Business and society stakeholders ethics public policy 14th edition pdf

Management Paper

Business and society Working together In a world economy that is becoming increasingly integrated and interdependent, the relationship between business and society is becoming ever more complex. The globalization of business, the emergence of civil society organizations in many nations, and new government regulations and international agreements have significantly altered the job of managers and the nature of strategic decision making within the firm. The Fourteenth Edition of Business and Society: Stakeholders, Ethics, Public Policy draws on the latest research to address the challenges facing business organizations and their stakeholders. The text builds on its legacy of market leadership by reexamining such central issues as the role of business in society, the nature of corporate responsibility and global citizenship, business ethics practices, and the complex roles of government and business in a global community.

What ’s neW in the Fourteenth edition? •  Theoretical advances in stakeholder theory, social and environmental entrepreneurship, corporate citizenship, public affairs management, corporate governance, corporate social auditing, social investing, reputation management, business partnerships, and corporate philanthropy.

•  Practical issues such as social networking, digital medical records, bottom of the pyramid, social entrepreneurship, political advertising and campaign contributions, as well as the latest developments in the regulatory environment in which businesses operate, including the Dodd-Frank Act and the Affordable Care Act.

•  New discussion cases and full-length cases on such timely topics as conditions in Apple’s Chinese supplier factories, the Upper Big Branch mine disaster, conflict minerals in cell phones, child sexual abuse in the global hotel industry, online piracy, Chiquita Brands in Latin America, working with bloggers in marketing, the campaign for clean cookstoves, the shareholder “say on pay” vote at Citigroup, the controversy over “pink slime,” and undocumented immigrants in the workforce.

To learn more about the Fourteenth Edition of Business and Society: Stakeholders, Ethics, Public Policy, please visit www.mhhe.com/lawrence14e.

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Stakeholders, Ethics, Public Policy Fourteenth Edition

Anne T. Lawrence San José State University

James Weber Duquesne University

Business and Society

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BUSINESS AND SOCIETY: STAKEHOLDERS, ETHICS, PUBLIC POLICY, FOURTEENTH EDITION

Published by McGraw-Hill, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. Printed in the United States of America. Previous editions © 2011, 2008, and 2005. No part of this publica- tion 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.

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To Our Fathers Paul R. Lawrence

1922–2011

James F. Weber 1924–2009

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About the Authors Anne T. Lawrence San José State University Anne T. Lawrence is a professor of organization and management at San José State Uni- versity. She holds a Ph.D. from the University of California, Berkeley, and completed two years of postdoctoral study at Stanford University. Her articles, cases, and reviews have appeared in many journals, including the Academy of Management Review, Administrative Science Quarterly, Case Research Journal, Journal of Management Education, California Management Review, Business and Society Review, Research in Corporate Social Perfor- mance and Policy, and Journal of Corporate Citizenship. Her cases in business and society have been reprinted in many textbooks and anthologies. She has served as guest editor of the Case Research Journal for two special issues on business ethics and human rights, and social and environmental entrepreneurship. She served as president of both the North American Case Research Association (NACRA) and of the Western Casewriters Associa- tion and is a Fellow of NACRA. She received the Emerson Center Award for Outstanding Case in Business Ethics (2004) and the Curtis E. Tate Award for Outstanding Case of the Year (1998 and 2009). At San José State University, she was named Outstanding Professor of the Year in 2005.

James Weber Duquesne University James Weber is a professor of management and business ethics at Duquesne University. He also serves as senior fellow and founding director of the Beard Center for Leadership in Ethics and coordinates the Masters of Science in Leadership and Business Ethics program at Duquesne. He holds a Ph.D. from the University of Pittsburgh and has taught at the Uni- versity of San Francisco, University of Pittsburgh, and Marquette University. His areas of interest and research include managerial and organizational values, cognitive moral rea- soning, business ethics, ethics training and education, eastern religions’ ethics, and corpo- rate social audit and performance. His work has appeared in Organization Science, Human Relations, Business & Society, Journal of Business Ethics, Academy of Management Per- spectives , and Business Ethics Quarterly . He was recognized by the Social Issues in Man- agement division of the Academy of Management with the Best Paper Award in 1989 and 1994 and received the Best Article Award from the International Association for Business and Society in 1998. He has served as division and program chair of the Social Issues in Management division of the Academy of Management. He has also served as president and program chair of the International Association of Business and Society (IABS).

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Preface In a world economy that is becoming increasingly integrated and interdependent, the rela- tionship between business and society is becoming ever more complex. The globalization of business, the emergence of civil society organizations in many nations, and new govern- ment regulations and international agreements have significantly altered the job of manag- ers and the nature of strategic decision making within the firm. At no time has business faced greater public scrutiny or more urgent demands to act in an ethical and socially responsible manner than at the present. Consider the following:

• The global financial crisis and its continuing aftermath—highlighted by the failure of major business firms, unprecedented intervention in the economy by many govern- ments, and the fall from grace of numerous prominent executives—have focused a fresh spotlight on issues of corporate responsibility and ethics. Around the world, people and governments are demanding that managers do a better job of serving shareholders and the public. Once again, policymakers are actively debating the proper scope of govern- ment oversight in such wide-ranging arenas as health care, financial services, and man- ufacturing. Management educators are placing renewed emphasis on issues of business leadership and accountability.

• A host of new technologies has become part of the everyday lives of billions of the world’s people. Advances in the basic sciences are stimulating extraordinary changes in agriculture, telecommunications, and pharmaceuticals. Businesses can now grow medi- cine in plants, embed nanochips in tennis rackets, and communicate with customers overseas over the Internet and wireless networks. Technology has changed how we in- teract with others, bringing people closer together through social networking, instant messaging, and photo and video sharing. These innovations hold great promise. But they also raise serious ethical issues, such as those associated with genetically modified foods, stem cell research, or use of the Internet to exploit or defraud others or to censor free expression. Businesses must learn to harness new technologies, while avoiding public controversy and remaining sensitive to the concerns of their many stakeholders.

• Businesses in the United States and other nations are transforming the employment re- lationship, abandoning practices that once provided job security and guaranteed pen- sions in favor of highly flexible but less secure forms of employment. The recession that began in the latter part of the first decade of the 21st century caused job losses across broad sectors of the economy in the United States and many other nations. Many jobs, including those in the service sector, are being outsourced to the emerging economies of China, India, and other nations. As jobs shift abroad, transnational corporations are challenged to address their obligations to workers in far-flung locations with very dif- ferent cultures and to respond to initiatives, like the United Nations’ Global Compact, that call for voluntary commitment to enlightened labor standards and human rights.

• Ecological and environmental problems have forced businesses and governments to take action. An emerging consensus about the risks of climate change, for example, is leading many companies to adopt new practices, and once again the nations of the world have experimented with public policies designed to limit the emissions of greenhouse gases. Many businesses have cut air pollution, curbed solid waste, and designed prod- ucts and buildings to be more energy-efficient. A better understanding of how human

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activities affect natural resources is producing a growing understanding that economic growth must be achieved in balance with environmental protection if development is to be sustainable.

• Many regions of the world are developing at an extraordinary rate. Yet, the prosperity that accompanies economic growth is not shared equally. Personal income, health care, and educational opportunity are unevenly distributed among and within the world’s na- tions. The tragic pandemic of AIDS in sub-Saharan Africa and the threat of a swine or avian flu epidemic have compelled drug makers to rethink their pricing policies and raised troubling questions about the commitment of world trade organizations to patent protection. Many businesses must consider the delicate balance between their intellec- tual property rights and the urgent demands of public health, particularly in the develop- ing world.

• In many nations, legislators have questioned business’s influence on politics. Business has a legitimate role to play in the public policy process, but it has on occasion shaded over into undue influence and even corruption. In the United States, recent court deci- sions have changed the rules of the game governing how corporations and individuals can contribute to and influence political parties and public officials. Technology offers candidates and political parties new ways to reach out and inform potential voters. Busi- nesses the world over are challenged to determine their legitimate scope of influence and how to voice their interests most effectively in the public policy process.

The new Fourteenth Edition of Business and Society addresses this complex agenda of issues and their impact on business and its stakeholders. It is designed to be the required textbook in an undergraduate or graduate course in Business and Society; Business, Gov- ernment, and Society; Social Issues in Management; or the Environment of Business. It may also be used, in whole or in part, in courses in Business Ethics and Public Affairs Management. This new edition of the text is also appropriate for an undergraduate sociol- ogy course that focuses on the role of business in society or on contemporary issues in business. The core argument of Business and Society is that corporations serve a broad public purpose: to create value for society. All companies must make a profit for their owners. Indeed, if they did not, they would not long survive. However, corporations create many other kinds of value as well. They are responsible for professional development for their employees, innovative new products for their customers, and generosity to their communi- ties. They must partner with a wide range of individuals and groups in society to advance collaborative goals. In our view, corporations have multiple obligations, and all stakehold- ers’ interests must be taken into account.

A Tradition of Excellence Since the 1960s, when Professors Keith Davis and Robert Blomstrom wrote the first edi- tion of this book, Business and Society has maintained a position of leadership by discuss- ing central issues of corporate social performance in a form that students and faculty have found engaging and stimulating. The leadership of the two founding authors, and later of Professor William C. Frederick and James E. Post, helped Business and Society to achieve a consistently high standard of quality and market acceptance. Thanks to these authors’ remarkable eye for the emerging issues that shape the organizational, social, and public policy environments in which students will soon live and work, the book has added value to the business education of many thousands of students.

