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Business, Government, and Society

Thirteenth Edition

John F. Steiner George A. Steiner

A Managerial Perspective Text and Cases

B usiness, G

overnm ent, and S

ociety

13E

A M

anagerial P erspective T

ext and C ases

Steiner Steiner

The thirteenth edition continues a long effort to tell the story of how forces in business, government, and society shape our world. In addition, an emphasis on management issues and processes allows students to apply the principles they learn to real-world situations.

As always, a stream of events dictated the need for extensive revision. Accordingly, the authors have updated the chapters to include new ideas, events, personalities, and publications, while continuing the work of building insight into basic underlying principles, institutions, and forces.

Highlights of the Thirteenth Edition include: An expanded discussion of white collar crime and criminal prosecution of both managers and corporations in Chapter 7, “Business Ethics.”

A new section on the neural basis of ethical decisions in Chapter 8, “Making Ethical Decisions in Business.”

An expanded discussion of lobbying ethics as well as a revised discussion of corpo- rate money in elections and recent changes in election law in Chapter 9, “Business in Politics.”

A new fifth wave, “terrorism and financial crisis,” has been added to the four histori- cal waves of regulatory growth in Chapter 10, “Regulating Business.”

A new discussion of globalization, including the rise of the modern trading system and coverage of various trade organizations, such as the IMF and World Bank, in Chapter 12, “Globalization, Trade, and Corruption.”

New sections in Chapter 15, “Consumerism,” including Thoreau’s rejection of materialism, arguments defending consumerism, and a description of the consumer protection activities of the Federal Trade Commission.

Added emphasis on the nature and significance of diversity management programs in corporations in Chapter 17, “Civil Rights, Women, and Diversity.”

New coverage of the story of the Lehman Brothers bankruptcy and of the new governance reforms in the wake of the recent financial crisis in Chapter 18, “Corporate Governance.”

To learn more, visit this book’s Online Learning Center at

www.mhhe.com/steiner13e

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ISBN 978-0-07-811267-6 MHID 0-07-811267-2

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Business, Government, and Society A Managerial Perspective, Text and Cases

Thirteenth Edition

John F. Steiner Professor of Management, Emeritus California State University, Los Angeles

George A. Steiner Harry and Elsa Kunin Professor of Business and Society and Professor of Management, Emeritus, UCLA

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BUSINESS, GOVERNMENT, AND SOCIETY: A MANAGERIAL PERSPECTIVE, TEXT AND CASES Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2012, 2009, 2006, 2003, 2000, 1997, 1994, 1991, 1988, 1985, 1980 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

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ISBN 978-0-07-811267-6 MHID 0-07-811267-2

Vice president and editor-in-chief: Brent Gordon Editorial director: Paul Ducham Executive director of development: Ann Torbert Managing development editor: Laura Hurst Spell Editorial coordinator: Jonathan Thornton Vice president and director of marketing: Robin J. Zwettler Marketing director: Amee Mosley Market development specialist: Jaime Halteman Vice president of editing, design, and production: Sesha Bolisetty Lead project manager: Christine A. Vaughan Buyer II: Debra R. Sylvester Design coordinator: Joanne Mennemeier Senior photo research coordinator: Keri Johnson Media project manager: Suresh Babu, Hurix Systems Pvt. Ltd. Cover images: © Ingram Publishing; © Skip Nall/Getty Images; © Royalty-Free/CORBIS; © Hisham F. Ibrahim/Getty Images; © Getty Images/Digital Vision; © U.S. Navy photo by Mass Communication Specialist 1st Class Demetrius Kennon Typeface: 10/12 Palatino Compositor: Aptara®, Inc. Printer: R. R. Donnelley

Library of Congress Cataloging-in-Publication Data Steiner, John F. Business, government, and society : a managerial perspective: text and cases / John F. Steiner, George A. Steiner.—13th ed. p. cm. Includes index. ISBN-13: 978-0-07-811267-6 (alk. paper) ISBN-10: 0-07-811267-2 (alk. paper) 1. Industries—Social aspects—United States. 2. Industrial policy—United States. 3. Social responsibility of business—United States. I. Steiner, George Albert, 1912- II. Title. HD60.5.U5S8 2012 658.4—dc22 2011007905

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We dedicate this book to the memory of Jean Wood Steiner.

