process that focuses specifically on the public, ethical, and stakeholder issues the firm faces

Corporate Public Policy, Strategic Management, and Ethics
For business ethics to have meaning it must be linked to business strategy because the linkage permits management issues to be addressed in ethical terms. The concept of corporate public policy and the linkage between strategic management and ethics can be better understood in terms of: Four key strategy levels Steps in the strategic management process

Four Key Strategy Levels
Each level poses a basic question . . . Enterprise-level strategy “What is the role of the organization in society?” Corporate-level strategy “What business are we in or should be in?” Business-level strategy “How should we compete in a given business or industry?” Functional-level strategy “How should a firm integrate subfunctional activities and relate them to its functional areas in finance, marketing, production?”

Four Key Strategy Levels Hierarchy of Levels
Enterprise-Level Strategy Corporate-Level Strategy Business-Level Strategy Functional-Level Strategy

Emphasis on Enterprise-Level Strategy
Key Questions to Consider What is the role of our organization in society? How is our organization perceived by our stakeholders? What principles or values does our organization represent? What obligations do we have to society at large? What are the implications for our current mix of business and allocation of resources?

What are the manifestations of enterprise-level thinking? Codes of ethics Codes of conduct Mission statements Values statements Corporate creeds Vision statements Search the Web For an example of enterprise-level strategy in action, visit Hewlett-Packard’s web site at:

Beliefs of Borg-Warner We believe in the dignity of the individual We believe in the responsibility to the common good We believe in the endless quest for excellence We believe in continuous renewal We believe in the commonwealth of Borg-Warner and its people

Johnson and Johnson Credo We are responsible to our doctors, nurses and patients We are responsible to our employees We are responsible to our communities We are responsible to our stockholders

Strategic Management Process and Corporate Public Policy
Stakeholder Environment (trends, events, issues, forecasts) Consumer Social Activist Governmental Community Owner Employee Environmental Environmental Analysis Goal Formulation Strategy Formulation Strategy Evaluation Strategy Implementation Strategic Control Organizational Environment

Strategic Management Process Goal Formulation
Goal formulation involves: Establishing goals Setting priorities among goals

Strategic Management Process Strategy Formulation
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Strategic Management Process Strategy Evaluation
The need for continuing assessment of the firm’s current goals and strategy relative to proposed goals and strategic alternatives.

Strategic Management Process Strategy Implementation
McKinsey 7S Framework Strategy Structure Systems Style Staff Skills Shared values

Strategic Management Process Strategic Control
Three Essential Steps Set standards against which performance may be compared Compare actual performance with planned performance Take corrective action to bring actual and planned performance in sync

Social audit is a systematic attempt to identify, measure, monitor, and evaluate an organization’s performance with respect to its social efforts, goals, and programs. Search the Web For an example of a social audit, go to: Search the Web For an example of a ranking of social audits, go to

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Social Auditing Global Reporting Initiative (GRI) concerns developing standard measures for social reporting.

Strategic Management Process Environmental Analysis
Environmental analysis is the linking pin between the organization and the stakeholder environment Four stages of environmental analysis Scanning Monitoring Forecasting Assessing

Corporate Public Affairs
Corporate public affairs is the management process that focuses on the formalization and institutionalization of corporate public policy. Corporate public affairs also embraces: Corporate public policy Issue management Crisis management Governmental affairs Corporate Communications

Public Affairs Management: Relationships
Strategic Management Process Environmental Analysis Corporate Public Policy Issues Management Crisis Management Public Affairs Management Part of which is Enterprise-Level Management

Evolution of the Corporate Public Affairs Function Includes
A growing magnitude and impact of government A changing nature of the political system An increasing number of stakeholders outflanking business An expanding recognition that business should be more politically active

Public Affairs Activities

New Public Affairs Organization
Manages public affairs as an ongoing process both internally and externally Cultivates and harvests the capability to build, develop, and maintain stakeholder relationships Recognizes the importance of managing the grassroots Communicates in an integrated manner Aligns the organization’s values and strategies with the public’s interests on a continuous basis Focuses both systematically and proactively on helping the organization compete

New Public Affairs Organization
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Design of the Corporate External Affairs Function and Corporate Social Performance Function
Institution oriented versus economic franchise Collaborative/problem-solving strategy versus individual/adversarial external affairs strategy

Business Exposure and External Affairs Design
Consumer Products Company Social Environment Industrial Products Company External Affairs Design: Breadth, Depth, Influence and Integration

Business Exposure and External Affairs Design
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Public Affairs Thinking Manager
Make Public Affairs Truly Relevant— Operating managers should know the way in which their decisions might impact the stakeholder environment. Develop a Sense of Ownership of Success—Operating managers should participate in the planning and goal setting of public affairs endeavors. Make It Easy for Operating Managers—Train them to see the relevance of PA initiatives. Show That Public Affairs Makes a Difference—Keep a “scorecard” of successes so manager’s see the potential of the PA function.

Selected Key Terms Benchmarking Business-level strategy
Collaborative/problem solving strategy Corporate-level strategy Corporate public policy Enterprise-level strategy Environmental forecasting Environmental monitoring Environmental scanning Functional-level strategy Global Reporting Initiative (GRI) Individual/adversarial external affairs strategy Issues and crisis management Public affairs

Selected Key Terms (continued)
Public affairs management Social audit Sociopolitical forecasting Stakeholder environment Strategic management Strategy management process

Issues Management and Crisis Management
5 Issues Management and Crisis Management Search the Web The Wilson Group is a major consulting firm that specializes in crisis management such as chemical spills: 1 1

Chapter Five Objectives
Distinguish between the conventional and strategic management approaches to issues management Identify the stages in the issues management process Describe the major components in the issues development process and factors in actual practice Define a crisis and identify the four crisis stages Outline the major stages in managing business crises 2 2

Chapter Five Outline Issues Management Crisis Management Summary
Approaches to Issues Management The Changing Mix of Issues The Issues Management Process The Issues Development Process Issues Management in Practice Crisis Management The Nature of Crises The Four Crisis Stages Managing Business Crises Summary Chapter Five Outline Issues Management Crisis Management Summary

Introduction to Chapter Five
This chapter focuses on issue and crisis management and the planning processes required to improve stakeholder management and to respond to stakeholder expectations.

Issues Management Conventional Approach Strategic Management Approach
Issues fall within the domain of public policy or public affairs management. Issues typically have a public policy/public affairs orientation or flavor. An issue is any trend, event, controversy, or public development that might affect the corporation. Issues originate in social/ political/ regulatory/ judicial environments. Strategic Management Approach Issues management is typically the responsibility of senior line management or strategic management staff. Issues identification is more important than it is in the conventional approach. Issues management is seen as an approach to the management of external/internal challenges to company strategies, plans, and assumptions.

Issues Management 5-6

The Changing Issues Mix
Issues Management The Changing Issues Mix A changing mix of issues often creates a cumulate effect that managers must face

Issue Definition and the Issues Management Process
An issue is a matter that is in dispute between two parties

Emerging issues Terms of the debate are not clearly defined Parties have conflicting values and interest Automatic resolution not available Issue is often stated in value laden terms Trade-offs are inherent

Basic assumptions Issues can be identified earlier, more completely, and more reliably Early anticipation widens the range of options Early anticipation permits study and understanding of the issues Early anticipation permits a positive orientation towards the issues Early anticipation allows for better identification of the stakeholders Early identification provides the opportunity for the organization to supply information about the issue earlier

Model of Issues Management Process
Identification of Issues Analysis of Issues Prioritization of Issues Formulation of Issue Responses Implementation of Issue Responses Evaluation, Monitoring, and Control of Results

Issues Management Process
Identification of Issues Scan the environment Identify emerging issues

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Analysis of Issues Which stakeholders are affected by the issue? Who has an interest in the issue? Who is in a position to exert influence? Who ought to care about the issue? Who started the ball rolling? (Historical view) Who is now involved? (Present view) Who will get involved? (Future view)

Ranking of Issues Xerox approach High priority Nice to know Questionable Probability-Impact matrix Probability of occurrence Impact on company

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Formulation and Implementation of Responses Formulation is the response design process Implementation is the action design process and might include: Plan clarity Resources needed Managerial support Organizational structure Technical competence Timing

Evaluation, Monitoring and Control Constant evaluation of results of their responses to the issues to keep strategy on track Social audit

Issues Development Process
Issues development process is the growth process or life cycle of an issue

Issues Development Life Cycle Process
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Crisis Management To manage a crisis one first must understand that crises: Occur abruptly Cannot always be anticipated or forecast Search the Web The Lexicon Communications Corporation is a major consulting firm that specializes in crisis management. To learn more, check out the Lexicon web site

The Nature of a Crisis Crisis Definitions
A major, unpredictable event that has potentially negative results that can significantly damage an organization A low-probability, high-impact event that threatens the viability of the organization that has an ambiguous cause, effect and resolution

The Nature of a Crisis Types of Crises Economic Informational
Human recourse Reputation Psychopathic Natural

Crisis Management: 4 Stages
Prodromal Crisis Stage Warning—precursor Symptom —precrisis Acute Crisis Stage Point of no return Crisis has occurred Learning Crisis Resolution Stage Patient is well/ Whole again Chronic Crisis Stage Lingering on—perhaps indefinitely; period of self-doubt and self-analysis

Managing Business Crises
Fink’s Three-Stage Model Identifying the crisis Isolating the crisis Managing the crisis

Business Week’s Steps in Managing Crises 5-26

Augustine’s Stages of Crisis Management Avoiding the crisis Preparing to manage the crisis Recognizing the crisis Containing the crisis Resolving the crisis Profiting from the crisis

Crisis Communications
Anticipate crises Assess the crisis situation Identify key messages to communicate Determine communication methods Prepare to ride out the storm Identify crisis communication team Identify key spokespersons Train your spokesperson Establish communications protocols Identify and know the audience

Selected Key Terms Acute crisis stage Chronic crisis stage
Issue Issue development process Issues management Probability-impact matrix Prodromal crisis stage Strategic management approach to issues management Ten steps in crisis communications Acute crisis stage Chronic crisis stage Conventional approach Crisis Crisis communications Crisis management Crisis resolution stage Crisis teams Emerging issue

