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Business & Society Ethics, Sustainability, and Stakeholder Management

NINTH EDITION

A R C H I E B . C A R R O L L University of Georgia

A N N K . B U C H H O L T Z Rutgers University

Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States

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Business & Society: Ethics, Sustainability, and Stakeholder Management, Ninth Edition

Archie B. Carroll Ann K. Buchholtz

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Library of Congress Control Number: 2013949386

ISBN-13: 978-1-285-73429-3

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WCN: 02-200-203

Brief Contents

Preface xvii About the Authors xxiv

PART 1 Business, Society, and Stakeholders 1 CHAPTER 1 The Business and Society Relationship 2

CHAPTER 2 Corporate Citizenship: Social Responsibility, Performance, Sustainability 27

CHAPTER 3 The Stakeholder Approach to Business, Society, and Ethics 64

PART 2 Corporate Governance and Strategic Management Issues 95 CHAPTER 4 Corporate Governance: Foundational Issues 96

CHAPTER 5 Strategic Management and Corporate Public Policy 127

CHAPTER 6 Issue, Risk, and Crisis Management 147

PART 3 Business Ethics and Management 175 CHAPTER 7 Business Ethics Fundamentals 176

CHAPTER 8 Personal and Organizational Ethics 216

CHAPTER 9 Business Ethics and Technology 262

CHAPTER 10 Ethical Issues in the Global Arena 292

PART 4 External Stakeholder Issues 325 CHAPTER 11 Business, Government, and Regulation 326

CHAPTER 12 Business Influence on Government and Public Policy 354

CHAPTER 13 Consumer Stakeholders: Information Issues and Responses 377

CHAPTER 14 Consumer Stakeholders: Product and Service Issues 409

CHAPTER 15 Sustainability and the Natural Environment 432

CHAPTER 16 Business and Community Stakeholders 462

PART 5 Internal Stakeholder Issues 489 CHAPTER 17 Employee Stakeholders and Workplace Issues 490

CHAPTER 18 Employee Stakeholders: Privacy, Safety, and Health 516

CHAPTER 19 Employment Discrimination and Affirmative Action 540

Cases 567 Subject Index 675 Name Index 691

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Contents

Preface xvii About the Authors xxiv

PART 1 Business, Society, and Stakeholders 1

C H A P T E R 1

The Business and Society Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Business and Society 5

Business Defined 5 Society Defined 6

Society as the Macroenvironment 6 A Pluralistic Society 7

Pluralism and Its Strengths and Weaknesses 8 Multiple Publics, Systems, and Stakeholders 8

A Special-Interest Society 9 Business Criticism and Corporate Response 10

Factors in the Social Environment 10 General Criticism of Business: Use and Abuse of Power 15 Balance of Power and Responsibility 19 Business Response: Concern and Changing Social Contract 19

Focus of the Book 21 Managerial Approach 21 Business Ethics Theme 21 Sustainability Theme 21 Stakeholder Management Theme 22

Structure of the Book 22 Summary 24 Key Terms 25 Discussion Questions 25 Endnotes 25

C H A P T E R 2

Corporate Citizenship: Social Responsibility, Performance, Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Corporate Social Responsibility (CSR) as a Concept 28 Historical Perspective on CSR 29 Modifications of the Economic Model 30 Evolving Meanings of CSR 31 A Four-Part Definition of CSR 32 The Pyramid of Corporate Social Responsibility 34 CSR in Practice in Business 37

Traditional Arguments Against and For CSR 39 Arguments Against CSR 39 Arguments for CSR 40 The Business Case for CSR 41

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Corporate Social Responsiveness 42 Corporate Social Performance 43

Carroll’S CSP Model 44 Corporate Citizenship 46

Broad Views 47 Narrow Views 47 Drivers of Corporate Citizenship 47 Benefits of Corporate Citizenship to Business Itself 48 Stages of Corporate Citizenship 48 Global Corporate Citizenship 50 Corporate Citizenship Awards by Business Press 51

Social Performance and Financial Performance Relationship 52 Three Perspectives on the Social-Financial-Reputation Relationship 52

Sustainability—Profits, People, Planet 55 The Triple Bottom Line 55

Socially Responsible, Sustainable, Ethical Investing 57 Summary 58 Key Terms 59 Discussion Questions 59 Endnotes 59