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Brief Table of Contents Preface xi

PART ONE A Framework for Studying Business, Government, and Society

1 The Study of Business, Government, and Society 1

2 The Dynamic Environment 22

3 Business Power 55

4 Critics of Business 83

PART TWO The Nature and Management of Corporate Responsibility

5 Corporate Social Responsibility 121

6 Implementing Corporate Social Responsibility 157

PART THREE Managing Ethics

7 Business Ethics 194

8 Making Ethical Decisions in Business 238

PART FOUR Business and Government

9 Business in Politics 271

10 Regulating Business 316

PART FIVE Multinational Corporations and Globalization

11 Multinational Corporations 352

12 Globalization, Trade, and Corruption 395

PART SIX Corporations and the Natural Environment

13 Industrial Pollution and Environmental Regulation 436

14 Managing Environmental Quality 476

PART SEVEN Consumerism

15 Consumerism 512

PART EIGHT Human Resources

16 The Changing Workplace 549

17 Civil Rights, Women, and Diversity 585

PART NINE Corporate Governance

18 Corporate Governance 630

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Table of Contents

Preface xi

PART ONE A Framework for Studying Business, Government, and Society

Chapter 1 The Study of Business, Government, and Society 1

ExxonMobil Corporation 1 What Is the Business–Government–Society Field? 4 Why Is the BGS Field Important to Managers? 7 Four Models of the BGS Relationship 8

The Market Capitalism Model 9 The Dominance Model 12 The Countervailing Forces Model 15 The Stakeholder Model 16

Our Approach to the Subject Matter 20 Comprehensive Scope 20 Interdisciplinary Approach with a Management Focus 20 Use of Theory, Description, and Case Studies 20 Global Perspective 21 Historical Perspective 21

Chapter 2 The Dynamic Environment 22

Royal Dutch Shell PLC 22 Deep Historical Forces at Work 24

The Industrial Revolution 25 Inequality 25 Population Growth 28 Technology 30 Globalization 32 Nation-States 33

Dominant Ideologies 34 Great Leadership 35 Chance 35

Six External Environments of Business 36 The Economic Environment 36 The Technological Environment 38 The Cultural Environment 39 The Government Environment 41 The Legal Environment 42 The Natural Environment 43 The Internal Environment 44

Concluding Observations 45 Case Study: The American Fur Company 47

Chapter 3 Business Power 55

James B. Duke and The American Tobacco Company 55 The Nature of Business Power 58 What Is Power? 58 Levels and Spheres of Corporate Power 59 The Story of the Railroads 61 Two Perspectives on Business Power 64

The Dominance Theory 65 Pluralist Theory 71

Concluding Observations 75 Case Study: John D. Rockefeller and the Standard Oil Trust 75

Chapter 4 Critics of Business 83

Mary “Mother” Jones 83 Origins of Critical Attitudes Toward Business 86

The Greeks and Romans 86 The Medieval World 88 The Modern World 88

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The American Critique of Business 89 The Colonial Era 89 The Young Nation 90 1800–1865 91 Populists and Progressives 93 Socialists 95 The Great Depression and World War II 99 The Collapse of Confidence 100 The New Progressives 102

Global Critics 103 The Story of Liberalism 104 The Rise of Neoliberalism 105 Agenda of the Global Justice Movement 106 Global Activism 108

Concluding Observations 110 Case Study: A Campaign against KFC Corporation 112

PART TWO The Nature and Management of Corporate Responsibility

Chapter 5 Corporate Social Responsibility 121

Merck & Co., Inc. 121 The Evolving Idea of Corporate Social Responsibility 123

Social Responsibility in Classical Economic Theory 125 The Early Charitable Impulse 125 Social Responsibility in the Late Nineteenth and Early Twentieth Centuries 127 1950 to the Present 129

Basic Elements of Social Responsibility 131 General Principles 133 Are Social and Financial Performance Related? 134 Corporate Social Responsibility in a Global Context 135 The Problem of Cross-Border Corporate Power 136 The Rise of New Global Values 137

Global Corporate Responsibility 138 Development of Norms and Principles 138 Codes of Conduct 140 Reporting and Verification Standards 142 Certification and Labeling Schemes 142 Management Standards 143 Social Investment and Lending 144 Government Actions 144 Civil Society Vigilance 145

Assessing the Evolving Global CSR System 146 Concluding Observations 146 Case Study: Jack Welch at General Electric 147

