Interactions between business and society occur

law1541X_fm_i-xviii i 12/29/15 03:24 PM

Stakeholders, Ethics, Public Policy Fifteenth Edition

Anne T. Lawrence San José State University

James Weber Duquesne University

Business and Society

Final PDF to printer

law1541X_fm_i-xviii ii 12/30/15 11:35 AM

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

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2017 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2014 and 2011. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

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

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 0 DOW/DOW1 0 9 8 7 6

ISBN 978-1-259-31541-1 MHID 1-259-31541-X

Senior Vice President, Products & Markets: Kurt L. Strand Vice President, General Manager, Products & Markets: Marty Lange Vice President, Content Design & Delivery: Kimberly Meriwether David Managing Director: Susan Gouijnstook Brand Manager: Laura Hurst Spell Editorial Director: Michael Ablassmeir Product Developer: Laura Hurst Spell Marketing Manager: Casey Keske Digital Product Analyst: Sankha Basu Director, Content Design & Delivery: Terri Schiesl Executive Program Manager: Faye M. Herrig Content Project Managers: Mary Jane Lampe Buyer: Susan K. Culbertson Cover Designer: Studio Montage Content Licensing Specialist: Deanna Dausener Cover credit: Alija/Getty Images Compositor: SPi Global Printer: R. R. Donnelley

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data Names: Lawrence, Anne T., author. | Weber, James (Business ethics professor), author. Title: Business and society : stakeholders, ethics, public policy / Anne T. Lawrence, San Jose State University, James Weber, Duquesne University. Description: Fifteenth edition. | New York, NY : McGraw-Hill Education, [2017] Identifiers: LCCN 2015044071 | ISBN 9781259315411 (alk. paper) Subjects: LCSH: Social responsibility of business. Classification: LCC HD60 .F72 2017 | DDC 658.4/08--dc23 LC record available at http://lccn.loc.gov/2015044071

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

All brand or product names are trademarks or registered trademarks of their respective companies. CPT five-digit codes, nomenclature, and other data are © 2015 American Medical Association. All rights reserved. No fee schedules, basic unit, relative values, or related listings are included in the CPT. The AMA assumes no liability for the data contained herein. CPT codes are based on CPT 2015. All references to ICD-10-CM codes, guidelines, or related data are based on the International Classification of Diseases, Tenth Revision, Clinical Modification (ICD-10-CM) 2015. All references to CMS HCPCS codes, guidelines, or related data are based on the Centers for Medicare and Medicaid Services (CMS), Healthcare Common Procedure Coding System (HCPCS) Level II 2015. All names, situations, and anecdotes are fictitious. They do not represent any person, event, or medical record.

mheducation.com/highered

Final PDF to printer

iii

law1541X_fm_i-xviii iii 12/29/15 03:24 PM

About the Authors Anne T. Lawrence San José State University Anne T. Lawrence is a professor of management at San José State University. She holds a Ph.D. from the University of California, Berkeley, and completed two years of postdoc- toral study at Stanford University. Her articles, cases, and reviews have appeared in many journals, including the Academy of Management Review, Administrative Science Quar- terly, Case Research Journal, Journal of Management Education, California Management Review, Business and Society Review, Research in Corporate Social Performance and Pol- icy, 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 the Western Casewriters Association and is a Fellow of NACRA, from which she received a Distinguished Contributor Award in 2014. 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, 2009, and 2015). At San José State University, she was named Outstanding Professor of the Year in 2005. In 2015, she received a Master Teacher in Ethics Award from The Wheatley Institution at Brigham Young University.

James Weber Duquesne University James Weber is a professor of management and business ethics at Duquesne University. He also serves as the executive director of the Institute for Ethics in Business and coor- dinates 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 University of San Francisco, University of Pittsburgh, and Marquette University. His areas of interest and research include managerial and organizational values, cognitive moral reasoning, busi- ness ethics, ethics training and education, eastern religions’ ethics, and corporate social audit and performance. His work has appeared in Organization Science, Human Relations, Business & Society, Journal of Business Ethics, Academy of Management Perspectives, and Business Ethics Quarterly. He received the SIM Sumner Marcus Award for lifetime contribution to the Social Issues in Management division of the Academy of Management in 2013 and the Best Reviewer Award from Business & Society in 2015. He was recognized by the Social Issues in Management division with the Best Paper Award in 1989 and 1994 and received the Best Article Award from the International Association for Business and Society (IABS) 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 IABS.