Business Ethics Fundamentals
6 Business Ethics Fundamentals Search the Web Ethics Officers Association is a professional association of managers of corporate ethics and compliance. Visit EOA’s web site at:: 1 1

Chapter Six Objectives
Describe how the public regards business ethics Provide a definition of business ethics Explain the conventional approach to business ethics Analyze economic, legal, and ethical aspects of business using the Venn Model Identify four important ethics questions Describe three models of management ethics Discuss Kohlberg’s three levels of developing moral judgment Identify the elements of moral judgment 2 2

Chapter Six Outline Business Ethics and Public Opinion
The Gallup Poll Has Business Ethics Really Deteriorated? Are the Media Reporting Ethical Problems More Vigorously? Is It Society That Is Actually Changing? What Does Business Ethics Mean? The Conventional Approach to Business Ethics Ethics and the Law Making Ethical Judgments Four Important Ethics Questions What Is? What Ought to Be? How Do We Get from What Is to What Ought to Be? What Is Our Motivation in All This? Three Models of Management Ethics Immoral Management Moral Management Amoral Management Two Hypotheses Making Moral Management Actionable Developing Moral Judgment Levels of Moral Development Sources of a Manager’s Values Elements of Moral Judgment Moral Imagination Moral Identification and Ordering Moral Evaluation Tolerance of Moral Disagreement Integration of Managerial and Moral Competence A Sense of Moral Obligation Summary Chapter Six Outline Business Ethics and Public Opinion What Does Business Ethics Mean? Ethics, Economics and Law: Venn Model Four Important Ethics Questions Three Models of Management Ethics Making Moral Management Actionable Developing Moral Judgment Elements of Moral Judgment Summary

Introduction to Chapter Six
Business Ethics Public’s interest in business ethics increased during the last four decades Public’s interest in business ethics spurred by the media

Inventory of Ethical Issues in Business
Introduction Inventory of Ethical Issues in Business Employee-Employer Relations Employer-Employee Relations Company-Customer Relations Company-Shareholder Relations Company-Community/Public Interest

Public’s Opinion of Business Ethics
Gallup Poll finds that only 17 percent to 20 percent of the public thought the business ethics of executives to be very high or high To understand public sentiment towards business ethics, ask three questions Has business ethics really deteriorated? Are the media reporting ethical problems more frequently and vigorously? Are practices that once were socially acceptable no longer socially acceptable?

Business Ethics: What Does It Really Mean?
Business Ethics:Today vs. Earlier Period Society’s Expectations of Business Ethics Expected and Actual Levels of Business Ethics Ethical Problem Actual Business Ethics Ethical Problem 1950s Time Early 2000s

Definitions Ethics involves a discipline that examines good or bad practices within the context of a moral duty Moral conduct is behavior that is right or wrong Business ethics include practices and behaviors that are good or bad

Two Key Branches of Ethics Descriptive ethics involves describing, characterizing and studying morality “What is” Normative ethics involves supplying and justifying moral systems “What should be”

Conventional Approach to Business Ethics
Conventional approach to business ethics involves a comparison of a decision or practice to prevailing societal norms Pitfall: ethical relativism Decision or Practice Prevailing Norms

Sources of Ethical Norms
Fellow Workers Family Friends The Law Regions of Country Profession Employer Society at Large Religious Beliefs The Individual Conscience

Ethics and the Law Law often represents an ethical minimum
Ethics often represents a standard that exceeds the legal minimum Frequent Overlap Ethics Law

Making Ethical Judgments
Behavior or act that has been committed Prevailing norms of acceptability compared with Value judgments and perceptions of the observer

Ethics, Economics, and Law
6-14

Four Important Ethical Questions
What is? What ought to be? How to we get from what is to what ought to be? What is our motivation for acting ethically?

3 Models of Management Ethics
Immoral Management—A style devoid of ethical principles and active opposition to what is ethical. Moral Management—Conforms to high standards of ethical behavior. Amoral Management Intentional - does not consider ethical factors Unintentional - casual or careless about ethical considerations in business

3 Models of Management Ethics
Three Types Of Management Ethics Moral Amoral Immoral

Three Approaches to Management Ethics
6-18

Three Models of Management Morality and Emphasis on CSR
6-19

Moral Management Models and Acceptable Stakeholder Thinking
6-20

Making Moral Management Actionable
Important Factors Senior management Ethics training Self-analysis

Developing Moral Judgment
6-22

6-23

External Sources of a Manager’s Values Religious values Philosophical values Cultural values Legal values Professional values

Internal Sources of a Manager’s Values Respect for the authority structure Loyalty Conformity Performance Results

Elements of Moral Judgment
Moral imagination Moral identification and ordering Moral evaluation Tolerance of moral disagreement and ambiguity Integration of managerial and moral competence A sense of moral obligation

Elements of Moral Judgment
Amoral Managers Moral Managers Moral Imagination Moral Identification Moral Evaluation Tolerance of Moral Disagreement and Ambiguity Integration of Managerial and Moral Competence A Senses of Moral Obligation

Selected Key Terms Amoral management Integrity strategy
Business ethics Compliance strategy Conventional approach to business ethics Descriptive ethics Ethical relativism Ethics Feminist Ethics Immoral management Integrity strategy Intentional amoral management Kohlberg’s levels of moral development Moral development Moral management Normative ethics Unintentional amoral management

Selected Key Terms Amoral management Business ethics Ethics
Immoral management Levels of moral development Moral management Morality

Personal and Organizational Ethics
7 Personal and Organizational Ethics Search the Web Nortel has posted its ethics policies on the Internet. To read it, navigate your web browser to: 1 1

Chapter Seven Objectives
To understand the different levels at which business ethics may be addressed To appreciate principles of personal ethical decision-making To identify factors affecting an organization’s moral climate Describe actions or strategies to improve ethical climate 2 2

Chapter Seven Outline Levels at which Ethical Issues May Be Addressed
Personal Level Organizational Level Industry Level Societal and International Levels Personal and Managerial Ethics Principles Approach to Ethics Ethical Tests Approach Managing Organizational Ethics Factors Affecting the Organization’s Moral Climate Improving the Organization’s Ethical Climate Summary Chapter Seven Outline Levels at which Ethical Issues May Be Addressed Personal and Managerial Ethics Managing Organizational Ethics From Moral Decisions to Moral Organizations Summary

Introduction to Chapter Seven
This chapter focuses on the day-to-day ethical issues that managers face

Levels at Which Ethical Issues May Be Addressed
Personal level—situations faced in personal life (income tax, doing kid’s homework, etc.) Organizational level—workplace situations faced as managers and employees (cutting corners, etc.)

Levels at Which Ethical Issues May Be Addressed
Industrial level—situations confronted as professionals (the practices of stockbrokers, accountants, etc.) Societal and international levels—local-to-global situations confronted indirectly as a management team

Personal and Managerial Ethics
Resolving Ethical Conflicts Three Approaches Conventional (covered in Chapter 6) Principles Ethical tests

Principles Approach Anchors decision making on an ethical principle such as: Utilitarianism Rights Justice Caring Virtue ethics Servant leadership Golden Rule

Principle of Utilitarianism focuses on an act that produces the greatest ratio of good to evil for everyone Consequentialist theory

Principle of Rights focuses on examining and possibly protecting individual moral or legal rights

Principle of justice involves considering what alternative promotes fair treatment of people Types of justice Distributive Compensatory Procedural Rawlsian

Rawls’ Justice Each person has an equal right to the most basic liberties comparable with similar liberties for others Social and economic inequalities are arranged so that they are both: reasonably expected to be to everyone’s advantage and attached to positions and offices open to all people

Principle of caring focuses on a person as a relational (cooperative) and not as an individual Feminist theory Virtue ethics focuses on individuals becoming imbued with virtues Aristotle and Plato

Servant leadership focuses on serving others first such as employees, customers, community and so on

Characteristics of Servant Leaders Foresight Conceptualization Commitment to the growth of people Stewardship Building community Listening Empathy Healing Persuasion Awareness

Golden rule focuses on the premise that you should of unto others as you would have them do unto you

Concerns to be Addressed in Ethical Conflicts Obligations Ideals Effects

When Our Obligations, Ideals and Effects Conflicts When two or more moral obligations conflict, use the stronger one When two or more ideals conflict, or when ideals conflict with obligations, honor the more important one When effects are mixed, choose the action that produces the greatest good and the least harm

Ethics Test Approach Test of common sense Test of one’s best self Test of making something public Test of ventilation Gag test

Managing Organizational Ethics
Factors Affecting the Morality of Managers Superiors Policies Peers Individual (One’s personal situation) Society’s Moral Climate Business’s Moral Climate Industry’s Moral Climate

Factors Influencing Unethical Behavior Behavior of superiors Ethical practices of one’s industry or profession Behavior of one’s peers in the organization Formal organizational policy (or lack of one) Personal financial need

6-23

Questionable Behaviors of Superiors or Peers Amoral decision making Unethical acts, behaviors or practices Acceptance or legality as the standard behavior Absence of ethical leadership

Questionable Behaviors of Superiors or Peers Objects and evaluation systems overemphasizing profits Insensitivity toward how subordinates perceive pressure to meet goals Inadequate formal ethics policies

Improving Ethical Climate
Ethics Programs & Officers Effective Communication Ethics Audit Realistic Objectives Top Management Leadership Ethics Training Ethical Decision-making Processes Codes of Conduct Codes of Conduct Discipline of Violators Whistle-blowing Mechanisms (“Hotlines”)

Ethical Decision-Making
Identify decision you are about to make Articulate all dimensions of proposed decision Conventional Approach Standards/Norms -Personal -Organizational -Societal -International Principles Approach Ethical Principles -Justice -Rights -Utilitarianism -Golden Rule Ethical Tests Approach Ethical Tests -Common sense -One’s best self -Public disclosure -Gag test . . . Course of action fails ethics screen Course of action passes ethics screen Do not engage in course of action Engage in course of action Identify new course of action

Ethics Audits and Self-Assessment

From Moral Decisions to Moral Organizations
Moral Manager(s) Moral Organization

Selected Key Terms Codes of conduct Codes of ethics
Compensatory justice Distributive justice Ethical tests Ethical audits Golden rule Legal rights Moral rights Principle of caring Principle of justice Principle of rights Principle of utilitarianism Procedural justice Rights Servant leadership Utilitarianism Virtue ethics

Personal and Organizational Ethics
8 Personal and Organizational Ethics Search the Web If you are interested in ethics conversations regarding technology, visit 1 1

Chapter Eight Objectives
Identify the role of technology in business Gain an understanding of the technological environment and its relationship to ethics Identify technological benefits and side effects Realize an appreciation of society’s fascination with technology and the impact of this fascination Differentiate between the information technology and biotechnology and their ethical implications 2 2

Chapter Eight Outline Technology and the Technological Environment
Levels at Which Ethical Issues May Be Addressed Personal Level Organizational Level Industry Level Societal and International Levels Personal and Managerial Ethics Principles Approach to Ethics Ethical Tests Approach Managing Organizational Ethics Factors Affecting the Organization’s Moral Climate Improving the Organization’s Ethical Climate Summary Chapter Eight Outline Technology and the Technological Environment Characteristics of Technology Ethics and Technology Information Technology Biotechnology Summary

Introduction to Chapter Eight
This chapter explores questions surrounding technology and business ethics, including: What does technology mean? What are the benefits and challenges of technology? How does ethics relate to technology? What are the ethical issues surrounding the major realms of technology: information technology and biotechnology?