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Preface vii

Business and Society has continued through several successive author teams to be the market leader in its field. The current authors bring a broad background of business and society research, teaching, consulting, and case development to the ongoing evolution of the text. The new Fourteenth Edition of Business and Society builds on its legacy of market leadership by reexamining such central issues as the role of business in society, the nature of corporate responsibility and global citizenship, business ethics practices, and the com- plex roles of government and business in a global community.

For Instructors For instructors, this textbook offers a complete set of supplements. An extensive instruc- tor’s resource manual—fully revised for this edition—includes lecture outlines, discussion case questions and answers, tips from experienced instructors, and extensive case teaching notes. A computerized test bank and PowerPoint slides for every chapter are also provided to adopters. A video supplement, compiled especially for the Fourteenth Edition, features recent segments from PBS NewsHour, produced by the Public Broadcasting Service. These videos may be used to supplement class lectures and discussions. Business and Society is designed to be easily modularized. An instructor who wishes to focus on a particular portion of the material may select individual chapters or cases to be packaged in a Create custom product. Sections of this book can also be packaged with other materials from the extensive Create database, including articles and cases from the Harvard Business School, to provide exactly the course pack the instructor needs. For instructors who teach over the Internet and for those who prefer an electronic for- mat, this text may be delivered online, using McGraw-Hill’s eBook technology. eBooks can also be customized with the addition of any of the materials in Create’s extensive col- lection. Students may choose between an online product and a downloadable CourseSmart eBook.

For Students Business and Society has long been popular with students because of its lively writing, up- to-date examples, and clear explanations of theory. This textbook has benefited greatly from feedback over the years from thousands of students who have used the material in the authors’ own classrooms. Its strengths are in many ways a testimony to the students who have used earlier generations of Business and Society. The new Fourteenth Edition of the text is designed to be as student-friendly as always. Each chapter opens with a list of key learning objectives to help focus student reading and study. Numerous figures, exhibits, and real-world business examples (set as blocks of colored type) illustrate and elaborate the main points. A glossary at the end of the book provides definitions for bold-faced and other important terms. Internet references and a full section-by-section bibliography guide students who wish to do further research on topics of their choice, and subject and name indexes help students locate items in the book. Additional student resources are also available via the book’s password-protected On- line Learning Center at www.mhhe.com/lawrence14e, including self-grading quizzes and chapter review material.

New for the Fourteenth Edition Over the years, the issues addressed by Business and Society have changed as the environ- ment of business itself has been transformed. This Fourteenth Edition is no exception,

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viii Preface

as readers will discover. Some issues have become less compelling and others have taken their place on the business agenda, while others endure through the years. The Fourteenth Edition has been thoroughly revised and updated to reflect the latest theoretical work in the field and the latest statistical data, as well as recent events. Among the new additions are:

• New discussion of theoretical advances in stakeholder theory, social and environmental entrepreneurship, corporate citizenship, public affairs management, corporate govern- ance, corporate social auditing, social investing, reputation management, business part- nerships, and corporate philanthropy.

• Treatment of practical issues, such as social networking, digital medical records, bottom of the pyramid, social entrepreneurship, political advertising and campaign contribu- tions, as well as the latest developments in the regulatory environment in which busi- nesses operate, including the Dodd-Frank Act and the Affordable Care Act.

• New discussion cases and full-length cases on such timely topics as conditions in Apple’s Chinese supplier factories, the Upper Big Branch mine disaster, conflict miner- als in cell phones, child sexual abuse in the global hotel industry, online piracy, Chiquita Brands in Latin America, working with bloggers in marketing, the campaign for clean cookstoves, the shareholder “say on pay” vote at Citigroup, the controversy over “pink slime,” and undocumented immigrants in the workforce.

Finally, this is a book with a vision. It is not simply a compendium of information and ideas. The new edition of Business and Society articulates the view that in a global com- munity, where traditional buffers no longer protect business from external change, manag- ers can create strategies that integrate stakeholder interests, respect personal values, support community development, and are implemented fairly. Most important, businesses can achieve these goals while also being economically successful. Indeed, this may be the only way to achieve economic success over the long term.

Anne T. Lawrence

James Weber

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Acknowledgments We are grateful for the assistance of many colleagues at universities in the United States and abroad who over the years have helped shape this book with their excellent sugges- tions and ideas. We also note the feedback from students in our classes and at other col- leges and universities that has helped make this book as user-friendly as possible. We especially wish to acknowledge the assistance of several esteemed colleagues who provided detailed reviews for this edition. These reviewers were Shawn Berman of the Univer- sity of New Mexico, Geoffrey Desa of San Francisco State University, Jennifer J. Griffin of George Washington University, Bernie Hayen of Kansas State University, Denise Kleinrichert of San Francisco State University, Cynthia M. Orms of Georgia College & State Univer- sity, Alexia Priest of Post University, Joseph Petrick of Wright State University, and Ronald M. Roman of San José State University. In addition, we are grateful to the many colleagues who over the years have generously shared with us their insights into the theory and pedagogy of business and society. In par- ticular, we would like to thank Sandra Waddock of Boston College, Mary C. Gentile of Babson College, Margaret J. Naumes of the University of New Hampshire (retired), Michael E. Johnson-Cramer and Jamie Hendry of Bucknell University, John Mahon and Stephanie Welcomer of the University of Maine, Ann Svendsen of Simon Fraser Univer- sity, Robert Boutilier of Robert Boutilier & Associates, Kathryn S. Rogers of Pitzer Col- lege, Anne Forrestel of the University of Oregon, Kelly Strong of Colorado State University, Daniel Gilbert of Gettysburg College, William Sodeman of Hawaii Pacific Uni- versity, Gina Vega of Merrimack College, Craig Dunn and Brian Burton of Western Washington University, Lori V. Ryan of San Diego State University, Bryan W. Husted of York University, Sharon Livesey of Fordham University, Barry Mitnick of the University of Pittsburgh, Virginia Gerde and David Wasieleski of Duquesne University, Robbin Derry of the University of Lethbridge, Linda Ginzel of the University of Chicago, Jerry Calton of the University of Hawaii-Hilo, H. Richard Eisenbeis of the University of Southern Colorado (retired), Anthony J. Daboub of the University of Texas at Brownsville, Asbjorn Osland of San José State University, Linda Klebe Treviño of Pennsylvania State Univer- sity, Mary Meisenhelter of York College of Pennsylvania, Stephen Payne of Georgia Col- lege and State University, Amy Hillman and Gerald Keim of Arizona State University, Jeanne Logsdon of the University of New Mexico (retired), Barbara Altman of Texas A&M University Central Texas, Craig Fleisher of the College of Coastal Georgia, Karen Moustafa Leonard of Indiana University-Purdue University Fort Wayne, Deborah Vidaver-Cohen of Florida International University, Lynda Brown of the University of Montana, Kathleen A. Getz of Loyola University Chicago, Gordon P. Rands of Western Illinois University, Paul S. Adler of the University of Southern California, Diana Sharpe of Monmouth University, Kathleen Rehbein of Marquette University, Harry Van Buren of the University of New Mexico, Bruce Paton and Peter Melhus of San Francisco State University, Heather Elms of American University, Jacob Park of Green Mountain College, Armand Gilinsky of Sonoma State University, Tara Ceranic of the University of San Diego, and Diane Swanson of Kansas State University. These scholars’ dedication to the creative teaching of business and society has been a continuing inspiration to us.

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x Acknowledgments

Thanks are also due to Murray Silverman and Tom E. Thomas of San Francisco State University; Pierre Batellier and Emmanuel Raufflet of HEC Montreal; Robyn Linde of Rhode Island College and H. Richard Eisenbeis of the University of Southern Colorado Pueblo (retired); and Steven M. Cox, Bradley W. Brooks, S. Cathy Anderson, and J. Norris Frederick of Queens University of Charlotte, who contributed cases to this edition. A number of research assistants and former students have made contributions through- out this project for which we are appreciative. Among the special contributors to this proj- ect were Patricia Morrison of Grossmont College and Xi Yin of Duquesne University, who provided research assistance, and Emily DeMasi of Duquesne University, who provided research and assisted in preparing the instructor’s resource manual and ancillary materials. Thanks are also due to Carolyn Roose and Nate Marsh for research assistance. We wish to express our continuing appreciation to William C. Frederick, who invited us into this project many years ago and who has continued to provide warm support and sage advice as the book has evolved through numerous editions. James E. Post, another former author of this book, has also continued to offer valuable intellectual guidance to this project. We continue to be grateful to the excellent editorial and production team at McGraw- Hill. We offer special thanks to Paul Ducham, our managing director, for his skillful lead- ership of this project. We also wish to recognize the able assistance of Trina Hauger, development editor, and Mary Jane Lampe and Manish Sharma, project managers, whose ability to keep us on track and on time has been critical. Elizabeth Trepkowski headed the excellent marketing team. Prashanthi Nadipalli, media project manager; Susan K. Culbertson, buyer; Richard Wright, copy editor; Susan Higgins, proofreader; and Jenny Lindeman, who designed the book cover, also played key roles. Each of these people has provided professional contributions that we deeply value and appreciate. As always, we are profoundly grateful for the ongoing support of our spouses, Paul Roose and Sharon Green.