Chapter 6 Implementing Corporate Social Responsibility 157

The Bill & Melinda Gates Foundation 157 Managing the Responsive Corporation 160 Leadership and Business Models 160 A Model of CSR Implementation 162

CSR Review 163 CSR Strategy 167 Implementation of CSR Strategy 168 Reporting and Verification 171

How Effectively Is CSR Implemented? 174 Corporate Philanthropy 175

Patterns of Corporate Giving 175 Strategic Philanthropy 177 Cause Marketing 179 New Forms of Philanthropy 181

Concluding Observations 183 Case Study: Marc Kasky versus Nike 183

PART THREE Managing Ethics

Chapter 7 Business Ethics 194

Bernard Ebbers 194 What Are Business Ethics? 197 Two Theories of Business Ethics 198

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Table of Contents vii

Major Sources of Ethical Values in Business 200

Religion 201 Philosophy 202 Cultural Experience 204 Law 206

Factors That Influence Managerial Ethics 212

Leadership 212 Strategies and Policies 214 Corporate Culture 215 Individual Characteristics 218

How Corporations Manage Ethics 220 Ethics and Compliance Programs: An Assessment 227 Concluding Observations 228 Case Study: The Trial of Martha Stewart 229

Chapter 8 Making Ethical Decisions in Business 238

David Geffen 238 Principles of Ethical Conduct 241

The Categorical Imperative 241 The Conventionalist Ethic 242 The Disclosure Rule 243 The Doctrine of the Mean 244 The Ends–Means Ethic 244 The Golden Rule 245 The Intuition Ethic 246 The Might-Equals-Right Ethic 246 The Organization Ethic 247 The Principle of Equal Freedom 248 The Proportionality Ethic 248 The Rights Ethic 249 The Theory of Justice 249 The Utilitarian Ethic 251

Reasoning with Principles 251 Character Development 253 The Neural Basis of Ethical Decisions 253

Probing Ethical Decisions 254 Emotions and Intuition 256

Practical Suggestions for Making Ethical Decisions 257 Concluding Observations 259 Case Studies: Short Incidents for Ethical Reasoning 260 Tangled Webs 264

PART FOUR Business and Government

Chapter 9 Business in Politics 271

Paul Magliocchetti and Associates 271 The Open Structure of American Government 275 A History of Political Dominance by Business 277

Laying the Groundwork 277 Ascendance, Corruption, and Reform 278 Business Falls Back under the New Deal 280 Postwar Politics and Winds of Change 281

The Rise of Antagonistic Groups 282 Diffusion of Power in Government 283 The Universe of Organized Business Interests 284 Lobbying 287

Lobbying Methods 288 Power and Limits 290 Regulation of Lobbyists 291

The Corporate Role in Elections 293 Efforts to Limit Corporate Influence 294 The Federal Election Campaign Act 295 Political Action Committees 296 Soft Money and Issue Advertising 298 Reform Legislation in 2002 299

How Business Dollars Enter Elections 301 Concluding Observations 303 Case Study: Citizens United v. Federal Election Commission 304

Chapter 10 Regulating Business 316

The Federal Aviation Administration 316

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The United Nations Global Compact 375 Criticism of the Global Compact 378

The Alien Tort Claims Act 379 The Drummond Company on Trial 381

Concluding Observations 383 Case Study: Union Carbide Corporation and Bhopal 384

Chapter 12 Globalization, Trade, and Corruption 395

McDonald's Corporation 395 Globalization 397

Ascent and Inertia 400 Trade 402

The Rise and Fall of Trade 402 A New Postwar Order 404 Success and Evolution 404 The World Trade Organization 406 Regional Trade Agreements 409

Free Trade versus Protectionism 411 Why Free Trade? 411 Why Protectionism? 412 The Politics of Protectionism 413 Free Trade Responses to Protectionism 415 U.S. Deviation from Free Trade Policy 416 Tariff Barriers in Other Countries 416

Corruption 417 A Spectrum of Corruption 418 The Fight Against Corruption 420 The Foreign Corrupt Practices Act 422 Corporate Actions to Fight Corruption 425

Concluding Observations 426 Case Study: David and Goliath at the WTO 427

PART SIX Corporations and the Natural Environment

Chapter 13 Industrial Pollution and Environmental Regulation 436

The Majestic Hudson River 436

Why Government Regulates Business 319 Flaws in the Market 319 Social and Political Reasons for Regulation 320

