Business Ethics - Chapter 2

•The organization-wide generation of data about stakeholder groups and assessment of the firm's effects on these groups. •Circulate the information throughout the firm. •The organization responds to this intelligence.

3 activities in stakeholder orientation

1.Philanthropic 2.Ethical 3.Legal 4.Economic

4 levels of social responsibility

attain succes

A business exists because of relationships between the employees, customers, shareholders or investors, suppliers, managers and the community who develop strategies to ______ ______

stakeholder interaction model

A conceptualization of the relationship between business and stakeholders

exchange relationships

A stakeholder orientation involves "activities and processes within a system of social institutions that facilitate and maintain value through ______ _______ with multiple stakeholders".

stakeholder model of corporate governance

Adopts a broader view of the purpose of business with an approach that entails creating governance systems that consider stakeholder welfare in tandem with corporate needs and interests

secondary stakeholders

Do not typically engage in transactions with the firm and are not essential to a firm's survival

stakeholder

In a business context, customers, shareholders, employees, suppliers, government agencies, communities, and may others who have a "stake" or claim in some aspect of a company's products, operations, markets, industry, and outcomes are known as

conflict region

In other words, what is most advantageous for consumers is not beneficial to the people living in the ______ _______

•social issues •consumer protection •sustainability •corporate governance.

Issues associated with social responsibility can be separated into four general categories:

Stakeholder Orientation --

The degree to which a firm understands and addresses stakeholder demands

processes, structures, practices

The instrumental approach is useful because it examines relationships involved in the management of stakeholders including the _______, _________ and _________ that implement stakeholder relationships within an organization.

•Primary vs. Secondary stakeholders •Internal vs External stakeholders

We can categorize stakeholders in certain ways:

net neutrality

______ ______ means that service providers are required to provide equal access to all content without blocking or prioritizing some websites over others.

internet privacy

______ _______ is also a major concern for the FTC. Snapchat reached a settlement with the agency on accusations that the app was not totally secure and phots could be saved despite the company's claims to the contrary.

principles; values

_______ and _______ provide direction for normative decisions.

outside

_______ directors are also thought to bring independence to the monitoring function because they are not bound by past allegiances, friendships, a current role in the company, or some other issue that creates a conflict of interest.

fiduciaries

________ are persons placed in positions of trust that act on behalf of the best interests of the organization. They have what is called a duty of care, or a duty of diligence, to make informed and prudent decisions to prevent ethical misconduct in the organization.

executive compensation

a governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long-term incentives such as stock awards and options

shareholder model of corporate governance

founded in classic economic precepts, including the goal of maximizing wealth for investors and owners

Step 1: Assessing the Corporate Culture Step 2: Identifying Stakeholder Groups Step 3: Identifying Stakeholder Issues Step 4: Assessing Organizational Commitment to Stakeholders and Social Responsibility Step 5: Identifying Resources and Determining Urgency Step 6: Gaining Stakeholder Feedback

implementing a stakeholder perspective

corporate governance

involves the development of formal systems of accountability, oversight, and control

corporate citizenship

is often used to express the extent to which businesses strategically meet the economic, legal, ethical, and philanthropic responsibilities placed on them by various stakeholders

corporate citizenship

is often used to express the extent to which businesses strategically meet the social responsibilities placed on them by their various stakeholders.

reputation

one of organization's greatest intangible assets with tangible value

interlocking directorate

the concept of board members being linked to more than one company

stakeholder orientation

the degree to which a firm understands and addresses stakeholder demands

primary stakeholders

those whose continued association and resources are absolutely necessary for a firm's survival

legitimacy; trust

§ Additionally, firms with strong corporate governance mechanisms that prompt them to disclose their social responsibility initiatives can establish______ and ______among their stakeholders.

long-term

• A broader view of social responsibility looks beyond pragmatic and firm-centric interests and considers the _____ welfare of society.

identifies; achieves

• A clear delineation of accountability helps employees, customers, investors, government regulators, and other stakeholders understand why and how the organization ______ and ______ its goals.

self-interest

• A governance system without checks and balances creates opportunities for top managers to indulge ______ _______ before those of important stakeholders.