Anne T. Lawrence

James Weber

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Brief Contents PART ONE Business in Society 1

1. The Corporation and Its Stakeholders 2

2. Managing Public Issues and Stakeholder Relationships 24

3. The Corporation’s Social Responsibilities 45

PART TWO Business and Ethics 67

4. Ethics and Ethical Reasoning 68

5. Organizational Ethics and the Law 90

PART THREE Business in a Globalized World 115

6. The Challenges of Globalization 116

7. Global Corporate Citizenship 137

PART FOUR Business and Public Policy 159

8. Business–Government Relations 160

9. Influencing the Political Environment 183

PART FIVE Business and the Natural Environment 209

10. Sustainable Development and Global Business 210

11. Managing Environmental Issues 234

PART SIX Business and Technology 259

12. Technology, Organizations, and Society 260

13. Managing Technology and Innovation 285

PART SEVEN Business and Its Stakeholders 307

14. Stockholder Rights and Corporate Governance 308

15. Consumer Protection 332

16. Employees and the Corporation 355

17. Managing a Diverse Workforce 378

18. The Community and the Corporation 402

19. Managing Public Relations 426

CASES IN BUSINESS AND SOCIETY 447 1. The Upper Big Branch Mine Disaster 448

2. The Carlson Company and Protecting Children in the Global Tourism Industry 458

3. Carolina Pad and the Bloggers 467

4. Moody’s Credit Ratings and the Subprime Mortgage Meltdown 480

5. Merck, the FDA, and the Vioxx Recall 493

6. Kimpton Hotels’ EarthCare Program 503

7. Ventria Bioscience and the Controversy over Plant-Made Medicines 511

8. The Solidarity Fund and Gildan Activewear, Inc. 522

9. Mattel and Toy Safety 531

GLOSSARY 541

BIBLIOGRAPHY 553

INDEXES Name 559 Subject 563

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Contents PART ONE BUSINESS IN SOCIETY 1

Chapter 1 The Corporation and Its Stakeholders 2

Business and Society 4 A Systems Perspective 5

The Stakeholder Theory of the Firm 6 The Stakeholder Concept 7 Different Kinds of Stakeholders 8

Stakeholder Analysis 10 Stakeholder Interests 11 Stakeholder Power 12 Stakeholder Coalitions 13 Stakeholder Salience and Mapping 16

The Corporation’s Boundary-Spanning Departments 18 The Dynamic Environment of Business 19

Creating Value in a Dynamic Environment 21 Summary 21 Key Terms 22 Internet Resources 22 Discussion Case: A Brawl in Mickey’s Backyard 22

Chapter 2 Managing Public Issues and Stakeholder Relationships 24

Public Issues 25 Environmental Analysis 28

Competitive Intelligence 31 The Issue Management Process 32

Identify Issue 33 Analyze Issue 33 Generate Options 34 Take Action 35 Evaluate Results 35

Organizing for Effective Issue Management 35 Stakeholder Engagement 37

Stages in the Business–Stakeholder Relationship 37 Drivers of Stakeholder Engagement 38 Making Engagement Work Effectively 39 Stakeholder Networks 41 The Benefits of Engagement 41

Summary 42 Key Terms 42 Internet Resources 43 Discussion Case: Coca-Cola’s Water Neutrality Initiative 43

Chapter 3 The Corporation’s Social Responsibilities 45

Corporate Power and Responsibility 47 The Meaning of Corporate Social Responsibility 49

The Origins of Corporate Social Responsibility 50 Balancing Social, Economic, and Legal Responsibilities 51 The Corporate Social Responsibility Debate 53

Arguments for Corporate Social Responsibility 53 Arguments against Corporate Social Responsibility 56 The Social Enterprise 59 Social Entrepreneurship 60 The B Corporation 60 Serving the Bottom of the Pyramid 61

Award-Winning Corporate Social Responsibility Practices 63 Summary 64 Key Terms 64 Internet Resources 65 Discussion Case: Timberland’s Corporate Social Responsibility—Under New Ownership 65

PART TWO BUSINESS AND ETHICS 67

Chapter 4 Ethics and Ethical Reasoning 68

The Meaning of Ethics 69 What Is Business Ethics? 70 Why Should Business Be Ethical? 71

Why Ethical Problems Occur in Business 75 Personal Gain and Selfish Interest 76 Competitive Pressures on Profits 77 Conflicts of Interest 77 Cross-Cultural Contradictions 78

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The Core Elements of Ethical Character 78 Managers’ Values 78 Spirituality in the Workplace 80 Managers’ Moral Development 81

Analyzing Ethical Problems in Business 83 Virtue Ethics: Pursuing a “Good” Life 83 Utility: Comparing Benefits and Costs 84 Rights: Determining and Protecting Entitlements 85 Justice: Is It Fair? 86 Applying Ethical Reasoning to Business Activities 86

Summary 87 Key Terms 87 Internet Resources 87 Discussion Case: Chiquita Brands: Ethical Responsibility or Illegal Action? 88

Chapter 5 Organizational Ethics and the Law 90

Corporate Ethical Climates 91 Business Ethics across Organizational Functions 93

Accounting Ethics 93 Financial Ethics 95 Marketing Ethics 96 Information Technology Ethics 97 Other Functional Areas 98

Making Ethics Work in Corporations 99 Building Ethical Safeguards into the Company 99 Comprehensive Ethics Programs 104 Corporate Ethics Awards and Certifications 104

Ethics in a Global Economy 105 Efforts to Curtail Unethical Practices 106

Ethics, Law, and Illegal Corporate Behavior 109 Corporate Lawbreaking and Its Costs 109

Summary 110 Key Terms 111 Internet Resources 111 Discussion Case: Alcoa’s Core Values in Practice 111

PART THREE BUSINESS IN A GLOBALIZED WORLD 115

Chapter 6 The Challenges of Globalization 116

The Process of Globalization 117 Major Transnational Corporations 118 The Acceleration of Globalization 119 International Financial and Trade Institutions 120

The Benefits and Costs of Globalization 122 Benefits of Globalization 122 Costs of Globalization 124

Doing Business in a Diverse World 126 Comparative Political and Economic Systems 127 Meeting the Challenges of Global Diversity 130

Collaborative Partnerships for Global Problem Solving 131

A Three-Sector World 131 Summary 133 Key Terms 133 Internet Resources 133 Discussion Case: Conflict Coltan in the Global Electronics Industry Supply Chain 134

Chapter 7 Global Corporate Citizenship 137

Global Corporate Citizenship 138 Citizenship Profile 140 Management Systems for Global Corporate Citizenship 142

Stages of Corporate Citizenship 143 Assessing Global Corporate Citizenship 147

Global Social and Environmental Audit Standards 147 The Auditing Process 150 Social and Environmental Reporting 151 Triple Bottom Line 153

Summary 154 Key Terms 155 Internet Resources 155 Discussion Case: Apple’s Supplier Code of Conduct and Foxconn’s Chinese Factories 155

PART FOUR BUSINESS AND PUBLIC POLICY 159

Chapter 8 Business–Government Relations 160

How Business and Government Relate 162 Seeking a Collaborative Partnership 162 Working at Arm’s Length 163 Legitimacy Issues 164

Government’s Public Policy Role 164 Elements of Public Policy 165 Types of Public Policy 167

Government Regulation of Business 168 Market Failure 169 Negative Externalities 169

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Natural Monopolies 169 Ethical Arguments 170 Types of Regulation 170 The Effects of Regulation 175

Regulation in a Global Context 178 Summary 179 Key Terms 180 Internet Resources 180 Discussion Case: Derivative Losses at JPMorgan Chase 180

Chapter 9 Influencing the Political Environment 183

Participants in the Political Environment 185 Business as a Political Participant 185 Stakeholder Groups in Politics 186 Coalition Political Activity 186

Influencing the Business–Government Relationship 187

Corporate Political Strategy 187 Political Action Tactics 188

Promoting an Information Strategy 189 Promoting a Financial-Incentive Strategy 192 Promoting a Constituency-Building Strategy 199

Levels of Political Involvement 202 Managing the Political Environment 203 Business Political Action: A Global Challenge 204 Summary 205 Key Terms 206 Internet Resources 206 Discussion Case: Stop Online Piracy Act— A Political Battle between Old and New Media 207

PART FIVE BUSINESS AND THE NATURAL ENVIRONMENT 209

Chapter 10 Sustainable Development and Global Business 210

Business and Society in the Natural Environment 212

Sustainable Development 213 Threats to the Earth’s Ecosystem 214 Forces of Change 216 The Earth’s Carrying Capacity 219

Global Environmental Issues 221 Ozone Depletion 221 Climate Change 222

Decline of Biodiversity 224 Threats to Marine Ecosystems 226

Response of the International Business Community 227

Codes of Environmental Conduct 229 Summary 231 Key Terms 231 Internet Resources 231 Discussion Case: Clean Cooking 232

Chapter 11 Managing Environmental Issues 234

Role of Government 236 Major Areas of Environmental Regulation 236 Alternative Policy Approaches 242

Costs and Benefits of Environmental Regulation 246 The Greening of Management 248

Stages of Corporate Environmental Responsibility 248 The Ecologically Sustainable Organization 249

Environmental Partnerships 250 Environmental Management in Practice 250 Environmental Audits 251

Environmental Management as a Competitive Advantage 252

Cost Savings 252 Product Differentiation 253 Technological Innovation 254 Reduction of Regulatory Risk 255 Strategic Planning 255

Summary 256 Key Terms 256 Internet Resources 256 Discussion Case: Digging Gold 257

PART SIX BUSINESS AND TECHNOLOGY 259

Chapter 12 Technology, Organizations, and Society 260

Technology Defined 262 Phases of Technology in Society 262 Fueling Technological Growth 264

Technology as a Powerful Force in Business 265 The Internet 265 E-Business 267 M-Commerce 269

