Wsj college football grid of shame

Managerial Ethics And Social Responsibility - Case Study 3

Read the Case “Equifax’s Data Breach” at the end of Chapter 6 and response to the following:

Do you think the company reacted appropriately upon learning about the breach?
What could Equifax have done differently to prevent the cyberattack?
What type(s) of ethical climate existed at Equifax, and did this contribute to the hacking issues there?
What changes should managers and the board of directors make now to reduce the likelihood of an incident like this from occurring in the future?
What types of ethics training would you recommend for Equifax employees in the future to prevent such correct behavior?
Business and Society

Final PDF to printer

law43665_fm_i-xx ii 01/07/19 10:32 AM

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.

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 LWI 21 20 19

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)

Portfolio Manager: Laura Hurst Spell Marketing Manager: Lisa Granger Content Project Managers: Jeni McAtee, Katie Reuter Buyer: Susan K. Culbertson Design: Jessica Cuevas Content Licensing Specialist: Traci Vaske Cover Image: ©View Apart/Shutterstock Compositor: SPi Global

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: 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.

mheducation.com/highered

Final PDF to printer

iii

law43665_fm_i-xx iii 01/07/19 10:32 AM

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

Final PDF to printer

iv

law43665_fm_i-xx iv 01/07/19 10:32 AM

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

Final PDF to printer

Preface v

law43665_fm_i-xx v 01/07/19 10:32 AM

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.

Final PDF to printer

vi Preface

law43665_fm_i-xx vi 01/07/19 10:32 AM

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.

Final PDF to printer

Preface vii

law43665_fm_i-xx vii 01/07/19 10:32 AM

Create

With McGraw-Hill Create, create.mheducation.com, the instructor can easily rearrange 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 specific class or teach- ing 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 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.

Final PDF to printer

law43665_fm_i-xx viii 01/07/19 10:32 AM

Students—study more efficiently, retain more and achieve better outcomes. Instructors—focus on what you love—teaching.

You’re in the driver’s seat. Want to build your own course? No problem. Prefer to use our turnkey, prebuilt course? Easy. Want to make changes throughout the semester? Sure. And you’ll save time with Connect’s auto-grading too.

They’ll thank you for it. Adaptive study resources like SmartBook® help your students be better prepared in less time. You can transform your class time from dull definitions to dynamic debates. Hear from your peers about the benefits of Connect at www.mheducation.com/highered/connect

Make it simple, make it affordable. Connect makes it easy with seamless integration using any of the major Learning Management Systems—Blackboard®, Canvas, and D2L, among others—to let you organize your course in one convenient location. Give your students access to digital materials at a discount with our inclusive access program. Ask your McGraw-Hill representative for more information.

Solutions for your challenges. A product isn’t a solution. Real solutions are affordable, reliable, and come with training and ongoing support when you need it and how you want it. Our Customer Experience Group can also help you troubleshoot tech problems—although Connect’s 99% uptime means you might not need to call them. See for yourself at status.mheducation.com

SUCCESSFUL SEMESTERS INCLUDE CONNECT

65% Less Time Grading

©Hill Street Studios/Tobin Rogers/Blend Images LLC

For Instructors

Final PDF to printer

law43665_fm_i-xx ix 01/07/19 10:32 AM

©Shutterstock/wavebreakmedia

Effective, efficient studying. Connect helps you be more productive with your study time and get better grades using tools like SmartBook, which highlights key concepts and creates a personalized study plan. Connect sets you up for success, so you walk into class with confidence and walk out with better grades.

Study anytime, anywhere. Download the free ReadAnywhere app and access your online eBook when it’s convenient, even if you’re offline. And since the app automatically syncs with your eBook in Connect, all of your notes are available every time you open it. Find out more at www.mheducation.com/readanywhere

No surprises. The Connect Calendar and Reports tools keep you on track with the work you need to get done and your assignment scores. Life gets busy; Connect tools help you keep learning through it all.