collaborates

• A proper assessment of the power held by a given stakeholder includes an evaluation of the extent to which that stakeholder _______ with others to pressure the firm.

internal; external

• A stakeholder framework identifies the________ stakeholders (employees, boards of directors, and managers) and the _______ stakeholders (customers, special interest groups, regulators, and other groups) who agree, disagree, collaborate, and engage in normal business transactions.

issues

• A stakeholder orientation is not complete without including activities that address stakeholder_______

Propriety Prudence Reason Sentiment Promoting the happiness of mankind

• Adam Smith developed the concept of the invisible hand and explored the role of self-interest in economic systems; however, he went on to explain that the "common good is associated with six psychological motives and that each individual has to produce for the common good, with values such as:

cybersecurity; contingency plans

• All organizations need to understand how to develop _________and have _____ ______ to respond if a data breach happens.

direct; perceptions

• Although an organization does not control its reputation in a ______ sense, its actions, choices, behaviors, and consequences influence stakeholders' ________ of it.

bad faith

• Although directors may be sued by shareholders, the Securities and Exchange Commission (SEC) does not usually pursue corporate directors for misconduct unless it can be proved they acted in _____ ______

profitability

• Although the purpose of a stakeholder orientation is to maximize positive outcomes that meet stakeholder needs, the support stakeholders have for companies they perceive to be socially responsible also serve to enhance the firms'

Assessing the corporate culture Identifying stakeholder groups Identifying stakeholder issues Assessing organizational commitment to social responsibility Identifying resources and determining urgency and Gaining stakeholder feedback

• Although there are different approaches to this issues, we provide basic steps found effective in utilizing the stakeholder framework to manage responsibility and business ethics. The steps include:

short-term; long-term

• Another issues is whether performance-linked compensations encourages to focus on _______ performance at the expense of_______ growth.

drops; consumer scrutiny

• As investor perceptions and decisions begin to take their toll, shareholder value ____, exposing the company to _____ ______ that can increase the damage.

objectives; value

• At the most basic level, companies have a responsibility to be profitable at an acceptable level to meet the _______ of shareholders and create ________

harmed

• Because consumers are less knowledgeable about certain products or business practices, it is the responsibility of companies to take precautions to prevent consumers from being________ by their products.

ultimate

• Board members assume ________ authority for their organization's effectiveness and subsequent performance.

financial gain; success

• Board membership is not intended as a vehicle for personal____ _______; rather it provides the intangible benefit of ensuring the _______ of both the organization and the people involved in the fiduciary arrangement.

monitoring

• Boards of directors primarily concern themselves with _________ the decisions made by executives on behalf of the company.

Assessing Organization Commitment to Stakeholder and Social Responsibility

• Brings these three stages together to arrive at an understanding of social responsibility that specifically matches the organization of interest.

two-way

• Businesses engage and influence these groups, but these groups also have the ability to engage and influence businesses; this, the relationship between companies and their stakeholders is a _______street.

ISO 14001; financial performance

• Companies with an effective environmental management system certified by _____ ______ - an international environmental management standard - tend to have improved ______ _______ in the long run.

highest-paid; median

• Concerns often center on the relationship between the _____ ______ executives and _______ employee wages in the company.

inadequate

• Conditions for collaboration exist when problems are so complex that multiple stakeholders are required to resolve the issues, and adversarial approaches to problem solving are clearly ________

Identifying stakeholder issues

• Consists of understanding the main issues of concern to these stakeholders.

reputations, image, brands

• Corporate _________,________ and _______ are more important than ever and are among the most critical aspects of sustaining relationships with constituents including investors, customers, employees, media, and regulatory.