Waves of Growth 320 Wave 1: The Young Nation 321 Wave 2: Confronting Railroads and Trusts 322 Wave 3: The New Deal 323 Wave 4: Administering the Social Revolution 324 Wave 5: Terrorism and Financial Crisis 325 War Blips 327

How Regulations Are Made 327 Regulatory Statutes 327 Rulemaking 329 Presidential Oversight 332 Congressional Oversight 334 Challenges in the Courts 335

Costs and Benefits of Regulation 337 The Regulatory Burden 337 Benefits of Regulations 339

Regulation in Other Nations 340 Concluding Observations 342 Case Study: Good and Evil on the Rails 342

PART FIVE Multinational Corporations and Globalization

Chapter 11 Multinational Corporations 352

The Coca-Cola Company 352 The Multinational Corporation 354

A Statistical Perspective 356 How Transnational Is a Corporation? 358 Breaking the Bonds of Country: Weatherford International 359

Foreign Direct Investment 362 FDI in Developing Economies 364

International Codes of Conduct 367 The OECD Guidelines for Multinational Enterprises 369

How the OECD Guidelines Work 369 Vedanta Resources 371

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Consumerism 515 Consumerism as an Ideology 515 Consumerism Rises in America 516 Consumerism in Perspective 518 The Global Rise of Consumerism 522

In Defense of Consumerism 523 Consumerism as a Protective Movement 524

The Consumer’s Protective Shield 525 The Food and Drug Administration (FDA) 526 The Federal Trade Commission (FTC) 527 The Consumer Product Safety Commission (CPSC) 529 The National Highway Traffic Safety Administration (NHTSA) 530 Consumer Protection by Other Agencies 532

Product Liability 534 Negligence 534 Warranty 535 Strict Liability 536 Costs and Benefits of the Tort System 537

Concluding Observations 538 Case Study: Alcohol Advertising 538

PART EIGHT Human Resources

Chapter 16 The Changing Workplace 549

Ford Motor Company 549 External Forces Shaping the Workplace 552

Demographic Change 553 Technological Change 555 Structural Change 556 Competitive Pressures 558 Reorganization of Work 560

Government Intervention 562 Development of Labor Regulation in the United States 562

Work and Worker Protection in Japan and Europe 569

Japan 569 Europe 570

Labor Regulation in Perspective 572 Concluding Observations 572 Case Study: A Tale of Two Raids 575

Pollution 438 Human Health 439 The Biosphere 440

Industrial Activity and Sustainability 442 Ideas Shape Attitudes Toward the Environment 444

New Ideas Challenge the Old 445 Environmental Regulation in the United States 447

The Environmental Protection Agency 447 Principal Areas of Environmental Policy 448

Air 448 Water 458 Land 459

Concluding Observations 463 Case Study: A World Melting Away 464

Chapter 14 Managing Environmental Quality 476

The Commerce Railyards 476 Regulating Environmental Risk 479 Analyzing Human Health Risks 479

Risk Assessment 480 Risk Management 486

Cost–Benefit Analysis 487 Advantages 488 Criticisms 489

Control Options 491 Command-and-Control Regulation 491 Market Incentive Regulation 492

Voluntary Regulation 498 Managing Environmental Quality 499

Environmental Management Systems 500 A Range of Actions 501

Concluding Observations 503 Case Study: Harvesting Risk 503

PART SEVEN Consumerism

Chapter 15 Consumerism 512

Harvey W. Wiley 512

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PART NINE Corporate Governance

Chapter 18 Corporate Governance 630

Mark Hurd 630 What Is Corporate Governance? 633 The Corporate Charter 634 Power in Corporate Governance: Theory and Reality 636

Stockholders 636 Shareholder Resolutions 638 Assessing Shareholder Influence 639

Federal Regulation of Governance 639 Enron Corp. 640 Other Failures of Governance 644 The Sarbanes-Oxley Act 645 Lehman Brothers 646 The Dodd-Frank Act 650

Boards of Directors 651 Duties of Directors 652 Board Composition 652 Board Dynamics 653

Executive Compensation 655 Components of Executive Compensation 655 Problems with CEO Compensation 659

Concluding Observations 663 Case Study: High Noon at Hewlett- Packard 664

Chapter 17 Civil Rights, Women, and Diversity 585

The Employment Non-Discrimination Act 585 A Short History of Workplace Civil Rights 587