Social Networking—Tools and Threats 271 Blogs and Vlogs 272 Spam and Unsolicited Commercial E-mail 273 Phishing 274

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Government Censorship of the Internet 275 Socially Beneficial Uses of Technology 277

Technology and Education 277 Medical Information via the Internet 278

Special Issue: The Digital Divide in the United States and Worldwide 280 Summary 271 Key Terms 282 Internet Resources 282 Discussion Case: How Protected Is Your Online Privacy? 282

Chapter 13 Managing Technology and Innovation 285

Violations of Privacy: Causes and Costs 287 The Management of Information Security 291

Businesses’ Responses to Invasions of Information Security 291 The Chief Information, Security, Technology Officer 292

Protecting Intellectual Property 294 Business and Government Responses to Violations of Intellectual Property 294

Managing Scientific Breakthroughs 298 Nanotechnology 298 Human Genome 299 Biotechnology and Stem Cell Research 300 Cloning 301 Genetically Engineered Foods 302

Summary 303 Key Terms 304 Internet Resources 304 Discussion Case: Cardholders’ Information at Citigroup Hacked 305

PART SEVEN BUSINESS AND ITS STAKEHOLDERS 307

Chapter 14 Stockholder Rights and Corporate Governance 308

Stockholders 309 Who Are Stockholders? 310 Objectives of Stock Ownership 312 Stockholders’ Legal Rights and Safeguards 312

Corporate Governance 313 The Board of Directors 313 Principles of Good Governance 315

Special Issue: Executive Compensation 317 Shareholder Activism 321

The Rise of Institutional Investors 322 Social Investment 322 Stockholder Lawsuits 324

Government Protection of Stockholder Interests 325 Securities and Exchange Commission 325 Information Transparency and Disclosure 325 Insider Trading 326

Stockholders and the Corporation 328 Summary 329 Key Terms 329 Internet Resources 329 Discussion Case: Citigroup Shareholders Say No on Pay 330

Chapter 15 Consumer Protection 332

Advocacy for Consumer Interests 334 Reasons for the Consumer Movement 335 The Rights of Consumers 336

How Government Protects Consumers 336 Goals of Consumer Laws 336 Major Consumer Protection Agencies 339

Consumer Privacy in the Digital Age 342 Special Issue: Product Liability 345

Strict Liability 345 Product Liability Reform and Alternative Dispute Resolution 346

Positive Business Responses to Consumerism 348 Managing for Quality 348 Voluntary Industry Codes of Conduct 349 Consumer Affairs Departments 350 Product Recalls 351

Consumerism’s Achievements 351 Summary 352 Key Terms 352 Internet Resources 352 Discussion Case: Big Fat Liability 353

Chapter 16 Employees and the Corporation 355

The Employment Relationship 357 Workplace Rights 358

The Right to Organize and Bargain Collectively 358 The Right to a Safe and Healthy Workplace 359 The Right to a Secure Job 362

Privacy in the Workplace 364 Electronic Monitoring 365

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Romance in the Workplace 367 Employee Drug Use and Testing 367 Alcohol Abuse at Work 368 Employee Theft and Honesty Testing 369

Whistle-Blowing and Free Speech in the Workplace 370 Working Conditions around the World 372

Fair Labor Standards 372 Employees as Corporate Stakeholders 374 Summary 375 Key Terms 375 Internet Resources 375 Discussion Case: No Smoking Allowed—On the Job or Off 376

Chapter 17 Managing a Diverse Workforce 378

The Changing Face of the Workforce 379 Gender and Race in the Workplace 381

Women and Minorities at Work 381 The Gender and Racial Pay Gap 383 Where Women and Persons of Color Manage 384 Breaking the Glass Ceiling 385 Women and Minority Business Ownership 387

Government’s Role in Securing Equal Employment Opportunity 388

Equal Employment Opportunity 388 Affirmative Action 390 Sexual and Racial Harassment 391

What Business Can Do: Diversity Policies and Practices 393

Balancing Work and Life 395 Child Care and Elder Care 395 Work Flexibility 396

Summary 398 Key Terms 399 Internet Resources 399 Discussion Case: Unauthorized Immigrant Workers at Chipotle Mexican Grill Restaurants 400

Chapter 18 The Community and the Corporation 402

The Business–Community Relationship 404 The Business Case for Community Involvement 405

Community Relations 407 Economic Development 408 Housing 408

Aid to Minority, Women, and Disabled Veteran-Owned Enterprises 409 Disaster, Terrorism, and War Relief 409

Corporate Giving 410 Forms of Corporate Giving 413 Priorities in Corporate Giving 416 Corporate Giving in a Strategic Context 417 Measuring the Return on Social Investment 419

Building Collaborative Partnerships 420 Summary 422 Key Terms 422 Internet Resources 423 Discussion Case: Fidelity Investments’ Partnership with Citizen Schools 423

Chapter 19 Managing Public Relations 426

The General Public 427 Public Relations in an Emerging Digital World 428

Public Relations Department 429 New Technology-Enhanced Channels for Public Relations 430

Global Public Relations 432 Influencing Public Opinion 433

Public Service Announcements 433 Image Advertisements 434

Protecting the Public through Government Regulation 435 Crisis Management 437 Media Training of Employees 440 Summary 443 Key Terms 443 Internet Resources 443 Discussion Case: “Pink Sliming” the Processed Beef Industry 444

CASES IN BUSINESS AND SOCIETY 447 1. Upper Big Branch Mine Disaster 448

2. The Carlson Company and Protecting Children in the Global Tourism Industry 458

3. Carolina Pad and the Bloggers 467

4. Moody’s Credit Ratings and the Subprime Mortgage Meltdown 480

5. Merck, the FDA, and the Vioxx Recall 493

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6. Kimpton Hotels’ EarthCare Program 503

7. Ventria Bioscience and the Controversy over Plant-Made Medicines 511

8. The Solidarity Fund and Gildan Activewear, Inc. 522

9. Mattel and Toy Safety 531

Glossary 541

Bibliography 553

Indexes Name 559 Subject 563

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Business in Society

P A R T O N E

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2

The Corporation and Its Stakeholders Business corporations have complex relationships with many individuals and organizations in soci- ety. The term stakeholder refers to all those that affect, or are affected by, the actions of the firm. An important part of management’s role is to identify a firm’s relevant stakeholders and understand the nature of their interests, power, and alliances with one another. Building positive and mutually ben- eficial relationships across organizational boundaries can help enhance a company’s reputation and address critical social and ethical challenges. In a world of fast-paced globalization, shifting public expectations and government policies, growing ecological concerns, and new technologies, manag- ers face the difficult challenge of achieving economic results while simultaneously creating value for all of their diverse stakeholders.

This Chapter Focuses on These Key Learning Objectives:

• Understanding the relationship between business and society and the ways in which business and society are part of an interactive system.

• Considering the purpose of the modern corporation.

• Knowing what a stakeholder is and who a corporation’s market and nonmarket and internal and external stakeholders are.

• Conducting a stakeholder analysis and understanding the basis of stakeholder interests and power.

• Recognizing the diverse ways in which modern corporations organize internally to interact with various stakeholders.

• Analyzing the forces of change that continually reshape the business and society relationship.

C H A P T E R O N E

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Chapter 1 The Corporation and Its Stakeholders 3

1 Nelson Lichtenstein, “Wal-Mart: A Template for Twenty-First Century Capitalism,” in Wal-Mart: The Face of Twenty-First Century Capitalism, ed. Nelson Lichtenstein (New York: The New Press, 2006), pp. 3–30. 2 Global Insight, “The Price Impact of Wal-Mart: An Update through 2006,” September 4, 2007. 3 “Wal-Mart Stock Near All-Time High,” The Wall Street Journal, June 28, 2012. 4 “Wal-Mart Hushed Up a Vast Mexican Bribery Case,” The New York Times, April 21, 2012. 5 “Wal-Mart Cuts Some Health Care Benefits,” The New York Times , October 20, 2011. 6 “Chinatown Walmart Opponents Plan 10,000-Strong March,” NBC Southern California, at www.nbclosangeles.com . 7 Julie Davis et al., “The Impact of an Urban Wal-Mart Store on Area Businesses: An Evaluation of One Chicago Neighbor- hood’s Experience,” Center for Urban Research and Learning, Loyola University Chicago, December 2009.

Walmart has been called “a template for 21st century capitalism.” In each period of history, because of its size and potential impact on many groups in society, a single company often seems to best exemplify the management systems, technology, and social relationships of its era. In 1990, this company was U.S. Steel. In 1950, it was General Motors. Now, in the 2010s, it is Walmart. 1 In 2012, Walmart was the largest private employer in the world, with 2.2 million em- ployees worldwide. The company operated more than 10,000 facilities in 28 countries and had annual sales of $405 billion. The retailer was enormously popular with custom- ers, drawing them in with its great variety of products under one roof and “save money, live better” slogan; 200 million customers worldwide shopped there every week. Econo- mists estimated that Walmart had directly through its own actions and indirectly through its impact on its supply chain saved American shoppers $287 billion annually, about $957 for every person in the United States. 2 Shareholders who invested early were richly rewarded; the share price rose from 5 cents (split adjusted) when the company went public in 1970 to around $69 a share in 2012, near its all-time high. 3 Walmart was a major customer for 61,000 suppliers worldwide, ranging from huge multinationals to tiny one-person operations. Yet, Walmart had become a lightning rod for criticism from many quarters, charged with corruption; driving down wages, benefits, and working conditions; and hurting local communities. Consider that:

• In 2012, the company confronted shocking charges that it had conducted a “campaign of bribery” to facilitate its rapid growth in Mexico. According to an investigation by The New York Times, Walmart had made $24 million in payments to government officials to clear the way for hundreds of new stores in what became the company’s most important foreign subidiary, in probable violation of both U.S. and Mexican law. 4

• In 2011, Walmart announced that it would eliminate health insurance for part-timers working less than 24 hours a week. Other employees faced an increase in health care premiums of more than 40 percent, on top of deductibles that sometimes exceeded 20 percent of their annual pay. 5 Three years earlier, the company had settled a lawsuit, agreeing to pay at least $352 million, for violations of labor law. The retailer had allegedly forced employees to work off the clock, without pay.

