95% of Respondents Agree

U.S. corporations should have more than one purpose. They also owe something to their
workers and the communities in which they operate, and they should sometimes sacrifice
some profit for the sake of making things better for their workers and communities.
What do you believe organizations should be responsible for accomplishing?
Social responsibility The adoption by a business of a strategic focus for fulfilling
the economic, legal, ethical and philanthropic responsibilities expected of it by its
stakeholders Businesses should look beyond their self-interests and recognize that
they belong to a larger group that expects responsible participation.
Applies to all types of businesses
Small businesses Large businesses
Sole proprietorships
Multinational corporations
Adopts a strategic focus
Requires a formal commitment from top management

Communicated through mission and vision statements, annual reports, websites,

and public relations
Requires action and results
Depends on collaboration and coordination across business and among
constituencies
Large companies often create specific positions and departments to support social
responsibility programs
Fulfills societal expectations
Provides a return on investment for
Acts in a just, fair, and correct manner
owners
Promotes human welfare and good will
Obeys the law and regulatory agencies
Economic Maintain profitability
Legal Abide by legal and regulatory influence
Ethical Ensure just and fair behavior in the workplace
Philanthropic Promote human welfare and goodwill

Who are the key stakeholders of the organization?

- Customers
- Stockholders
- Communities
- Employees
- Suppliers
- Investors
- Government
- Stakeholders - Those constituents who have a stake in, or claim on, some aspect of
a companys products, operations, markets, industry, and outcomes
- Companies that operate with a stakeholder orientation recognize that business and
society are interpenetrating systems, in that each affects and is affected by the
other.
- 1940s
- Economic dominance of corporations
Total autonomy of top
management

1950s60s
Few formal governance procedures restraining management actions
Organizational charitable giving expanded (charities, arts, culture, and community)
Laws are passed that require protection of the natural environment, safer products,
promotion of equity, and supporting workplace diversity.
1970s
World competition, bankruptcies, mergers and acquisitions
1980s
Flatter organizations (downsizing)
More business scandals
Empowerment of lower-level employees
Focus on profitability and
economies of scale
1990s
Less employee loyalty and increased job hopping
Growth of temporary
employment
Greater interest in ethics and social responsibility
2000s
Special interest groups, companies, human rights activists, and government strive
to balance economic and social goals.
Major scandals damage the global economy.
Lessons Learned from Economic Crises
Transparency
Absence of rating triggers
Long-term perspective
Minimal counter-party exposure
Liquidity
Diversification
Limited use of derivatives
Global Nature of Social Responsibility
Who determines social responsibility on a global scale
Host country
Home country
Outside
organizations

Benefits of Social Responsibility

Greater trust with stakeholders
Greater profitability
Greater customer satisfaction
Stronger employee commitment
Stronger investor loyalty
Countries with greater trust-based institutions foster a productivity-enhancing
environment. Competitive processes are more efficient and effective.
Social Responsibility Builds Trust
Trust is the glue that holds organizational relationships together.
Stephen Covey contends that low trust results in organizational decay and
relationship deterioration. Political problems and inefficiency