Final PDF to printer

iviv

law1541X_fm_i-xviii iv 12/29/15 03:24 PM

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—highlighted by the failure of major business firms and unprecedented intervention in the economy by many governments—and its continuing aftermath as societies have struggled to recover have focused a fresh spotlight on issues of corporate responsibility and ethics. Around the world, people and governments are demanding that executives do a better job of serving shareholders and the public. Once again, policymakers are actively debating the proper scope of government oversight in such wide-ranging arenas as health care, financial services, and manufacturing. Man- agement educators are placing renewed emphasis on issues of business leadership and accountability.

∙ A host of new technologies have 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, which have the potential to enhance peoples’ health and quality of life. Technology has changed how we interact with others, bringing people closer together through social networking, instant messag- ing, 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, censor free expres- sion, or invade individuals’ privacy. Businesses must learn to harness new technolo- gies, 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 rela- tionship, abandoning practices that once provided job security and guaranteed pensions in favor of highly flexible but less secure forms of employment. The Great Recession 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, trans- national corporations are challenged to address their obligations to workers in far-flung locations with very different cultures and to respond to initiatives, like the Bangladesh Accord on Fire and Building Safety, which call for voluntary commitment to enlight- ened 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 lead- ing many companies to adopt new practices, and the nations of the world have recently adopted a groundbreaking agreement 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

Final PDF to printer

Preface v

law1541X_fm_i-xviii v 12/29/15 03:24 PM

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 and their nations are developing at an extraordinary rate. Yet, the prosperity that accompanies economic growth is not shared equally. Access to health care and education remain unevenly distributed among and within the world’s nations, and inequalities of wealth and income have become greater than they have been in many years. These trends have challenged businesses to consider the impact of their compensation, recruitment, and professional development practices on the persistent— and in some cases, growing—gap between the haves and the have-nots.

∙ The tragic epidemic of Ebola in West Africa, as well as the continuing pandemic of AIDS in sub-Saharan Africa and the threat of a swine or avian flu outbreak have com- pelled 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 intellectual property rights and the urgent demands of public health, particularly in the developing 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 Fifteenth 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

Final PDF to printer

vi Preface

law1541X_fm_i-xviii vi 12/29/15 03:24 PM

Professors 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. 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 Fifteenth 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. Continually evolving, McGraw-Hill Connect® has been redesigned to provide the only true adaptive learning experience delivered within a simple and easy-to-navigate environ- ment, placing students at the very center.

∙ Performance Analytics—Now available for both instructors and students, easy-to- decipher data illuminates course performance. Students always know how they are doing in class, while instructors can view student and section performance at-a-glance.

∙ Personalized Learning—Squeezing the most out of study time, the adaptive engine within Connect creates a highly personalized learning path for each student by identify- ing areas of weakness and providing learning resources to assist in the moment of need.

This seamless integration of reading, practice, and assessment ensures that the focus is on the most important content for that individual.

Instructor Library The Connect Management Instructor Library is a repository for additional resources to improve student engagement in and out of class. The instructor can select and use any asset that enhances his or her lecture. The Connect Instructor Library includes an exten- sive instructor’s resource manual—fully revised for this edition—with lecture outlines, discussion case questions and answers, tips from experienced instructors, and extensive case teaching notes. A computerized test bank and power point slides for every chapter are also provided.

Manager’s Hot Seat Now instructors can put students in the hot seat with access to an interactive program. Students watch real managers apply their years of experience when confronting unscripted issues. As the scenario unfolds, questions about how the manager is handling the situation pop up, forcing the student to make decisions along with the manager. At the end of the scenario, students watch a postinterview with the manager and view how their responses matched up to the manager’s decisions. The Manager’s Hot Seat videos are now available as assignments in Connect.

Final PDF to printer

Preface vii

law1541X_fm_i-xviii vii 12/29/15 03:24 PM

Create With McGraw-Hill Create, www.mcgrawhillcreate.com, the instructor can easily rear- range chapters, combine material from other content sources, and quickly upload self- developed content such as a course syllabus or teaching notes. Content may be drawn from any of the thousands of leading McGraw-Hill textbooks and arranged to fit a partic- ular class or teaching approach. Create even allows an instructor to personalize the book’s appearance by selecting the cover and adding the instructor’s name, school, and course information and to select a print or eBook format.

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 Fifteenth 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 col- ored type) illustrate and elaborate the main points. A glossary at the end of the book pro- vides 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.

LearnSmart® The Fifteenth Edition of Business and Society is available with LearnSmart, the most widely used adaptive learning resource, which is proven to improve grades. (To find out more about LearnSmart, go to McGraw-Hill Connect® connect.mheducation.com.) By helping students focus on the most important information they need to learn, LearnSmart personalizes the learning experience so they can study as efficiently as possible.

