MGT 701 Exam 1

Corporate Social Responsibility

(CSR) means that a corporation should act in a way that enhances society and its inhabitants and be held accountable for any of its actions that affect people, their communities, and their environment. This concept is based in the root of the term responsibility , meaning "to pledge back," creating a commitment to give back to society and the organization's stakeholders. 7 It implies that harm to people and society should be acknowledged and corrected if at all possible. It may require a company to forgo some profits if its social impacts seriously hurt some of its stakeholders or if its funds can be used to have a positive social impact. Being socially responsible does not mean that a company must abandon its other missions. As discussed later in this chapter, a business has many responsibilities: economic, legal, and social; the challenge for management is to integrate them all into a coherent and comprehensive mission. In a worldwide survey of CEOs, for example, 72 percent of executives polled said they sought to embed social and environmental issues into the organization's core strategies and operations. At times these responsibilities will be in tension; at other times they will blend together to better the firm and actually make it more profitable. Thus, having multiple and sometimes competing responsibilities does not mean that socially responsible firms cannot be as profitable as others that are less responsible; some are and some are not.

Life-cycle analysis

(LCA), also called life-cycle assessment, involves collecting information on the lifelong environmental impact of a product, all the way from extraction of raw material to design, manufacturing, distribution, use, and ultimate disposal. The aim of lifecycle analysis is to minimize the adverse impact of a particular product at all stages, from cradle to grave . Having this information can permit companies to make informed choices about how to reduce a product's footprint. For example, a Procter & Gamble life-cycle analysis of its Tide detergent brand found that its greatest environmental impact occurred in the home—when customers washed their clothes in hot water. The company decided to reformulate Tide as a cold water-only detergent. 36 Walmart, Dell, Alcoa, and other companies recently organized the Sustainability Consortium to advance LCA for thousands of products.

Ownership Theory

(sometimes also called property or finance theory), the firm is seen as the property of its owners. The purpose of the firm is to maximize its long-term market value, that is, to make the most money it can for shareholders who own stock in the company. Managers and boards of directors are agents of shareholders and have no obligations to others, other than those directly specified by law. In this view, owners' interests are paramount and take precedence over the interests of others.

Stakeholder Theory

A contrasting view, called the stakeholder theory of the firm , argues that corporations serve a broad public purpose: to create value for society. All companies must make a profit for their owners; indeed, if they did not, they would not long survive. However, corporations create many other kinds of value as well, such as professional development for their employees and innovative new products for their customers. In this view, corporations have multiple obligations, and all stakeholders' interests must be taken into account. This approach has been expressed well by the pharmaceutical company Novartis, which states in its code of conduct that it "places a premium on dealing fairly with employees, commercial partners, government authorities, and the public. Success in its business ventures depends upon maintaining the trust of these essential stakeholders." 13 Supporters of the stakeholder theory of the firm make three core arguments for their position: descriptive, instrumental, and normative

Stakeholder Analysis

An important part of the modern manager's job is to identify relevant stakeholders and to understand both their interests and the power they may have to assert these interests.

Enlightened Self-Interest

Avon recognizes the long-term rewards to the company from its global involvement, through an enhanced reputation, customer loyalty, employee satisfaction, and global community support. Avon's actions reflected the philosophy of the company's founder, who said in 1886 that the company would contribute to the well-being of society and the environment in which it functions and in doing so would be profitable. According to this view, it is in a company's self-interest in the long term to provide true value to its customers, to help its employees to grow, and to behave responsibly as a global corporate citizen

Public Issues

Changing societal expectations. Everywhere around the world, society's expectations of business are changing. People increasingly expect business to be more responsible, believing companies should pay close attention to social issues and act as good citizens in society. New public issues constantly arise that require action. Increasingly, business is faced with the daunting task of balancing its social, legal, and economic obligations, seeking to meet its commitments to multiple stakeholders. Modern businesses are increasingly exploring opportunities to act as social entrepreneurs often by focusing on those at the bottom of the pyramid

Stakeholder Networks

Dialogue between a single firm and its stakeholders is sometimes insufficient to address an issue effectively. Corporations sometimes encounter public issues that they can address effectively only by working collaboratively with other businesses and concerned persons and organizations in stakeholder networks . One such issue that confronted Nike Inc. was a growing demand by environmentally aware consumers for apparel and shoes made from organic cotton.