Most workers feel they can be trusted more than they can trust others.
All organizational members should share a sense of trust.
Trust should exist between departments within a firm.
An Ethics Resource Center study shows that 93% of employees who say trust is
frequently evident in their organization report satisfaction with their employer.
Social Responsibility Improves Customer Satisfaction
Focuses on customer satisfaction and strengthens trust. This is especially key in
service organizations. Seventy percent of consumers in a Cone/Roper poll indicated
they would switch to brands associated with a good cause if price and quality were
equal.
What happens when consumer organizational trust is breached?
Seventy-five percent of consumers say they would avoid or refuse to buy from
certain businesses.
Consumers may avoid products from companies that treat their employees unfairly
Social Responsibility Strengthens Employee Commitment
The greater a companys dedication to employees, the greater the likelihood that
employees will take care of the organization.
Failure to care for employees results in lower loyalty and commitment.
Employees perceptions are affected by: Safe working conditions, competitive
salaries, and contractual fulfillment Social programs, including work-family
relationships, stock ownership, community service
What happens when employee loyalty is breached?
Quality is compromised. Service is compromised. Efficiency decreases
Strengthening Employee Commitment
Employee stock ownership plans (ESOPs) Rewards employees for
contributing to and gaining from organizational success and allows them to gain from
it
Employee-centered programs
Health care benefits
Health clubs
Child care and elder care
Cafeteria benefits plans
- Social Responsibility Contributes to Investor Loyalty
Investor relationships require dependability, trust, and commitment.
Shareholders are concerned about ethics, social responsibility, and corporate
reputation.
Half of investors sell their stock within one year.
- Social Responsibility Enhances Economic Performance
Does business conduct relate to a nations overall economic conduct? Economic
well-being is promoted by:
Trust and a sense of community
Rigor in the legal and ethical systems
Consistent exercise of authority within society
Social institutions that foster access, productivity, and economic growth
Positive attitudes about work, innovation, savings, and profits
- CHAPTER 2
- Strategic Management of Stakeholder Relationships
Stakeholders - Those people and groups to which an organization is responsible
Customers
- Suppliers
Investors/shareholders
- Governments
Employees
- Communities
Those with a stake, or claim, in some aspect of a companys products, operations,
markets, industry, or outcomes
Primary Stakeholders - Groups fundamental to a companys operation and survival
Customers
- Employees

Shareholders
- Government
Investors
- Community
Suppliers
Balancing the needs and perspectives of primary stakeholders is a strategic
imperative.
Secondary Stakeholders - Groups that may influence and/or be affected by the
company, but are not engaged in economic exchanges with the firm:
Media
Special interest groups
General public
These groups are not fundamental to an organizations daily survival. They can
place significant pressure on a business and therefore, cannot be ignored.
Stakeholder Orientation - There is a two-way relationship between the firm and a
number of stakeholders.
Customers Communities
Employees Trade associations
Suppliers
Government/political groups
Investors
This approach recognizes other stakeholders and explicitly acknowledges the dialog
that exists between a firms internal and external environments.
The degree to which a firm understands and addresses stakeholder demands.
Comprises three sets of activities:
1. The organization-wide generation of data about stakeholder groups and
assessment of the firms effects on these groups
2. The distribution of this information throughout the firm
3. The organizations responsiveness as a whole to this intelligence
Stakeholder Attributes:
Power Extent to which coercive, utilitarian, or symbolic means can be used to
impose a stakeholders views upon an organization
Legitimacy Perception or belief that a stakeholders actions are proper, desirable,
or appropriate
Urgency Pressure that a stakeholder exerts on managers and organizations by
stressing the urgency of its claims
- Reputation Management
The process of building and sustaining a companys good name and generating
positive feedback from stakeholders.
Most reputations take a long time to build or change.
Not handling a crisis situation to the satisfaction of stakeholders can damage a
firms reputation
- Reputation Management Process
Identify how the organization wants to be viewed by stakeholders.
Determine how stakeholders evaluate the company and their impressions of its
image.
Evaluate others impressions of organizational performance.
Understand the companys reputation.
- Crisis Management
The process of handling a high-impact event characterized by ambiguity and the
need for swift action Threat to company goals
Short
response time
Stressful, emotional, uncertain, and demanding context
Close organizational scrutiny by employees, stakeholders, customers, government
regulators, the media, competitors, and creditors
- Crisis Management Stages
Prodromal stage Warning signs and symptoms may occur
Acute stage Crisis occurs
Chronic stage Ongoing crisis requires explanation and decision making
Resolution Success and failure outcomes for organization and stakeholders
- Development of Stakeholder Relationships

Relationships are founded on principles of:

Trust
Commitment
Communication
They are also associated with a degree of:
Time
Interaction
Shared expectations
Companies are searching for ways to develop long-term and collaborative
relationships with their customers and business partners.
Social Capital - An asset, which resides in relationships, that is characterized by
mutual goals and trust
Facilitates smooth internal and external transactions and processes
- Implementing a Stakeholder Perspective in Social Responsibility
1. Assessing the corporate culture
2. Identifying stakeholder groups
3. Identifying stakeholder issues
4. Assessing the organizations commitment to social responsibility
5. Identifying resources and determining urgency
6. Gaining stakeholder feedback
- Link Between Stakeholder Relationships and Social Responsibility
Reactive behavior Denying responsibility and doing less than is required
Defensive behavior Admitting responsibility and doing the least that is required
Accommodative behavior Accept responsibility and doing only what is required
Proactive behavior Anticipate responsibility and doing more than is required
- Chapter 3
- CORPORATE GOVERNANCE
Corporate governance is the formal system of oversight, accountability, and
control for organizational decisions and resources.
Major issues:
Shareholder rights
Executive compensation
Organizational ethics programs
Board composition and structure
Auditing, control and risk management CEO selection and executive succession
plans
- Corporate Governance Framework
Most businesses operate under the belief that the purpose of business is to
maximize profits for shareholders.
The stakeholder model places the board of directors in a position to balance the
interests and conflicts of various constituencies.
Directors and officers of corporations are placed in positions of trust and must
exercise a duty of diligence and a duty of loyalty in decision making.
- History of Corporate Governance
1932U.S. Securities & Exchange Commission (SEC) is formed, requiring
corporations to allow shareholder resolutions to be brought to a vote of all
shareholders.
Mid-1900sThe goal of business is to align the interests of principals and agents so
that organizational value and viability are maintained.
Mid-1990sBoards of directors play a greater role in strategy formulation, and there
is movement toward corporate governance committees.
2002Sarbanes-Oxley Act brought sweeping changes in corporate governance.
2008-2009 Collapse of U.S. financial system discloses corruption and need for
greater oversight and control. Fortunes Best and Worst Companies
Models of Corporate Governance
- Shareholder model
Maximizes wealth for investors and owners
Develops and improves the formal system of performance accountability between
management and the firms shareholders
Makes decisions based on what is ultimately best for investors

Focuses on aligning investor and management interests

- Stakeholder model
Considers the interests of employees, suppliers, government agencies,
communities, and other groups with which the firm interacts
Assumes a collaborative and relational approach to business
Focuses on continuous improvement, accountability, and engagement with internal
and external constituents
- Issues in Corporate Governance Systems
Boards of directors
Independence
Quality and experience
Performance
Shareholders and investors
Shareholder activism
Social investing
Investor
confidence
Internal control and risk management
Internal and external audits
Control systems
Risk management
Financial misconduct
Executive compensation

Boards of Directors
Assume legal responsibility for firms resources and decisions
Appoint top executive officers
Maintain a fiduciary duty
Monitor decisions made by managers on behalf of the company
Growing interest in hiring outside directors to bring in more independent thought
and action
Shareholders are concerned with ownership investment in publicly traded firms.
Greater input on company strategy and decisions
Investor is a general term for any individual or organization that provides capital
to another firm.
Financial
Human
Intellectual
Characteristics of a Successful Shareholder Activism Campaign

- General Issues in Social Investing

Environmental
Workplace equity and safety
safety and testing
Global operations Human rights
- Internal Control and Risk Management