Technology and the Technological Environment
Technology is the totality of the means employed to provide objects necessary for achieving human sustenance and comfort Macroenvironment of business vs. the technological environment

Characteristics of Technology
Benefits of Technology Increased production of goods and services Reduced labor force needed to produce goods and services Reduced the number of injuries in the workplace Increased standard of living

Characteristics of Technology
Side Effects and Challenges of Technology Environmental pollution Natural resource depletion Technological unemployment Work satisfaction

Ethics and Technology Concern over the ethical use and implications of technology Avoid amoral applications of technology

Society’s Obsession with Technology
Ethics and Technology Society’s Obsession with Technology Favor the quick fix Fear and worship technology Blur the distinction between what is real and fake Accept violence as normal Love technology as a toy Live our lives distanced and distracted

Information Technology
Two Types of Information Technology Electronic commerce Computer technology

Information Technology
Issues Concerning Electronic Commerce Scams Invasion of privacy

Information Technology E-Commerce Privacy Issues
Issue of identity theft Issue of unintentionally revealing information Issue of lost/stolen personal information Issue of fake web sites Issue of government distribution of information

Information Technology E-Commerce Privacy Issues
Issue of broadcasting information over the internet Issue of victim of spying – employer or spouse Issue of victim of spying – stranger Issue of cyberstalkers

Information Technology E-Commerce and Government Protection
The Financial Services Modernization Act Opt in Proposed legislation Consumer Online Privacy and Disclosure Act Online Consumer Protection Act Unsolicited Commercial Electronic Mail Act

Information Technology E-Commerce and Business Initiatives
Ethical leadership Privacy policies Chief privacy officers

Information Technology E-Commerce and Questionable Businesses and Practices
Pornography Gambling Intellectual property Napster MusicNet Payment for web page placement Monitoring technology

The Workplace and Computer Technology
Employee Impression of Technology Expands job-related knowledge Increases productivity Improves communications with clients and customers Relieves job stress

The Workplace, Computer Technology and Surveillance
Types of Monitoring Monitoring of and Internet usage Monitoring fax usage Monitoring workers via video camera Monitoring cell phone usage Liability for cell phone use

The Workplace, Computer Technology and Unethical Employee Activities
Engaged in dangerous activities Blamed error on technological glitch Copied company software for home use Accessed corporate files without permission

The Workplace, Computer Technology and Unethical Employee Activities
Used company computer to shop Used company computer to look for another job Used technology to invade a coworker’s privacy Used company computer to visit porn sites

The Workplace, Computer Technology and Computer Ethics The Ten Commandments
8-21

Biotechnology Bioethics is a field that has emerged to deal with ethical issues embedded in the use of biotechnology. Proceduralism is the use of elaborate protocols to ensure that classical ethical dilemmas do not arise, such as informed consent.

Biotechnology Nonprofits
American Society for Bioethics and Humanities GE Food Alert Campaign Center National Coalition for Patient Rights Do No Harm Council for Responsible Genetics Bioethics.net Human Genome Research Institute

Biotechnology Genetic Engineering
Stem cell research Cloning Genetic testing and profiling

Biotechnology Genetically Modified Foods
Safety issues Labeling issues

Selected Key Terms Bioethics Biotechnology Chief privacy officer
Cloning Electronic commerce Embryonic stem cells Genetic engineering Genetic profiling Genetic testing Genetically modified foods Information technology Surveillance Technology Technological environment Therapeutic cloning

Ethical Issues in the Global Arena
9 Ethical Issues in the Global Arena Search the Web An excellent listing of global principles and codes for ethics may be found at: 1 1

Chapter Nine Objectives
Identify the internationalization and globalization of business Summarize arguments for and against globalization Discuss multinationals in the global environment Identify ethical challenges at the global level Define ISCT, hypernorms and moral free space Outline strategies for improving global ethics Introduce seven moral guidelines for global business 2 2

Chapter Nine Outline The New, New World of International Business
Multinational Corporations (MNCs) and the Global Environment Ethical Issues in the Global Business Environment Improving Global Ethics Summary Eras in the Internationalization of Business The Post World War II Decade (1945–1955) The Growth Years (1955–1970) The Troubled Years (1970–1980) The New International Order (1980–Present) MNCs and the Global Environment Changed Scope and Nature of U.S.-Based MNCs Underlying Challenges of Operating in a Multinational Environment MNC-Host Country Challenges Ethical Issues in the Multinational Environment Questionable Marketing and Plant Safety Practices Sweatshops and Labor Abuses Bribery and Questionable Payments Improving Global Ethics Honoring and Balancing Ethics of Home and Host Countries Four Actions for Conducting International Business Fundamental International Rights Seven Moral Guidelines Guidelines for International Corporations Summary

Introduction to Chapter Nine
The focus of the chapter is on: Transnational economy Internationalization Global ethics

Eras of Internationalization
The Post-World War II Decade A period of reconstruction dominated by the United States. The Growth Years Japanese and European firms recover and the first U.S.-based international firms become multinational. The Troubled Years A U.S. balance of payments deficit and worldwide oil crisis have a negative impact.

Eras of Internationalization
1980-now The New International Order Though the U.S. role in the world economy is diminished, it is pressured to be a world leader in the ethics arena. 1999-now The New, New World A backlash against globalism began.

Concepts of Global Business
Internationalization Globalization

Pros and Cons of Globalization
M P A C T O N Globalists Antiglobalists Consumers Free trade promotes lower costs, etc. Benefits the wealth at the expense of the poor Employees Faster economic growth promotes Higher wages, etc. Places profits above people Environment Creates resources needed to address the issue Exploits and destroys ecosystems Developing Nations Promotes national economic development, higher standard of living, etc. World financial institutions conspire to keep poor nations in debt Human Rights Creates cultures that support law and free expression Corporations pursing profits ignore human rights violations 9-8

MNCs and the Global Environment
Change scope and nature of U.S.-based multinationals Face challenges of operating in new world of business Corporate legitimacy MNC and host country philosophy MNC and host country challenges Cultural differences Business and government differences

MNCs and the Global Environment
9-10

Ethical Issues in Global Business
Questionable marketing and safety practices Sweatshop and labor abuse Corruption, bribery, and questionable payments Search the Web For student activists interested in sweatshop practices, visit

Arguments For and Against Bribery
Necessary to do business Common practice Accepted practice Form of commission, tax, or compensation Against Wrong Illegal Compromise personal beliefs Promotes government corruption Slippery slope Prohibits taking a stand for honesty, etc. Benefits recipient only Creates dependence on corruption Deceives stockholders

Trends Against Bribery
Foreign Corrupt Practices Act enacted Transparency International developed OCED Antibribery Initiatives launched

Trends Against Bribery
9-14

Bribes vs. Grease Payments
Definitions Grease Payments—Relatively small sums of money given for the purpose of getting minor officials to: Do what they are supposed to be doing Do what they are supposed to be doing faster or sooner. Do what they are supposed to be doing better than they would otherwise. Bribes—Relatively large amounts of money given far the purpose of influencing officials to make decisions or take actions that they otherwise might not take. If the officials considered the merits of the situation only, they might take same other action. Examples Money given to minor officials (clerks, attendants, customs inspectors) for the purpose of expediting. This form of payment helps get goods or services through red tape or administrative bureaucracies. Money given, often to high-ranking officials. Purpose is often to get these persons to purchase goods or services from the bribing firm. May also be users to avoid taxes, forestall unfavorable government intervention, secure favorable treatment, etc.

Improving Global Business Ethics
The Dilemma of the Multinational Corporation The Multinational Corp. Home Country Stakeholder Pressures Host Country Stakeholder Pressures

Ethical Choices in Home vs. Host Country Situations Broad Middle Ground Mix of Home and Host Country Standards Home Country ETHICAL IMPERIALISM Host Country CULTURAL RELATIVISM Application of Ethical Principles (see notes) International Law Global Codes of Conduct Cultural standards Ethical/moral standards of home country Ethical/moral standards of host country Questions to be resolved by Management: Which ethical standard will be used? Which ethical standard will transcend national boundaries? Worker and product safety? Fair treatment? Health? Discrimination? Freedom? Minimum pay? Consumer rights? Environmental protection? What constitutes moral minimum in each category?