1. Strong sustained economic performance 2. Rigorous compliance 3. Ethical actions beyond what the law requires 4. Voluntary contributions that advance the reputation and stakeholder commitment of the organization

• Corporate citizenship has four interrelated dimensions

citizenship

• Corporate citizenship involves acting on the firm's commitment to corporate citizenship philosophy and measuring the extent to which it follows through by actually implementing ________ initiatives.

corporate governance

• Corporate governance is the fourth major issue of corporate social responsibility. Involves the development of formal systems of accountability, oversight, and control.

authority; accountability

• Corporate governance normally involves strategic decisions and actions by boards of directors, business owners, top executives, and other managers with high levels of _______ and ________

legitimate

• Critics claim that native advertising might confuse consumers if they cannot tell the difference between an advertisement and _________ content.

pressure

• Directors have an opportunity to vote for others' compensation, and although their votes are not binding in the United States, investor _______ has increased the shareholder role in deciding executive compensation.

loyalty

• Directors share a duty of ________, which means all their decisions should be in the best interests of the corporation and its stakeholders.

social performance

• Diversity of board members, especially in age and gender, has been associated with improved______ _______

competitiveness

• Effective corporate governance creates a compliance and ethics culture so employees feel integrity is at the core of ________

authentic

• Employees who feel their firm's corporate social responsibility programs are ______ are more likely to identify and connect with the organization.

corporate governance

• Ethical leadership is associated with socially responsible _____ ________.

one

• Ethics, then is ______ dimension of social responsibility.

impact

• Finally, companies should evaluate their _______ on the issues of importance to the various stakeholders they identify.

data privacy

• First, ____ _____ is one of the most important social and ethical issues facing marketing today

satisfaction; reputation

• First, stakeholder's general assessment of a firm and its practices can be obtained through ______ or ________ surveys.

publicly

• For ________ traded firms, corporate governance focuses on developing and improving the formal system for maintaining performance accountability between top management and the firm's shareholders.

market

• Friedman suggests that although those individuals guilty of wrongdoing should be held accountable, the ______ is a better deterrent to wrong-doing than new laws and regulations.

power; ties

• Generating data about stakeholders begins with identifying the stakeholders relevant to the firm. Relevant stakeholder groups should be analyzed on the basis of the ________ each enjoys, as well as by the ________ between them and the company.

recovery

• Governance also provides mechanisms for identifying risks and planning for ________ when mistakes or problems occur.

reciprocity

• In a spirit of ________, stakeholders are anticipated to be fair, loyal, and treat the corporation in a responsible way.

ramifications; competition

• In addition, some economic issues have __________ to society such as antitrust, employee well-being, insider trading and other issues that diminish _______ and consumer choice.

obligation

• In terms of social responsibility, managers address social issues by examining the different groups to which they have an ________

firm; host

• In this stakeholder interaction model, there are reciprocal relationships between the _____ and a _____ of stakeholders.

1. Social issues 2. Consumer protection 3. Sustainability 4. Corporate governance

• Issues generally associated with social responsibility can be separated into four general categories:

obesity, smoking, populations

• Issues that directly relate to business include ________, ________, and exploiting vulnerable or impoverished _______, as well as a number of issues.

directly related

• It has been found that social responsibility disclosures in company annual reports are ______ ______ to the quality of corporate governance.

legitimacy

• It is important for managers to recognize that while primary groups may present more day-to-day concerns, secondary groups cannot be ignored or given less consideration in the ethical decision making process because they have ________

advertising, environmental hazards, financial practices, product safety

• Major areas of concern with consumer protection include _________, ______ ______, _____ ______, and ______ ______

market share, personal compensations, attachment

• Managers, for example, may have motivations beyond stockholder value, such as ____ ____,______ _____, or _______ to particular products and projects.

stock prices

• Many people ask why executives receive bonuses as their companies fail; the fact is most executive bonuses are tied to targets other than _____ ______.

are not

• Most boards ____ ____ true democracies, and many shareholders have minimal impact on decision making because they are so dispersed.

formal research

• Next, the firm should identify the concerns about the business that are relevant to each stakeholder group. This information is derived from _____ ______, including surveys, focus groups, Internet searches, and press reviews.

