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Business and Society Stakeholders, Ethics, Public Policy Sixteenth Edition Anne T. Lawrence San José State University James Weber Duquesne University 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,  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 About the Authors 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 postdoctoral study at Stanford University. Her articles, cases, and reviews have appeared in many journals, including the Academy of Management Review, Administrative Science Quarterly, Case Research Journal, Journal of Management Education, California Management Review, Business and Society Review, Research in Corporate Social 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 #038; 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 #038; 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 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). iii Preface In a world economy that is becoming increasingly integrated and interdependent, the relationship between business and society is becoming ever more complex. The globalization of business, the emergence of civil society organizations in many nations, and 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 government 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 pensions 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 economies 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 iv Preface v 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 political 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 influence 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, Government, 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 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 communities. 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 stakeholders’ interests must be considered. vi Preface A Tradition of Excellence Since the 1960s, when Professors Keith Davis and Robert Blomstrom wrote the first edition of this book, Business and Society has maintained a position of leadership by discussing 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 complex 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 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. Preface vii 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 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 exles, 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 exles (set as blocks of colored type) illustrate and elaborate the main points. A glossary at the end of the book provides definitions for bold-faced and other important terms. Internet references and a full section-by-section bibliography guide students who wish to do further research on topics of their choice, and subject and name indexes help students locate items in the book. Students—study more efficiently, retain more and achieve better outcomes. Instructors—focus on what you love—teaching. SUCCESSFUL SEMESTERS INCLUDE CONNECT For Instructors 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. 65% Less Time Grading 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. ©Hill Street Studios/Tobin Rogers/Blend Images LLC 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 For Students 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. I really liked this app it “ made it easy to study when — you don’t have your textbook in front of you. ” – Jordan Cunningham, Eastern Washington University ©Shutterstock/wavebreakmedia 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. 13 14 Chapter 12 Quiz Chapter 11 Quiz Chapter 13 Evidence of Evolution Chapter 11 DNA Technology Chapter 7 Quiz Chapter 7 DNA Structure and Gene… and 7 more… 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 [email protected], or visit www.mheducation.com/about/accessibility.html for more information. x Preface New for the Sixteenth Edition Over the years, the issues addressed by Business and Society have changed as the environment 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 caign 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 business 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, Salesforce’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 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 professor 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 University, 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, Southern 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 University 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 Management 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 undertook 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 generously shared with us their insights into the theory and pedagogy of business and society. 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 University; 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 xi 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 #038; 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#038;M University Central Texas; Randall Harris of Texas A#038;M University Corpus Christi; Richard Wokutch of Virginia Tech University; Dawn Elm of University of St. Thomas; Lynda Brown of the University 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 McGrawHill. 