Desjardins5e ppt ch3

CHAPTER THREE: CORPORATE SOCIAL RESPONSIBILITY

Copyright © 2014 by McGraw-Hill Education. All rights reserved.

Help students continue developing the ability to identify and analyze ethical issues in business

Explain the ethical foundation for the classical model of corporate social responsibility

Review the ethical challenges to utilitarian and rights-based justifications of the classical model

Explain how the classical model is extended and developed through a moral minimum

Describe the stakeholder model of corporate social responsibility Explain the ethical foundations of the stakeholder model

3-2Copyright © 2014 by McGraw-Hill Education. All rights reserved.

New York Times reported in 2012 that a six-year internal investigation found widespread bribery and corruption within Walmart’s Mexican operations Walmart employees paid $24 million in bribes to promote

expansion of business in Mexico Walmart executives in Mexico knew of the bribes, and hid

them from U.S. Walmart corporate offices When the internal investigation was shared with corporate

headquarters, Walmart executives ended the investigation


The Times also reported than only upon learning of the newspaper’s own investigation and plans to write a story did Walmart executives notify legal authorities

The U.S. Justice Department began an investigation of possible violations of the U.S. Corrupt Foreign Practices Act


Walmart is the world’s largest retail business, claiming over 200 million customer visits per week at more than 8,100 retail stores in 15 countries Its total sales for fiscal year 2011 were $418 billion Worldwide, it employs over 2.1 million people It is the largest private employer in the U.S. and Mexico, and

the largest employer in 25 U.S. states


In many ways, Walmart is a socially responsible corporation Values promoted by Wal-Mart include honesty, respect,

fairness and integrity Wal-Mart culture was founded on three basic beliefs: respect

for individuals, service to customers, and striving for excellence

Defenders point out that its economic success is evidence of how well Walmart is fulfilling its social responsibility


Walmart has created immense value for shareholders, consumers, suppliers, and employees It regularly contributes to community and social causes The Walmart Foundation is the largest corporate cash

contributor in the U.S. In 2009, it donated more than $378 million in cash and in-kind

gifts to charitable organizations It has major sustainability goals for its operations: becoming

more energy efficient, reducing its carbon footprint, reducing wastes and packaging


Critics portray Walmart as among the least-admired corporations in the world Ethical criticisms have been raised against Wal-Mart

on behalf of every major constituency—customers, employees, suppliers, competitors, communities—with whom Wal-Mart interacts


Critics claim that Walmart engages in deceptive and manipulative pricing

Low-priced goods and their placement in stores are a ploy to entice customers to purchase more and higher priced goods

Walmart aggressively controls labor costs through low wages, minimum work hours, high productivity, and keeping unions out


Critics claim that Walmart pays its workers poverty-level wages

While Walmart offers health care benefits to its employees, compared with other companies, Walmart employees pay a disproportionately high percentage of the cost

Walmart has created a government subsidy for its low wages


Walmart has been accused of illegally requiring employees to work overtime without pay and to work off-the-clock

Walmart has been sued for violating the Americans with Disabilities Act

Walmart is being sued for illegal anti-union activities

Walmart has been cited for being in violation of child labor laws


June 2001, current and former employees from California, Illinois, Ohio, Texas, and Florida, filed a class-action lawsuit against Walmart alleging sex-discrimination against women employees

October 2003, federal raids on 60 Walmart stores in 20 sates resulted in the arrest of over 250 illegal aliens working as janitors in Walmart stores – a ploy to lower wages, deny overtime pay and exploit illegal status of employees


Many local communities criticize Walmart as a major factor in the demise of small towns and local businesses

Walmart’s aggressive strategy to lower costs is criticized for the harms it can cause suppliers to bid against each other in a type of “reverse auction” in which suppliers compete to see who can offer their products at the lowest prices resulting in suppliers going out of business


The “Buy American” campaign from the 1980s is responsible for the loss of American jobs as American businesses have been forced to outsource their production as the only means to meet Walmart’s price targets

Walmart has been accused of using suppliers in China, Central America, and Saipan who use sweatshops to produce clothing for Walmart


What is the proper role of business management in making decisions?

What is the proper role of business in society? Do business managers have an overriding ethical

responsibility to serve the interests of stockholders before acting for society’s interests?


Roots in free market economic theory Most influential theory of corporate

responsibility in last century Milton Friedman, Nobel-prize winning

Economist:“[In a free economy], there is one and only one social

responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game…”


Milton: By disregarding the role assigned management by the free market theory we would likely “undermine the very foundations of our free society.”