Learning for everyone. McGraw-Hill works directly with Accessibility Services Departments and faculty to meet the learning needs of all students. Please contact your Accessibility Services office and ask them to email accessibility@mheducation.com, or visit www.mheducation.com/about/accessibility.html for more information.

“I really liked this app—it made it easy to study when

you don't have your text- book in front of you.”

- Jordan Cunningham, Eastern Washington University

Chapter 12 Quiz Chapter 11 Quiz

Chapter 7 Quiz

Chapter 13 Evidence of Evolution Chapter 11 DNA Technology

Chapter 7 DNA Structure and Gene...

and 7 more...

13 14

For Students

Final PDF to printer

x Preface

law43665_fm_i-xx x 01/07/19 10:32 AM

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

Final PDF to printer

xi

law43665_fm_i-xx xi 01/07/19 10:32 AM

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

Final PDF to printer

law43665_fm_i-xx xii 01/07/19 10:32 AM

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.

We wish to express our appreciation to James E. Post, a former author of this book, who has continued to offer valuable intellectual guidance to this project. We also wish to note, with sadness and gratitude, the passing of our mentor and a former author of this book, William C. Frederick, in 2018. His ideas live on in this book.

We continue to be grateful to the excellent editorial and production team at McGraw- Hill. We offer special thanks to Laura Hurst Spell, our associate portfolio manager, for her skillful leadership of this project. We also wish to recognize the able assistance of Marla Sussman, executive editor, and of Jeni McAtee, content project manager, whose ability to keep us on track and on time has been critical. Lisa Granger headed the excellent market- ing team. Katie Reuter, content project manager (assessment); Susan K. Culbertson, buyer; Richard Wright, copy editor; Traci Vaske, content licensing specialist; and Jessica Cuevas, 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

Final PDF to printer

xiii

law43665_fm_i-xx xiii 01/07/19 10:32 AM

Brief Contents PART ONE Business in Society 1 1. The Corporation and Its Stakeholders 2 2. Managing Public Issues and Stakeholder

Relationships 25 3. Corporate Social Responsibility and

Citizenship 47 4. Business in a Globalized World 71

PART TWO Business and Ethics 93 5. Ethics and Ethical Reasoning 94 6. Organizational Ethics 115

PART THREE Business and Public Policy 137 7. Business–Government Relations 138 8. Influencing the Political Environment 161

PART FOUR Business and the Natural Environment 187 9. Sustainable Development and Global

Business 188 10. Managing for Sustainability 211

PART FIVE Business and Technology 237 11. The Role of Technology 238 12. Regulating and Managing Technology 261

PART SIX Business and Its Stakeholders 281 13. Shareholder Rights and Corporate

Governance 282

14. Consumer Protection 305 15. Employees and the Corporation 327 16. Managing a Diverse Workforce 350 17. Business and Its Suppliers 374 18. The Community and the

Corporation 396 19. Managing the Public and the Corporate

Reputation 419

CASES IN BUSINESS AND SOCIETY 441 1. Profiting from Pain: Business and the

U.S. Opioid Epidemic 442 2. Wells Fargo’s Unauthorized Customer

Accounts 453 3. The Carlson Company and Protecting

Children in the Global Tourism Industry 462

4. BP Blowout: The Aftermath of the Gulf Oil Disaster 471

5. Google and the Right to Be Forgotten 480

6. General Motors and the Ignition Switch Recalls 490

7. The Upper Big Branch Mine Disaster 500

8. After Rana Plaza 510 9. The Boycott of Stoli Vodka 521

GLOSSARY 529

BIBLIOGRAPHY 542

INDEXES Name 547 Subject 550

Final PDF to printer

law43665_fm_i-xx xiv 01/07/19 10:32 AM

xiv

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 8

Different Kinds of Stakeholders 9

Stakeholder Analysis 11 Stakeholder Interests 12

Stakeholder Power 13

Stakeholder Coalitions 15

Stakeholder Mapping 16

The Corporation’s Boundary-Spanning Departments 19 The Dynamic Environment of Business 20 Creating Value in a Dynamic Environment 22 Summary 22 Key Terms 23 Internet Resources 23 Discussion Case: Insuring Uber’s App-On Gap 23