SmartBook® An extension of LearnSmart, SmartBook is an adaptive eBook that helps students focus their study time more effectively. As students read, SmartBook assesses comprehension and dynamically highlights where they need to study more.

New for the Fifteenth Edition

Over the years, the issues addressed by Business and Society have changed as the envi- ronment of business itself has been transformed. This Fifteenth Edition is no exception, 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 Fifteenth Edition has been thoroughly revised and updated to reflect the latest the- oretical work in the field and the latest statistical data, as well as recent events. Among the new additions are:

∙ An all-new chapter for this edition on business and its suppliers, incorporating the latest thinking about social, ethical, and environmental responsibility in global supply chains.

Final PDF to printer

viii Preface

law1541X_fm_i-xviii viii 12/29/15 03:24 PM

∙ New discussion of theoretical advances in stakeholder theory, corporate citizenship, public affairs management, public and private regulation, corporate governance, social and environmental auditing, social investing, reputation management, business partner- ships, and corporate philanthropy.

∙ Treatment of practical issues, such as social networking, digital medical records, bot- tom of the pyramid, gender diversity, 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 worker safety in the garment industry in Bangladesh; the ignition switch recalls by General Motors; Google and the “right to be forgotten”; Uber’s responsibilities toward its drivers, customers, and communities; the decision to raise wages at Gravity Payments; the regulation of e-cigarettes; security breaches that compromised customers’ information at Target and other companies; the hacking of Sony Pictures’ servers; the environmental impact of hydraulic fracturing; shareholder proxy access at Whole Foods; the sale of chemically tainted flooring by Lumber Liquidators; substandard wages and working conditions at nail salons; and JPMorgan Chase’s reputational challenges.

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 community, where traditional buffers no longer protect business from external change, managers 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

Final PDF to printer

ix

law1541X_fm_i-xviii ix 12/29/15 03:24 PM

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 suggestions and ideas. We also note the feedback from students in our classes and at other colleges and universities that has helped make this book as user-friendly as possible. We especially wish to thank three esteemed colleagues who made special contributions to this edition. Cynthia E. Clark, founder and director of the Harold S. Geneen Institute of Corporate Governance and director of the Alliance for Ethics and Social Responsibility at Bentley University, generously shared with us her expertise on corporate reputation, governance, and media relations. She provided new material for and helped reorganize Chapter 19, which has greatly benefited from her insights. She also advised us on the revi- sions of Chapter 3 and contributed the case, “Google and the Right to Be Forgotten.” Anke Arnaud of Embry-Riddle Aeronautical University provided research support for the two environmental chapters (Chapters 9 and 10), drawing on her extensive knowledge of the sustainability literature. An expert in pedagogy, she also prepared the PowerPoint slides that accompany the text. Harry J. Van Buren III of the University of New Mexico shared his expertise on technology and society and provided in-depth suggestions on how best to reorganize the two technology chapters (Chapters 11 and 12), which have been extensively revised for this edition. For all of these contributions, we are most grateful. We also wish to express our appreciation for the colleagues who provided detailed reviews for this edition. These reviewers were Heather Elms of the Kogod School of Business at American University; Joseph A. Petrick of Wright State University; Kathleen Rehbein of Marquette University; Judith Schrempf-Stirling of the Robins School of Business at the University of Richmond; and Caterina Tantalo of San Francisco 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 Shawn Berman of University of New Mexico; Jennifer J. Griffin of George Washington University; Ronald M. Roman, Asbjorn Osland, and Marc- Charles Ingerson of San José State University; Bernie Hayen of Kansas State University; Cynthia M. Orms of Georgia College & State University; Alexia Priest of Post University; Sandra Waddock of Boston College; Mary C. Gentile of Giving Voice to Values; 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 Univer- sity of Maine; Bradley Agle of Brigham Young University; Ann Svendsen of Simon Fraser University (retired); Robert Boutilier of Robert Boutilier & Associates; Kathryn S. Rogers of Pitzer College (retired); Anne Forrestel of the University of Oregon; Kelly Strong of Col- orado State University; Daniel Gilbert of Gettysburg College; William Sodeman of Hawaii Pacific University; Gina Vega of Merrimack College; Craig Dunn and Brian Burton of West- ern 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 Univer- sity of Pittsburgh; Virginia Gerde, Matthew Drake, 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; Anthony J. Daboub of the Univer- sity of Texas at Brownsville; Linda Klebe Treviño of Pennsylvania State University; Mary