• In 2012, local activists organized to block construction of a Walmart neighborhood mar- ket in Los Angeles’s Chinatown. It was the latest of many incidents in which local com- munities resisted the arrival of the retail giant, saying it would hurt small businesses. 6 Economists studying Walmart’s impact in Chicago, for example, found that about one quarter of neighborhood retailers near a new Walmart had gone out of business, causing a loss of 300 jobs. 7

Lee Scott, then the company’s CEO, commented in an interview with BusinessWeek in 2005, “We always believed that if we sat here in Bentonville [the company’s headquarters

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4 Part One Business in Society

in Arkansas] and took care of our customers and took care of associates that the world it- self would leave us alone.” That, he acknowledged, was no longer the case. “We have to continue to evolve in how we operate and how we interface with society,” he said. 8 In an effort to shore up its reputation, the company offered grants to small businesses, donated to wildlife habitat restoration, and announced a plan to lower the salt, fat, and sugar in many of its packaged foods. 9 It also pursued ambitious environmental goals to reduce waste, use more renewable energy, and sell more sustainable products, and began reporting to the public on its progress. 10 “Reputation is very important to Wal-Mart,” said a historian who had studied the company. “They put a lot of money into building it.” 11 Walmart’s experience illustrates, on a particularly large scale, the challenges of manag- ing successfully in a complex global network of stakeholders. The company’s actions af- fected not only itself, but also many other people, groups, and organizations in society. Customers, suppliers, employees, stockholders, creditors, business partners, governments, and local communities all had a stake in Walmart’s decisions. Walmart had to learn just how difficult it could be to simultaneously satisfy multiple stakeholders with diverse and, in some respects, contradictory interests. Every modern company, whether small or large, is part of a vast global business system. Whether a firm has 50 employees or 50,000—or, like Walmart, more than 2 million—its links to customers, suppliers, employees, and communities are certain to be numerous, di- verse, and vital to its success. This is why the relationship between business and society is important to understand for both citizens and managers.

Business and Society Business today is arguably the most dominant institution in the world. The term business refers here to any organization that is engaged in making a product or providing a service for a profit. Consider that in the United States today there are 6 million businesses, ac- cording to government estimates, and in the world as a whole, there are uncounted mil- lions more. Of course, these businesses vary greatly in size and impact. They range from a woman who helps support her family by selling handmade tortillas by the side of the road in Mexico City for a few pesos, to ExxonMobil, a huge corporation that employs 83,600 workers and earns annual revenues approaching $500 billion in 200 nations worldwide. Society , in its broadest sense, refers to human beings and to the social structures they collectively create. In a more specific sense, the term is used to refer to segments of hu- mankind, such as members of a particular community, nation, or interest group. As a set of organizations created by humans, business is clearly a part of society. At the same time, it is also a distinct entity, separated from the rest of society by clear boundaries. Business is engaged in ongoing exchanges with its external environment across these dividing lines. For example, businesses recruit workers, buy supplies, and borrow money; they also sell products, donate time, and pay taxes. This book is broadly concerned with the relationship between business and society. A simple diagram of the relationship between the two appears in Figure 1.1.

8 “Can Wal-Mart Fit into a White Hat?” BusinessWeek, October 3, 2005; and extended interview with Lee Scott available online at www.businessweek.com. 9 “Wal-Mart Stores,” November 15, 2011, at www.nytimes.com. 10 “2011 Global Responsibility Report,” www.walmartstores.com/sustainability . 11 “Wal-Mart’s Good-Citizen Efforts Face a Test,” The New York Times, April 30, 2012.

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Chapter 1 The Corporation and Its Stakeholders 5

As the Walmart example that opened this chapter illustrates, business and society are highly interdependent. Business activities impact other activities in society, and actions by various social actors and governments continuously affect business. To manage these inter- dependencies, managers need an understanding of their company’s key relationships and how the social and economic system of which they are a part affects, and is affected by, their decisions.

A Systems Perspective General systems theory , first introduced in the 1940s, argues that all organisms are open to, and interact with, their external environments. Although most organisms have clear boundaries, they cannot be understood in isolation, but only in relationship to their sur- roundings. This simple but powerful idea can be applied to many disciplines. For example, in botany, the growth of a plant cannot be explained without reference to soil, light, oxy- gen, moisture, and other characteristics of its environment. As applied to management theory, the systems concept implies that business firms (social organisms) are embedded in a broader social structure (external environment) with which they constantly interact. Cor- porations have ongoing boundary exchanges with customers, governments, competitors, the media, communities, and many other individuals and groups. Just as good soil, water, and light help a plant grow, positive interactions with society benefit a business firm. Like biological organisms, moreover, businesses must adapt to changes in the environ- ment. Plants growing in low-moisture environments must develop survival strategies, like the cactus that evolves to store water in its leaves. Similarly, a long-distance telephone company in a newly deregulated market must learn to compete by changing the products and services it offers. The key to business survival is often this ability to adapt effectively to changing conditions. In business, systems theory provides a powerful tool to help managers conceptualize the relationship between their companies and their external environments. Systems theory helps us understand how business and society, taken together, form an interactive social system . Each needs the other, and each influences the other. They are entwined so completely that any action taken by one will surely affect the other. They are both separate and connected. Business is part of society, and society penetrates far and

FIGURE 1.1 Business and Society: An Interactive System Society

Business

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6 Part One Business in Society

often into business decisions. In a world where global communication is rapidly expand- ing, the connections are closer than ever before. Throughout this book we discuss exam- ples of organizations and people that are grappling with the challenges of, and helping to shape, business–society relationships.

The Stakeholder Theory of the Firm What is the purpose of the modern corporation? To whom, or what, should the firm be re- sponsible? 12 No question is more central to the relationship between business and society. In the ownership theory of the firm (sometimes also called property or finance theory), the firm is seen as the property of its owners. The purpose of the firm is to maximize its long-term market value, that is, to make the most money it can for shareholders who own stock in the company. Managers and boards of directors are agents of shareholders and have no obligations to others, other than those directly specified by law. In this view, owners’ interests are paramount and take precedence over the interests of others. A contrasting view, called the stakeholder theory of the firm , argues that corporations serve a broad public purpose: to create value for society. All companies must make a profit for their owners; indeed, if they did not, they would not long survive. However, corpora- tions create many other kinds of value as well, such as professional development for their employees and innovative new products for their customers. In this view, corporations have multiple obligations, and all stakeholders’ interests must be taken into account. This ap- proach has been expressed well by the pharmaceutical company Novartis, which states in its code of conduct that it “places a premium on dealing fairly with employees, commercial partners, government authorities, and the public. Success in its business ventures depends upon maintaining the trust of these essential stakeholders.” 13 Supporters of the stakeholder theory of the firm make three core arguments for their position: descriptive, instrumental, and normative. 14 The descriptive argument says that the stakeholder view is simply a more realistic de- scription of how companies really work. Managers have to pay keen attention, of course, to their quarterly and annual financial performance. Keeping Wall Street satisfied by manag- ing for growth—thereby attracting more investors and increasing the stock price—is a core part of any top manager’s job. But the job of management is much more complex than this. In order to produce consistent results, managers have to be concerned with producing high- quality and innovative products and services for their customers, attracting and retaining talented employees, and complying with a plethora of complex government regulations. As a practical matter, managers direct their energies toward all stakeholders, not just owners. The instrumental argument says that stakeholder management is more effective as a corporate strategy. A wide range of studies have shown that companies that behave respon- sibly toward multiple stakeholder groups perform better financially, over the long run, than those that do not. (This empirical evidence is further explored in Chapters 3 and 4.) These findings make sense, because good relationships with stakeholders are themselves a source

12 One summary of contrasting theories of the purpose of the firm appears in Margaret M. Blair, “Whose Interests Should Corporations Serve?” in Margaret M. Blair and Bruce K. MacLaury, Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century (Washington, DC: Brookings Institution, 1995), ch. 6, pp. 202–34. More recently, these questions have been taken up in James E. Post, Lee E. Preston, and Sybille Sachs, Redefining the Corporation: Stakeholder Manage- ment and Organizational Wealth (Palo Alto, CA: Stanford University Press, 2002). 13 Novartis Corporation Code of Conduct, online at www.novartis.com. 14 The descriptive, instrumental, and normative arguments are summarized in Thomas Donaldson and Lee E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications,” Academy of Management Review 20, no. 1 (1995), pp. 65–71. See also, Post, Preston, and Sachs, Redefining the Corporation, ch. 1.