CHAPTER 2 Managing Public Issues and Stakeholder Relationships 25 Public Issues 26 Environmental Analysis 28

Competitive Intelligence 31

Stakeholder Materiality 32

The Issue Management Process 33 Identify Issue 33

Analyze Issue 34

Generate Options 35

Take Action 35

Evaluate Results 35

Organizing for Effective Issue Management 36 Stakeholder Engagement 38

Stages in the Business–Stakeholder Relationship 38

Drivers of Stakeholder Engagement 39

The Role of Social Media in Stakeholder Engagement 40

Stakeholder Dialogue 41 Stakeholder Networks 41

The Benefits of Engagement 42

Summary 43 Key Terms 44 Internet Resources 44 Discussion Case: Businesses Respond to the Movement for School Safety 44

CHAPTER 3 Corporate Social Responsibility and Citizenship 47 Corporate Power and Responsibility 49 Corporate Social Responsibility and Citizenship 51

The Origins of Corporate Social Responsibility 51

Balancing Social, Economic, and Legal Responsibilities 53 The Corporate Social Responsibility Question 53

Support for Corporate Social Responsibility 53

Concerns about Corporate Social Responsibility 57

Social Entrepreneurs and B Corporations 59 Management Systems for Corporate Social Responsibility and Citizenship 60 Stages of Corporate Citizenship 62 Assessing and Reporting Social Performance 64

Social Audit Standards 65

Social Reporting 65

Summary 67 Key Terms 68 Internet Resources 68 Discussion Case: Corporate Social Responsibility at Gravity Payments 69

CHAPTER 4 Business in a Globalized World 71 The Process of Globalization 72

Major Multinational Enterprises 73

International Financial and Trade Institutions 75

The Benefits and Costs of Globalization 78 Benefits of Globalization 78

Costs of Globalization 79

Doing Business in a Diverse World 81 Comparative Political and Economic Systems 82

Final PDF to printer

Contents xv

law43665_fm_i-xx xv 01/07/19 10:32 AM

Information Technology Ethics 121

Supply Chain Ethics 122

Making Ethics Work in Corporations 123 Building Ethical Safeguards into the Company 123

Ethics in a Global Economy 129 Efforts to Curtail Unethical Practices 130

Summary 132 Key Terms 133 Internet Resources 133 Discussion Case: Equifax’s Data Breach 133

PART THREE BUSINESS AND PUBLIC POLICY 137

CHAPTER 7 Business–Government Relations 138 How Business and Government Relate 139

Seeking a Collaborative Partnership 139

Working in Opposition to Government 140

Legitimacy Issues 141

Government’s Public Policy Role 141 Elements of Public Policy 142

Types of Public Policy 145

Government Regulation of Business 147 Market Failure 147

Negative Externalities 148

Natural Monopolies 148

Ethical Arguments 148

Types of Regulation 149

The Effects of Regulation 154

Regulation in a Global Context 156 Summary 157 Key Terms 157 Internet Resources 157 Discussion Case: Should Facebook Be Regulated? 158

CHAPTER 8 Influencing the Political Environment 161 Participants in the Political Environment 163

Business as a Political Participant 163

Influencing the Business–Government Relationship 164

Corporate Political Strategy 164

Political Action Tactics 165 Promoting an Information Strategy 166

Promoting a Financial-Incentive Strategy 170

Promoting a Constituency-Building Strategy 175

Global Inequality and the Bottom of the

Pyramid 84

Collaborative Partnerships for Global Problem Solving 86

A Three-Sector World 87

Summary 89 Key Terms 89 Internet Resources 89 Discussion Case: Intel and Conflict Minerals 90