Typology of Global Types Foreign type Empire type Interconnection type Global type

Integrative Social Contract Theory (ISCT) Hypernorms consist of transcultural values including fundamental human rights Consistent norms consist of norms that are culturally specific, but consistent with hypernorms Moral free space norms consist of strongly held cultural beliefs in particular countries that are in tension with hypernorms Illegitimate norms consist of norms that are incompatible with hypernorms

Four Actions for Improving International Business Ethics Create global codes of conduct Global codes and standards set by corporations Global Codes and standards set by international organizations Integrate ethics into a global strategy Suspend activities in host country Create ethical impact statements

Global Codes and Standards Developed by International Organizations Caux Principles Global Reporting Initiative Global Sullivan Principles OECD Guidelines for Multinational Enterprises Principles for Global Corporate Responsibility: Benchmarks UN Global Compact

Fundamental International Rights The right to physical movement The right to ownership of property The right to freedom from torture The right to a fair trial The right to nondiscriminatory treatment The right to physical security The right to freedom of speech and association The right to minimal education The right to political participation The right to subsistence

Seven Moral Guidelines for MNCs Inflict no intentional or direct harm Produce more good than bad for the host country Contribute to host country’s development Respect the human rights of their employees Pay their fair share of taxes Respect local cultural beliefs that do not violate moral norms Cooperate with the government to develop and enforce background institutions

Selected Key Terms Anticorruption movement Bhopal tragedy Bribes
Consistent norms Ethical impact statements Globalization Grease payments Hypernorms Illegitimate norms Infant formula Internationalization Less-developed countries (LDC) Moral free space Multinational corporation (MNC) Sweatshops Transnational economy

Business, Government, and Regulation
10 Business, Government, and Regulation Search the Web To keep abreast of changes in industrial policy in the U.S., go to 1

Chapter Ten Objectives
Discuss the government’s role in its relationship with business Explore the interactions among business, government, and the public Examine government’s nonregulatory influences List major reasons for regulation, the types, and issues arising out of regulation Consider regulation versus deregulation 2

Chapter Ten Outline A Brief History of Government’s Role
The Roles of Government and Business A Clash of Ethical Belief Systems Social, Technological, and Value Changes Interaction of Business, Government, and the Public Government/Business Relationship Public/Government Relationship Business/Public Relationship Government’s Nonregulatory Influence on Business Industrial Policy Privatization Other Nonregulatory Governmental Influences on Business Government’s Regulatory Influences on Business Regulation: What Does It Mean? Reasons for Regulation Types of Regulation Issues Related to Regulation Deregulation Purpose of Deregulation Trend Toward Deregulation Dilemma with Deregulation Deregulatory Reform Approaches to Regulatory Reform Regulatory Trends: A Decade of Experience Summary Chapter Ten Outline A Brief History of Government’s Role The Roles of Government and Business Interaction of Business, Government, and the Public Government’s Nonregulatory Influence on Business Government’s Regulatory Influence on Business Deregulation Summary

Introduction to Chapter Ten
The chapter examines the relationship between business and government and in particular the government’s role in influencing business decision making.

Government’s Role in Influencing Business
Prescribes the rules of the game for business. Purchases business’ products and services. Uses it contracting power to get business to do things it wants. Is a major promoter and subsidizer of business. Is the owner of vast quantities of productive equipment and wealth.

Government’s Role in Influencing Business
Is an architect of economic growth. Is a financier. Is the protector of various interests in society against business exploitation. Directly manages large areas of private business. Is the repository of the social conscience and redistributes resources to meet social objectives

Roles of Government and Business
What should be the respective roles of business and government in our socioeconomic system? Given all of the tasks that must be accomplished to make our society work, which of these tasks should be handled by the government and which should be handled by business? How much autonomy are we willing to allow business?

Clash of Ethical Systems Business Beliefs Maximizes concession to self-interest Minimizes the load of obligations society imposes on the individual (personal freedom) Emphasizes inequalities of individuals Government Beliefs Subordinated individual goals and self-interest to group goals and group interests Maximized obligations assumed by the individual and discouraging self-interest Emphasized equality of individuals

Social, Technological, and Value Change National society Communal society Entitlements Quality of life

Interaction of Business, Government, and the Public
Lobbying Regulations and Other Forms of Persuasion Business Government Political Process Voting Interest Groups Contributions Advertising Public Relations Public

Interaction of Business, Government, and the Public
Government/business relationship Public/government relationship Business/public relationship

Government’s Nonregulatory Influence on Business
Two Major Nonregulatory Issues Industrial policy Privatization

Industrial Policy: Schools of Thought Accelerationists Adjusters Targeters Central planners Bankers

Industrial Policy Cons Reduces market efficiency Promotes political decisions Foreign success variable National attempts uncoordinated and irrational Pros Decline of U.S. competitiveness Use by other nations Ad hoc system

Privatization Producing versus providing a service Privatization debate Federalization of certain functions Airport security

Other Nonregulatory Influences Major employer Large purchaser Major influence Subsidies Transfer payments Major competitor Major lender Taxation Monetary policy Moral suasion

Government’s Regulatory Influence on Business
Factors to Consider Regarding Government Regulation Protection Scope Cost

Federal Regulatory Agency Has decision-making authority Establishes standards or guidelines conferring benefits and imposing restrictions on business conduct Operates principally in the sphere of domestic business activity Has its head and/or members appointed by the president (generally subject to Senate confirmation) Has its legal procedures generally governed by the Administrative Procedures Act

Reasons for Regulation Controls natural monopolies Controls negative externalities Achieves social goals Other reasons Controls excess profits Controls excessive competition

Types of Regulation Economic regulation Interstate Commerce Commission (ICC) Civil Aeronautics Board (CAB) Federal Communications Commission (FCC) Social regulation Environmental Protection Agency (EPA) Occupational Safety and Health Administration (OSHA) Equal Employment Opportunity Commission (EEOC)

Comparison of Economic and Social Regulation Economic Regulations Social Regulations Focus Market conditions; economic variables People in roles as employees, consumers and citizens Affected Industries Selected (railroads, aeronautics, communications) Virtually all industries Examples CAB; FCC EEOC, OSHA, CPSC, EPA Current Trend From regulation to deregulation Stable 10-21

Benefits of Regulation Fair treatment of employees Safer working conditions Safer products Cleaner air and water

Costs of Regulation Direct costs Indirect costs Induced costs Effects Reduced innovation Reduced investment in plant and equipment Increased pressure on small business

Deregulation Purpose & Dilemma Purpose Dilemma
Intended to increase competition with the expected benefits of greater efficiency, lower prices, and enhanced innovation. Dilemma Must enhance competition without sacrificing applicable social regulations (e.g., health and safety requirements).

Selected Key Terms Individualistic ethic Accelerationists
Induced costs Industrial policy Market failure Natural monopoly Negative externalities Privatization Regulation Social Costs Social regulation Targeters Accelerationists Adjusters Bankers Central planners Deregulation Direct costs of regulation Economic regulation Excess profits Excessive competition Federalization

Business’s Influence on Government and Public Policy
11 Search the Web For information about the role of money in the political process, visit 1 1

Chapter Eleven Objectives
Describe the evolution of corporate political participation Consider how and where lobbying occurs Explain the use of political action committees (PACs) Historical growth Magnitude of activity Arguments for and against them Define coalitions in corporate political involvement Consider soft money issues and proposed political remedies Outline principal strategic approaches to political activism 2 2

Chapter Eleven Outline
The Current Political Environment Growth in Government Activity Democratization of Congress Rise of Special-Interest Groups Decline in Voter Participation Corporate Political Participation Business Lobbying Organizational Levels of Lobbying Lack of Unity Among Umbrella Organizations Political Action Committees Evolutions of PACs Magnitude of PAC Activity Arguments for PACs Arguments Against PACs PACs and Campaign Financing Coalition Building Strategies for Political Activism Regulatory Life Cycle Approach Contingency Approaches Summary Chapter Eleven Outline Corporate Political Participation Coalition Building Political Action Committees Evolutions of PACs Summary

Introduction to Chapter Eleven
The chapter focus is on business’ political attempts to influence government and public policy and whether these strategies are legal and ethical

Corporate Political Participation
Political involvement is the participation in the formulation and execution of public policy. Microsoft case example

Lobbying The process of influencing public officials PACs (political action committees) Instruments through which business uses financial resources to influence government Coalition building Business and other groups joining forces to achieve common goals Political strategy To secure position of advantage regarding a given regulation or piece of legislation

Organizational Levels of Lobbying Umbrella Organizations Broad Representation Chamber of Commerce of the Unites States, National Association of Manufacturers, etc. Trade Associations Midrange representation National Automobile Dealers Association, National Association of Realtors, etc. Company-Level Lobbying Narrow/specific representation IBM, Delta Airlines, PACs, public affairs specialists, grassroots, etc.

What Lobbyists Do for Clients?
Gain access to key legislators Monitor legislation Establish communication channels with regulatory bodies Protect firms against surprise legislation Draft legislation, develop slick ad campaign, create direct-mail Provide issue papers on effects of legislative activity Communicate sentiments of client on key issues Influence outcome of legislation Assist in coalition building around issues Help members of legislative bodies get reelected Organize grassroots efforts

Coalition Building Manage the sequence in which issues are addressed
Increase the visibility of certain issues Unbundle issues into smaller subissues

Political Action Committees
Political Action Committees (PACs) are groups of like minded people who use their money and power to influence political outcomes and decisions. Golden Rule of Politics: “He who has the gold, rules.”

Pro Con PACs are a reasonable means that business may use to organize their contributions to candidates for office. PACs expect something in return other than good government and this can lead to differing treatment for those who give and those who cannot, such as the poor.

Issues Concerning PAC’s Magnitude of activity Vote-buying Campaign financing Soft money Search the Web For information about the role of soft money in the political process, visit

Conditions Needed for Effective PAC Contributions When the issue is less visible During the early stages of the legislative process When the issue is narrow, specialized, or unopposed When PAC’s are allied When PAC’s adopt lobbying techniques to control their contribution strategies

Strategies for Political Activism Mahon’s strategy Keep an issue off the public agenda and out of the limelight Help to define an issue Regulatory life cycle approach Formation, formulation, implementation, administration and modification of firm’s political strategy

Strategies for Political Activism Contingency approach considers variables of: The number of salient issues in a legislative district The amount of information a legislator possesses concerning voter preferences After considering the above, then determine: The salience of the company’s issue to the legislator’s constituency The identification of the expected position of voters on the issue

Strategies for Political Activism Sethi’s model Modes of corporate responses Defensive Accommodative Positive activism Internal corporate conditions Anticipated political risks

Selected Key Terms Accommodative mode Astroturf lobbying
Campaign finance reform Coalition Company lobbying Contingency approach Cyberadvocacy Defensive mode Golden Rule of Politics Grassroots lobbying Lobbying Political action committees (PACs) Political involvement Positive activism Regulatory life cycle Soft money Trade associations Umbrella organizations

Consumer Stakeholders: Information Issues and Responses
12 Consumer Stakeholders: Information Issues and Responses Search the Web The Better Business Bureau maintains a web site useful to both business and individual consumers: 1 1

Chapter Twelve Objectives
Recite the consumer’s Magna Carta and its meaning Chronicle the evolution of the consumer movement Identify the major abuses of advertising and controversial advertising issues Consider product information issues that present problems for consumer stakeholders Describe the role and functions of the FTC Discuss the strengths and weaknesses of regulating advertising 2 2

Chapter Twelve Outline
The Paradox of the Consumer Orientation The Consumer Movement Ralph Nader’s Consumerism Consumerism in the 1990s Product Information Issues Advertising Issues Warranties Packaging and Labeling Other Product Information Issues The Federal Trade Commission Early Activism of the FTC Less Active Years of the FTC The FTC Reasserts Itself Self-Regulation in Advertising Types of Self-Regulation The National Advertising Division’s Program Summary Chapter Twelve Outline The Paradox of the Consumer Orientation The Consumer Movement Product Information Issues The Federal Trade Commission Self-Regulation in Advertising Summary

Introduction to Chapter Twelve
Within the context of customer relationship management, the chapter focuses on the evolution and maturity of the consumer movement and product information issues, such as advertising.