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Chapter 1 The Corporation and Its Stakeholders 7

of value for the firm. Attention to stakeholders’ rights and concerns can help produce motivated employees, satisfied customers, and supportive communities, all good for the company’s bottom line. The normative argument says that stakeholder management is simply the right thing to do. Corporations have great power and control vast resources; these privileges carry with them a duty toward all those affected by a corporation’s actions. Moreover, all stakehold- ers, not just owners, contribute something of value to the corporation. A skilled engineer at Microsoft who applies his or her creativity to solving a difficult programming problem has made a kind of investment in the company, even if it is not a monetary investment. Any individual or group who makes a contribution, or takes a risk, has a moral right to some claim on the corporation’s rewards. 15 A basis for both the ownership and stakeholder theories of the firm exists in law. The legal term fiduciary means a person who exercises power on behalf of another, that is, who acts as the other’s agent. In U.S. law, managers are considered fiduciaries of the owners of the firm (its stockholders) and have an obligation to run the business in their interest. These legal concepts are clearly consistent with the ownership theory of the firm. However, other laws and court cases have given managers broad latitude in the exercise of their fiduciary duties. In the United States (where corporations are chartered not by the federal govern- ment but by the states), most states have passed laws that permit managers to take into consideration a wide range of other stakeholders’ interests, including those of employees, customers, creditors, suppliers, and communities. In addition, many federal laws extend speci- fic protections to various groups of stakeholders, such as those that prohibit discrimination against employees or grant consumers the right to sue if harmed by a product. In other nations, the legal rights of nonowner stakeholders are often more fully devel- oped than in the United States. For example, a number of European countries—including Germany, Norway, Austria, Denmark, Finland, and Sweden—require public companies to include employee members on their boards of directors, so that their interests will be ex- plicitly represented. Under the European Union’s so-called harmonization statutes, manag- ers are specifically permitted to take into account the interests of customers, employees, creditors, and others. In short, while the law requires managers to act on behalf of stockholders, it also gives them wide discretion—and in some instances requires them—to manage on behalf of the full range of stakeholder groups. The next section provides a more formal definition and an expanded discussion of the stakeholder concept.

The Stakeholder Concept The term stakeholder refers to persons and groups that affect, or are affected by, an or- ganization’s decisions, policies, and operations. 16 The word stake, in this context, means an interest in—or claim on—a business enterprise. Those with a stake in the firm’s actions

15 Another formulation of this point has been offered by Robert Phillips, who argues for a principle of stakeholder fairness. This states that “when people are engaged in a cooperative effort and the benefits of this cooperative effort are accepted, obligations are created on the part of the group accepting the benefit” [i.e., the business firm]. Robert Phillips, Stakeholder Theory and Organizational Ethics (San Francisco: Berrett-Koehler, 2003), p. 9 and ch. 5. 16 The term stakeholder was first introduced in 1963 but was not widely used in the management literature until the publi- cation of R. Edward Freeman’s Strategic Management: A Stakeholder Approach (Marshfield, MA: Pitman, 1984). For more recent summaries of the stakeholder theory literature, see Thomas Donaldson and Lee E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, Implications,” Academy of Management Review , January 1995, pp. 71–83; Max B. E. Clarkson, ed., The Corporation and Its Stakeholders: Classic and Contemporary Readings (Toronto: University of Toronto Press, 1998); and Abe J. Zakhem, Daniel E. Palmer, and Mary Lyn Stoll, Stakeholder Theory: Essential Readings in Ethical Leadership and Management (Amherst, NY: Prometheus Books, 2008).

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8 Part One Business in Society

include such diverse groups as customers, employees, stockholders, the media, govern- ments, professional and trade associations, social and environmental activists, and nongov- ernmental organizations. The term stakeholder is not the same as stockholder , although the words sound similar . Stockholders—individuals or organizations that own shares of a company’s stock—are one of several kinds of stakeholders. Business organizations are embedded in networks involving many participants. Each of these participants has a relationship with the firm, based on ongoing interactions. Each of them shares, to some degree, in both the risks and rewards of the firm’s activities. And each has some kind of claim on the firm’s resources and attention, based on law, moral right, or both. The number of these stakeholders and the variety of their interests can be large, making a company’s decisions very complex, as the Walmart example illustrates. Managers make good decisions when they pay attention to the effects of their decisions on stakeholders, as well as stakeholders’ effects on the company. On the positive side, strong relationships between a corporation and its stakeholders are an asset that adds value. On the negative side, some companies disregard stakeholders’ interests, either out of the belief that the stakeholder is wrong or out of the misguided notion that an unhappy customer, employee, or regulator does not matter. Such attitudes often prove costly to the company involved. Today, for example, companies know that they cannot locate a factory or store in a community that strongly objects. They also know that making a product that is perceived as unsafe invites lawsuits and jeopardizes market share.

Different Kinds of Stakeholders Business interacts with society in many diverse ways, and a company’s relationships with various stakeholders differ. Market stakeholders are those that engage in economic transactions with the company as it carries out its purpose of providing society with goods and services. Each relationship between a business and one of its market stakeholders is based on a unique transaction, or two-way exchange. Stockholders invest in the firm and in return receive the potential for dividends and capital gains. Creditors loan money and collect payments of interest and principal. Employees contribute their skills and knowledge in exchange for wages, bene- fits, and the opportunity for personal satisfaction and professional development. In return for payment, suppliers provide raw materials, energy, services, and other inputs; and wholesalers, distributors, and retailers engage in market transactions with the firm as they help move the product from plant to sales outlets to customers. All businesses need cus- tomers who are willing to buy their products or services. The puzzling question of whether or not managers should be classified as stakeholders along with other employees is discussed in Exhibit 1.A. Nonmarket stakeholders , by contrast, are people and groups who—although they do not engage in direct economic exchange with the firm—are nonetheless affected by or can affect its actions. Nonmarket stakeholders include the community, various levels of gov- ernment, nongovernmental organizations, the media, business support groups, competitors, and the general public. Nonmarket stakeholders are not necessarily less important than others, simply because they do not engage in direct economic exchange with a business. On the contrary, interactions with such groups can be critical to a firm’s success or failure, as shown in the following example.

In 2001, a company called Energy Management Inc. (EMI) announced a plan to build a wind farm about six miles off the shore of Cape Cod, Massachusetts, to sup- ply clean, renewable power to New England customers. The project, called Cape Wind, immediately generated intense opposition from socially prominent residents

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of Cape Cod and nearby islands, who were concerned that its 130 wind turbines would spoil the view and get in the way of boats. Opponents of the project were able to block its progress for more than a decade. Finally, in 2011, Cape Wind secured its final permits and made plans to build the wind farm. 17

In this instance, the community was able to block the company’s plans for more than a decade, even though it did not have a market relationship with it. Theorists also distinguish between internal stakeholders and external stakeholders . Internal stakeholders are those, such as employees and managers, who are employed by the firm. They are “inside” the firm, in the sense that they contribute their effort and skill, usually at a company worksite. External stakeholders, by contrast, are those who—although they may have important transactions with the firm—are not directly employed by it. Figure 1.2 shows the market and nonmarket, and internal and external, stakeholders of business. (Of note, firms have no internal, nonmarket stakeholders.)

Are Managers Stakeholders?

Are managers, especially top executives, stakeholders? This has been a contentious issue in stake- holder theory. On one hand, the answer clearly is “yes.” Like other stakeholders, managers are impacted by the firm’s decisions. As employees of the firm, managers receive compensation—often very gener- ous compensation, as shown in Chapter 14. Their managerial roles confer opportunities for pro- fessional advancement, social status, and power over others. Managers benefit from the company’s success and are hurt by its failure. For these reasons, they might properly be classified as employees. On the other hand, top executives are agents of the firm and are responsible for acting on its be- half. In the stakeholder theory of the firm, their role is to integrate stakeholder interests, rather than to promote their own more narrow, selfish goals. For these reasons, they might properly be classified as representatives of the firm itself, rather than as one of its stakeholders. Management theory has long recognized that these two roles of managers potentially conflict. The main job of executives is to act for the company, but all too often they act primarily for them- selves. Consider, for example, the many top executives of Lehman Brothers, MF Global, and Merrill Lynch, who enriched themselves personally at the expense of shareholders, employees, customers, and other stakeholders. The challenge of persuading top managers to act in the firm’s best interest is further discussed in Chapter 14.

Exhibit 1.A

17 The website of the project is at www.capewind.org . The story of the opposition to Cape Wind is told in Robert Whitcomb and Wendy Williams, Cape Wind: Money, Celebrity, Energy, Class, Politics, and the Battle for Our Energy Future (New York: PublicAffairs, 2008).

