Copyright 2003 by South-

Western, a division of Thomson

Learning 1
Chapter Five
The Corporation
And
External Stakeholders
Copyright 2003 by South-Western, a division of Thomson
Learning 2
Chapter Topics
1. Managing corporate responsibility in the
marketplace: crises and opportunities
2. Managing corporate responsibility with
external stakeholders
3. Corporate responsibility and consumer
stakeholders
4. Corporate responsibility in advertising,
product safety, and liability
5. Corporate responsibility and the
environment

Copyright 2003 by South-Western, a division of Thomson
Learning 3
Managing Corporate Responsibility
in the Marketplace: Crises and
Opportunities
Managing legal and moral responsibility in the
marketplace can be a significant part of a corporations
activities.
Figure 5.1 in the text
Classic corporate crises
Corporate social responsibility refers to a businesss
attention to and promotion of the welfare and goodwill
of stakeholders.
Evidence supports that corporations that are socially
responsible have a competitive advantage in the
following areas:
Reputation
Successful social investment portfolios
Ability to attract quality employees

Copyright 2003 by South-Western, a division of Thomson
Learning 4
Managing Corporate
Responsibility with External
Stakeholders
The stakeholder management
approach views the corporation as a
legal entity and a collective of
individuals and groups.
Social contract: a set of rules and
assumptions about behavior patterns
among various elements of society.
The social contract between a
corporation and its stakeholders is
often based on implicit as well as
explicit agreements.
Copyright 2003 by South-Western, a division of Thomson
Learning 5
Managing Corporate
Responsibility with External
Stakeholders
The covenantal ethic concept is related to
the social contract view and is also central to
a stakeholder management approach.
The covenantal ethic focuses on the
importance of relationships, social as well as
economic, among businesses, customers, and
stakeholders.
At a more general view, it is argued that a
corporations obligations include, in addition
to making a profit, acting justly, causing no
unavoidable, unjustifiable harm, and
preventing harm where possible.
Copyright 2003 by South-Western, a division of Thomson
Learning 6
Managing Corporate
Responsibility with External
Stakeholders
Five broad guidelines suggested by Keith
Davis that business professionals should
follow to be socially responsible include:
Businesses have a social role of trustee for
societys resources
Business shall operate as a two-way open system
with open receipt of inputs from society and open
disclosure of its operations to the public
Social costs/benefits shall be considered before
proceeding
The consumer shall pay for the costs of
consumption
Businesses have responsibilities where social needs
exist
Copyright 2003 by South-Western, a division of Thomson
Learning 7
Managing Corporate
Responsibility with External
Stakeholders
Issues management should be a
continuous strategic process that
involves all business and functional units.
Methods used in this process include:
Environmental scanning
Brainstorming
Probability and impact matrix
Three organizational levels at which
companies use issues management:
Corporate level
Functional level
Process-oriented




Copyright 2003 by South-Western, a division of Thomson
Learning 8
Corporate Responsibility
Toward Consumer
Stakeholders
Consumers may be the most important
stakeholders of corporations.
Corporations have certain
responsibilities and duties toward
their customers and consumers in
society:
Duty to inform
Duty not to misrepresent
Duty not to force or take undue advantage
Duty to take due care to prevent any
unforeseeable injuries