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 marketing 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 Brief Contents PART ONE Business in Society 14. Consumer Protection 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 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 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 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 PART FOUR Business and the Natural Environment 187 9. Sustainable Development and Global Business 188 10. Managing for Sustainability 211 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 PART FIVE Business and Technology 237 11. The Role of Technology 305 238 12. Regulating and Managing Technology 261 PART SIX Business and Its Stakeholders 281 13. Shareholder Rights and Corporate Governance 282 GLOSSARY 521 529 BIBLIOGRAPHY 542 INDEXES Name Subject 547 550 xiii Contents Stakeholder Dialogue PART ONE BUSINESS IN SOCIETY 1 CHAPTER 1 The Corporation and Its Stakeholders Business and Society 5 The Stakeholder Theory of the Firm The Stakeholder Concept 8 Different Kinds of Stakeholders Stakeholder Analysis 2 4 A Systems Perspective 6 11 Corporate Power and Responsibility 49 Corporate Social Responsibility and Citizenship The Origins of Corporate Social Responsibility 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 28 Competitive Intelligence 31 Stakeholder Materiality 32 The Issue Management Process 33 Organizing for Effective Issue Management Stakeholder Engagement 38 51 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 Social Reporting 65 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 Identify Issue 33 Analyze Issue 34 Generate Options 35 Take Action 35 Evaluate Results 35 The Process of Globalization 36 Stages in the Business–Stakeholder Relationship 38 Drivers of Stakeholder Engagement 39 The Role of Social Media in Stakeholder Engagement 40 xiv 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 9 Stakeholder Interests 12 Stakeholder Power 13 Stakeholder Coalitions 15 Stakeholder Mapping 16 Public Issues 26 Environmental Analysis 41 Stakeholder Networks 41 The Benefits of Engagement 72 Major Multinational Enterprises 73 International Financial and Trade Institutions The Benefits and Costs of Globalization 75 78 Benefits of Globalization 78 Costs of Globalization 79 Doing Business in a Diverse World 81 Comparative Political and Economic Systems 82 Contents xv Global Inequality and the Bottom of the Pyramid 84 Information Technology Ethics Supply Chain Ethics 122 Collaborative Partnerships for Global Problem Solving 86 A Three-Sector World Making Ethics Work in Corporations Ethics in a Global Economy 90 CHAPTER 7 Business–Government Relations 138 95 How Business and Government Relate 97 101 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 103 106 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 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 115 Corporate Ethical Climates 116 Business Ethics across Organizational Functions 118 Accounting Ethics 118 Financial Ethics 119 Marketing Ethics 120 139 Seeking a Collaborative Partnership 139 Working in Opposition to Government 140 Legitimacy Issues 141 Government’s Public Policy Role Managers’ Values 103 Spirituality in the Workplace 104 Managers’ Moral Development 105 Analyzing Ethical Problems in Business 133 BUSINESS AND PUBLIC POLICY 137 CHAPTER 5 Ethics and Ethical Reasoning 94 Why Ethical Problems Occur in Business 130 Summary 132 Key Terms 133 Internet Resources 133 Discussion Case: Equifax’s Data Breach PART THREE BUSINESS AND ETHICS 93 What Is Business Ethics? 96 Why Should Business Be Ethical? 123 129 Efforts to Curtail Unethical Practices PART TWO The Meaning of Ethics 123 Building Ethical Safeguards into the Company 87 Summary 89 Key Terms 89 Internet Resources 89 Discussion Case: Intel and Conflict Minerals 121 Business as a Political Participant 163 163 Influencing the Business–Government Relationship 164 Corporate Political Strategy Political Action Tactics 164 165 Promoting an Information Strategy 166 Promoting a Financial-Incentive Strategy 170 Promoting a Constituency-Building Strategy 175 xvi Contents 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 BUSINESS AND THE NATURAL ENVIRONMENT 187 CHAPTER 9 Sustainable Development and Global Business 188 Cost Savings 229 Brand Differentiation 229 Technological Innovation 230 Reduction of Regulatory and Liability Risk Strategic Planning 231 231 BUSINESS AND TECHNOLOGY 237 CHAPTER 11 The Role of Technology 238 Sustainable Development 190 Threats to the Earth’s Ecosystem 191 Forces of Change 192 The Earth’s Carrying Capacity 194 Technology Defined 239 Phases of Technology in Society 240 The Role of Technology in Our Daily Lives 196 241 The Presence of the Internet 241 Unwanted Technology Threats 243 Climate Change 196 Ozone Depletion 199 Resource Scarcity: Water and Land 199 Decline of Biodiversity 201 Threats to Marine Ecosystems 202 Public Access to and Use of Technology 245 The Digital Divide in the United States and Worldwide 245 Mobile Telephones 246 Social Networking 248 Response of the International Business Community 203 Summary 207 Key Terms 208 Internet Resources 208 Discussion Case: Clean Cooking Sustainability Management as a Competitive Advantage 228 PART FIVE Business and Society in the Natural Environment 190 Codes of Environmental Conduct 227 Summary 233 Key Terms 233 Internet Resources 234 Discussion Case: Hydraulic Fracturing—Can the Environmental Impacts Be Reduced? 