ADMS 2200 Lecture Notes - Lecture 5: Business Ethics, Corporate Social Responsibility, Stakeholder Management
10 Jun 2018
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Week 1: Introduction to Business Ethics and Social Responsibility
Business and Society
•Business Ethics – a discipline that deals with what’s right and what’s wrong, what’s just and unjust.
oAbout decision making
oEmphasizes the moral capacity of individuals within companies
•Objective:
oBe aware – critical ethical and social issues in business
oUnderstand – analytical capacity
oAct – to resolve ethical issues at many levels.
•The Two Concepts: Business Ethics and CSR
Business ethics
Individual
From the manager to the company to
the external environment
Assumes high level of managerial
discretion
Owner/manager does right
Charles Dickens’ Christmas Carol
CSR
Corporate
From the external environment to
the corporate level
Assumes moderate managerial
discretion
Whole company destroys or
improves society
•Big business is highly visible than small ones because its products and adverting are more widely
known, and different industries have different creation of visible, controversial social problems:
oAir & Water pollution (Manufacturing firms vs. Insurance industry)
oAdvertising-intensive nature of their product (Sony, Wal-Mart)
oPossible effects on hearth (Cigarette, food product firm) or health-related products
(pharmaceutical firm)
•Macroenvironment – the total society context (total environment outside the firm) in which the
organization resides.
oFahey and Narayanan’s View of Macroenvironment (PEST) – Political, Economic, Social,
and Technology Environment.
•Pluralism – a condition in which there is diffusion of power among the society’s many groups and
organizations. A Pluralistic Society is one in which there is wide decentralization and diversity of
power concentration.”
oStrengths of Pluralistic social system
Prevent power from being concentrated in the hands of few
Maximize freedom of expression and action
Provide for a built-in set of checks & balance so that no single group dominate
oWeakness of Pluralistic social system
Creates an environment in which diverse institutions pursue their own self-interests,
with the result that there is no central direction to unify individual pursuits.
Groups and institutions proliferate to the extent that their goals tend to overlap, thus
causing confusion as to which organizations best serve which functions.
Pluralistic forces conflict onto centre stage because of its emphasis on autonomous
groups, each pursuing its own objective.
Stakeholders – morals from the outside in
Who Is a Stakeholder?
•An individual or group that has one or more of the various kinds of stakes in a business
•Are affected but the actions, decisions, policies and practices of the firm
•Affect organizations actions, decisions, policies and practices
•Primary Stakeholders: have a direct stake in the organizations and its success and are
influential
•Owners (shareholders/investors)
•Employees
•Customers
•Suppliers
•Local communities
•Business partners
•Secondary Stakeholders: influential in affecting reputation and public standing - stake is more
representational of public or special interests
•Government/regulators
•Civic institutions
•Social pressure groups
•Media
•Academic commentators
•Competitors
•Trade bodies
•Welfare organizations
•Stakeholder's characteristics: legitimacy, power, urgency
•Legitimacy: validity/appropriateness of the stakeholder's claim to a stake
•Power: the ability or capacity to produce an affect
•Urgency: the degree to which the stakeholder's claim on the business calls for an
immediate reaction
•Types of Stakeholders:
•The supportive stakeholder: high potential for cooperation - low threat (employees,
managers, customers)
•The marginal stakeholder: low for cooperation and threat (professional associates of
employees, shareholders)
•Non supportive Stakeholder: high potential for threat - low for cooperation (competing
organizations, unions, governments)
•Mixed Blessing: high for threat and cooperation (employees in short supply, clients,
customers)
•Special-Interest Society – Canada has carried the idea of pluralism to an extreme in which we have
literally tens of thousands of special-interest groups, each pursuing its own limited agenda (become
increasingly activist, intense, diverse, and focused on single issues).
Business Criticism and Corporate Response
•Factors in the Social Environment (Affluence, Education & Awareness through media)
Revolution of Rising Expectations Entitlement Mentality Rights Movement (right to
privacy, due process, etc.) Victimization Philosophy Business Criticism (Increased
concern for the Societal Environment ↔ A changed Social Contract)
•Social Problem is a gap between society’s expectation of social conditions/ and the present realities,
or gap between business performance and its actual social performance.
Revolution of Rising Expectations defined as an attitude or a belief that each next generation should have a
standard of loving higher that the one before and that its expectations of major institutions, such as
businesses, should be greater also. Building on his line of thought one could argue that business are criticized
more today because society business society expectations of its performance have out paced business ability
to meet these growth expectations.
3 Ways in Which information leads to criticism of businesses on television
•Straight News Shows such as the evening new on major networks
•Through prime-time television
•Through commercials
•Business Power – The ability or capacity to produce an effect or to bring influence to situation or
people.
•The four Levels of Power:
1. Macro level – corporate system, i.e. totality of business organization.
2. Intermediate level – groups of corporations acting in concert in an effort to produce a
desired effect (raise price, control market, promote issue, pass or defeat legislation)
3. Micro level – the level of individual firm (Microsoft, Wal-Mart etc.)
4. Individual level – individual corporate leader exerting power (Ted Roger, Bill Gate)
•Spheres of Power – Economic, Political, Social/Cultural, Individual, Technology, Environment
Powers.
•Balance of Power and Responsibility – power-responsibility relationship is the foundation of
corporate social reasonability.
•Iron Law of Responsibility – In the long run, those who do not use power in a manner society
considers responsible will tend to lose it
•Business Respond – Concern and Changing Social Contract
•2 Elements in the Social Contract
Business Ethics: A Brief History of Development
• Prior to 1960: Business is amoral
• 1960-1970: Social issues in business
• 1970-1985: Rise of business ethics (academia)
• 1985-1995: Integration of business ethics in firms (codes, training, hotlines)
• 1995-2000: Internationalization of business ethics
• 2000+: Corporate scandals and government reaction
Enron
• December 2, 2001 Enron declares bankruptcy
• Disclosure of significant debts concealed by complicated and fraudulent accounting practices
• Top executives were involved and had received millions of dollars
• Arthur Anderson, a top five accounting firm, implicated
• Employees prevented from selling stock; retirement funds collapse
1. Laws or Regulations:
“Rules of the Game
2. Two-Way Shared
Understandings of
Each Other
Society or
Societal
Stakeholder
Groups
Business
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Document Summary
Week 1: introduction to business ethics and social responsibility. From the manager to the company to the external environment. From the external environment to the corporate level. A pluralistic society is one in which there is wide decentralization and diversity of power concentration. : strengths of pluralistic social system. Prevent power from being concentrated in the hands of few. Provide for a built-in set of checks & balance so that no single group dominate: weakness of pluralistic social system. Creates an environment in which diverse institutions pursue their own self-interests, with the result that there is no central direction to unify individual pursuits. Groups and institutions proliferate to the extent that their goals tend to overlap, thus causing confusion as to which organizations best serve which functions. Pluralistic forces conflict onto centre stage because of its emphasis on autonomous groups, each pursuing its own objective.