Copyright 2003 by South-Western, a division of Thomson
Learning 9
Corporate Responsibility
Toward Consumer
Stakeholders
Related rights consumers have in
their social contact with
corporations include:
Right to safety
Right to free and rational choice
Right to know
Right to be heard
Right to be compensated
Copyright 2003 by South-Western, a division of Thomson
Learning 10
Corporate Responsibility
Toward Consumer
Stakeholders
The free-market theory holds that the
primary aim of business is to make a
profit.
There are several arguments regarding
the free-market theory.
The mixed market economy perspective
include a balance between the private
property systems and the government
laws, policies, and regulations that
protect consumers and citizens.
Copyright 2003 by South-Western, a division of Thomson
Learning 11
Corporate Responsibility in
Advertising, Product Safety,
and Liability
The purposes of advertising include:
Inform customers about products and services
Persuade customers to make purchases
The American Association of Advertising (AAA)
has a code of ethics that help organizations
monitor their own ads.
The Federal Trade Commission (FTC) and the
Department of Labor (DOL are federal agencies
appointed and funded to monitor and eliminate
false and misleading advertising when corporate
self-regulation is not used or fails to control
harm done to consumers.
Copyright 2003 by South-Western, a division of Thomson
Learning 12
Corporate Responsibility in
Advertising, Product Safety,
and Liability
Advertising on the Internet
presents new opportunities and
problems for consumers.
At issue ethically is the unlimited
availability of and exposure to
explicit and other questionable
content on ads and Websites.
FTC provides regulatory guidelines for
on-line advertising
Copyright 2003 by South-Western, a division of Thomson
Learning 13
Corporate Responsibility in
Advertising, Product Safety,
and Liability
Moral responsibility for consumers in
advertising can be viewed along a
continuum.
Paternalism
Illusion of free choice
Enforcement of advertising
Bans on ads
Copyright 2003 by South-Western, a division of Thomson
Learning 14
Corporate Responsibility in
Advertising, Product Safety,
and Liability
Arguments for advertising:
Introduces people to and influences them
to buy goods and services
Enables companies to be competitive
Helps nations maintain a prosperous
economy
Helps a nations balance of trade and debt
payments
Enriches consumers lives
Consumers are not ignorant and do know
the difference
Copyright 2003 by South-Western, a division of Thomson
Learning 15
Corporate Responsibility in
Advertising, Product Safety,
and Liability
Arguments against advertising:
Cross the thin line between deception and
puffery
Tells half-truths
Conceals facts
Intentionally deceive with a profit goal in
mind
Fast food industry advertising
Tobacco and alcohol advertising
Ethics and advertising
Advertising and free speech
Copyright 2003 by South-Western, a division of Thomson
Learning 16
Corporate Responsibility in
Advertising, Product Safety,
and Liability
Managing product safety should be
priority number one for corporations.
The National Commission on Product
Safety (NCPS) notes that product risks
should be reasonable.
Three steps firms can use to assess
product safety from an ethical
perspective include:
How much safety is technically attainable?
What is the acceptable risk level?
Does the product meet standards?
Copyright 2003 by South-Western, a division of Thomson
Learning 17
Corporate Responsibility in
Advertising, Product Safety,
and Liability
Product liability doctrines:
Privity
Negligence
Strict liability
Absolute liability
Two broad purposes of product liability lawsuits:
Provide a level of compensation for injured parties
Act to deter negligent marketing
33 states have laws in the making to limit
liability and damages awards.
E-commerce and product liability
Copyright 2003 by South-Western, a division of Thomson
Learning 18
Corporate Responsibility
and the Environment
The most significant environmental problems
include:
Toxic air pollution
Water pollution and the threat of scarcity
Hazardous waste and land pollution
Causes of environmental pollution include:
Consumer affluence
Materialistic cultural values
Urbanization
Population explosion
New and uncontrolled technologies
Industrial activities



Copyright 2003 by South-Western, a division of Thomson
Learning 19
Corporate Responsibility
and the Environment
A number of governmental regulatory
agencies have been created to develop
and enforce policies and laws to
protect the general and workplace
environments:
OSHA
CPSC
EPA
CEQ


Copyright 2003 by South-Western, a division of Thomson
Learning 20
Corporate Responsibility
and the Environment
An innovative trend in new ecology ethical thinking is
linking the concepts of:
Green marketing
Environmental justice
Industrial ecology
The ethical principles of rights and duties regarding
the treatment of the environment and multiple
stakeholders are:
Rights of future generations
Right to a livable environment
New assumptions and practices driving corporate
changes toward the environment include:
International community
Green marketing
Environmentally friendly strategies