50%; a third

• Noting its importance, almost______ of professionals cite the goal of their training programs is to create a culture of "ethics and respect". In addition, nearly ____ _____ of employees quit an organization because they do not agree with a company's ethical standards, representing an ongoing opportunity to improve the organizational culture.

company performance

• On the other hand, because executives assume so much risk on behalf of the company, it can be argued that they deserve the rewards that follow from strong ________ _______

lonh-term

• Once the primary groups are identified, managers must implement the appropriate corporate governance mechanisms to promote the development of _______ relationships.

linked

• One area board members must consider is the extent executive compensation is ______ to company performance.

higher

• One study determined companies that divulge more details about their corporate governance practices generate ______shareholder returns than less-transparent companies.

norms; expectations

• Other firms believe that a business is an important member, even a citizen, of society, and therefore must assume broad responsibilities that include complying with social _______ and__________

wrongdoing; behavior

• Perceived ________ or questionable _______ may lead to boycotts and aggressive campaigns to dampen sales and earnings.

human welfare; goodwill

• Philanthropic responsibility refers to activities that are not required of businesses that contribute to _____ _______ or _________

trust

• Providing untruthful or deceptive information to stakeholders is, if not illegal, certainly unethical and can result in a loss of ________

perceptions; willingness

• Reputation is a factor in consumer's ________ of product attributes and corporate image also can lead to consumer ________ to purchase goods and services at profitable prices.

large

• Research has shown a correlation between the highest paid CEOs and lower company performance, which may cast doubt on the belief that _____compensation packages positively impact corporate performance.

less

• Research suggests employees in organizations with ethical codes of conduct are _____accepting of potential misconduct toward stakeholders.

majority

• Resolutions at hundreds of companies require candidates for director to gain a _______ of votes before they can join the board.

media

• Second, to gauge stakeholders' perceptions of a firm's contributions to specific issues, stakeholder-generated ______ such as blogs, websites, podcasts, and newsletters can be assessed.

large; welfare

• Social issues deal with concerns affecting ________segments of society and the ______ of the entire society.

identification

• Social responsibility activities have a positive impact on consumer_________ with and attitude toward the brand.

contract; decision making

• Social responsibility can be viewed as a ______ with society, whereas business ethics involves carefully through-out rules or heuristics of business conduct that guide _____ ______

demands; impossible

• Some economists believe if companies address economic and legal issues they satisfy the _______of society, and trying to anticipate and meet additional needs would be almost ________.

needs, values, expectations

• Stakeholder framework allows an organization to identify, monitor, and respond to the _______, _______, and ________ of different stakeholder groups.

is not; organizational resources

• Stakeholders have the most power when their own survival ____ _____ affected by the success of the organization and when they have access to vital _____ _______

reputation

• Stakeholders most directly affected by negative events experience a corresponding shift in their perception of a firm's _______

long-term; tangible; intangible

• Stakeholders provide resources critical to a firm's _______ success. These resources must be ______ and ______

Federal Trade Commission; Consumer Financial Protection Bureau

• The Federal Trade Commission and the Consumer Financial Protection Bureau are intent on enforcing consumer protection laws and pursuing violations.

due diligence

• The SEC passed a law requiring companies to report on the _____ ______of their supply chains regarding these metals to determine whether the money could have been used to fund armed groups

disclose

• The SEC proposed companies______ how they compensate lower-ranking employees as well as top executives.

nature

• The firm must facilitate the communication of information about the _______ of relevant stakeholder communities, concerns, and impact of the firm on these issues to all members of the organization.

deficits

• The more democratic involvement of various stakeholders is one solution to resolve legitimacy ______

allocation

• The prioritization of stakeholders and issues and the assessment of past performance lead to the ________ of resources.

mission, values, norms, behavior

• The purpose of this first step in utilizing the stakeholder framework is to identify the organizational ______, _______, ________, and _______ likely to have implications for social responsibility.

expectations; positive

• The responsiveness of an organization as a whole to stakeholder intelligence consists of the initiatives the firm adopts to ensure it abides by or exceeds stakeholder _________ and has a _______ impact on stakeholder issues.

consumer protection

• The second major issue is ______ ______, which often occurs in the form of laws passed to protect consumers from unfair and deceptive business practices.

singular

• The shareholder model has been criticized for its _______ purpose and focus because there are other ways of "investing" in a business.

restrictive

• The shareholder model is a more _______ precursor to the stakeholder orientation. Many businesses evolved into the stakeholder model as a result of government initiatives, consumer activism, industry activity, and other external forces.