234 PART FOUR Global Environmental Issues Environmental Auditing and Reporting Environmental Partnerships 228 Ethical Challenges Involving Technology 206 250 The Loss of Privacy 250 Free Speech Issues 251 Government Censorship of Free Speech 252 The Impact of Scientific Breakthroughs 253 208 CHAPTER 10 Managing for Sustainability Genetically Engineered Foods 253 Sequencing of the Human Genome 255 Biotechnology and Stem Cell Research 256 Medical Breakthroughs 256 211 Role of Government 213 Major Areas of Environmental Regulation Alternative Policy Approaches 218 213 Costs and Benefits of Environmental Regulation 222 Managing for Sustainability 224 Stages of Corporate Environmental Responsibility 224 The Ecologically Sustainable Organization Sustainability Management in Practice 225 225 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 Contents xvii The Role of Technology in Business 264 Access to Stakeholders’ Personal Information E-Business 266 265 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 Costs of Cybercrime 272 271 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 BUSINESS AND ITS STAKEHOLDERS 281 CHAPTER 13 Shareholder Rights and Corporate Governance 282 Corporate Governance 286 289 Special Issue: Executive Compensation Shareholder Activism 295 The Rise of Institutional Investors Social Investment 297 Shareholder Lawsuits 298 291 296 Government Protection of Shareholder Interests 299 Securities and Exchange Commission 299 Information Transparency and Disclosure 299 Insider Trading 300 Shareholders and the Corporation Summary 302 Key Terms 302 Internet Resources 303 301 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 The Employment Relationship Workplace Rights 330 287 The Board of Directors 287 Principles of Good Governance 305 CHAPTER 15 Employees and the Corporation 283 Who Are Shareholders? 284 Objectives of Stock Ownership 285 Shareholders’ Legal Rights and Safeguards CHAPTER 14 Consumer Protection Consumerism’s Achievements 323 Summary 323 Key Terms 324 Internet Resources 324 Discussion Case: Volkswagen’s “Clean Diesel” Caign 324 PART SIX Shareholders Around the World Discussion Case: Corporate Governance and Executive Misconduct at Wynn Resorts 303 327 329 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 xviii Contents CHAPTER 16 Managing a Diverse Workforce Community Relations 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 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? 421 371 Why Does Reputation Matter? 422 CHAPTER 17 Business and Its Suppliers 374 The Public Relations Department 424 Suppliers 376 Social, Ethical, and Environmental Issues in Global Supply Chains 378 Brand Management 426 Crisis Management 427 Engaging Key Stakeholders with Specific Tactics 430 Public Relations in the Internet and Social Media Age 424 Social Issues 379 Ethical Issues 380 Environmental Issues 382 Supply Chain Risk 383 Executive Visibility 431 User-Generated Content 433 Paid Content 434 Event Sponsorship 434 Public Service Announcements Image Advertisements 436 Private Regulation of the Business–Supplier Relationship 384 Supply Chain Auditing 387 436 Supplier Development and Capability Building 389 Summary 392 Key Terms 393 Internet Resources 393 Discussion Case: IKEA’s Sustainable Cotton Supply Chain 393 Summary 438 Key Terms 438 Internet Resources 438 Discussion Case: United Airlines—Navigating a Social Media Storm 439 CHAPTER 18 The Community and the Corporation 1. Profiting from Pain: Business and the U.S. Opioid Epidemic 442 The Business–Community Relationship 396 398 The Business Case for Community Involvement 399 CASES IN BUSINESS AND SOCIETY 441 2. Wells Fargo’s Unauthorized Customer Accounts 453 Contents xix 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 P A R T O N E Business in Society 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 beneficial 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, managers 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. 2 Chapter 1 The Corporation and Its Stakeholders 3 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 company 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 Darwinism.” 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. “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 Crumbles,” 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. 