The Paradox of the Customer Revolution
Historical evolution of marketing Focus shifted from problems of production to problem of marketing. Current issues in marketing Is it sufficient to put the customer first? Do consumers think business cares about their needs?

Four Basic Consumer Rights
The Consumer Movement Four Basic Consumer Rights The Right to Safety The Right to Be Informed The Right to Choose The Right to Be Heard

Ralph Nader’s Consumerism
The Consumer Movement Ralph Nader’s Consumerism Unsafe At Any Speed Nader’s Raiders Groups Public Interest research Group Center for the Study of Responsive Law Public Citizen

The Consumer Movement Consumer Problems with Business
The high prices and poor quality of many products and after-sales service The failure of many companies to live up to advertising claims Too many products breaking or going wrong after you bring them home Misleading packaging The feeling that it is a waste of time to complain about consumer problems because nothing substantial will be achieved Inadequate guarantees and warranties Failure of companies to handle complaints properly Too many products that are dangerous The absence of reliable information about various products and services Not knowing what to do if something is wrong with a product

Consumerism in the 21st Century
The Consumer Movement Consumerism in the 21st Century Grassroots Unorganized Internet Implications for global companies

Product Information Issues
Advertising Arguments Pros Increases standard of living Increases consumer satisfaction Efficient means of distributing information Effective Low cost Cons Lowers standard of living Decreases consumer satisfaction No net benefit Inefficient means of distributing information Ineffective Costly

Need for Information That is clear That is accurate That is adequate

Abuses of Advertising Ambiguous advertising Weasel words Concealed facts Exaggerated claims Puffery Psychological appeals

Specific Controversial Advertising Issues Comparative Advertising Use of Sex and Women in Advertising Advertising to Children Advertising of Alcoholic Beverages Cigarette Advertising Health and Environmental Claims Ad Creep

Product Information Issues Children’s Advertising
1 Advertising should take into account the audience level. 2 Realize that children are imaginative. 3 Recognize that advertising plays important part in child’s education level. 4 Use advertising to nurture positive and beneficial behaviors. 5 Incorporate minority and other groups as positive role models. 6 Contribute to the parent-child relationship.

Warranties Express warranties Promise or affirmation of fact that the seller makes Implied warranties Uniform commercial code creates implied warranties when goods are sold or leased Merchantability Fitness for a particular purpose

Magnuson-Moss Warranty Act Full warranty Limited warranty

Packaging and Labeling Federal Packaging and Labeling Act Prohibits deceptive labeling on consumer products Requires disclosure of certain important information on consumer products FTC administers the Act

Other Product Information Issues Equal Credit Opportunity Act Truth-in-Lending Act Fair Credit Reporting Act Fair Debt Collection Practices Act

The Federal Trade Commission
Two Major Activities of the FTC To maintain free and fair competition in the economy To protect consumers from unfair or misleading practices

The Role of the FTC Enforce federal antitrust and consumer protection laws Ensure markets function competitively Enhance the smooth operation of the marketplace Stop actions that threaten consumers’ opportunities Undertake economic analysis to support enforcement Carry out policies of Congressional mandates, such as consumer education

The Federal Trade Commission
Historical View Early activism of the FTC Less active years of the FTC Reassertion of the FTC

Self-Regulation in Advertising
Types of Self-Regulation Self-disciplined regulation Pure self-regulation Co-opted self-regulation Negotiated self-regulation Mandated self-regulation

Self-Regulation in Advertising
National Advertising Division Private organization Initiates investigations Determines issues Collects and evaluates data Makes decisions

3 Moral Management Models
Amoral Management: Does not focus on what is fair for customers Immoral Management: Customers viewed as opportunities to be exploited Moral Management: Customers viewed as equal partners

Selected Key Terms Ambiguous advertising Consumer’s Magna Carta
Ad creep Adequate information Clear information Comparative advertising Concealed facts Consumerism Consumer’s Magna Carta Co-opted self-regulation Customer relationship management Exaggerated claims Express warranty Full warranty Implied warranty

Selected Key Terms Limited warranty Mandated self-regulation
Product information Psychological appeals Puffery Pure self-regulation Right to be heard Right to be informed Right to choose Right to safety Self-discipline Self-regulation Warranties Weasel words

Consumer Stakeholders: Product and Service Issues
13 Consumer Stakeholders: Product and Service Issues Search the Web The American Society for Quality provides a web site with an aray of information on quality topics: 1 1

Chapter Thirteen Objectives
Define quality and product safety issues Explain the role of the Consumer Product Safety Commission and the Food and Drug Administration Consider the concern about product liability, as well as strict liability, absolute liability, and market share liability Outline business’s responses to consumer stakeholders 2 2

Chapter Thirteen Outline
Two Central Issues: Quality and Safety The Issue of Quality The Issue of Safety Consumer Product Safety Commission Food and Drug Administration Business’s Response to Consumer Stakeholders Consumer Affairs Offices Product Safety Offices Total Quality Management Programs Customer Satisfaction Measurement Summary Chapter Thirteen Outline Two Central Issues: Quality and Safety Consumer Product Safety Commission Food and Drug Administration Business’s Response to Consumer Stakeholders Summary

Introduction to Chapter Thirteen
The chapter focuses on product quality and safety, product liability and tort reform.

Quality and Safety Two Central Issues
The Issue of Quality Driven by an increase in family income and intense global competition The Issue of Safety Driven by the public’s increasing concern with safety and risk-free products—and business’s responsibility to address this concern

Quality Issues Critical Dimensions of Product Quality Performance
Features Reliability Conformance Durability Serviceability Aesthetics Perceived quality

Ethical Dimensions of Quality
Quality Issues Ethical Dimensions of Quality Contractual theory Due care theory Social costs view

Safety Issues Historical View Caveat Emptor Caveat Vendor

Top 10 List of Safety Principles
Build safety into product deign Do product safety testing for all foreseeable safety hazards Keep abreast of and implement latest developments in product safety Educate consumers about product safety Track and address your products’ safety performance Fully investigate product safety incidents Report product safety defects promptly If a defect occurs offer a comprehensive recall Work wit the CPSC to make sure your recall is effective Learn from mistakes – yours and others 13-9

Reasons for the Growing Concern . . .
Product Liability Reasons for the Growing Concern . . . FIRST Product liability has become a major issue because of the sheer number of cases where products resulted in injury, illness, or death and the amount of the financial award. SECOND We have become an increasingly litigious society. THIRD…Rise in the strict liability doctrine

Extensions of the Strict Liability
Product Liability Extensions of the Strict Liability Absolute liability Market share liability Delayed manifestation cases

Product Liability Other Issues Product tampering and extortion
Product liability reform Tort law

Consumer Product Safety Commission
Protect the public against unreasonable risks of injury associated with consumer products. Assist consumers in evaluating product safety. Develop uniform safety standards. Promote research into preventing product-related deaths, illnesses, and injuries.

CPSC Risk Management Develop voluntary standards with industry Issue and enforce mandatory standards Ban a consumer product if public cannot be protected Recall a product or arrange for its repair Research potential product hazards Inform, educate and respond to consumers

Challenges Facing the CPSC Lack of corporate compliance Limited public access to key information Inadequate consumer notification Insufficient funding

Food and Drug Administration
Some major responsibilities . . . Regulate the labeling of foods Develop safety standards for drugs Conduct product recalls Premarket test new drugs Regulate safety of medical devices (implants, etc.)

Business’s Response to Consumers
Establishing Consumer Affairs Offices Establishing Product Safety Offices Undertaking Costumer Satisfaction Measurement Instituting Total Quality Management Programs

Consumer Affairs Offices (CAO) Basic mission is to heighten management’s responsibilities to consumer stakeholders Essential functions Establish a database Audit programs Recommend programs, policies and practices Establish effective communications

CAO Factors for Success or Failure Proximity to CEO’s office Clear access to all information about the company’s customers and authority to create the information Availability of quantified information about consumers Accessibility to effective performance measures to evaluate all employees in the company

Product Safety Offices Need for Greater Organization Complexity of products Subtlety of hazards generated during product use Coordination problems in large organizations

Levels at Which to Locate Product Safety Offices Divisional level Corporate level

Other Functions of Product Safety Offices Set the tone for the product safety effort Structure and enforce penalties Develop links to other quality and safety initiatives Assist with product safety litigation Assist the regulatory liaison Set up product safety committees Perform safety audits and tests Design contingency plans for product recalls

Total Quality Management
13-23

13-24

Sigma Six Version of TQM TQM on steroids 3.4 defects per million versus sigma four 6,000 defects per million

Selected Key Terms Absolute liability
Consumer Product Safety Commission (CPSC) Contractual theory Delayed manifestation cases Due care theory Food and Drug Administration (FDA) Market share liability Product liability reform Six sigma Social costs Strict liability Tort reform Total quality management (TQM)

The Natural Environment As Stakeholder
14 The Natural Environment As Stakeholder Search the Web Valuable information for dealing with environ-mental stakeholders can be found at Enviro-Link Network’s web site: 1 1

