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Transcript of © 2013 Cengage Learning. All Rights Reserved. 1 Part One: An Overview of Business Ethics Chapter 2:...
© 2013 Cengage Learning. All Rights Reserved. 1
Part One: An Overview of Business Ethics
Chapter 2: Stakeholder Relationships, Social Responsibility, and Corporate Governance
Relationships and Business
Building relationships is one of the most important areas of business today
Strong relationships associated with organizational success
Stakeholder framework Helps identify internal and external stakeholders Helps monitor and respond to needs, values, and
expectations of stakeholder groups
Corporate governance: The formal system of accountability and control of ethical and socially responsible behavior
© 2013 Cengage Learning. All Rights Reserved. 2
Stakeholders Define Ethical Issues in Business
Stakeholders: Those who have a stake or claim in some aspect of a company’s products, operations, markets, industry, and outcomes
Customers InvestorsEmployees SuppliersGovernment agencies Communities
Stakeholders can influence and are influenced by businesses
© 2013 Cengage Learning. All Rights Reserved. 3
Identifying Stakeholders
Primary stakeholders: Those whose continued association is necessary for a firm’s survival Employees, customers, investors, governments, and
communities Secondary stakeholders: Are not essential to a
company’s survival Media, trade associations, and special interest
groups
© 2013 Cengage Learning. All Rights Reserved. 4
© 2013 Cengage Learning. All Rights Reserved. 5
The Stakeholder Interaction Model
A Stakeholder Orientation
The degree to which a firm understands and addresses stakeholder demands Three activities
Generation of data about stakeholder groups Distribution of the information throughout the firm Organization’s responsiveness to this intelligence
© 2013 Cengage Learning. All Rights Reserved. 6
© 2013 Cengage Learning. All Rights Reserved. 7
Best Corporate Citizens
Social Responsibility
An organization’s obligation to maximize its positive impact on stakeholders and minimize its negative impact Four levels of social responsibility
Economic Legal Ethical Philanthropic
© 2013 Cengage Learning. All Rights Reserved. 8
The Importance of a Stakeholder Orientation
Social responsibility cannot be reactive Must be part of business strategy
Is associated with Increased profits Increased employee commitment Greater customer loyalty
Business ethics involves carefully thought-out rules of conduct that guide decision making
© 2013 Cengage Learning. All Rights Reserved. 9
© 2013 Cengage Learning. All Rights Reserved. 10
The Steps of Social Responsibility
Corporate Citizenship
The extent to which businesses strategically meet their economic, legal, ethical, and philanthropic responsibilities Four interrelated dimensions
Strong sustained economic performance Rigorous compliance Ethical actions beyond what is legally required Voluntary contributions to advance reputation and
stakeholder commitment
© 2013 Cengage Learning. All Rights Reserved. 11
Reputation
Reputation is one of an organization’s greatest intangible assets with tangible value Difficult to quantify Very important
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© 2013 Cengage Learning. All Rights Reserved. 13
The World’s Most Ethical Companies
Trader Joe’s AflacXerox General MillsNike Best BuyDow Corning Corporation
Starbucks
Ford Motor Company TargetGeneral Electric Salesforce.com, Inc.PepsiCo Barrett Jackson
Auction Co.Whole Foods Market Patagonia
Source: “2010 World’s Most Ethical Companies,” Ethisphere, Q4, 30–31.
Corporate Governance
Formal systems of accountability, oversight, and control Accountability
How closely workplace decisions align with a firm’s strategic direction
Oversight A system of checks and balances to minimize
opportunities for misconduct Control
The process of auditing and improving organizational decisions and actions
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© 2013 Cengage Learning. All Rights Reserved. 15
Source: “Corporate Alert: Top 10 Topics for Directors in 2011,” December 6, 2010, http://
Corporate Governance Topics
Source: www.corpgov.deloitte.com/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/USEng/Documents/Board%20Governance/Top%2010%20Topics%20for%20Directors%20in%202011_Akin_120610.pdf (accessed February 15, 2011).
Corporate Governance Models
Shareholder model Founded in classic economic precepts The maximization of wealth for investors and
owners Stakeholder model
A broader view of the purpose of business Includes satisfying concerns of stakeholders
© 2013 Cengage Learning. All Rights Reserved. 16
Board of Directors
Holds final responsibility for its firm’s success, failure, and ethicality of actions Increased demands for accountability/
transparency Trend toward “outside directors” chosen for
expertise, competence, and strategic decision making
Executive compensation is a growing concern
© 2013 Cengage Learning. All Rights Reserved. 17
Demands for Accountability and Transparency
Stakeholders demand that boards are answerable for their actions and transparent Directors chosen for expertise, competence,
and diverse perspectives Qualified, knowledgeable, unbiased boards can
prevent misconductInterlocking directorate: Board members linked to more than one company
© 2013 Cengage Learning. All Rights Reserved. 18
Executive Compensation
Many boards spend more time discussing compensation than ensuring integrity of financial reporting systems How closely linked is executive compensation
to company performance? Does performance-linked compensation
encourage executives to focus on short-term performance at the expense of long-term growth?
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© 2013 Cengage Learning. All Rights Reserved. 20
Changes in Corporate Governance
© 2013 Cengage Learning. All Rights Reserved. 21
Implementing a Stakeholder Perspective
1. Assessing the corporate culture2. Identifying stakeholder groups3. Identifying stakeholder issues4. Assessing organizational commitment to social
responsibility5. Identifying resources and determining urgency6. Gaining stakeholder feedback