C H A P T E R 3

The Stakeholder Approach to Business, Society, and Ethics . . . . . . . . . . . . . . . . . . . . . 64 Origins of the Stakeholder Concept 65

What Is the Stake in Stakeholder? 65 What Is a Stakeholder? 66

Who Are Business’s Stakeholders? 66 Three Views of the Firm: Production, Managerial, and Stakeholder 67 Primary and Secondary Stakeholders 67 A Typology of Stakeholder Attributes: Legitimacy, Power, Urgency 69

Stakeholder Approaches 72 Strategic, Multifiduciary, and Synthesis Approaches 72

Three Values of the Stakeholder Model 72 Descriptive Value 73 Instrumental Value 73 Normative Value 73

Key Questions in Stakeholder Management 73 Who Are the Organization’s Stakeholders? 74 What Are Our Stakeholders’ Stakes? 77 What Opportunities and Challenges Do Our Stakeholders Present? 78 What Responsibilities Does a Firm Have toward Its Stakeholders? 79 What Strategies or Actions Should Management Take? 80

Effective Stakeholder Management 82 Stakeholder Thinking 83

Developing a Stakeholder Culture 84 Stakeholder Management Capability 85

Level 1: Rational Level 85 Level 2: Process Level 85 Level 3: Transactional Level 85 Stakeholder Engagement 86

Contents v

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The Stakeholder Corporation 88 Principles of Stakeholder Management 88 Strategic Steps toward Global Stakeholder Management 88

Implementation 89 Summary 90 Key Terms 90 Discussion Questions 91 Endnotes 91

PART 2 Corporate Governance and Strategic Management Issues 95

C H A P T E R 4

Corporate Governance: Foundational Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Legitimacy and Corporate Governance 96

The Purpose of Corporate Governance 98 Components of Corporate Governance 98

Problems in Corporate Governance 100 The Need for Board Independence 101 Issues Surrounding Compensation 101 The Governance Impact of the Market for Corporate Control 105 Insider Trading 105

Improving Corporate Governance 108 Legislative Efforts 108 Changes in Boards of Directors 109 Board Diversity 109 Outside Directors 110 Use of Board Committees 110 The Board’s Relationship with the CEO 111 Board Member Liability 112

The Role of Shareholders 114 Shareholder Democracy 114

The Role of the SEC 115 Shareholder Activism 116

The History of Shareholder Activism 116 Shareholder Resolutions 117 Shareholder Lawsuits 117

Investor Relations 118 An Alternative Model of Corporate Governance 119 Summary 120 Key Terms 121 Discussion Questions 121 Endnotes 122

C H A P T E R 5

Strategic Management and Corporate Public Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 The Concept of Corporate Public Policy 127

Corporate Public Policy Defined 127 Corporate Public Policy and Strategic Management 128 Relationship of Ethics to Strategic Management 128

vi Contents

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Four Key Strategy Levels 129 Four Strategy Levels Described 129 Emphasis on Enterprise-Level Strategy 130

The Strategic Management Process 135 Strategic Corporate Social Responsibility 135 Measuring Sustainable Corporate Performance 137

Public Affairs As a Part of Strategic Management 140 The Corporate Public Affairs Function Today 141

Public Affairs Activities and Functions 142 PA’s Place at the Table 142 Future of Corporate PA in the 21st Century 143

Summary 143 Key Terms 144 Discussion Questions 144 Endnotes 144

C H A P T E R 6

Issue, Risk, and Crisis Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 The Relationships Between Issue, Risk, and Crisis Management 148 Issue Management 149

Two Approaches to Issues Management 149 The Changing Issue Mix 150 Issue Definition and the Issue Management Process 152 Issue Development Process 157 Issue Management in Practice 158

Risk Management 159 Risk Management and Sustainability 160

Crisis Management 160 The Nature of Crises 161 Managing Business Crises 165 Crisis Communications 166 Successful Crisis Management 168

Summary 170 Key Terms 171 Discussion Questions 171 Endnotes 171

PART 3 Business Ethics and Management 175

C H A P T E R 7

Business Ethics Fundamentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 The Public’s Opinion of Business Ethics 179

Are the Media Reporting Business Ethics More Vigorously? 180 Is Society Changing? 181

Business Ethics: Meaning, Types, Approaches 181 Descriptive versus Normative Ethics 182 Three Major Approaches to Business Ethics 183 The Conventional Approach to Business Ethics 183 Ethics and the Law 185 Making Ethical Judgments 186

