Chapter
4
Stakeholders, Ethics, and
Corporate Social
Responsibility
4-2
Learning Objectives
1. Identify stakeholders in an organization.
2. Describe the most common types of ethical issues
managers confront.
3. Explain how managers can incorporate ethical
factors into their decision making.
4. Outline the main segments for and against corporate
social responsibility.
5. Explain what managers can do to behave in a
socially responsible manner.
4-3
Stakeholders
Employees
Customers Distributors
The
Firm
Creditors Suppliers
Shareholders
Local communities
4-4
Evaluating Stakeholders
Claims
Identify Identify claims
Identify stakeholders stakeholders
Stakeholders interests and place on the
concerns organization
Take actions,
starting with those Identify actions Weight
that address the stakeholders by
to satisfy claims
claims of the most
important
of various their importance
stakeholders stakeholders to the firm
4-5
Question
Identify and evaluate the stakeholder
claims for your organizations.
4-6
Business Ethics
• Accepted principles of right or wrong governing the
conduct of businesspeople.
• Principles of right and wrong are codified into laws
- Tort law
- Contract law
- Intellectual property law
- Antitrust law
- Securities law
• Many actions, although legal, may not seem ethical
4-7
Ethics in Management
Most issues arise due to potential
conflict between the goals and
the rights of stakeholders.
Stakeholders have basic rights
that should be respected, and it
is unethical to violate those
rights.
4-8
Ethical Rights of
Stakeholders
• Shareholders – right to timely and accurate
information about their investments
• Customers – right to be fully informed about
the products and services they purchase
• Employees – right to safe working conditions,
fair compensation, and to be treated in a just
manner
4-9
Ethical Rights of
Stakeholders (cont)
• Suppliers – right to expect contracts to be
respected
• Competitors – right to expect that a firm will
abide by the rules of competition and not
violate antitrust laws
• Communities – right to expect companies will
not violate the basic expectations of society
4 - 10
Ethical Issues
of Managers
• Self-dealing
• Information manipulation
• Anticompetitive behavior
• Opportunistic Exploitation
• Substandard working conditions
• Environmental degradation
• Corruption
4 - 11
Examples of Self-dealing
1. Senior managers who treat corporate funds as their own
personal treasury
2. Senior managers who use their control over the
compensation committee of the board of directors to
award themselves multimillion-dollar pay increases or
stock option grants that are out of promotion with their
contribution to the corporation
3. Instances where individual managers award business
contracts not to the most efficient supplier but to the one
that provides the largest kickback
4 - 12
Corruption
• The Foreign Corrupt Practices Act was enacted in
1977.
• What is considered gift in one country can be a bribe
in another.
• Only 34 cases have gone to trial since the law was
enacted. Most are settled out of court with fines and
penalties.
• Kim younglan law in Korea
Source: San Jose Mercury News, March 13, 2005
4 - 13
Roots of Unethical Behavior
Employees
Immoral with poor
leadership personal
ethics
Unethical
behavior
Unethical Unrealistic
Failure to performance
organization
consider goals
culture
ethical issues
4 - 14
Philosophical Approaches
to Ethics (1)
• Utilitarian approach – the view that the moral worth of
actions or practices is determined by their consequences
- An action is judged to be desirable if it leads to the
best possible balance of good over bad consequences
- Committed to maximization of good, and the
minimization of harm
- The best decisions are those that produce the greatest
good for the greatest number of people
4 - 15
Philosophical Approaches
to Ethics (2)
• Rights theory – the view that human beings have
fundamental rights and privileges
- Something that takes precedence over, or ‘trumps’ a
collective good
- For example, since we have the right to free speech, we
are also obligated to make sure we respect the free
speech of others
- Certain people or institutions are obligated to provide
benefits or services that secure the rights of others
4 - 16
Philosophical Approaches
to Ethics (3)
• Justice theories – theories that focus on attaining a just
distribution of economic goods and services
- A just distribution is one that is considered fair
and equitable
- All economic goods and services should be distributed
equally except when an unequal distribution would
work to everyone’s advantage
- Veil of ignorance – everyone is imagined to be ignorant
of all his or her particular characteristics
4 - 17
Question
General Manager Jerry believes that the best
decisions are those that produce the greatest good
for the greatest number of people. Jerry
prescribes to which of these approaches to ethics?
a. Opportunistic exploitation
b. Rights theories
c. Utilitarian
d. Justice theories
4 - 18
Behaving Ethically
What managers can do to make sure that ethical issues
are considered:
1. Establish an ethics officer
2. Have leaders promote ethical behavior
3. Develop strong governance processes
4. Promote moral courage
5. Consider ethical aspects of business decisions
6. Promote an ethical organization culture
7. Hire and promote ethical individuals
4 - 19
Ethical Decisions
It is considered ethical when a businessperson can
answer YES to each of the following questions:
1. Does my decision fall within the accepted values or
standards that typically apply in the organizational
environment?
2. Am I willing to see the decision communicated to all
stakeholders affected by it?
3. Would the people with whom I have significant
personal relationship approve of the decision?
4 - 20
Uncertainty
Not all ethical dilemmas have a clean and obvious
solution
• In these cases a premium is placed on the ability of
managers to make sense out of complex messy
situations and make balanced decisions that are as just
as possible.
4 - 21
Social Responsibility
• A sense of obligation on the part of managers to
build certain social criteria into their decision
making.
• When managers evaluate decisions, there should
be a presumption in favor of adopting courses of
action that enhance the welfare of society at
large.
4 - 22
Arguments for SR
• Right way for a business to behave
• Need to give back to the society that helped make
their company
• It can lead to better financial performance
• Ignoring this may generate ill will and opposition
4 - 23
Global Labor Monitoring
• Nike, Patagonia, Gap and Five other
companies have joined forces with six leading
anti-sweatshop groups to devise a single set of
labor standard with a common factory
inspection system.
• Goal – To replace today’s overlapping
hodgepodge of approaches with something
that’s easier and cheaper to use
Source: Business Week, May 23, 2005
4 - 24
Recent Trends
• ESG Trends
• ISO….