PART TWO BUSINESS AND ETHICS 93

CHAPTER 5 Ethics and Ethical Reasoning 94 The Meaning of Ethics 95

What Is Business Ethics? 96

Why Should Business Be Ethical? 97

Why Ethical Problems Occur in Business 101 Personal Gain and Selfish Interest 101

Competitive Pressures on Profits 102

Conflicts of Interest 102

Cross-Cultural Contradictions 102

The Core Elements of Ethical Character 103 Managers’ Values 103

Spirituality in the Workplace 104

Managers’ Moral Development 105

Analyzing Ethical Problems in Business 106 Virtue Ethics: Pursuing a “Good” Life 107

Utility: Comparing Benefits and Costs 108

Rights: Determining and Protecting Entitlements 109

Justice: Is It Fair? 110

Applying Ethical Reasoning to Business Activities 110

The Moral Intensity of an Ethical Issue 111 Summary 112 Key Terms 112 Internet Resources 113 Discussion Case: LafargeHolcim and ISIS in Syria 113

CHAPTER 6 Organizational Ethics 115 Corporate Ethical Climates 116 Business Ethics across Organizational Functions 118

Accounting Ethics 118

Financial Ethics 119

Marketing Ethics 120

Final PDF to printer

xvi Contents

law43665_fm_i-xx xvi 01/07/19 10:32 AM

Levels of Political Involvement 178 Managing the Political Environment 179 Business Political Action: A Global Challenge 180 Summary 182 Key Terms 183 Internet Resources 183 Discussion Case: Political Action by the U.S. Steel Industry, 2015–2018 183

PART FOUR BUSINESS AND THE NATURAL ENVIRONMENT 187

CHAPTER 9 Sustainable Development and Global Business 188 Business and Society in the Natural Environment 190

Sustainable Development 190

Threats to the Earth’s Ecosystem 191

Forces of Change 192

The Earth’s Carrying Capacity 194

Global Environmental Issues 196 Climate Change 196

Ozone Depletion 199

Resource Scarcity: Water and Land 199

Decline of Biodiversity 201

Threats to Marine Ecosystems 202

Response of the International Business Community 203

Codes of Environmental Conduct 206

Summary 207 Key Terms 208 Internet Resources 208 Discussion Case: Clean Cooking 208

CHAPTER 10 Managing for Sustainability 211 Role of Government 213

Major Areas of Environmental Regulation 213

Alternative Policy Approaches 218

Costs and Benefits of Environmental Regulation 222 Managing for Sustainability 224

Stages of Corporate Environmental

Responsibility 224

The Ecologically Sustainable Organization 225 Sustainability Management in Practice 225

Environmental Auditing and Reporting 227

Environmental Partnerships 228

Sustainability Management as a Competitive Advantage 228

Cost Savings 229

Brand Differentiation 229

Technological Innovation 230

Reduction of Regulatory and Liability Risk 231

Strategic Planning 231

Summary 233 Key Terms 233 Internet Resources 234 Discussion Case: Hydraulic Fracturing—Can the Environmental Impacts Be Reduced? 234

PART FIVE BUSINESS AND TECHNOLOGY 237

CHAPTER 11 The Role of Technology 238 Technology Defined 239

Phases of Technology in Society 240

The Role of Technology in Our Daily Lives 241 The Presence of the Internet 241

Unwanted Technology Threats 243

Public Access to and Use of Technology 245 The Digital Divide in the United States and

Worldwide 245

Mobile Telephones 246

Social Networking 248

Ethical Challenges Involving Technology 250 The Loss of Privacy 250

Free Speech Issues 251

Government Censorship of Free Speech 252 The Impact of Scientific Breakthroughs 253