economic

• The shareholder model of corporate governance is founded in classic ______ precepts, including the goal of maximizing wealth for investors and owners.

broader

• The stakeholder model of corporate governance adopts a ________ view of the purpose of business.

sustainability

• The third major issue is___________ - the potential for the long-term well-being of the natural environment, including all biological entities, as well as the mutually beneficial interactions among nature and individuals, organizations, and business strategies.

society

• The weight given to ethical issues may vary by _______

normative, descriptive, instrumental

• There are three approaches to stakeholder theory: _________, ________, and _________ approaches.

profit maximization; counter-productive

• There needs to be a movement away from self-serving "co-optation" and a narrow focus on ______ _______. In fact, there is strong evidence that an overemphasis on profit maximization is _____ ________

formal

• Third, more ________ research may be conducted using focus groups, observation, and surveys.

behavior

• This means social responsibility initiatives can create observable changes in employee ______

transparent; responsible

• To maintain the trust and confidence of its stakeholders, CEOs and other top managers are expected to act in a_______ and ______ manner.

wealth; scrutiny

• Today, the failure to balance stakeholder interests can result in a failure to maximize shareholders' _______. As a result, investors often examine executive actions that could involve a conflict of interest with great _______

$225,000

• Total median compensation for an independent board member of an S&P 500 company is _______

the level of financial and organizational investments required by different actions and the urgency when prioritizing social responsibility challenges.

• Two main criteria can be considered in step 5:

primary; secondary

• We can assess the level of social responsibility an organization bears by scrutinizing its effects on the issues of concern to its ________ and ______ stakeholders.

collaberation

• When agreement, collaboration, or even confrontations exist, there is a need for decision making process such as model of _______ to overcome adversarial approached to problem solving.

shareholders

• When considering executive pay raises, directors may put their own self-interest above the interest of ________

justice; beneficence

• When trade-offs are necessary ______ should be given priority over _______

cooperation; complicity

• When unethical acts are discovered in organizations, in most instances ________ or _______ facilitate the acceptance and perpetuation of the unethical conduct.

whistle-blower, cybersecurity, bribery

• While their primary role has been financial reporting, today boards are responsible for issues such as ______ claims, ______, and_______

judgement

• While we provide framework for implementing a stakeholder perspective, balancing stakeholder interests requires information and good ________. When businesses attempt to provide what consumers want, broader societal interests can create conflicts.

ethical culture

• With big data and the need to collect consumer data come the responsibility to establish a data privacy _____ _____as a top priority.

training

• With increased pressure on directors to provide oversight for organizational ethics, there is a trend toward directors receiving _______ to increase their competency in ethics programs development, as well as other areas.

regulations

• Without _________ consumer desires for affordable prices could lead companies to purchase minerals from conflict areas.

legal; economic

• _______ and ________ responsibilities are generally accepted as the most important determinants of performance.

primary

• _______ stakeholders are those who continued association and resources are absolutely necessary for a firm's survival.

insider

• ________ trading of a firm's stock has specific rules, and violations should result in serious punishment.

control

• _________ is the process of auditing and improving organizational decisions and actions.

oversight

• _________ provides a system of checks and balances that limit employees' and managers' opportunities to deviate from policies and strategies aimed at preventing unethical and illegal activities.

secondary

• _________ stakeholders do not typically engage directly in transactions with a company and are therefore not essential to its survival.

deceptive

• __________ advertising has been a hot topic in the consumer protection area.

accountability

• __________refers to how closely workplace decisions align with a firm's stated strategic direction and its compliance with ethical and legal considerations.

native

• _________advertising blends digital advertisements or company promotions with content on the website where it is featured.

relevant

• ________existing values and norms are those that specify the stakeholder groups to engage and stakeholder issues deemed most important by the organization.

interchangeably

•The concepts of ethics and social responsibility are often used _________, although each has a distinct meaning.

board members

•________ have an obligation to request information, conduct research, use accountants and attorneys, and obtain the services of ethical compliance consultants to ensure the corporations in which they have an interest are run in an ethical manner.

inside

•_______directors are corporate officers, consultants, major shareholders, and others who benefit directly from the success of the organization.