Codes of Environmental Conduct

Earlier chapters of this text have discussed the emergence of standards and codes of conduct in the areas of ethics and global corporate citizenship. Similarly, a number of national and international organizations have developed standards and codes of environmental conduct. Some are designed to be universally applicable, while others are tailored to particular industries. All, however, share the characteristic that they are voluntary: corporations choose to comply with these codes to show customers, investors, regulators, and others that they have met certain environmental standards in their operations.

Issue Management

Once a company has identified a public issue and detects a gap between society's expectations and its own practices, what are its next steps? Proactive companies do not wait for something to happen; they actively manage issues as they arise. 5 STEPS: identify issue, analyze issue, generate options, take action, evaluate results.

Ecological Footprint

One method of measuring the Earth's carrying capacity, and how far human society has overshot it, is called the ecological footprint . This term refers to the amount of land and water a human population needs to produce the resources it consumes and to absorb its wastes, given prevailing technology

Role of Regulation

Societies rely on government to establish rules of conduct for citizens and organizations called regulations. Regulation is a primary way of accomplishing public policy, as described in the previous section. Because government operates at so many levels (federal, state, local), modern businesses face complex webs of regulations. Companies often require lawyers, public affairs specialists, and experts to monitor and manage the interaction with government.

Stages of Corporate Environmental Responsibility

Stage 1- Viewing compliance as opportunity Stage 2- Making value chains sustainable Stage 3- Designing sustainable products and services Stage 4- Developing new business models Stage 5- Creating next-practice platforms

Social assistance policies

The last century produced many advances in the well-being of people across the globe. The advanced industrial nations have developed elaborate systems of social services for their citizens. Developing economies have improved key areas of social assistance (such as health care and education) and will continue to do so as their economies grow. International standards and best practices have supported these trends. Many of the social assistance policies that affect particular stakeholders are discussed in subsequent chapters of this book.

Comparative Political and Economic Systems

The many nations of the world differ greatly in their political, social, and economic systems. One important dimension of this diversity is how power is exercised, that is, the degree to which a nation's people may freely exercise their democratic rights.

Sustainable Development

The need for balance between economic progress and environmental protection is captured in the concept of sustainable development . This term refers to development that "meets the needs of the present without compromising the ability of future generations to meet their own needs" or, more simply, "ensuring a better quality of life for everyone, now and for generations to come."

Attributes of the Three major Sectors

The term sector refers to broad divisions of a whole. In this context, it refers to major parts or spheres of society, such as business (the private sector), government (the public sector), and civil society. Civil society comprises nonprofit, educational, religious, community, family, and interest-group organizations; that is, social organizations that do not have a commercial or governmental purpose The process of globalization has spurred development of civil society. In recent decades, the world has witnessed the creation and growth of large numbers of nongovernmental organizations (NGOs) concerned with such issues as environmental risk, labor practices, worker rights, community development, and human rights.

Social Entrepreneurship

When a person or group of people identify a social need and use their entrepreneurial skills to address this need

Stakeholder Map

a graphical representation of the relationship of stakeholder salience to a particular issue.

Enterprise systems

are based on the principle of voluntary association and exchange.

Environmental Regulations

are rules and requirements that generally cover two things: Pollution control: regulating how much pollution (chemicals or other undesirable materials such as "heat", "suspended particulates" ) a facility releases.

Government's Public Policy Role

can be generally defined as a system of laws, regulatory measures, courses of action, and funding priorities concerning a given topic promulgated by a governmental entity or its representatives. ... A major aspect of public policy is law.