2 4 Part One Business in Society ∙ Amazon’s control of both online and voice-activated search gave it powerful advantages— leading to what some saw as unfair competition. One study found that under some conditions, products displayed under “customers who bought this item also bought” were dominated by Amazon’s own private-label brands.8 Alexa, Amazon’s voice-activated virtual assistant on Echo and other digital devices, also gave the company an edge. The consulting firm Bain #038; Company found that Alexa’s recommendations were biased toward “Amazon’s Choice” and the company’s own private-label products (after products the customer had previously ordered). “The ‘endless aisle’ just got a lot smaller,” Bain concluded.9 ∙ In 2017, Amazon announced it would invest $5 billion to open a second North American headquarters outside Seattle, promising to create 50,000 new jobs paying $100,000 or more. This was a tantalizing prospect, and 238 cities and regions submitted proposals, with at least six offering financial incentives of $1 billion or more. Some public officials thought this was well worth it, but others thought taxpayer money should not be used to subsidize such a successful company. “Blindly giving away the farm isn’t our style,” said the mayor of San Antonio, Texas, which dropped out of the race.10 Amazon’s experience illustrates, on a particularly large scale, the challenges of managing successfully in a complex network of stakeholders. The company’s actions affected not only itself, but also many other people, groups, and organizations in society. Customers, employees, business partners and suppliers, competitors, shareholders, creditors, governments, and local communities all had a stake in Amazon’s decisions. Every modern company, whether small or large, is part of a vast global business system. Whether a firm has 50 employees or, like Amazon, more than half a million—its links to customers, suppliers, employees, and communities are certain to be numerous, diverse, and vital to its success. This is why the relationship between business and society is important for you to understand as both a citizen and a manager. Business and Society Business today is arguably the most dominant institution in the world. The term business refers here to any organization that is engaged in making a product or providing a service for a profit. Consider that in the United States today there are 6 million businesses, according to government estimates, and in the world as a whole, there are uncounted millions more. Of course, these businesses vary greatly in size and impact. They range from a woman who helps support her family by selling handmade tortillas by the side of the road in Mexico City for a few pesos, to ExxonMobil, a huge corporation that employs almost 75,000 workers and earns annual revenues approaching $237 billion in almost every nation in the world. Society, in its broadest sense, refers to human beings and to the social structures they collectively create. In a more specific sense, the term is used to refer to segments of humankind, such as members of a particular community, nation, or interest group. As a set of organizations created by humans, business is clearly a part of society. At the same time, it is also a distinct entity, separated from the rest of society by clear boundaries. Business 8 “The Antitrust Case Against Facebook, Google, and Amazon,” The Wall Street Journal, January 16, 2018, and “How Amazon Steers Shoppers to Its Own Products,” The Wall Street Journal, June 23, 2018; see also Galloway, op. cit. 9 “Dreaming of an Amazon Christmas?” Bain #038; Company, November 9, 2017. 10 “Amazon Just Revealed the Top Cities for HQ2—Here Are the Ones Throwing Hundreds of Millions to Land It,” Business Insider, January 18, 2018, and “As Cities Woo Amazon to Build Second Headquarters, Incentives Are Key,” The Wall Street Journal, October 19, 2017. Chapter 1 The Corporation and Its Stakeholders 5 FIGURE 1.1 Business and Society: An Interactive System Society Business is engaged in ongoing exchanges with its external environment across these dividing lines. For exle, businesses recruit workers, buy supplies, and borrow money; they also sell products, donate time, and pay taxes. This book is broadly concerned with the relationship between business and society. A simple diagram of the relationship between the two appears in Figure 1.1. As the Amazon exle that opened this chapter illustrates, business and society are highly interdependent. Business activities impact other activities in society, and actions by various social actors and governments continuously affect business. To manage these interdependencies, managers need an understanding of their company’s key relationships and how the social and economic system of which they are a part affects, and is affected by, their decisions. A Systems Perspective General systems theory, first introduced in the 1940s, argues that all organisms are open to, and interact with, their external environments. Although most organisms have clear boundaries, they cannot be understood in isolation, but only in relationship to their surroundings. This simple but powerful idea can be applied to many