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Managerial Ethics And Social Responsibility - Case Study 7

Stakeholders, Ethics, Public Policy Sixteenth 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, SIXTEENTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2020 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2017, 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.

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ISBN 978-1-260-04366-2 (bound edition) MHID 1-260-04366-5 (bound edition) ISBN 978-1-260-14049-1 (loose-leaf edition) MHID 1-260-14049-0 (loose-leaf edition)

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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: Sixteenth edition. | New York, NY : McGraw-Hill Education, [2020] Identifiers: LCCN 2018052591 | ISBN 9781260043662 (alk. paper) | ISBN 1260043665 (bound edition) | ISBN 9781260140491 (loose-leaf edition) | ISBN 1260140490 (loose-leaf edition) Subjects: LCSH: Social responsibility of business. Classification: LCC HD60 .F72 2020 | DDC 658.4/08—dc23 LC record available at https://lccn.loc .gov/2018052591

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.

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Anne T. Lawrence San José State University Anne T. Lawrence is professor of management emerita at San José State University. She holds a Ph.D. from the University of California, Berkeley, and completed two years of post- doctoral 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 Performance 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. She served as president of both the North American Case Research Association (NACRA) and of 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. She currently serves as chair of the board of the Case Research Foundation.

James Weber Duquesne University James Weber is a professor of management and business ethics at Duquesne University, where he also serves as the managing director of the Institute for Ethics in Business. 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 personal, managerial, and organizational values and cognitive moral reasoning. His work has appeared in Organization Science, Human Relations, Business & Society, Journal of Business Ethics, 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 divi- sion 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).

About the Authors

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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 globaliza- tion of business, the emergence of civil society organizations in many nations, and rapidly changing government regulations and international agreements have significantly altered the job of managers 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 rise of populist and nationalist political leaders in the United States and parts of Europe and the Middle East have led to renewed debates on the proper role of govern- ment in regulating business and protecting stakeholders. As environmental, financial, employment, and consumer regulations have been rolled back, particularly in the United States, businesses have had to choose whether to take advantage of loosened rules or to follow a strategy of voluntary corporate responsibility. Long-standing trade relationships have been upended by tariffs and other barriers on imports, helping some businesses and hurting others. Changing immigration policy has required firms to rethink their policies toward their foreign-born workers, including so-called Dreamers brought to the United States illegally as children. In this rapidly changing environment, business firms have been challenged to manage in a way that remains consistent with their values.

∙ 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, transportation, and pharmaceuticals, which have the potential to enhance peoples’ health and quality of life. Artificial intelligence can be used to drive vehicles, diagnose illnesses, and manage investments. Technology has changed how we interact 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 the use of the Internet to exploit or defraud others, censor free expression, or invade individuals’ privacy. Businesses must learn to harness powerful technologies for good, while acting responsibly and ethically toward their many stakeholders.

∙ Businesses in the United States and other nations are transforming the employment relationship, abandoning practices that once provided job security and guaranteed pen- sions in favor of highly flexible but less secure forms of employment. The rise of the “gig” economy has transformed many workers into self-employed contractors. Many jobs, including those in the service sector, are being outsourced to the emerging econo- mies of China, India, and other nations. As jobs shift abroad, multinational corporations are challenged to address their obligations to workers in far-flung locations with very different cultures and to respond to initiatives, like the Responsible Business Alliance Code of Conduct, which call for voluntary commitment to enlightened labor standards and human rights. The #MeToo movement has focused a spotlight on sexual harassment and abusive behavior in the workplace, and led to the fall of well-known executives and media personalities and calls for change in workplace culture.

∙ Severe weather events—hurricanes, floods, and wildfires—have urgently focused attention on the human impact on natural systems, prompting both businesses and

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governments to act. An emerging consensus about the causes and risks of climate change 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, most notably in the Paris Agreement. Many businesses have cut air pollution, curbed solid waste, and designed products and buildings to be more energy-efficient, saving money in the process. A better understanding of how human 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 its nations are developing at an extraordinary rate. Yet, the prosperity that accompanies economic growth is not shared equally. Access to health care, adequate nutrition, 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. Big corporate tax cuts in the United States have required companies to decide whether to distribute their windfalls to their executives, shareholders, employees, or customers; to invest in new jobs; or to buy back stock.

∙ The opioid epidemic has focused attention on the role of drug companies, distributors, and pharmacies—as well as government regulators—in contributing to the scourge of addiction, disability, and death caused by narcotics. The continuing pandemic of AIDS in sub-Saharan Africa and the threat of a swine or avian flu, the Zika virus, or another Ebola outbreak have compelled drug makers to rethink both their pricing policies and their research priorities. 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. Technology offers candidates and politi- cal parties new ways to reach out and inform potential voters, but it has also created new opportunities for manipulation of the electoral process through deceptive messaging. Businesses the world over are challenged to determine their legitimate scope of influ- ence and how to voice their interests most effectively in the public policy process.

The new Sixteenth 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 Manage- ment. This new edition of the text is also appropriate for an undergraduate sociology 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 considered.

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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 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 Sixteenth 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.

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 their lecture. The Connect Instructor Library includes an extensive instruc- tor’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.

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Create

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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 Sixteenth 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. Inter- net 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.

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New for the Sixteenth Edition

Over the years, the issues addressed by Business and Society have changed as the envi- ronment of business itself has been transformed. This Sixteenth 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 have endured through the years.

The Sixteenth Edition has been thoroughly revised and updated to reflect the latest theoretical work in the field and statistical data, as well as recent events. Among the new additions are:

∙ 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 partnerships, supply chain codes of conduct, social entrepreneurship, and corporate philanthropy.