The Colonial Era 588 Civil War and Reconstruction 589 Other Groups Face Employment Discrimination 590 The Civil Rights Cases 591 Plessy v. Ferguson 592 Long Years of Discrimination 593

The Civil Rights Act of 1964 594 Disparate Treatment and Disparate Impact 595 The Griggs Case 596

Affirmative Action 597 Executive Order 11246 598

The Supreme Court Changes Title VII 599 The Affirmative Action Debate 601

Women at Work 602 Gender Attitudes at Work 604 Subtle Discrimination 605 Sexual Harassment 607 Occupational Segregation 610 Compensation 612

Diversity 614 Elements of Diversity Programs 616

Concluding Observations 618 Case Study: Adarand v. Peña 619

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Preface This 13th edition continues a long effort to tell the story of how forces in business, government, and society shape our world. As always, a stream of events dictated the need for extensive revision. In particular, a major financial crisis and a new presidential administration altered parts of the subject matter in important ways. Accordingly, we have updated the chapters to include new ideas, events, person- alities, and publications.

While current events move rapidly over the surface of our world, its underly- ing dynamics are largely undisturbed. As with every revision, we adapt to the flow of events, but we also continue the work of building insight into basic prin- ciples, institutions, and forces. So, while new events will doubtless erode the cur- rency of the discussions, we believe that certain insights about the relationships between business, government, and society should endure.

In what follows, we summarize new elements in this edition.

THE CHAPTERS Key revisions and additions in the chapters include these.

• Chapter 4, “Critics of Business,” has a new discussion of the rise of free market ideas that came to be called the Chicago School and their interaction with, first, Keynesian thinkers and, later, progressive thinkers.

• Chapter 7, “Business Ethics,” contains an expanded discussion of white-collar crime and criminal prosecution of both managers and corporations, including the growing use of deferred- and nonprosecution agreements. The chapter also has a new discussion of inner psychological processes interact that generate unethical behavior.

• Chapter 8, “Making Ethical Decisions in Business,” adds a new section on the neu- ral basis of ethical decisions. Studies of the brain using magnetic resonance imaging suggest that ethical decisions are fast, unconscious, and automatic processes. Their findings illuminate how individuals do (and should) make ethical decisions.

• Chapter 9, “Business in Politics,” includes an expanded discussion of lobbying ethics, including a more thorough discussion of the nature of bribery and inci- dents to illustrate its boundaries. The section on corporate money in elections is revised to explain changes in election law following the Citizens United v. Federal Election Commission decision. The chapter case study is now the story of Citizens United .

• Chapter 10, “Regulating Business,” adds a new fifth wave, “terrorism and fi- nancial crisis,” to the four historical waves of regulatory growth. This new wave covers the federal government’s aggressive expansion of regulation and changes in regulatory philosophy in the Barack Obama administration.

• Chapter 11, “Multinational Corporations,” has a new discussion of the Organisa- tion for Economic Co-Operation and Development’s Guidelines for Multinational

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xii Preface

Enterprises. It tells a story about how the guidelines were applied to a mining company that sought to develop a sacred tribal land in India.

• Chapter 12, “Globalization, Trade, and Corruption,” introduces a new discus- sion of globalization. The section on trade now explains the rise of the modern trading system, including discussions of Bretton Woods, the International Mon- etary Fund, the World Bank, the General Agreement on Tariffs and Trade, and the World Trade Organization. The section on international corruption is re- vised to accommodate recent, more vigorous anti-bribery enforcement. It now relates more incidents and stories about bribery.

• Chapter 15, “Consumerism,” has several new sections including a discussion of Henry David Thoreau and his principled rejection of materialism, a presenta- tion of arguments defending consumerism, and a description of the consumer protection activities of the Federal Trade Commission.

• Chapter 17, “Civil Rights, Women, and Diversity,” contains added emphasis on the nature and significance of diversity management programs in corporations.

• Chapter 18, “Corporate Governance,” now tells the story of the Lehman Broth- ers bankruptcy that resulted from, among other factors, the lack of oversight by a poorly structured board of directors. It explains new governance reforms in the wake of the recent financial crisis.

CHAPTER-OPENING STORIES As in past editions, we begin each chapter with a true story about a company, a bi- ographical figure, or a government action. Five new stories appear in this edition.

• “David Geffen” is the story of a brash young man willing to compromise the truth to make his fortune. His career invites a timeless discussion of whether actions are always right and wrong in themselves, or whether their conse- quences should be considered.