Product

Controls are used to safeguard corporate assets and resources, protect the
reliability of organizational information, and ensure compliance with regulations, laws
and contracts.
Limit employee and management opportunism
Ensure that board members have access to timely and quality information
Implement internal and external audits to link risk, controls, and corporate
governance
Anticipate and remedy organizational risks
Minimize negative situations Uncertainty needs to be hedged
- Financial Misconduct
The failure to understand and manage ethical risks played a key role in the financial
crisis of 2008-2009
Complex financial schemes, inappropriate risk levels, opportunity for personal gain,
financial incentives, and a lack of effective corporate governance led to the financial
crisis.
Subprime lending created thousands of mortgage foreclosures and delinquencies.
Derivatives, a financial trading instrument, have been called financial weapons of
mass destruction.
- Executive Compensation
The average executive makes 344 times the average workers salary. Up from 40
times the average salary in the 1960s
Two contrasting perspectives
Executives assume a great deal of risk and therefore deserve great rewards.
No executive is worth millions of dollars regardless of investor return.
Plans that base achievement on several performance goals are growing in
popularity
- OECD Principles of Corporate Governance
Basis for an effective corporate governance framework
Rights of shareholders and key owners
Equitable treatment of shareholders
Role of stakeholders in corporate governance
Disclosure and transparency
Responsibilities of the board
- Implementing OECD Principles of Corporate Governance
Create systems that articulate divisions of responsibilities and are consistent with
the rule of law.
Ensure the rights of shareholders to vote and influence corporate strategy.
Recruit greater number of skilled, independent members on boards of directors.
Eliminate techniques that protect failing management and strategy.
Promote wider use of international accounting standards.
Promote better disclosure of executive pay and remuneration.
- Future of Corporate Governance
Boards will be held responsible for developing company purpose statements that
cover stakeholder interests.
Annual reports will include more nonfinancial information.
Boards will be required to perform self-assessments.
Board member selection process will become increasingly formalized.
Boards will need to work more as teams.
Board membership will require more time.
Focus will move from a shareholder model to a stakeholder model.
Systems will ensure greater organizational- level accountability and control.
General support for corporate governance will rise.
Governments will play a more significant role.
- Chapter 4
1.
2.
3.
4.
5.
6.

(1906)
(1913)
-

Legal, Regulatory, and Political Issues

- Governments Influence on Business
Laws derived from the U.S. Constitution and Bill of Rights influence business.
Laws are enforced through the judicial system.
Settles disputes and punishes criminals
Corporations have the same legal status as a person.
Can sue
Can be sued
Can be held liable for debt
- The Rationale for Regulation
Preventing trusts and monopolies from using their market dominance to negatively
manipulate output, pricing, and quality
Eliminating unfair competition and anticompetitive practices
Supporting environmental initiatives, equality in the workplace, and product safety
Protecting consumers and business in ecommerce activities
- Major Laws Affecting Business
Sherman Antitrust Act Supports free trade and restrains monopolistic activities
Clayton Antitrust Act Prohibits price discrimination
Federal Trade Commission Act Creates the FTC to prevent unfair competition
Robinson-Patman Act Prohibits price discrimination
Lanham Act Protects and regulates brand names/marks
Law Enforcement Agencies
Food & Drug Administration

Federal Reserve Board

Federal Trade Commission

(1914)
Federal Communication
Commission (1934)
Securities & Exchange
Commission (1934)
National Labor Relations
Board (1935)

Equal Employment Opportunity

Commission (1970)
Environmental Protection Agency
(1970)
Occupational Safety & Health
Administration (1971)
Consumer Product Safety
Commission (1972)
Commodity Futures Trading
Commission (1974)
Federal Housing Finance Industry
(2008)