Chapter Fourteen Objectives
Discuss why natural environmental issues are complex Describe the eight major natural environment issues Describe the causes of the NIMBY environmental problem Discuss the roles that business and government play in environmental issues Explain the concept of environmental ethics 2 2

Chapter Fourteen Outline
A Brief Introduction to the Natural Environment The Natural Environment The Human/Environment Interface Natural Environment Issues Ozone Depletion Global Warming Solid and Hazardous Wastes Degradation of the Marine Environments Freshwater Quality and Quantity Deforestation Land Degradation Endangerment of Biological Diversity Other Environmental Issues Causes of the Environmental Crisis Nonhuman Natural Pollution and Depletion Human-Caused Natural Pollution and Depletion Environmental Perspectives The Optimistic Perspective The Pessimistic Perspective A Realistic Perspective? Summary Chapter Fourteen Outline Brief Introduction to the Natural Environment Impact of Business on the Natural Environment Natural Environmental Issues Responsibility for Environmental Issues The Role of Governments in Environmental Issues Other Environmental Stakeholders Business Environmentalism The Future of Business Summary

Introduction to Chapter Fourteen
Important Environmental Terms Environment Carrying Capacity Entropy Ecosystem Niche Cycle Threshold Pollution Irreversibilty Sustainability

Business Impact on the Environment
Debate Pollution vs. productivity

Eight Environmental Issues
Ozone depletion Global warming Solid and hazardous wastes Fresh water quantity and quality Degradation of marine environments Deforestation Land degradation Endangerment of biological diversity

Eight Environmental Issues

Other Environmental Issues
Toxic substances Long-term and interactive effects Industrial accidents Radon pollution Noise pollution Atheistic pollution Ambient air pollution Acid rain Indoor air pollution Energy efficiency

Other Environmental Issues
Health Effects of Several Air Pollutants Pollutants Health Concerns Ozone Respiratory tract and lung problems Particulates Eye and throat irritation, lung damage Carbon monoxide Effects on cardiovascular and nervous pulmonary systems Silver dioxide Respiratory tract problems Lead Brain damage—especially in children Nitrogen dioxide Respiratory illness and lung damage

Responsibility for Environmental Issues
Not In My Back Yard (NIMBY) Environmental ethics Green values Life on earth should continue Human life on earth should continue Natural justice should be done by all Nonmaterial qualities of life are worth pursuing Other ethical theories

The Role of Governments in Environmental Issues
U. S. Government Response National Environmental Policy Act (NEPA) Policy goals Environmental Impact Statements (EIS) Environmental Protection Agency (EPA) Air quality legislation Clean Air Act Emissions trading and the bubble concept

U. S. Government Response Water quality legislation Clean Water Act Marine Protection, Research and Sanctuary Act Safe Drinking Water Act Unregulated area Nonpoint source runoff

U. S. Government Response Land-related legislation Solid Waste Disposal Act Resource Conservation and Recovery Act Toxic Substances Control Act Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) Emergency Planning and Community Right-to-Know Act

U. S. Government Response Endangered Species Act (ESA) Role of the president in environmental regulation

International Government Responses United Nations Environmental Programme (UNEP) Montreal Protocol Global Waters Assessment Rotterdam Convention

Other Environmental Stakeholders
Environmental interest groups include Radicals Mainstreamers Accommodators

Green consumers Green employees Green investors

CERES Principles Protecting of the biosphere Using and conserving natural resources on a sustainable basis Reducing and disposing of waste Conserving energy Reducing reduction Using safe products and services Restoring the environment Informing the public Committing management to the environment Auditing and reporting environmental progress

Business Environmentalism
Corporate examples Environmental and financial performance Systematic business responses to environmental challenges: Generic management decision-making tools Cost-benefit analysis Risk management Strategic environmental mangement

Business Environmentalism

Future of Business: Greening or Growing?
Two Important Questions Can the earth support a high consumption Western lifestyle? If not, what are the implications for business and how can business respond?

Selected Key Terms Acid rain Air pollution CERES Principles
Clean Water Act Cost-benefit analysis Deforestation Emissions trading Endangered Species Act Energy inefficiency Environment Environmental Impact Statements Environmental Protection Agency (EPA)

Selected Key Terms Green values Greenhouse effect ISA 14000
Montreal Protocol Not in My Back Yard (NIMBY) Ozone Risk management Soil erosion Strategic Environmental Management (SEM) Superfund Toxic substances Toxic substances Control Act

Business and Community Stakeholders
15 Business and Community Stakeholders Search the Web The Foundation Center is a clearinghouse that publishes the “The National Directory of Corporate Giving”: 1 1

Chapter Fifteen Objectives
Identify two basic ways of business giving Discuss the reasons for community involvement, including community projects and stakeholder management Explain the pros and cons of corporate philanthropy Differentiate between strategic philanthropy, cause-related marketing and cause branding Characterize the plant-closing issue Address steps before a plant-closing decision Identify strategies after a plant-closing decision 2 2

Chapter Fifteen Outline
Community Involvement Various Community Projects Managing Community Involvement Community Involvement of Foreign-Based Firms Joint Community Involvement Efforts Corporate Philanthropy or Business Giving A Brief History of Corporate Philanthropy Giving to the “Third Sector”—the Nonprofits Managing Corporate Philanthropy Business and Plant Closings Reasons for Plant Closings What Should Business’s Do? Community Lawsuits Summary Chapter Fifteen Outline Community Involvement Various Community Projects Corporate Philanthropy or Business Giving Business and Plant Closings Summary

Introduction to Chapter 15
Positive and detrimental effects of the business stakeholder Community involvement Corporate philanthropy Plant closings

Reasons for Community Involvement
Businesspeople are efficient problem solvers. Employees gain satisfaction and improved morale. A positive image facilitates hiring. A company gains prestige and greater community acceptance. Social responsibility is the alternative to government regulation. A company benefits from helping institutions essential to continuation of business.

Community Involvement
Activities Used to Encourage Employee Volunteerism Recognition through articles, awards, and commendations Publicity about volunteer opportunities Executives who have board memberships Company-sponsored projects with multiple volunteers Ongoing endorsement of programs by CEOs

Company Benefits From Employee Volunteerism Indirect community benefits Employee benefits Bottom-line benefits

America’s Promise Caring adults Safe places and structured activities A healthy start for a healthy future Marketable skills Opportunities to give back through community service

Resourced-Based Giving Assess resources Assess competencies Determine where resources and competencies will achieve the most good

Managing Community Involvement
Business stake in the community Self-interest and preservation Direct or indirect benefits Developing a Community Action Program Knowing the community Knowing the company’s resources Selecting projects Monitoring projects

Knowing the Community – Community Needs Assessment Demographics Environmental and land use Infrastructure and physical services Leadership Leisure Local economy Local education Local government Local health and human services

Knowing the Company’s Resources Mix and range of resources Personnel Money Meeting space Equipment Supplies Time

Selecting Projects Plan and organize projects Meet cost effectives business standards Capitalize on corporate talents and resources Involve employees in projects Select communities familiar to the corporation Select projects with high probability of success Use corporate policy to support ongoing programs Select projects that allow people help themselves

Monitoring Projects Review execution strategy for congruence with plan and schedule Obtain feedback from participants

Developing Community Action Programs 1. Knowing the community—The corporation should get involved in the communities it knows. 2. Knowing the company’s resources—Community involvement must be cost- effective. 3. Selecting projects—Programs should affect and interest those employees involved. 4. Monitoring projects—Management must run community involvement like other parts of the business.

Community Involvement of Foreign-Based Firms
81% had community involvement projects 71% reported community expectations were very important or moderately important parts of their business plans 50% were satisfied with their community involvement programs

Community Involvement of Foreign-Based Firms
Motivations Moral obligations (61 %) Community expectations (56%) Image strengthened (56%) Self-interest (50 %)

Business Giving: Why Do Companies
Nondonors: No evidence of charitable giving . . . “What’s in it for Us” donors: Firm’s contributions relate to company’s direct interest . . . “We Are a Good Citizen” donors: Firm’s traditionally supports nonprofit business institutions . . . “We Care” donors: Firm’s go to newer organizations, too, that deal with nontraditional issues . . . . . . Competitiveness, even for companies with lofty goals, competitiveness still determines that corporate giving be strategic—aligned with profitability objectives.

Business Giving: To Whom Do Companies Give?
Education Health and human services Civic and community activities Culture and the arts Other organizations

Business Giving: Managing Corporate Philanthropy
Public purpose partnerships Strategic philanthropy Cause related marketing Global philanthropy

Public Purpose Partnerships A for-profit business enters into a cooperative agreement with a nonprofit for their mutual advantage Reconciles financial and social goals

Strategic Philanthropy Giving fits the firm’s overall mission, goals or objectives by Contributing to firm’s economic success Aligning with the firm’s business endeavors

Implementation Strategy for Strategic Philanthropy Appoint a philanthropy czar Support czar’s efforts to find “natural” causes Promote dialogue between business and philanthropy functions Decentralize the philanthropy function Make the parts add up to more than the whole Continue evaluating corporate philanthropy

Cause-Related Marketing Direct link between a firm’s product or service and charity Purposes of cause-related marketing Global marketing Short-term promotion Image building Marketing to women Cause branding

Business Giving: Global Philanthropy - Advantages
An improved corporate image A boost in market penetration Improved personal relations Improved government relations

Business and Plant Closings
What should business do? Before deciding to close: Propose new ownership Explore employee ownership After deciding to close: Conduct community impact analysis Provide advance notice Provide transfer, relocation and outplacement Act to phase out business gradually Assist community with replacement industry

Employee Ownership: Factors Employee readiness for ownership Union attitudes Management/entrepreneurial skills among employees Products and markets Technology Proposed organizational structure Potential funding sources

Community Impact What groups will be affected? How will they be affected? What is the timing of initial and later effects? What is magnitude of the effect? What is the duration of the impact? To what extent will the impact be diffused in the community?