stakeholders

•all of the various parties who have a "stake" or claim in some aspect of what the company does, and without whose support the organization would cease to exist.

business ethics

•involves carefully thought-out rules or heuristics of business conduct that guide decision making.

social responsibility

•is an organization's obligation to maximize its positive impact on stakeholders and minimize negative impacts. It can be viewed as a contract with society

communication; interaction

○ Companies can be transparent or can use various avenues including technology to avoid _______ and ________

external; internal

○ Corporate social responsibility actions that put employees at the center of activities gain the support of both _______and________stakeholders.

social responsibility

○ Ethical decisions by individuals and groups drive appropriate decisions and are interrelated with all of the levels of ______ ______

improper

○ If this ratio is perceived as too large, critics believe employees are not being compensated fairly or high executive salaries represent an ________ use of company resources.

internal; external

○ In addition to the fundamental input of investors, employees, and suppliers, this approach recognizes other stakeholders and explicitly acknowledges that dialogue exists between a firm's _______ and _______ environments.

on call

○ In addition, many executives' personal and professional lives meld to the extent they are _____ _____24 hours a day.

compensate; integrity

○ In fact, most boards spend more time deciding how much to _______ top executives than they do ensuring the________ of the company's financial reporting systems.

direct competitor

○ Interlocking directorate is not illegal unless it involves a _____ ______

attentive; accountable

○ It is hoped this practice makes boards of directors more attentive and accountable.

criticism; negative

○ Managers failing to meet these social obligations can create _______ and _______ publicity for their organizations.

long-term

○ Most firms are moving toward a more balanced stakeholder model as they see that this approach sustains the relationships necessary for ______ success.

corporate

○ Often relevant organizational values and norms can be found in _________ documents such as the missions statement, annual reports, sales brochures, and codes of ethics.

align

○ Plans basing compensation on the achievement of performance goals, including profits and revenues, are intended to ______ interests of owners with those of management.

necessary infrastructure

○ Primary stakeholders include employees, customers, and shareholders, as well as the governments and communities that provide ______ _______

top-quality talent

○ Proponents argue that high compensations for part-time work is necessary because directors have a difficult job and good pay is needed to attract_____ _______

positive

○ Research has shown that corporate governance has a _______ relationship with social responsibility.

media, trade associations, special interest groups

○ Secondary stakeholders include the ________, _____ ______, and _____ ____ _____ like the American Association of Retired People (AARP), a special interest group working to support retirees' rights such as health care benefits.

complacent

○ Some speculate compensation over $200,000 makes directors more ________; they become less concerned with "rocking the boat" and more concerned with maintaining their high-paying positions.

unethical

○ Strong corporate governance mechanisms remove the opportunity for employees to make ________ decisions.

success

○ Suppliers, creditors, customers, employees, business partners, the community, and others also invest their resources into the _______of the firm.

stakeholder relationships

○ The descriptive approach focuses on the firm's behavior and usually addresses how decisions and strategies are made for ______ _______

particular way

○ The instrumental approach to stakeholder theory describes what happens if firms behave in a ________ ________

engage organizations

○ The normative approach identifies ethical guidelines that dictate how firms should treat stakeholders. Normative stakeholder theory affirms that stakeholders have legitimacy and a right to ______ _______

value; fairly

○ The survival and performance of any organization is a function of its ability to create ______ for all primary stakeholders and its attempt to do this _______, not favoring one group over the others.

commitment

○ Therefore, transparency in reporting social responsibility ___________ is important for top company officers and the board of directors.

1. The organization-wide generation of data about stakeholder groups and assessment of the firm's effects on these groups 2. The distribution of this information throughout the firm and 3. The responsiveness of the organization as a whole to this information

○ This orientation comprises three sets of activities

agent

○ When the challenge under consideration is viewed as significant and stakeholder pressures on the issue can be expected, the challenge is considered ________

profitability; growth

○ While shareholders desire strong _______and _______, societal stakeholders have needs extending beyond these two requirements.

The National Association of Corporate Directors

○ _______ _______ _____ __ ______ ______, a board of directors' trade group, has helped formulate a guide for boards to help them do a better job of governing corporate America.