Market Stakeholders Nonmarket Stakeholders

Internal Stakeholders Employees Managers

External Stakeholders Stockholders Governments Customers Communities Creditors Nongovernmental Organizations Suppliers Business Support Groups Wholesalers and Retailers Media

Competitors

FIGURE 1.2 The Stakeholders of Business

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10 Part One Business in Society

The classification of government as a nonmarket stakeholder has been controversial in stakeholder theory. Most theorists say that government is a nonmarket stakeholder (as does this book) because it does not normally conduct any direct market exchanges (buying and selling) with business. However, money often flows from business to government in the form of taxes and fees, and sometimes from government to business in the form of subsi- dies or incentives. Moreover, some businesses—defense contractors for example— do sell directly to the government and receive payment for goods and services rendered. For this reason, a few theorists have called government a market stakeholder of business. And, in a few cases, the government may take a direct ownership stake in a company—as the U.S. government did after the financial crisis of 2008–09 when it invested in several banks and auto companies, becoming a shareholder of these firms. Government also has special influence over business because of its ability to charter and tax corporations, as well as make laws that regulate their activities. The unique relationship between government and business is discussed throughout this book. Other stakeholders also have some market and some nonmarket characteristics. For ex- ample, the media is normally considered a nonmarket stakeholder. However, business buys advertising time on television and radio and in newspapers—a market transaction. Similarly, companies may pay dues to support groups, such as the Chamber of Commerce. Communi- ties are a nonmarket stakeholder, but receive taxes, philanthropic contributions, and other monetary benefits from businesses. These subtleties are further explored in later chapters. Modern stakeholder theory recognizes that most business firms are embedded in a com- plex web of stakeholders, many of which have independent relationships with each other. 18 In this view, a business firm and its stakeholders are best visualized as an interconnected network. Imagine, for example, an electronics company, based in the United States, that produces smartphones, tablets, and music players. The firm employs people to design, en- gineer, and market its devices to customers in many countries. Shares in the company are owned by investors around the world, including many of its own employees and managers. Production is carried out by suppliers in Asia. Banks provide credit to the company, as well as to other companies. Competing firms sell their products to some of the same customers and also contract production to some of the same Asian suppliers. Nongovernmental or- ganizations may seek to lobby the government concerning the firm’s practices and may count some employees among their members. A visual representation of this company and its stakeholders is shown in Figure 1.3. As Figure 1.3 suggests, some individuals or groups may play multiple stakeholder roles. Some theorists use the term role sets to refer to this phenomenon. For example, one person may work at a company but also live in the surrounding community, own shares of company stock in his or her 401(k) retirement account, and even purchase the company’s products from time to time. This person has several stakes in a company’s actions. Later sections of this book (especially Chapters 14 through 19) will discuss in more detail the relationship between business and its various stakeholders.

Stakeholder Analysis An important part of the modern manager’s job is to identify relevant stakeholders and to understand both their interests and the power they may have to assert these interests. This process is called stakeholder analysis . The organization from whose perspective the

18 Timothy J. Rowley, “Moving Beyond Dyadic Ties: A Network Theory of Stakeholder Influence,” Academy of Management Review 22, no. 4 (October 1997).

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Chapter 1 The Corporation and Its Stakeholders 11

analysis is conducted is called the focal organization . Stakeholder analysis asks four key questions, as follows.

Who are the relevant stakeholders? The first question requires management to identify and map the relevant stakeholders. Fig- ure 1.2 provides a guide. However, not all stakeholders listed will be relevant in every management situation. For example, a privately held firm will not have stockholders. Some businesses sell directly to customers online and therefore will not have retailers. In other situations, a firm may have a stakeholder—say, a creditor that has loaned money—but this group is not relevant to a particular decision or action that management must take. But stakeholder analysis involves more than simply identifying stakeholders; it also in- volves understanding the nature of their interests, power, legitimacy, and links with one another.

Stakeholder Interests What are the interests of each stakeholder? Each stakeholder has a unique relationship to the organization, and managers must respond accordingly. Stakeholder interests are, essentially, the nature of each group’s stake. What are their concerns, and what do they want from their relationship with the firm? 19

Business Firm

Government

Customers

Stockholders

Employees

Creditors

Competitors

Suppliers

Non- governmental organizations

FIGURE 1.3 A Firm and Its Stakeholders

19 A full discussion of the interests of stakeholders may be found in R. Edward Freeman, Ethical Theory and Business (Englewood Cliffs, NJ: Prentice Hall, 1994).

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12 Part One Business in Society

Stockholders, for their part, have an ownership interest in the firm. In exchange for their investment, stockholders expect to receive dividends and, over time, capital appreciation. The economic health of the corporation affects these people financially; their personal wealth—and often, their retirement security—is at stake. They may also seek social objec- tives through their choice of investments. Customers, for their part, are most interested in gaining fair value and quality in exchange for the purchase price of goods and services. Suppliers, likewise, wish to receive fair compensation for products and services they pro- vide. Employees, in exchange for their time and effort, want to receive fair compensation and an opportunity to develop their job skills. Governments, public interest groups, and lo- cal communities have another sort of relationship with the company. In general, their stake is broader than the financial stake of owners, customers, and suppliers. They may wish to protect the environment, assure human rights, or advance other broad social interests. Managers need to understand these complex and often intersecting stakeholder interests.

Stakeholder Power What is the power of each stakeholder ? Stakeholder power means the ability to use resources to make an event happen or to secure a desired outcome. Stakeholders have five different kinds of power: voting power, economic power, political power, legal power, and informational power. Voting power means that the stakeholder has a legitimate right to cast a vote. Stockhold- ers typically have voting power proportionate to the percentage of the company’s stock they own. Stockholders typically have an opportunity to vote on such major decisions as mergers and acquisitions, the composition of the board of directors, and other issues that may come before the annual meeting. (Stockholder voting power should be distinguished from the voting power exercised by citizens, which is discussed below.)

For example, Starboard Value LP, a New York–based hedge fund, used its voting power as a shareholder to force change in a company it had invested in. In 2011, Starboard bought more than 5 percent of the shares of the hair care company Regis Corporation. Starboard asserted that Regis, which owned or operated more than 12,000 hair salons under the Supercuts, Cost Cutters, and Hair Club for Men and Women brands, was “bloated with costs and lacked operational focus.” The hedge fund reached out to other shareholders and won majority support in a contentious campaign to replace three members of the board of directors with its own nominees. Regis subsequently replaced several top executives and set out to cut expenses. 20

Customers, suppliers, and retailers have economic power with the company. Suppliers can withhold supplies or refuse to fill orders if a company fails to meet its contractual re- sponsibilities. Customers may refuse to buy a company’s products or services if the com- pany acts improperly. Customers can boycott products if they believe the goods are too expensive, poorly made, or unsafe. Employees, for their part, can refuse to work under certain conditions, a form of economic power known as a strike or slowdown. Economic power often depends on how well organized a stakeholder group is. For example, workers who are organized into unions usually have more economic power than do workers who try to negotiate individually with their employers. Governments exercise political power through legislation, regulations, or lawsuits. While government agencies act directly, other stakeholders use their political power

20 “Regis Investor Wins 3 Board Seats in Proxy Fight,” Twin Cities Business, October 27, 2011; “Regis Ousts COO Following Board Shake-Up,” Twin Cities Business, January 24, 2012, at www.tcbmag.com ; and “Is Regis About to Bring Down the Hammer?” [Minnesota] Star Tribune, January 25, 2012.

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Chapter 1 The Corporation and Its Stakeholders 13

indirectly by urging government to use its powers by passing new laws or enacting regula- tions. Citizens may also vote for candidates that support their views with respect to govern- ment laws and regulations affecting business, a different kind of voting power than the one discussed above. Stakeholders may also exercise political power directly, as when social, environmental, or community activists organize to protest a particular corporate action. Stakeholders have legal power when they bring suit against a company for damages, based on harm caused by the firm; for instance, lawsuits brought by customers for damages caused by defective products, brought by employees for damages caused by workplace injury, or brought by environmentalists for damages caused by pollution or harm to species or habitat. After the mortgage lender Countrywide collapsed, many institutional shareholders, such as state pension funds, sued Bank of America (which had acquired Countrywide) to recoup some of their losses. Finally, stakeholders have informational power when they have access to valuable data, facts, or details. The disclosure (or nondisclosure) of information can be used to persuade, mobilize, or threaten others. With the explosive growth of technologies that facilitate the sharing of information, this kind of stakeholder power has become increasingly important.

Consumers’ ability to use social networks to share information about businesses they like—and do not like—has given them power they did not previously have. For example, Yelp Inc. operates a website where people can search for local businesses, post reviews, and read others’ comments. Since its launch in 2004, Yelp has at- tracted more than 50 million users. Its reviewers collectively have gained consider- able influence. Restaurants, cultural venues, hair salons, and other establishments can attract customers with five-star ratings and “People Love Us on Yelp” stickers in their windows—but, by the same token, can be badly hurt when reviews turn nasty. A recent study in the Harvard Business Review reported that a one-star in- crease in an independent restaurant’s Yelp rating led to a 5 to 9 percent increase in revenue. Some businesses have complained that Yelp reviewers have too much power. “My business just died,” said the sole proprietor of a housecleaning business. “Once they locked me into the 3.5 stars, I wasn’t getting any calls.” 21

Activists often try to use all of these kinds of power when they want to change a company’s policy. For example, human rights activists wanted to bring pressure on Unocal Corporation to change its practices in Burma, where it had entered into a joint venture with the government to build a gas pipeline. Critics charged that many human rights violations occurred during this project, including forced labor and relocations. In an effort to pressure Unocal to change its behavior, activists organized protests at stockholder meetings ( voting power ), called for boy- cotts of Unocal products ( economic power ), promoted local ordinances prohibiting cities from buying from Unocal ( political power ), brought a lawsuit for damages on behalf of Burmese villagers ( legal power), and gathered information about government abuses by interviewing Burmese refugees and publishing the results online ( informational power). These activists increased their chances of success by mobilizing many kinds of power. This combination of tactics eventually forced Unocal to pay compensation to people whose rights had been vio- lated and to fund education and health care projects in the pipeline region. 22 Exhibit 1.B provides a schematic summary of some of the main interests and powers of both market and nonmarket stakeholders.

Stakeholder Coalitions An understanding of stakeholder interests and power enables managers to answer the final question of stakeholder analysis.

21 “Is Yelp Fair to Businesses?” PC World, November 15, 2011. 22 Further information about the campaign against Unocal is available at www.earthrights.org/unocal.