Contents vii

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Ethics, Economics, and Law—A Venn Model 187 Three Models of Management Ethics 189

Immoral Management 190 Moral Management 193 Amoral Management 196 Two Hypotheses Regarding the Models of Management Morality 199

Making Moral Management Actionable 201 Developing Moral Judgment 201

Levels of Moral Development 202 Different Sources of a Person’s Values 205

Elements of Moral Judgment 209 Moral Imagination 209 Moral Identification and Ordering 209 Moral Evaluation 209 Tolerance of Moral Disagreement and Ambiguity 210 Integration of Managerial and Moral Competence 210 A Sense of Moral Obligation 210

Summary 212 Key Terms 212 Discussion Questions 213 Endnotes 213

C H A P T E R 8

Personal and Organizational Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216 Ethics Issues Arise at Different Levels 217

Personal Level 217 Organizational Level 218 Industry or Profession Level 219 Societal and Global Levels 219

Personal and Managerial Ethics 219 Principles Approach to Ethics 220 Ethical Tests Approach 228

Managing Organizational Ethics 231 Factors Affecting the Organization’s Moral Climate 233 Improving the Organization’s Ethical Culture 235

Best Practices for Improving an Organization’s Ethical Culture 236 Top Management Leadership (Moral Management) 237 Effective Communication of Ethical Messages 240 Ethics Programs and Ethics Officers 240 Setting Realistic Objectives 243 Ethical Decision-Making Processes 243 Codes of Conduct 245 Disciplining Violators of Ethics Standards 246 Ethics “Hotlines” and Whistle-Blowing Mechanisms 248 Business Ethics Training 249 Ethics Audits and Risk Assessments 251 Corporate Transparency 252 Board of Director Leadership and Oversight 253

Behavioral Ethics—Striving Toward a Deeper Understanding 253 Moral Decisions, Moral Managers, and Moral Organizations 255 Summary 256 Key Terms 256

viii Contents

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Discussion Questions 257 Endnotes 257

C H A P T E R 9

Business Ethics and Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 Technology and the Technological Environment 264 Characteristics of Technology 264

Benefits of Technology 264 Side Effects of Technology 265 Challenges of Technology 265

Technology and Ethics 265 Two Key Ethical Issues 266 Society’s Intoxication with Technology 266

Information Technology 268 E-Commerce as a Pervasive Technology 268 Ongoing Issues in E-Commerce Ethics 268 Invasion of Consumer Privacy via Electronic Commerce 269 The Workplace and Computer Technology 275 Other Technology Issues in the Workplace 276

Biotechnology 279 Bioethics 280 Genetic Engineering 281 Genetically Modified Foods 284

Summary 287 Key Terms 287 Discussion Questions 288 Endnotes 288

C H A P T E R 1 0

Ethical Issues in the Global Arena . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 Business Challenges in a Multinational Environment 293 Ethical Issues in the Global Business Environment 295

Questionable Marketing and Plant Safety Practices 295 Sweatshops, Labor Abuses, and Human Rights 299 Corruption, Bribery, and Questionable Payments 304

Improving Global Business Ethics 310 Balancing and Reconciling the Ethics Traditions of Home and Host Countries 311 Strategies for Improving Global Business Ethics 313 Corporate Action Against Corruption 318

Summary 319 Key Terms 319 Discussion Questions 320 Endnotes 320

PART 4 External Stakeholder Issues 325

C H A P T E R 1 1

Business, Government, and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326 The Pendulum of Government’s Role in Business 327 The Roles of Government and Business 329

A Clash of Ethical Belief Systems 329

Contents ix

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Interaction of Business, Government, and the Public 330 Government–Business Relationship 331 Public–Government Relationship 331 Business–Public Relationship 331

Government’s Nonregulatory Influence on Business 332 Industrial Policy 332 Privatization 335 Other Nonregulatory Governmental Influences on Business 337

Government’s Regulatory Influences on Business 338 Regulation: What Does It Mean? 339 Reasons for Regulation 339 Types of Regulation 341 Issues Related to Regulation 344

Deregulation 346 Purpose of Deregulation 347 The Changing World of Deregulation 348

Summary 349 Key Terms 349 Discussion Questions 350 Endnotes 350

C H A P T E R 1 2

Business Influence on Government and Public Policy . . . . . . . . . . . . . . . . . . . . . . . . . 354 Corporate Political Participation 355