Genetically Engineered Foods 253

Sequencing of the Human Genome 255

Biotechnology and Stem Cell Research 256

Medical Breakthroughs 256

Summary 258 Key Terms 258 Internet Resources 258 Discussion Case: To Lock or Unlock Your Phone: Personal Privacy or National Security 259

CHAPTER 12 Regulating and Managing Technology 261 Government Regulation of Technology 262

Final PDF to printer

Contents xvii

law43665_fm_i-xx xvii 01/07/19 10:32 AM

The Role of Technology in Business 264 Access to Stakeholders’ Personal Information 265

E-Business 266

The Use of Robots and Artificial Intelligence at Work 267 The Chief Information, Security, Technology Officer 269 Cybercrime: A Threat to Organizations and the Public 271

Exploring Why Hackers Hack 271

Costs of Cybercrime 272

Business Responses to Invasions of Information Security 274 Government Efforts to Combat Cybercrime 275 Summary 276 Key Terms 277 Internet Resources 277 Discussion Case: The Arrival of Autonomous Cars—Bright Future or Looming Threat? 278

PART SIX BUSINESS AND ITS STAKEHOLDERS 281

CHAPTER 13 Shareholder Rights and Corporate Governance 282 Shareholders Around the World 283

Who Are Shareholders? 284

Objectives of Stock Ownership 285

Shareholders’ Legal Rights and Safeguards 286

Corporate Governance 287 The Board of Directors 287

Principles of Good Governance 289

Special Issue: Executive Compensation 291 Shareholder Activism 295

The Rise of Institutional Investors 296

Social Investment 297

Shareholder Lawsuits 298

Government Protection of Shareholder Interests 299

Securities and Exchange Commission 299

Information Transparency and Disclosure 299

Insider Trading 300

Shareholders and the Corporation 301 Summary 302 Key Terms 302 Internet Resources 303

Discussion Case: Corporate Governance and Executive Misconduct at Wynn Resorts 303

CHAPTER 14 Consumer Protection 305 The Rights of Consumers 307 Self-Advocacy for Consumer Interests 308 How Government Protects Consumers 309

Goals of Consumer Laws 309

Major Consumer Protection Agencies 311

Consumer Privacy in the Digital Age 314 Using the Courts and Product Liability Laws 316

Strict Liability 317

Product Liability Reform and Alternative Dispute

Resolution 317

Positive Business Responses to Consumerism 320 Managing for Quality 320

Voluntary Industry Codes of Conduct 321

Consumer Affairs Departments 322

Product Recalls 322

Consumerism’s Achievements 323 Summary 323 Key Terms 324 Internet Resources 324 Discussion Case: Volkswagen’s “Clean Diesel” Campaign 324

CHAPTER 15 Employees and the Corporation 327 The Employment Relationship 329 Workplace Rights 330

The Right to Organize and Bargain

Collectively 330

The Right to a Safe and Healthy Workplace 333

Job Security and the Right to Due Process 334

Fair Wages and Income Inequality 337 The Right to Privacy in the Workplace 339

Electronic Monitoring 340

Romance in the Workplace 341

Employee Drug Use and Testing 342

Alcohol Abuse at Work 343

Employee Theft and Honesty Testing 344

The Right to Blow the Whistle and Free Speech in the Workplace 345 Summary 347 Key Terms 347 Internet Resources 347 Discussion Case: The Ugly Side of Beautiful Nails 348

Final PDF to printer

xviii Contents

law43665_fm_i-xx xviii 01/07/19 10:32 AM

CHAPTER 16 Managing a Diverse Workforce 350 The Changing Face of the Workforce 351 Gender and Race in the Workplace 353

Women and Minorities at Work 353

The Gender and Racial Pay Gap 354

Where Women and Persons of Color Manage 356

Breaking the Glass Ceiling 356

Women and Minority Business Ownership 359

Government’s Role in Securing Equal Employment Opportunity 360

Equal Employment Opportunity 360

Affirmative Action 361

Sexual and Racial Harassment 362

What Business Can Do: Diversity and Inclusion Policies and Practices 364

Balancing Work and Life 367

Child Care and Elder Care 367

Work Flexibility 368

Summary 370 Key Terms 371 Internet Resources 371 Discussion Case: Apple and the Dreamers 371