U.S.,
-

Global Regulation
Import barriers ( Tariffs and quotas Minimum price levels Port-of-entry taxes )
Product quality, safety, distribution, sales, and advertising regulation
North American Free Trade Agreement (NAFTA)
Eliminates virtually all tariffs on goods produced and traded between the
Canada, and Mexico
European Union (EU) Promotes free trade between member nations
- Signs of Possible Antitrust Violation
Any evidence that two or more competing sellers of similar products have agreed to
price their products a certain way, to sell only a certain amount of their product, or to
sell only in certain areas or to certain customers
Large price changes involving more than one seller of very similar products of
different brands, particularly if the price changes are of equal amount and occur at
about the same time
Suspicious statements from a seller suggesting that only one firm can sell to a
particular customer or type of customer
Fewer competitors than normal submitting bids on a project
Competitors submitting identical bids
The same company repeatedly being the low bidder on contracts for a certain
product or service or in particular area
Bidders winning bids on a fixed rotation
An unusual and unexplainable large dollar difference between the winning bid and
all other bids
One bidder bidding substantially higher on some bids than on others, and there is
no logical cost reason to explain the difference
- Costs of Regulation
Administrative spending patterns of federal regulatory agencies
Staffing levels of federal regulatory agencies
Business expenditures in compliance with regulations
Environmental
Workplace and hiring
Product quality and safety
- Benefits of Regulation
Greater equality in the workplace
Safer workplaces
Resources for disadvantaged societal members
Safer products
More information about products
Greater product variety
Cleaner air and water
Preservation of wildlife
- Deregulation
Removal of all regulatory authority
Belief that less government intervention allows business markets to work more
effectively
Many industries have been deregulated.
Trucking
Airlines
Telecommunications
Electric utilities
Critics of deregulation cite higher prices and poorer service/quality.
- SELF REGULATION:
Companies attempt to regulate themselves to demonstrate social responsibility and
preclude additional regulation.
Firms may chose to join trade organizations with self-regulatory programs.
Best-known self-regulatory association is the Better Business Bureau.
Benefits include lower costs and more practicality and realism in programs
- Social Responsibility and Political Involvement

- The Contemporary Political Environment

Greater transparency in the congressional committee process
Opening of committee process to public scrutiny
Reducing the power of senior members
Rise in number and influence of special interest groups
Limiting campaign contributions from individuals, political parties, and special
interest groups (Federal Election Campaign Act)
Many states have shifted their electoral process from traditional party caucus to
primary elections
- Special-Interest Groups
Seek to educate the public about significant social issues and to support legislation
and regulation of business conduct they deem irresponsible
Interested in issues such as deregulation, environmental issues, political reform,
abortion, gun control, and prayer in schools
Focus on getting candidates elected that further their political agenda
Corporate Approaches to Influencing Government
Lobbying
Process of persuading public and/or government officials to favor a particular
position in decision making
Takes place directly or through trade organizations
Political Action Committees
Organizations that solicit donations from individuals and then contribute to
candidates running for political office
Campaign Contributions
Corporate donations
- Federal Sentencing Guidelines for Organizations
Passed in 1991 to streamline the sentencing and punishment of organizational
crime
Provides an incentive for organizations to establish due diligence ethics and
compliance programs
Operates on the underlying assumption that good corporate citizens maintain
compliance systems and internal governance controls that deter misconduct by their
employees
Focuses on crime prevention and detection by mitigating penalties for firms with
compliance programs in the event that one of their employees commits a crime
- Seven Steps to Effective Compliance and Ethics Program
1. Establish a code of ethics.
2. Appoint a high-level compliance
manager, usually an ethics officer.
3. Take care in delegation of authority.
4. Institute a training program and
communication system.
5. Monitor and audit for misconduct.
6. Enforce and discipline.
7. Revise program as needed
- Sarbanes-Oxley Act
Legislation to protect investors by improving accuracy and reliability of corporate
disclosures Requires an independent accounting oversight board
Requires CEOs and CFOs to certify financial statements

Requires corporate boards audit committee to be independent

Prohibits corporations from making loans to officers and board members
Requires codes of ethics for senior financial officers
Prohibits using the same firm for auditing and consulting
Mandates whistleblower protection Requires company attorneys to report
wrongdoing
- Benefits of Sarbanes-Oxley
Greater accountability by top management and boards to employees, communities,
and society
Renewed investor confidence
Required justification of executive compensation packages
Greater protection of employee retirement plans
Greater penalties and accountability of senior management, auditors, and board
members