Advance Notice Worker Adjustment and Retraining Notification Act More notice than the law requires

Benefits Transfer Relocation Outplacement

Gradual Phase-Outs Buys time for employees Buys time for communities

Attracting Replacement Industry Cooperation Assistance

Factors in Plant Closing Assistance Size and impact of closing Extent of corporate commitment to employees and community Length of time firm located in community Length of time firm employed employees Resources available to firm to provide assistance Firm’s sense of social responsibility

Community Lawsuits General Motors case Whitehall Laboratories case

Selected Key Terms America’s Promise Cause-related marketing
Cause branding Community action program Community involvement Employee owned Philanthropy Resource-based giving Strategic philanthropy Third sector Worker Adjustment and Retraining Notification Act (WARN)

Employee Stakeholders and Workplace Issues
16 Employee Stakeholders and Workplace Issues Search the Web The Department of Labor maintains an online Corporate Citizenship Resource Center at: 1 1

Chapter Sixteen Objectives
Identify the major changes occurring in the workforce today Outline the new social contract between employers and employees Explain the employee rights movement Discuss the employment-at-will doctrine Discuss the right to due process and fair treatment Describe the actions companies are taking to make the workplace friendlier Elaborate on the freedom-of-speech issue and whistle blowing 2 2

Chapter Sixteen Outline
Changes in the Workplace Increased Technological Hazards The Computer Invasion Professional with Divided Loyalties Increased Mobility of Employees The New Social Contract The Employee Rights Movement The Meaning of Employee Rights The Right to a Job/Not to Be Fired Without Cause Employment-at-Will Doctrine Management’s Response to Employees’ Job Claims The Right to Due Process and Fair Treatment Employee Constitutionalism Alternative Dispute Resolution Freedom of Speech in the Workplace Whistle Blowing Consequences of Whistle Blowing Government’s Protection of Whistleblowers The Whistle-Blowers Protection Act of Michigan False Claims Act of 1986 Management Responsiveness to Potential Whistle-Blowing Situations Summary Chapter Sixteen Outline The New Social Contract The Employee Rights Movement The Right to a Job/Not to Be Fired Without Cause The Right to Due Process and Fair Treatment Freedom of Speech in the Workplace Whistle Blowing Summary

Introduction to Chapter Sixteen
Consider how global competition has reshaped the social contract between organizations and their workers Consider the trend of expanding employee rights Right not to be fired without just cause Right to due process and fair treatment Right to freedom of speech within the workplace

The New Social Contract
Business Organization’s Expectations Employee’s Expectations Understandings

Reasons for the Change in the Social Contract
Global Competition Technology advances Deregulation

Social Contract: Changes
Old Social Contract New Social Contract Job security Few tenure arrangements Life careers with one employer Few life careers; changes common Loyalty to employer Loyalty to self Paternalism Relationships far less familial Sense of entitlement Personal responsibility for one’s job future Stable, rising income Pay for “value added” Focus on individual accomplishments Focus on team building and projects

Social Contract: New View

Employee Rights Movement
For nonunion workers, employee rights issue continues to be a problem That is, the employees’ desires to be treated with dignity and respect, to have a right to due process, privacy, freedom of speech, and safety, and even a right to a job.

Sources of Employee Rights Statutory rights Collective bargaining rights Enterprise rights

Models of Management Morality and their Orientation Toward Employees Immoral Moral Amoral End Law Means

Right Not to be Fired Without Just Cause
Employment-at-Will Doctrine Public policy exceptions Contractual actions Breach of good faith actions

Right Not to be Fired Without Just Cause
Management’s Response Stay on the right side of the law Investigate complaints in good faith Deal in good faith with employees Fire only for good cause

The Right to Due Process
Types of Due Process Substantive due process Right to fair treatment Procedural due process Right to a fair system of decision making

The Right to Due Process
Employee Constitutionalism Procedure Visible Effective Institutionalized Equitable Easy to use Apply to all employees

Alternative Dispute Resolution
Common Approach Open door policy Three concerns Process is closed One person review Bias in favor of managers

Alternative Dispute Resolution: Ethical Ways for Due Process
Peer Review Panel—Fellow workers in the same job family and at a grade level equal to or higher than the employee with a grievance Hearing procedure—permits employees to be represented by attorney or neutral party Ombudsperson—A “troubleshooter” investigates and helps achieve equitable settlements for employee complaints

Whistle Blowing Corporate Employer Employee Public Whistle blowing
Loyalty Obedience Confidentiality Public Employee Whistle blowing Responsibility (Has certain rights) (Has certain rights)

Consequences of Whistle-Blowing
Increased criticism of work Less desirable work assignments Pressure to drop charges against the company Heavier workloads Loss perquisites Exclusion from meetings

Seven Stages of Life of a Whistle-Blower
Whistle-Blowing Seven Stages of Life of a Whistle-Blower Discovery of the organizational abuse Reflection on what action to take Confrontation with superiors Retaliation against the whistle-blower Long haul of legal action Termination of the case Going on to a new life

Examples of Government Protection
Whistle-Blowing Examples of Government Protection Civil Service Reform Act Whistle-Blowers Protection Act of Michigan False Claims Act

Management’s Preemptive Responses to Whistle-Blowing
The company should assure employees that the organization will not interfere with their basic political freedoms. Grievance procedure should be streamlined so that employees can direct complaints and not “blow the whistle.” Review the organization’s concept of social responsibility so that it is not simply corporate giving to charity.

Management’s Preemptive Responses to Whistle-Blowing
Formally recognize respect for the individual consciences of employees. Realize that dealing harshly with whistle blowing can result in adverse public reaction.

Selected Key Terms 1978 Civil Service Reform Act
Alternative dispute resolution (ADR) Collective bargaining Due process Employee constitutionalism Employee rights Employment-at-will doctrine Enterprise rights False Claims Act Good faith principle Hearing procedure

Selected Key Terms Public policy exception Implied contracts
Social contract Statutory rights Whistle-blower Implied contracts Ombudsperson Open-door policy Peer review panel Private property

Employee Stakeholders: Privacy, Safety, and Health
17 Employee Stakeholders: Privacy, Safety, and Health Search the Web OSHA provides a web site that serves as a clearinghouse for information about employee safety and health: 1 1

Chapter Seventeen Objectives
Articulate employee right to privacy concerns Identify the pros and cons of polygraphs, honesty tests, and drug testing as management instruments Discuss the right to safety, the right to know, and the role of OSHA Discuss the right to health in the workplace including violence and AIDS 2 2

Chapter Seventeen Outline
Right to Privacy in the Workplace Collection and Use of Employee Information by Employers Use of Polygraph Honesty Testing Drug Testing Monitoring Employees on the Job Policy Guidelines on the Issue of Privacy Workplace Safety The Workplace Safety Problem Right-to-Know Laws Troubles at OSHA Threats to Reproductive Health Workplace Violence The Right to Health in the Workplace Smoking in the Workplace AIDS in the Workplace The Family-Friendly Workplace Summary Chapter Seventeen Outline Right to Privacy in the Workplace Right to Workplace Safety Right to Health in the Workplace

Introduction to Chapter Seventeen
The chapter focuses on the employee’s rights to: Privacy Safety Health

Right to Privacy Definitions
Right to keep personal information to oneself and to know how an employer is using personal information Werhane’s definition Right to be left alone Right to autonomy Right to determine when, how, and to what extent personal information is communicated to others

Five Issues of Employee Privacy
Right to Privacy Five Issues of Employee Privacy Collection and use of employee information in personnel files Use of the polygraph, or lie detector, in making employee decisions Honesty testing Drug testing Monitoring employee’s work and conversations by electronic means

Employer Collection and Use of Employee Information
Right to Privacy Employer Collection and Use of Employee Information Privacy Act of 1974 USA Patriot Act Department of Health and Human Service regulations concerning privacy standards in health care American’s with Disabilities Act (ADA)

Right to Privacy Use of a Polygraph History
Employee Polygraph Protection Act Exceptions

Right to Privacy Integrity Testing Validity of integrity tests
Criticisms Reasons for use To stem employee theft To avoid “negligent hiring” suits To screen employees cost-effectively To replace polygraphs

Right to Privacy Drug Testing Drug testing Alcohol testing

Reluctance to Drug Test
Right to Privacy Reluctance to Drug Test Moral/privacy issue Inaccuracy of tests Negative impact on employee morale Tests show use, not abuse High cost Management, employee and union opposition

Arguments for Drug Testing
Right to Privacy Arguments for Drug Testing High cost of drug abuse Increased rate of injuries Increased rate of theft Increased propensity to make poor decisions Ethical responsibility to employees and public to: Provide for safe workplaces Provide for secure asset protection Provide for safe places to transact business

Arguments Against Drug Testing
Right to Privacy Arguments Against Drug Testing Violates due process rights Invades privacy rights Grants greater weight to employer’s fights than to employees rights Ignores actual employee’s performance

Guidelines for Drug Testing
Right to Privacy Guidelines for Drug Testing Management should not discipline or fire someone for refusing to take drug test, the test results can be inconclusive Management should only use drug tests when there is legitimate suspicion of abuse Management should use drug tests to evaluate job performance and not on-the-job conduct Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved. 17-13

Guidelines for Drug Testing
Right to Privacy Guidelines for Drug Testing Management should inform employees of test methods and results, and allow the employee to rebut the findings Management should confirm all positive test results with a second test Management should conduct all tests with respect for employee dignity and privacy

State and Federal Legislation
Right to Privacy Drug Testing State and Federal Legislation State laws Focus on reasonable suspicion Federal laws Americans with Disabilities Act (ADA) Mandatory testing programs Federal workers Transportation workers

Right to Privacy Monitoring
The key factor in determining the legality and ethics of employee monitoring is the employee’s reasonable expectation of privacy The pressure of being constantly monitored—especially by computers—produces low morale in a variety of places. The potential for abuse is also perceived, the feeling that BIG BROTHER is watching

Employer Monitoring Effects on Employees
Right to Privacy Employer Monitoring Effects on Employees Invades privacy Treats employees unfairly Creates stress and tension Produces low morale Creates a sense of job insecurity

Guidelines on the Issue of Privacy
Right to Privacy Guidelines on the Issue of Privacy Prepare a “privacy impact statement Construct a comprehensive privacy plan Train those who handle personal information Make privacy part of social responsibility Search the Web The Privacy Foundation provides a web site that provides information technologies that may threaten personal privacy:

OSHA’s Strategic Goals
Workplace Safety OSHA’s Strategic Goals Promote a prepared workforce Promote a secure workforce Promote a quality workplace

Workplace Safety Right to Know Laws State laws Federal laws
OSHA Regulation Hazard Communication Standard