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Stakeholders: Nature of Interest and Power

Stakeholder Nature of Interest— Stakeholder Wishes To:

Nature of Power—Stakeholder Influences Company By:

Market Stakeholders

Employees ■ Maintain stable employment in firm

■ Receive fair pay for work ■ Work in safe, comfortable

environment

■ Union bargaining power ■ Work actions or strikes ■ Publicity

Stockholders ■ Receive a satisfactory return on investments (dividends)

■ Realize appreciation in stock value over time

■ Exercising voting rights based on share ownership

■ Exercising rights to inspect company books and records

Customers ■ Receive fair exchange: value and quality for money spent

■ Receive safe, reliable products

■ Purchasing goods from competitors

■ Boycotting companies whose products are unsatisfactory or whose policies are unacceptable

Suppliers ■ Receive regular orders for goods

■ Be paid promptly for supplies delivered

■ Refusing to meet orders if conditions of contract are breached

■ Supplying to competitors

Retailers Wholesalers

■ Receive quality goods in a timely fashion at reasonable Cost

■ Offer reliable products that consumers trust and value

■ Buying from other suppliers if terms of contract are unsatisfactory

■ Boycotting companies whose goods or policies are unsatisfactory

Creditors ■ Receive repayment of loans ■ Collect debts and interest

■ Calling in loans if payments are not made

■ Utilizing legal authorities to repossess or take over property if loan payments are severely delinquent

Exhibit 1.B

How are coalitions likely to form? Not surprisingly, stakeholder interests often coincide. For example, consumers of fresh fruit and farmworkers who harvest that fruit in the field may have a shared interest in reducing the use of pesticides, because of possible adverse health effects from exposure to chemicals. When their interests are similar, stakeholders may form coalitions, temporary

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alliances to pursue a common interest. Stakeholder coalitions are not static. Groups that are highly involved with a company today may be less involved tomorrow. Issues that are con- troversial at one time may be uncontroversial later; stakeholders that are dependent on an organization at one time may be less so at another. To make matters more complicated, the process of shifting coalitions does not occur uniformly in all parts of a large corporation.

Stakeholder Nature of Interest— Stakeholder Wishes To:

Nature of Power—Stakeholder Influences Company By:

Nonmarket Stakeholders

Communities ■ Employ local residents in the company

■ Ensure that the local environment is protected

■ Ensure that the local area is developed

■ Refusing to extend additional credit

■ Issuing or restricting operating licenses and permits

■ Lobbying government for regulation of the company’s policies or methods of land use and waste disposal

Nongovernmental organizations

■ Monitor company actions and policies to ensure that they conform to legal and ethical standards, and that they protect the public’s safety

■ Gaining broad public support through publicizing the issue

■ Lobbying government for regulation of the company

Media ■ Keep the public informed on all issues relevant to their health, well-being, and economic status

■ Monitor company actions

■ Publicizing events that affect the public, especially those that have negative effects

Business support groups (e.g., trade associations)

■ Provide research and information which will help the company or industry perform in a changing environment

■ Using its staff and resources to assist company in business endeavors and development efforts

■ Providing legal or “group” political support beyond that which an individual company can provide for itself

Governments ■ Promote economic development ■ Encourage social improvements ■ Raise revenues through taxes

■ Adopting regulations and laws ■ Issuing licenses and permits ■ Allowing or disallowing

commercial activity

The general public ■ Protect social values ■ Minimize risks ■ Achieve prosperity for society

■ Supporting activists ■ Pressing government to act ■ Condemning or praising

individual companies

Competitors ■ Compete fairly ■ Cooperate on industry-wide or

community issues ■ Seek new customers

■ Pressing government for fair competition policies

■ Suing companies that compete unfairly

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16 Part One Business in Society

Stakeholders involved with one part of a large company often have little or nothing to do with other parts of the organization. In recent years, coalitions of stakeholders have become increasingly international in scope. Communications technology has enabled like-minded people to come together quickly, even across political boundaries and many miles of separation. Smartphones, blogs, e-mail, faxes, and social networking sites have become powerful tools in the hands of groups that monitor how multinational businesses are operating in different locations around the world.

In 2000, the Mexican government cancelled plans for a salt plant in a remote area on the Pacific coast, after groups from around the world rallied to oppose it. The proposed plant was a joint venture of Mitsubishi (a multinational corporation based in Japan) and the Mexican government. Together, they wanted to create jobs, taxes, and revenue by mining naturally occurring salt deposits along the Baja California coast. Environmentalists attacked the venture on the grounds that it would hurt the gray whales that migrated every year to a nearby lagoon to give birth to their young. In the past, such objections would probably have attracted little attention. But critics were able to use the Internet and the media to mobilize over 50 organiza- tions worldwide to threaten a boycott of Mitsubishi. One million people wrote the company, demanding that it “save the gray whale.” Although Mitsubishi was con- vinced that the whales would continue to thrive near the salt works, it found its plans blocked at every turn. 23

This example illustrates how international networks of activists, coupled with the me- dia’s interest in such business and society issues, make coalition development and issue activism an increasingly powerful strategic factor for companies. Nongovernmental or- ganizations regularly meet to discuss problems such as global warming, human rights, and environmental issues, just as their business counterparts do. Today, stakeholder coalitions are numerous in every industry and important to every company.

Stakeholder Salience and Mapping Some scholars have suggested that managers pay the most attention to stakeholders pos- sessing greater salience . (Something is salient when it stands out from a background, is seen as important, or draws attention.) Stakeholders stand out to managers when they have power, legitimacy, and urgency. The previous section discussed various forms of stake- holder power. Legitimacy refers to the extent to which a stakeholder’s actions are seen as proper or appropriate by the broader society. Urgency refers to the time-sensitivity of a stakeholder’s claim, that is, the extent to which it demands immediate action. The more of these three attributes a stakeholder possesses, the greater the stakeholder’s salience and the more likely that managers will notice and respond. 24 Managers can use the salience concept to develop a stakeholder map , a graphical rep- resentation of the relationship of stakeholder salience to a particular issue. Figure 1.4 pre- sents a simple example of a stakeholder map. The figure shows the position of various stakeholders on a hypothetical issue—whether or not a company should shut down an

23 H. Richard Eisenbeis and Sue Hanks, “When Gray Whales Blush,” case presented at the annual meeting of the North American Case Research Association, October 2002. 24 Ronald K. Mitchell, Bradley R. Agle, and Donna J. Wood, “Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts,” Academy of Management Review 22, no. 4 (1997), pp. 853–86.

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Chapter 1 The Corporation and Its Stakeholders 17

underperforming factory in a community. The horizontal axis represents each stakehold- er’s position on this issue—from “against” (the company should not shut the plant) to “for” (the company should shut the plant). The vertical axis represents the salience of the stakeholder, an overall measure of that stakeholder’s power, legitimacy, and urgency. In this example, the company’s creditors (banks) are pressuring the firm to close the plant. They have high salience, because they control the company’s credit line and are urgently demanding action. Shareholders, who are powerful and legitimate (but not as urgent in their demands), also favor the closure. On the other side, employees urgently oppose shut- ting the plant, because their jobs are at stake, but they do not have as much power as the creditors and are therefore less salient. Local government officials and local businesses also wish the plant to remain open, but have lower salience than the other stakeholders involved. A stakeholder map is a useful tool because it enables managers to see quickly how stakeholders feel about an issue and whether salient stakeholders tend to be in favor or op- posed. It also helps managers see how stakeholder coalitions are likely to form and what outcomes are likely. In this example, company executives might conclude from the stake- holder map that those supporting the closure—creditors and shareholders—have the great- est salience. Although they are less salient, employees, local government officials, and the community all oppose the closure and may try to increase their salience by working to- gether. Managers might conclude that the closure is likely, unless opponents organize an effective coaliton. This example is fairly simple; more complex stakeholder maps can rep- resent network ties among stakeholders, the size of stakeholder groups, and the degree of consensus within stakeholder groups. 25

FIGURE 1.4 Stakeholder Map of a Proposed Plant Closure

Community

Creditors

Shareholders

Employees

Local Government

S ta

ke ho

ld er

S al

ie nc

e

Position on the IssueAGAINST

HIGH

LOW

FOR

25 For two different approaches to stakeholder mapping, see David Saiia and Vananh Le, “Mapping Stakeholder Salience,” presented at the International Association for Business and Society, June 2009; and Robert Boutilier, Stakeholder Politics: Social Capital, Sustainable Development, and the Corporation (Sheffield, UK: Greenleaf Publishing, 2009), chs. 6 and 7.

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18 Part One Business in Society

The Corporation’s Boundary-Spanning Departments How do corporations organize internally to respond to and interact with stakeholders? Boundary-spanning departments are departments, or offices, within an organization that reach across the dividing line that separates the company from groups and people in society. Building positive and mutually beneficial relationships across organizational boundaries is a growing part of management’s role. Figure 1.5 presents a list of the corporation’s market and nonmarket stakeholders, alongside the corporate departments that typically have responsibility for engaging with them. As the figure suggests, the organization of the corporation’s boundary-spanning functions is complex. For example, in many companies, departments of public affairs or

FIGURE 1.5 The Corporation’s Boundary-Spanning Departments G

ov er

nm en

t C om

m unity

CustomersSto ckh

olde rs

Customer Relations

• Customer service • Total quality management • Liability lawsuit defense • Recall management

Shareholder Relations, Investor Relations

• External and internal audit • SEC filings, compliance • Communications • Proxy election managementPublic Affairs,

Governmental Affairs, Government Relations

• Public policy • Lobbying • Political action • Trade associations • Advocacy ads • Grassroots mobilization

Human Resources, Labor Relations

• Communications • Union negotiations • OSHA, EEOC, and labor law compliance • Diversity and family–work programs

Environment, Health & Safety, Sustainability

• EPA and state environmental compliance • Internal environmental auditing • Recycling, take-back