CHAPTER 17 Business and Its Suppliers 374 Suppliers 376 Social, Ethical, and Environmental Issues in Global Supply Chains 378

Social Issues 379

Ethical Issues 380

Environmental Issues 382

Supply Chain Risk 383

Private Regulation of the Business–Supplier Relationship 384

Supply Chain Auditing 387

Supplier Development and Capability Building 389 Summary 392 Key Terms 393 Internet Resources 393 Discussion Case: IKEA’s Sustainable Cotton Supply Chain 393

CHAPTER 18 The Community and the Corporation 396 The Business–Community Relationship 398

The Business Case for Community Involvement 399

Community Relations 401 Economic Development 401

Housing 402

Aid to Minority, Women, and Disabled Veteran-Owned

Enterprises 402

Disaster, Terrorism, and War Relief 403

Corporate Giving 403 Forms of Corporate Giving 407

Priorities in Corporate Giving 409

Corporate Giving in a Strategic Context 410

Measuring the Return on Social Investment 412

Building Collaborative Partnerships 414 Summary 415 Key Terms 415 Internet Resources 416 Discussion Case: Salesforce’s 1+1+1 Integrated Philanthropy Model 416

CHAPTER 19 Managing the Public and the Corporate Reputation 419 The General Public 420 What Is Reputation? 421

Why Does Reputation Matter? 422

The Public Relations Department 424 Public Relations in the Internet and Social

Media Age 424

Brand Management 426 Crisis Management 427 Engaging Key Stakeholders with Specific Tactics 430

Executive Visibility 431

User-Generated Content 433

Paid Content 434

Event Sponsorship 434

Public Service Announcements 436

Image Advertisements 436

Summary 438 Key Terms 438 Internet Resources 438 Discussion Case: United Airlines—Navigating a Social Media Storm 439

CASES IN BUSINESS AND SOCIETY 441 1. Profiting from Pain: Business and the

U.S. Opioid Epidemic 442

2. Wells Fargo’s Unauthorized Customer Accounts 453

Final PDF to printer

Contents xix

law43665_fm_i-xx xix 01/07/19 10:32 AM

3. The Carlson Company and Protecting Children in the Global Tourism Industry 462

4. BP Blowout: The Aftermath of the Gulf Oil Disaster 471

5. Google and the Right to Be Forgotten 480

6. General Motors and the Ignition Switch Recalls 490

7. The Upper Big Branch Mine Disaster 500

8. After Rana Plaza 510

9. The Boycott of Stoli Vodka 521

Glossary 529 Bibliography 542 Indexes Name 547 Subject 550

Final PDF to printer

law43665_fm_i-xx xx 01/07/19 10:32 AM

Final PDF to printer

P A R T O N E

law43665_ch01_001-024.indd 1 11/14/18 11:33 AM

Business in Society

Final PDF to printer

2

law43665_ch01_001-024.indd 2 11/14/18 11:33 AM

C H A P T E R O N E

The Corporation and Its Stakeholders Business corporations have complex relationships with many individuals and organizations in society. 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:

LO 1-1 Understanding the relationship between business and society and the ways in which business and society are part of an interactive system.

LO 1-2 Considering the purpose of the modern corporation.

LO 1-3 Knowing what a stakeholder is and who a corporation’s market and nonmarket and internal and external stakeholders are.

LO 1-4 Conducting a stakeholder analysis and understanding the basis of stakeholder interests and power.

LO 1-5 Recognizing the diverse ways in which modern corporations organize internally to interact with various stakeholders.

LO 1-6 Analyzing the forces of change that continually reshape the business and society relationship.