Workplace Safety History of OSHA Nitpicking rules Spotty record
Rejuvenated OSHA

Workplace Safety Workplace Violence Workplace violence research
Companies respond

Right to Health in the Workplace
Two Major Issues Smoking Corporate response AIDS

Right to Health in the Workplace
Family-Friendly Workplace Corporate policies Federal law Family and Medial Leave Act

Selected Key Terms AIDS Americans with Disabilities Act (ADA)
Broad brush EAP Chief privacy officers Drug testing Employee Assistance Programs (EAPs) Employee monitoring Employee Polygraph Protection Act (EPPA) Family and Medical Leave Act Family-friendly workplace Integrity tests Occupational Safety and Health Administration (OSHA)

Selected Key Terms Polygraph Privacy Act Privacy Impact Statement
Privacy in the workplace Right-to-know laws Smoking Workplace violence USA Patriot Act

Employment Discrimination and Affirmative Action
18 Employment Discrimination and Affirmative Action Search the Web The web site of the Equal Opportunity Com-mission is a good source for updated information about discrimination: 1 1

Chapter Eighteen Objectives
Chronicle the civil rights movement Outline the federal discrimination laws Provide two different meanings of discrimination Elaborate on employment discrimination relating to race, color, national origin, sex, age, religion, and disability. Identify the different postures with respect to affirmative action, the concept of reverse discrimination, and an overview of the Supreme Court’s decisions 2 2

Chapter Eighteen Outline
The Civil Rights Movement and Minority Progress Civil Rights in the 1950s and 1960s The 1970s: The Women’s Movement Begins The 1980s: Gains Are Made The 1990s: Some Progress But Problems Remain Federal Laws Prohibiting Discrimination Title VII of the Civil Rights Act of 1964 Age Discrimination in Employment Act of 1967 Equal Pay Act of 1963 Rehabilitation Act of 1973, Section 503 Americans with Disabilities Act of 1990 Civil Rights Act of 1991 Equal Employment Opportunity Commission Expanded Meanings of Discrimination Disparate Treatment Disparate Impact Issues in Employment Discrimination The Two Nations of Black America Issues of Sex Discrimination Issues of Age and Religion Affirmative Action in the Workplace The Range of Affirmative Action Postures The Concept of Preferential Treatment The Concept of Reverse Discrimination Minority Opposition to Affirmative Action The Corporate View The Future of Affirmative Action Summary Chapter Eighteen Outline The Civil Rights Movement and Minority Progress Federal Laws Prohibiting Discrimination Expanded Meanings of Discrimination Issues in Employment Discrimination Affirmative Action in the Workplace Summary

Introduction to Chapter Eighteen
The chapter addresses: Civil rights movement Civil rights issues as those rights relate to employment Federal discrimination laws Affirmative action

Civil Rights Movement The Civil Rights Movement of 1950s and 1960s, the Women’s Movement of the 1970s, and groups seeking to remove other forms of discrimination have resulted in protected groups—stakeholders whose rights are protected by anti- discrimination laws. Minorities and women, older people, people with disabilities, gays and lesbians and others have received or still seek certain workplace rights that should be protected.

Federal Anti-Discrimination Laws
Title VII of the Civil Rights Act of 1964: Prohibits discrimination in hiring and other aspects of employment on the basis of race, color, religion, sex, or national origin. Age Discrimination in Employment Act of 1967: Protects workers 40 years old and older from arbitrary age discrimination. Equal Pay Act of 1963: Prohibits sex discrimination in payment of wages to women and men who perform substantially equal work. Rehabilitation Act of 1973, Section 503: Prohibits job discrimination on the basis of a handicap. Americans with Disabilities Act: Gives individuals with disabilities civil rights protections similar to those given to individuals on the basis of race, sex, national origin, and religion. Civil Rights Act of 1991: Provided increased financial damages and jury trials in cases of intentional discrimination.

Federal Anti-Discrimination Laws
Equal Opportunity Commission Five Commissioners President appoints and Senate confirms Purpose Sets equal employment opportunity policy Investigates employment discrimination complaints Enforces anti-discrimination laws

Expanded Meanings of Discrimination
Disparate Treatment Disparate Impact Griggs v. Duke Power Company

Expanded Meanings of Discrimination
Treatment Impact Direct discrimination Indirect discrimination Rules with a discriminatory premise Unequal consequences or results Intentional discrimination Unintentional discrimination Prejudiced actions Neutral, color-blind actions Varying standards for different groups Same standards, but different consequences for different groups

New Issues Impacting Employment Discrimination
Two New Groups: Asians and Hispanics Hispanic population growth in the workforce is steadily rising—and their needs are different from African Americans. Asian American presence is also rising in the workforce, as is the problem of their being perceived as a “model minority.” Two Nations of Black America In the aftermath of the Civil Rights Era, two African-America communities now exist side by side, an affluent, professional, and well-educated middle class, and a large underclass with a disproportionate number in prison.

Hispanics Asians

Getting into professional and managerial positions and out of traditional female-dominated positions Achieving pay commensurate with men Eliminating sexual harassment Quid pro quo Hostile work environment Being able to take maternity leave without losing jobs or job status

Sexual Harassment Sexual harassment has now broadened to include not only individuals of the opposite sex, but of the same sex, too. Allegations of sexual harassment against public figures in the political, military, and corporate spheres, continue to create new ethical and legal problems.

Suggested Sexual Harassment Guidelines Educate employees about prohibited conduct Reexamine, revise, and reissue written policy Make employees aware: redress procedures Introduce, or update training programs Make certain that environmental harassment is absent from the workplace Get input from female employees

Maternity leave Pregnancy Discrimination Act Fetal protection policies UAW v. Johnson Controls, Inc. Issues of age and religion Age Discrimination Act

Affirmative Action Postures
1. Passive nondiscrimination. A willingness in hiring, promotion, and pay decisions to treat the races and the sexes alike. 2. Pure affirmative action. A concerted effort to enlarge the pool of applicants so that no one is excluded because of past or present discrimination. 3. Affirmative action with preferential hiring. A company systematically favors minorities and women in the actual decisions of enlarging its labor pool. 4. Hard quotas. A company specifies numbers or proportions of minority group members that must be hired. Weak STRONG

Affirmative Action in the Workplace
Preferential Treatment Compensatory justice Reverse discrimination Minority opposition to affirmative action Affirmative action and the courts Strict scrutiny Compelling government interest Narrowly tailored to meet interest Future of affirmative action

Selected Key Terms Affirmative action Age discrimination
Americans with Disabilities Act (ADA) Bona fide occupational qualification Civil Rights Act of 1964 Civil Rights Act of 1991 Disparate treatment Disparate impact Equal Opportunity Commission (EEOC) Equal Pay Act Fetal protection Preferential treatment Protected groups Reverse discrimination Sexual harassment Title VII

Owner Stakeholders and Corporate Governance
19 Owner Stakeholders and Corporate Governance Search the Web AFL-CIO sponsors PayWatch. A web site that tracks CEO pay and perks. For more information see: 1 1

Chapter Nineteen Objectives
Link the issue of legitimacy to corporate governance Identify the best practices of boards of directors Identify the problems with greenmail, golden parachutes, and insider trading Identify the major board changes that improve corporate governance Discuss the principle ways shareholder activism is exerting pressure to improve governance Summarize the issues surrounding compensation of the board members and the CEO 2 2

Chapter Nineteen Outline
Legitimacy and the Corporate Governance Problem The Issue of Corporate Governance Components of Corporate Governance Ineffective Boards of Directors Executive Compensation Consequences of the Merger, Acquisition, and Takeover Craze Improving Corporate Governance Changes in Boards of Directors Increased Role of Shareholders Summary Chapter Nineteen Outline Legitimacy and the Corporate Governance Problem Improving Corporate Governance Summary

Introduction to Chapter Nineteen
The chapter focuses on the management problems and solutions associated with the separation of ownership and control of the firm.

Legitimacy and Corporate Governance
Legitimacy is a condition wherein there is a congruence between an organization’s activities and society’s expectations. Legitimatization is a dynamic process to perpetuate acceptance.

Micro Level of Legitimacy Adapt operational methods to perceived societal expectations Attempt to change societal expectations or norms to conform to conform to firm’s practices Seek to enhance the its legitimacy by identifying itself others that have a powerful legitimate base in society

Macro Level of Legitimacy Focus is on business system as a whole Subject to ratification No inherent right to exist

Issue of corporate governance Components of corporate governance Shareholders Board of directors Managers Employees

The Four Groups 1 2 3 4

Separation of Ownership From Control Intended roles Actual roles

Ineffective boards Rubber stamp boards CEO dominated boards Conflict of interest boards Effective boards Address issues listed above Use outside directors

The CEO: Pay vs. Performance Criticism of CEO self-interest still continues after executive earnings became an issue in the ’80s and ’90s and companies still try to link pay to such performance measures as the stock market . Recent research, however, shows that attempts to tightly control CEOs can have dysfunctional consequences. Some corporations, such as Disney, that are dominated by its CEOs, have been highly profitable while having relatively weak boards of directors.

Consequences of Mergers, Takeovers and Acquisitions Greenmail Poison pill Golden parachutes Insider trading scandals Board member liability

Improving Corporate Governance
Changes in boards of directors Appointing “outside” directors who will monitor management more carefully than “inside” directors. Use of stronger board committees Establish audit, nominating, compensation, and public issues committees. Board should “get tough” with the CEO demand accountability

Increased Role for Shareholders Type of shareholders Financial performance Social activists Shareholder initiatives Rise of shareholder activists Filing of shareholder resolutions Shareholder lawsuits SEC regulations Private Securities Litigation Reform Act of 1995 Securities Litigation Uniform Standards Act of 1998

Corporate Initiatives Full disclosure issue Corporate takeover issue

Selected Key Terms Audit committee Board of directors Charter
Compensation committee Corporate governance Corporate raiders Employees Full disclosure Golden parachutes Greenmail Inside directors Insider trading Legitimacy Legitimation Management Nominating committee

Selected Key Terms (continued)
Ordinary business decisions Outside directors Personal liability Poison pill Private Securities Litigation Reform Act Proxy process Public issues committee Public policy committee Risk arbitrage Shareholder activism Shareholder lawsuits Shareholder resolutions Shareholders

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