∙ Treatment of practical issues, such as social networking, artificial intelligence and robotics, gender diversity, political advertising and campaign contributions, public and media relations, well as the latest developments in the regulatory environment in which businesses operate.

∙ New discussion cases and full-length cases on such timely topics as the role of busi- ness in the unfolding opioid crisis, Wells Fargo’s unauthorized consumer accounts, the Volkswagen diesel emissions scandal, the aftermath of the BP disaster in the Gulf of Mexico, the massive Equifax data breach, the consumer boycott of Stoli vodka, the business response to the movement for school safety, LaFarge’s dealings in the Syrian war zone, the potential regulation of Facebook in the United States and Europe, political action by the U.S. steel industry on the issue of tariffs, the rise of autonomous vehicles, law enforcement access to mobile phone data, executive misconduct at Wynn Resorts, business response to the threat to “Dreamers,” IKEA’s sustainable supply chain, Sales- force’s integrated philanthropy, and social media criticism of United Airlines.

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

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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 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 two esteemed colleagues who made special contributions to this edition. David M. Wasieleski, professor of management and business ethics at Duquesne University, led the revisions of Chapters 5 and 6, to which he contributed his knowledge of ethics theory and organizational practice. Vanessa D. Hill, associate profes- sor of management at the University of Louisiana at Lafayette, generously shared with us her expertise on the employment relationship and workplace diversity and inclusion. She was the lead author of Chapters 15 and 16, which have greatly benefited from her insights. For 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 Hossein Bidgoli, California State Uni- versity, Bakersfield; Ryan Fehr, Foster School of Business, University of Washington, Seattle; Scott Jeffrey, Monmouth University; Eun-Hee Kim, Gabelli School of Business, Fordham University; Jet Mboga, William Paterson University; Stephen P. Preacher, South- ern Wesleyan University; and A. J. Stagliano, Saint Joseph’s University. Their insights helped guide our revision.

Thanks are also due Daniel Jacobs of Loyola Marymount University; Samir Kumar Barua of the Indian Institute of Management Ahmedabad and Mahendra R. Gurarathi of Bentley University; Grishma Shah, Janet Rovenpor, and Musa Jafar of Manhattan College; Robyn Linde of Rhode Island College and H. Richard Eisenbeis of the Univer- sity of Southern Colorado Pueblo (retired); Cynthia E. Clark of Bentley University; and Debra M. Staab, a freelance writer and researcher, who contributed cases to this edition.

We are grateful to several individuals have made specific research contributions to this project. Denise Kleinrichert, of the Center for Ethical and Sustainable Business Manage- ment at San Francisco State University, provided new material on B Corporations and social entrepreneurship for Chapter 3, which we appreciate. Natalie Hanna and Kelsey Aemi of Duquesne University provided able research assistance. Thanks are due also to Carolyn Roose Eagle, Ben Eagle, and Nate Marsh for research support. Emily Marsh, of Colorbox Industries, provided graphic design services.

Debra M. Staab, in addition to authoring a case, provided research assistance and under- took the complex task of preparing the instructor’s resource manual, test bank, and other ancillary materials. Her contributions have been invaluable.

In addition, we are grateful to the many colleagues who over the years have gener- ously shared with us their insights into the theory and pedagogy of business and soci- ety. In particular, we would like to thank Cynthia E. Clark and Jill Brown of Bentley University; Shawn Berman, Harry J. Van Buren III, Natalia Vidal, and Garima Sharma of the University of New Mexico; Anke Arnaud of Embry Riddle Aeronautical Univer- sity; Jennifer J. Griffin of Loyola University of Chicago; Ronald M. Roman, Asbjorn Osland, Thomas Altura, and Matthew Maguire of San José State University; Heather Elms of American University; Joseph A. Petrick of Wright State University; Kathleen

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xii Acknowledgments

Rehbein of Marquette University; Judith Schrempf-Stirling of the University of Geneva; Michelle Westermann-Behaylo of the University of Amsterdam; Diane Swanson and Bernie Hayen of Kansas State University; Cynthia M. Orms of Georgia College & State University; Ali Al-Kazemi of Kuwait University; Sandra Waddock of Boston College; Mary C. Gentile of the University of Virginia Darden School of Business; Michael E. Johnson-Cramer and Jamie Hendry of Bucknell University; John Mahon and Stephanie Welcomer of the University of Maine; Bradley Agle of Brigham Young University; 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 EGADE Business School Monterrey; Sharon Livesey of Fordham University; Barry Mitnick of the University of Pittsburgh; Virginia Gerde of Furman University; Matthew Drake of Duquesne University; Robbin Derry of the University of Lethbridge; Jerry Calton of the University of Hawaii-Hilo; Linda Klebe Treviño of Pennsylvania State University; Mary Meisenhelter of York College of Pennsylvania; Amy Hillman and Gerald Keim of Arizona State University; Barbara Altman of Texas A&M University Central Texas; Randall Harris of Texas A&M University Corpus Christi; Richard Wokutch of Virginia Tech University; Dawn Elm of University of St. Thomas; Lynda Brown of the Univer- sity of Montana; Kathleen A. Getz of Loyola University – Maryland; Gordon P. Rands of Western Illinois University; Paul S. Adler of the University of Southern California; Linda C. Rodriguez of the University of South Carolina Aiken; Emmanuel Raufflet of HEC Montreal; Bruce Paton of Menlo College; Smita Trivedi, Tom E. Thomas, Geoffrey Desa, and Murray Silverman (retired), of San Francisco State University; Jacob Park of Green Mountain College; Armand Gilinsky of Sonoma State University; and Tara Ceranic Salinas of the University of San Diego.

These scholars’ dedication to the creative teaching of business and society has been a continuing inspiration to us.