Business Lobbying 355 Organizational Levels of Lobbying 357

Corporate Political Spending 364 Arguments for Corporate Political Spending 365 Arguments Against Corporate Political Spending 365

Political Action Committees 366 The Impact of Super PACs 367

Agency Issues 367 Political Accountability and Transparency 368 Strategies for Corporate Political Activity 370

Financial Performance Outcomes 371 Summary 371 Key Terms 372 Discussion Questions 372 Endnotes 373

C H A P T E R 1 3

Consumer Stakeholders: Information Issues and Responses . . . . . . . . . . . . . . . . . . . . 377 The Consumer Movement 378

Ralph Nader’s Consumerism 379 Consumerism in the 21st Century 380

Product Information Issues 381 Advertising Issues 382 Specific Controversial Advertising Issues 386 Warranties 397 Packaging and Labeling 398 Other Product Information Issues 399

x Contents

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The Federal Trade Commission (FTC) 399 The FTC in the 21st Century 399

Recent Consumer Legislation 400 Credit Card Act of 2009 400 Consumer Financial Protection Bureau 401

Self-Regulation in Advertising 402 Types of Self-Regulation of Advertising 402 The National Advertising Division’s Program 403

Moral Models and Consumer Stakeholders 403 Summary 404 Key Terms 404 Discussion Questions 405 Endnotes 405

C H A P T E R 1 4

Consumer Stakeholders: Product and Service Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . 409 Two Central Issues: Quality and Safety 410

The Issue of Quality 410 The Issue of Safety 413 Product Liability 416

Consumer Product Safety Commission 420 Food and Drug Administration 422 Business’s Response to Consumer Stakeholders 424 Customer Service Programs 424 Total Quality Management Programs 425 Six Sigma Strategy and Process 427 Summary 428 Key Terms 428 Discussion Questions 429 Endnotes 429

C H A P T E R 1 5

Sustainability and the Natural Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 The Sustainability Imperative 433 The Natural Environment 435 A Brief Introduction to the Natural Environment 435 The Impact of Business on the Natural Environment 436

Climate Change 437 Energy 437 Water 438 Biodiversity and Land Use 439 Chemicals, Toxics, and Heavy Metals 439 Air Pollution 440 Waste Management 441 Ozone Depletion 442 Oceans and Fisheries 442 Deforestation 444

Responsibility for Environmental Issues 444 Environmental Ethics 445 The NIMBY Problem 446

Contents xi

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The Role of Governments in Environmental Issues 447 Responses of Governments in the United States 447 International Government Environmental Responses 449

Other Environmental Stakeholders 450 Environmental Interest Groups 450

Business Environmentalism 455 Patagonia 455 3M Company 456 Business and Environmental Activist Partnerships 456 Systematic Business Responses to the Environmental Challenge 457

The Future of Business: Greening and/or Growing? 457 Summary 458 Key Terms 458 Discussion Questions 459 Endnotes 459

C H A P T E R 1 6

Business and Community Stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462 Community Involvement 463

Volunteer Programs 464 Managing Community Involvement 465

Corporate Philanthropy or Business Giving 468 A Brief History of Corporate Philanthropy 468 A Call for Transparency in Corporate Philanthropy 469 Giving to the “Third Sector”: The Nonprofits 470 Managing Corporate Philanthropy 473

The Loss of Jobs 478 From Offshoring to Reshoring 478 Business and Plant Closings 479

Summary 485 Key Terms 485 Discussion Questions 486 Endnotes 486

PART 5 Internal Stakeholder Issues 489

C H A P T E R 1 7

Employee Stakeholders and Workplace Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490 The New Social Contract 491 The Employee Rights Movement 493

The Meaning of Employee Rights 493 The Right Not to Be Fired without Cause 495

Employment-at-Will Doctrine 495 Dismissing an Employee with Care 498

The Right to Due Process and Fair Treatment 499 Due Process 499 Alternative Dispute Resolution 500

Freedom of Speech in the Workplace 502 Whistle-Blowing 503 Consequences of Whistle-Blowing 504 Government’s Protection of Whistle-Blowers 506

xii Contents

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False Claims Act 508 Management Responsiveness to Potential Whistle-Blowing Situations 510

Summary 511 Key Terms 512 Discussion Questions 512 Endnotes 512

C H A P T E R 1 8

Employee Stakeholders: Privacy, Safety, and Health 516 Right to Privacy in the Workplace 517