disciplines. For exle, in botany, the growth of a plant cannot be explained without reference to soil, light, oxygen, moisture, and other characteristics of its environment. As applied to management theory, the systems concept implies that business firms (social organisms) are embedded in a broader social structure (external environment) with which they constantly interact. Corporations have ongoing boundary exchanges with customers, governments, competitors, suppliers, communities, and many other individuals and groups. Just as good soil, water, and light help a plant grow, positive interactions with society benefit a business firm. Like biological organisms, moreover, businesses must adapt to changes in the environment. Plants growing in low-moisture environments must develop survival strategies, like the cactus that evolves to store water in its leaves. Similarly, a telecommunications company in a newly deregulated market must learn to compete by changing the products and services it offers. The key to business survival is often this ability to adapt effectively to changing conditions. In business, systems theory provides a powerful tool to help managers conceptualize the relationship between their companies and their external environments. 6 Part One Business in Society Systems theory helps us understand how business and society, taken together, form an interactive social system. Each needs the other, and each influences the other. They are entwined so completely that any action taken by one will surely affect the other. They are both separate and connected. Business is part of society, and society penetrates far and often into business decisions. In a world where global communication is rapidly expanding, the connections are closer than ever before. Throughout this book we discuss exles of organizations and people that are grappling with the challenges of, and helping to shape, business–society relationships. The Stakeholder Theory of the Firm What is the purpose of the modern corporation? To whom, or what, should the firm be responsible?11 No question is more central to the relationship between business and society. In the shareholder theory of the firm (sometimes also called the ownership theory), the firm is seen as the property of its owners. The purpose of the firm is to maximize its longterm market value, that is, to make the most money it can for shareholders who own stock in the company. Managers and boards of directors are agents of shareholders and have no obligations to others, other than those directly specified by law. In this view, owners’ interests are paramount and take precedence over the interests of others. A contrasting view, called the stakeholder theory of the firm, argues that corporations serve a broad public purpose: to create value for society. All companies must make a profit for their owners; indeed, if they did not, they would not long survive. However, corporations create many other kinds of value as well, such as professional development for their employees and innovative new products for their customers. In this view, corporations have multiple obligations, and all stakeholders’ interests must be taken into account. This perspective was well expressed by Laurence Fink, the CEO of BlackRock, a global firm that manages more than $5 trillion worth of assets for its clients. In his 2018 letter to CEOs, Fink stated that “. . . every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”12 Supporters of the stakeholder theory of the firm make three core arguments for their position: descriptive, instrumental, and normative.13 The descriptive argument says that the stakeholder view is simply a more realistic description of how companies really work. Managers have to pay keen attention, of course, to their quarterly and annual financial performance. Keeping Wall Street satisfied by managing for growth—thereby attracting more investors and increasing the stock price—is a core part of any top manager’s job. But the job of management is much more complex than this. In order to produce consistent results, managers have to be concerned with producing high-quality and innovative products and services for their customers, attracting 11 For summaries of contrasting theories of the purpose of the firm, see Margaret M. Blair, “Whose Interests Should Corporations Serve,” in Margaret M. Blair and Bruce K. MacLaury, Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century (Washington, DC: Brookings Institution, 1995), Ch. 6, pp. 202–34; and James E. Post, Lee E. Preston, and Sybille Sachs, Redefining the Corporation: Stakeholder Management and Organizational Wealth (Palo Alto, CA: Stanford University Press, 2002). 