Central State Control

in which economic power is concentrated in the hands of government officials and political authorities.

International Financial & Trade Institutions

include public banks, such as the World Bank, International Monetary Fund, and regional development banks. They provide loans, grants, and technical assistance to governments, as well as loans to private businesses investing in developing countries.

Government Regulation

is a primary way of accomplishing public policy, as described in the previous section. Because government operates at so many levels (federal, state, local), modern businesses face complex webs of regulations. Companies often require lawyers, public affairs specialists, and experts to monitor and manage the interaction with government.

B-Corporation

is a type of for-profit corporate entity, authorized by 30 U.S. states and the District of Columbia that includes positive impact on society, workers, the community and the environment in addition to profit as its legally defined goals.

Water Pollution

is the contamination of water bodies (e.g. lakes, rivers, oceans, aquifers and groundwater). This form of environmental degradation occurs when pollutants are directly or indirectly discharged into water bodies without adequate treatment to remove harmful compounds.

Land Pollution

is the deterioration (destruction) of the earth's land surfaces, often directly or indirectly as a result of man's activities and their misuse of land resources. ... Exploitation of minerals (mining activities) has also contributed to the destruction of the earth's surface.

Business & Government Relations

is the process of influencing public and government policy at all levels: Local, Regional, National, European, Global. ... Educating business and industry leaders about the governmental process; Educating officials about the issues important to business or other constituencies

Stakeholder Engagement

is used to refer to this process of ongoing relationship building between a business and its stakeholders.

Stakeholder Power

means the ability to use resources to make an event happen or to secure a desired outcome. Stakeholders have five different kinds of power: voting power, economic power, political power, legal power, and informational power

Global Environmental Issues

problems with the planet's systems (air, water, soil, etc.) that have developed as a result of human interference or mistreatment of the planet.

Economic, Fiscal policy

refers to patterns of government collecting and spending funds that are intended to stimulate or support the economy.

Economic, monetary policy

refers to policies that affect the supply, demand, and value of a nation's currency.

Process of Globalization

refers to the increasing movement of goods, services, and capital across national borders. Globalization is a process , that is, an ongoing series of interrelated events. International trade and financial flows integrate the world economy, leading to the spread of technology, culture, and politics

Instrumental Argument

says that stakeholder management is more effective as a corporate strategy. A wide range of studies have shown that companies that behave responsibly toward multiple stakeholder groups perform better financially, over the long run, than those that do not. (This empirical evidence is further explored in Chapters 3 and 4.) These findings make sense, because good relationships with stakeholders are themselves a source of value for the firm. Attention to stakeholders' rights and concerns can help produce motivated employees, satisfied customers, and supportive communities, all good for the company's bottom line.

Normative Argument

says that stakeholder management is simply the right thing to do. Corporations have great power and control vast resources; these privileges carry with them a duty toward all those affected by a corporation's actions. Moreover, all stakeholders, not just owners, contribute something of value to the corporation. A skilled engineer at Microsoft who applies his or her creativity to solving a difficult programming problem has made a kind of investment in the company, even if it is not a monetary investment. Any individual or group who makes a contribution, or takes a risk, has a moral right to some claim on the corporation's rewards.

Descriptive argument

says that the stakeholder view is simply a more realistic description of how companies really work. Managers have to pay keen attention, of course, to their quarterly and annual financial performance. Keeping Wall Street satisfied by managing for growth—thereby attracting more investors and increasing the stock price—is a corepart of any top manager's job. But the job of management is much more complex than this. In order to produce consistent results, managers have to be concerned with producing highquality and innovative products and services for their customers, attracting and retaining talented employees, and complying with a plethora of complex government regulations. As a practical matter, managers direct their energies toward all stakeholders, not just owners

Ecologically Sustainable Organizations

seek to implement sustainability strategies which provide them with economic and cultural benefits attained through environmental responsibility. Recently, [when?] the natural environment has become a key strategic issue in both the business and academic communities.