Collection and Use of Employee Information by Employers 518 Integrity Tests 521 Drug Testing 523 Monitoring Employees on the Job 526 Policy Guidelines on the Issue of Privacy 528

Workplace Safety 528 The Workplace Safety Problem 529 Right-to-Know Laws 531 Workplace Violence 531

The Right to Health in the Workplace 534 Smoking in the Workplace 534 The Family-Friendly Workplace 534

Summary 536 Key Terms 536 Discussion Questions 536 Endnotes 537

C H A P T E R 1 9

Employment Discrimination and Affirmative Action . . . . . . . . . . . . . . . . . . . . . . . . . . 540 The Civil Rights Movement 541 Federal Laws Prohibiting Discrimination 542

Title VII of the Civil Rights Act of 1964 542 Age Discrimination in Employment Act of 1967 543 Equal Pay Act of 1963 544 Rehabilitation Act of 1973, Section 503 544 Americans with Disabilities Act 545 Civil Rights Act of 1991 548 Equal Employment Opportunity Commission 549

Expanded Meanings of Employment Discrimination 549 Disparate Treatment 550 Disparate Impact 550

Issues in Employment Discrimination 551 Inequality Persists Despite Diversity Efforts 552 Race and Ethnicity 552 Color 553 Gender 553 Other Forms of Employment Discrimination 556

Affirmative Action in the Workplace 559 The Future of Affirmative Action 561

Summary 562 Key Terms 562 Discussion Questions 563 Endnotes 563

Contents xiii

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Subject Index 675 Name Index 691

ETHICS IN PRACTICE CASES

WORKING FOR MY CUP OR THE HOUSE? 16 DOES BUSINESS HAVE TOO MUCH POWER? 18 THE SOCIALLY RESPONSIBLE SHOE COMPANY 43 BURGERS WITH A SOUL: FRESH, LOCAL, SUSTAINABLE 53 ARE PLANTS AND FLOWERS STAKEHOLDERS? DO THEY HAVE RIGHTS? 71 WHERE DID THE CORN GO? 83 OVERBOOKED 86 PLAYING WITH PRESETS 107 MONITORING THE MONITORS 113 REPORTING BAD NEWS—WHOSE INTERESTS MATTER? 141 CRISIS MANAGEMENT: WHEN TO REPENT AND WHEN TO DEFEND 168 TO HUNT OR NOT TO HUNT—THAT IS THE QUESTION 188 IS RÉSUMÉ INFLATION AND DECEPTION OKAY? 190 ARE PEOPLE MORE ETHICAL WHEN BEING “WATCHED?” 206 MORE SALES, LOWER ETHICS? 235 THE ANONYMOUS CEO: STRONG OR WEAK ETHICAL LEADER? 239 SIGN THE NEW ETHICS CODE OR QUIT 247 WHEN ETHICS HOTLINES DON’T WORK 249 PERSONAL TECHNOLOGY IN THE WORKPLACE 276 WHOLE FOODS AND GMO LABELING 286 CHEATING CONSULTANTS: HELPING FACTORIES TO PASS AUDITS 303 THE BEAST OF BENTONVILLE BOWS TO LOCAL CUSTOMS 311 THE VOIP REGULATORY DILEMMA 335 BANNING THE BIG GULP 344 THE NRA AND THE CDC 356 DOUBLE IRISH WITH A DUTCH SANDWICH 364 WHAT DO WE TELL THE CUSTOMER? 383 THE COMPARATIVE ADVERTISING WARS 388 SHOULD FOOD ADVERTISING TO CHILDREN BE BANNED? 391 THE PIRATED POPCORN 412 HAS “PINK SLIME” GOTTEN A BAD RAP? 415 HAZARDOUS WASTE 440 A LITTLE GREEN LIE 446 SLOW FASHION 452

xiv Contents

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MATTERS OF GOOD INTENTIONS 468 COMPETITION IN THE WORKPLACE 477 SHOULD I SAY SOMETHING? 494 THE POCKETED PURSE 497 A WHISTLE-BLOWER’S WINDFALL 502 CO-WORKERS VS. FRIENDSHIP 523 SICK DAY SNOOPS 527 WHEN EXTERNAL STAKEHOLDERS ATTACK 532 GENTLEMAN’S CLUB? 556 BIGOTRY IN THE BAKERY 558

CASES