12 “Larry Fink’s Annual  Letter to CEOs: A Sense of Purpose,” at www.blackrock.com. 13 The descriptive, instrumental, and normative arguments are summarized in Thomas Donaldson and Lee E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence and Implications,” Academy of Management Review 20, no. 1 (1995), pp. 65–71. See also, Post, Preston, and Sachs, Redefining the Corporation, Ch. 1. Chapter 1 The Corporation and Its Stakeholders 7 and retaining talented employees, and complying with a plethora of complex government regulations. As a practical matter, managers direct their energies toward all stakeholders, not just owners. In what became known as the “dollar store wars,” two companies made competing bids to buy Family Dollar, a U.S. discount retail chain based in Charlotte, North Carolina—each with very different consequences for stakeholders. One suitor, Dollar Tree, offered $76.50 per share for the company, while the other, Dollar General, offered $80—seemingly a better deal for shareholders. But the Dollar General deal faced likely government antitrust scrutiny and would probably have required the closure of thousands of stores, throwing employees out of work and depriving low-income communities of access to a discount store. In the end, after considering the impact on all stakeholders, Family Dollar’s management recommended the lower-priced offer, and three-quarters of its shareholders agreed.14 The instrumental argument says that stakeholder management is more effective as a corporate strategy. A wide range of studies have shown that companies that behave responsibly toward multiple stakeholder groups perform better financially, over the long run, than those that do not. (This empirical evidence is further explored in Chapter 3.) These findings make sense, because good relationships with stakeholders are themselves a source of value for the firm. Attention to stakeholders’ rights and concerns can help produce motivated employees, satisfied customers, committed suppliers, and supportive communities, all good for the company’s bottom line. The normative argument says that stakeholder management is simply the right thing to do. Corporations have great power and control vast resources; these privileges carry with them a duty toward all those affected by a corporation’s actions. Moreover, all stakeholders, not just owners, contribute something of value to the corporation. A skilled engineer at Microsoft who applies his or her creativity to solving a difficult programming problem has made a kind of investment in the company, even if it is not a monetary investment. Any individual or group who makes a contribution, or takes a risk, has a moral right to some claim on the corporation’s rewards.15 A basis for both the shareholder and stakeholder theories of the firm exists in law. The legal term fiduciary means a person who exercises power on behalf of another, that is, who acts as the other’s agent. In U.S. law, managers are considered fiduciaries of the owners of the firm (its shareholders) and have an obligation to run the business in their interest. These legal concepts are clearly consistent with the shareholder theory of the firm. However, other laws and court cases have given managers broad latitude in the exercise of their fiduciary duties. In the United States (where corporations are chartered not by the federal government but by the states), most states have passed laws that permit managers to take into consideration a wide range of other stakeholders’ interests, including those of employees, customers, creditors, suppliers, and communities. (Benefit corporations, firms with a special legal status that obligates them to do so, are further discussed in Chapter 3.) 14 “Family Dollar Shareholders Approve Sale to Dollar Tree,” Charlotte Observer, January 22, 2015. Abe Zakhem and Daniel E. Palmer, “Normative Stakeholder Theory,” in David M. Wasieleski and James Weber (eds.), Stakeholder Management, Business and Society 360: Volume 1, pages 49–74 (Bingley, United Kingdom: Emerald Publishing Ltd., 2017). Another formulation of this point has been offered by Robert Phillips, who argues for a principle of stakeholder fairness. This states that “when people are engaged in a cooperative effort and the benefits of this cooperative effort are accepted, obligations are created on the part of the group accepting the benefit” [i.e., the business firm]. Robert Phillips, Stakeholder Theory and Organizational Ethics (San Francisco: Berrett-Koehler, 2003), p. 9 and Ch. 5. 15 8 Part One Business in Society In addition, many federal laws extend specific protections to various groups of stakeholders, such as those that prohibit discrimination against employees or grant consumers the right to sue if harmed by a product. In other nations, the legal rights of nonowner stakeholders are often more fully developed than in the United States. For exle, a number of European countries—including Germany, Norway, Austria, Denmark, Finland, and Sweden—require public companies to include employee members on their boards of directors, so that their interests will be explicitly represented. Under the European Union’s so-called harmonization statutes, managers are specifically permitted to take into account the interests of customers, employees, creditors, and others. In short, while the law requires managers to act on behalf of shareholders, it also gives them wide discretion—and in some instances