“The market” is one of the most influential public policy philosophies in history


Example: Walmart- Despite lawsuits and regulatory infractions, we can assume, as a matter of corporate policy, Walmart has always been committed to obeying the law

- Walmart’s managers have sought to maximize stockholder profit within the law


How would “the market” evaluate Walmart’s strategy?

Efficiency means that more beneficial consequences result from each spending decision.

Efficiency attracts more investors whose resources can be used to increase business

Society benefits


The right of private property: business is understood as private property

Pursuing any social objective other than the maximization of profit is spending someone else’s money for your own purposes. This is ethically equivalent to theft.

Business management must pursue maximum profits under this model


Government must have a laissez-faire approach to business

Freedom from government regulation and control, allows the market to function most efficiently


Are free markets adequate as means to the ends of maximally satisfying consumer demand?

Are the ends pursued by free markets appropriate as legitimate ethical goals?


Market failures: the pursuit of profit will not result in a net increase in consumer satisfaction Pollution Resource depletion Ground contamination No pricing mechanism exists for these public goods,

therefore no means exists to ensure that these goods get allocated to those who most value them


Market failures: the pursuit of profit will not result in a net increase in consumer satisfaction Self-interested behavior results in worse outcomes

than if behavior had been coordinated (Prisoner’s dilemma)

Food additives Vehicles that use too much gasoline and pollute the air Exposure to workplace chemicals


The market is so complex that it is extremely unlikely that a single and simple directive such as maximize profits will produce the greater overall good in all cases and in every situation

Questions about public and social goods remain unasked from within market transactions: what is good for individuals is not necessarily good for society


Utilitarianism is a pragmatic theory Because we can never know the future in a complex and

changing world, Utilitarians remain ready to revise their principles in light of changing consequences

Utilitarian-market principles should be: Maximize profit when doing so produces the greatest overall good for the greatest number of people


Ad hoc attempts to repair market failures are socially inadequate- First generation problem- Inappropriate influence- Consumer preferences are addresses only as they are expressed in the market: there is no guarantee of happiness


Economic growth measures only the quantity of what consumers spend, it does not assess the quality of what they are purchasing with that spending

Efficient markets provide no substantive ethical basis for evaluating the ethical content or quality of consumer choice


Milton Friedman recognized limits to the pursuit of profits Stay within the rules of the game Conform to the basic rules of society

These restrictions are minimal.


Do the rights of private owners supersede the consequences of the market? Property rights are not absolute. One’s right to use property is constrained by the

rights of others. The property rights of stockholder: limited legal

liability Understood in the proper context: distinction

between investors and owners


Normal Bowie: the pursuit of profit is constrained by an obligation to obey a moral minimum

This framework distinguishes between Ethical imperatives to cause no harm Ethical imperatives to prevent harm Ethical imperatives to do goodWhile it is ethically good for managers to prevent harm or to do

some good, their duty to stockholders overrides these concerns


Distinguishing between these three imperatives is a major challenge

For every case in which stockholder interests appears to conflict with the interests of employees, consumers, suppliers or society, business management must carefully analyze the situation to determine ethical responsibility


Compliance with the law is insufficient for an ethically responsible business


Every business affects a wide variety of people- benefiting some and imposing costs on

others

The Stakeholder theory rejects the premise that the primary beneficiaries of business decisions should be investors


William Evans and R. Edward Freeman: Narrow and Broad Stakeholder theory Narrowly: A stakeholder includes “any group who are

vital to the survival and success of the corporation” Broadly: A stakeholder is “any group or individual

who can affect or be affected by the corporation?”


While it was true a century ago that management had an overriding obligation to stockholders, the law now recognizes a wide range of managerial obligations to stakeholders such as consumers, employees, competitors, the environment, and the disabled

What is fiduciary duty?


Stakeholder theory requires management to balance the ethical interests of all affected parties

Stakeholder theory requires that management consider the consequences of its decisions for the well-being of all affected groups


Challenges to Stakeholder theory: Problems with identifying stakeholders and their

interests Problems deciding what course of action follows

from the imperative to balance stakeholder interests

Stakeholder theory seems to offer little practical advice to managers


Corporate Social Responsibility Models lie across a continuum

Moderation occurs as the range of constraints increases upon the pursuit of profit

These theories are variations on the balancing of utilitarian and deontological ethics

Whose interests should reign supreme?


Economy & Finance

Desjardins5e ppt ch3