Final PDF to printer

Chapter 1 The Corporation and Its Stakeholders 3

law43665_ch01_001-024.indd 3 11/14/18 11:33 AM

Amazon—which some have called the “Earth’s biggest store”—is an important part of many of our lives. We browse on Amazon, watch on Amazon, and buy on Amazon. We freely disclose to Amazon our wishes, interests, and willingness to pay. You may well have purchased or rented this textbook from Amazon.

In 2018, Amazon was the largest Internet retailer in the world, measured both by annual revenue ($178 billion) and market capitalization (more than $800 billion). It was the second largest private employer in the United States (after Walmart), with more than 540,000 employees (not counting the additional 120,000 or so temporary workers the com- pany brought on each year during the busy holiday season).1 From its start in 1994 as a scrappy Seattle start-up selling books online, Amazon had grown at an astonishing pace; in 2017, Amazon was responsible for fully 70 percent of all growth in U.S. online commerce.2 By 2018, the company’s founder and CEO, Jeff Bezos, had become the world’s richest person, with a net worth greater than $100 billion.3 Shareholders in the company had been richly rewarded; in early 2018, the price of Amazon’s stock was more than 12 times higher than it had been a decade earlier. The company was enormously popular with consumers, who turned to Amazon for one-click convenience, free and speedy delivery, and the ability to compare a seemingly endless assortment of products on the basis of price and reviews. Small businesses affiliated with Amazon Marketplace were able to tap into the company’s global e-commerce platform and unrivaled logistics to reach customers they never could have reached before. No doubt, many had benefited from Amazon’s success.

Yet the company had also become the target of criticism from many quarters, charged with destroying brick-and-mortar businesses, relentlessly driving their own employees, unfairly besting competitors, and pressuring communities for concessions. Consider that:

∙ Much of Amazon’s success had come at the expense of brick-and-mortar stores. Iconic retailers—such as Macy’s, JCPenney, and Target—had shed thousands of jobs as Amazon attracted ever-larger slices of consumer spending. A leading economist calculated that the rise of online commerce had caused the cumulative loss of 1.2 million retailing jobs—positions such as cashiers, salespeople, and stock clerks—in the United States.4 Many of these jobs were held by women and minorities (who made up 60 percent and 40 percent, respectively, of department store employees).5 Traditional retailing, concluded Scott Galloway, the author of The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google, had been “ravaged and depopulated by a single player”—Amazon.6

∙ Amazon’s own employees, by some accounts, were subject to an unusually punishing work culture. An investigative report by The New York Times, based on interviews with more than 100 current and former white-collar employees, found a pattern of setting “unreasonably high” performance standards, continually monitoring performance, and weeding out employees in a “rank and yank” system that one called “purposeful Dar- winism.” Turnover rates were among the highest in the Fortune 500. Said one former marketer, “Amazon is where overachievers go to feel bad about themselves.”7

1 “Amazon Is Now the Size of a Small Country,” Business Insider, January 16, 2018. 2 “U.S. E-Commerce Sales Grow 16.0% in 2017,” Internet Retailer, at www.digitalcommerce360.com, February 16, 2018. 3 “Jeff Bezos Is Now the Richest Person in History,” http://money.cnn.com, January 9, 2018. 4 Michael Feroli, chief U.S. economist at J.P. Morgan, cited in “Amazon to Add 100,000 Jobs as Brick-and-Mortar Retail Crum- bles,” The New York Times, January 12, 2017. 5 “The Silent Crisis of Retail Employment,” The Atlantic, April 18, 2017, and “Decline in Retail Jobs Felt Entirely by Women,” Institute for Women’s Policy Research, December 2017. 6 Scott Galloway, The Four: Scott Galloway, The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google (New York: Penguin, 2017), Chapter 2. 7 “Inside Amazon: Wrestling Big Ideas in a Bruising Workplace,” The New York Times, August 15, 2015.