requires them—to manage on behalf of the full range of stakeholder groups. The next section provides a more formal definition and an expanded discussion of the stakeholder concept. The Stakeholder Concept The term stakeholder refers to persons and groups that affect, or are affected by, an organization’s decisions, policies, and operations.16 The word stake originally meant a pointed stick or post. The word later became used as a verb, as when a person was said to mark territory with a stake to assert ownership—that is, to stake a claim.17 In the context of management theory, stake is used more abstractly to mean an interest in—or claim on—a business enterprise. Those with a stake in the firm’s actions include such diverse groups as customers, employees, shareholders (also called stockholders), governments, suppliers, professional and trade associations, social and environmental activists, and nongovernmental organizations. The term stakeholder is not the same as stockholder, although the words sound similar. Stockholders—individuals or organizations that own shares of a company’s stock—are one of several kinds of stakeholders. Business organizations are embedded in networks involving many participants. Each of these participants has a relationship with the firm, based on ongoing interactions. Each of them shares, to some degree, in both the risks and rewards of the firm’s activities. And each has some kind of claim on the firm’s resources and attention, based on law, moral right, or both. The number of these stakeholders and the variety of their interests can be large, making a company’s decisions very complex, as the Amazon exle illustrates. Managers make good decisions when they pay attention to the effects of their decisions on stakeholders, as well as stakeholders’ effects on the company. On the positive side, strong relationships between a corporation and its stakeholders are an asset that adds value. On the negative side, some companies disregard stakeholders’ interests, either out of the belief that the stakeholder is wrong or out of the misguided notion that an unhappy customer, employee, or regulator does not matter. Such attitudes often prove costly to the company involved. Today, for exle, companies know that they cannot locate a factory or store in a community that strongly objects. They also know that making a product that is perceived as unsafe invites lawsuits and jeopardizes market share. 16 The term stakeholder was first introduced in 1963 but was not widely used in the management literature until the publication of R. Edward Freeman’s Strategic Management: A Stakeholder Approach (Marshfield, MA: Pitman, 1984). For a comprehensive review of the stakeholder management literature, see Samantha Miles, “Stakeholder Theory Classification, Definitions and Essential Contestability,” in David M. Wasieleski and James Weber (eds.) Stakeholder Management, Business and Society 360: Volume 1, pages 21–48 (Bingley, United Kingdom: Emerald Publishing Limited, 2017). 17 “Origin and Meaning of Stake,” Online Etymology Dictionary, at www.etymonline.com. Exhibit 1.A Are Managers Stakeholders? Are managers, especially top executives, stakeholders? This has been a contentious issue in stakeholder theory. On one hand, the answer clearly is “yes” Like other stakeholders, managers are impacted by the firm’s decisions. As employees of the firm, managers receive compensation—often very generous compensation, as shown in Chapter 13. Their managerial roles confer opportunities for professional advancement, social status, and power over others. Managers benefit from the company’s success and are hurt by its failure. For these reasons, they might properly be classified as employees. On the other hand, top executives are agents of the firm and are responsible for acting on its behalf. In the stakeholder theory of the firm, their role is to integrate stakeholder interests, rather than to promote their own more narrow, selfish goals. For these reasons, they might properly be classified as representatives of the firm itself, rather than as one of its stakeholders. Management theory has long recognized that these two roles of managers potentially conflict. The main job of executives is to act for the company, but all too often they act primarily for themselves. Consider, for exle, the many top executives of Lehman Brothers, MF Global, and Merrrill Lynch, who enriched themselves personally at the expense of shareholders, employees, customers, and other stakeholders. The challenge of persuading top managers to act in the firm’s best interest is further discussed in Chapter 13. Different Kinds of Stakeholders Business interacts with society in many diverse ways, and a company’s relationships with various stakeholders differ. Market stakeholders are those that engage in economic transactions with the company as it carries out its purpose of providing society with goods and services. Each relationship between a business and one of its market stakeholders is based on a unique transaction, or two-way exchange. Shareholders invest in the firm and in return receive the potential for dividends and capital gains. Creditors loan money and collect payments of interest and principal. Employees contribute their skills and knowledge in exchange for wages, benefits, and the opportunity for personal satisfaction and professional development. In return for payment, suppliers provide raw materials, energy, services, finished products, and other inputs; and wholesalers, distributors, and retailers engage in market transactions with the firm as they help move the product from plant to sales outlets to customers. All businesses need customers who are willing to buy their products or services. The puzzling question of whether or not managers should be classified as stakeholders along with other employees is discussed in Exhibit 1.A. Nonmarket stakeholders, by contrast, are people and groups who—although they do not engage in direct economic exchange with the firm—are nonetheless affected by or can affect its actions. Nonmarket stakeholders include the community, various levels of government, nongovernmental organizations, business support groups, competitors, and the general public. Nonmarket stakeholders are not necessarily less important than others, simply because they do not engage in direct economic exchange with a business. On the contrary, interactions with such groups can be critical to a firm’s success or failure, as shown in the following exle. In late 2017, a company called Energy Management Inc. (EMI) said it would finally call off its sixteen-year effort to build a wind farm off the shore of Cape Cod, Massachusetts, to supply clean, renewable power to New England customers. The project, called Cape Wind, had generated intense opposition from residents of Cape 9 10 Part One Business in Society Cod and nearby islands, who were concerned that its 130 wind turbines would spoil the view and get in the way of boats. A nonprofit group called Save Our Sound filed dozens of lawsuits, charging possible harm to wildlife, increased electricity rates, and danger to aircraft. Local utilities had withdrawn their commitments to buy power from the wind farm, and state regulators had denied permission for a power line connection to the mainland. “We were kept in a repeated sudden death period,” said the company’s discouraged owner, using a football analogy. “And the goal posts kept moving.”18 In this instance, various stakeholders were able to block the company’s plans completely— even though many did not have a market relationship with it. Theorists also distinguish between internal stakeholders and external stakeholders. Internal stakeholders are those, such as employees and managers, who are employed by the firm. They are “inside” the firm, in the sense that they contribute their effort and skill, usually at a company worksite. External stakeholders, by contrast, are those who—although they may have important transactions with the firm—are not directly employed by it. The classification of government as a nonmarket stakeholder has been controversial in stakeholder theory. Most theorists say that government is a nonmarket stakeholder (as does this book) because it does not normally conduct any direct market exchanges (buying and selling) with business. However, money often flows from business to government in the form of taxes and fees, and sometimes from government to business in the form of subsidies or incentives. Moreover, some businesses—defense contractors for exle—do sell directly to the government and receive payment for goods and services rendered. For this reason, a few theorists have called government a market stakeholder of business. And, in a few cases, the government may take a direct ownership stake in a company—as the U.S. government did after the financial crisis of 2008–09 when it invested in several banks and auto companies, becoming a shareholder of these firms. Government also has special influence over business because of its ability to charter and tax corporations, as well as make laws that regulate their activities. The unique relationship between government and business is discussed throughout this book. Other stakeholders also have some market and some nonmarket characteristics. For exle, business support groups, such as the Chamber of Commerce, are normally considered a nonmarket stakeholder. However, companies may support the Chamber of Commerce with their membership dues—a market exchange. Communities are a nonmarket stakeholder, but receive taxes, philanthropic contributions, and other monetary benefits from businesses. These subtleties are further explored in later chapters. Modern stakeholder theory recognizes that most business firms are embedded in a complex web of stakeholders, many of which have independent relationships with each other.19 In this view, a business firm and its stakeholders are best visualized as an interconnected network. Imagine, for exle, an electronics company, based in the United States, that produces smartphones, tablets, and music players. The firm employs people to design, engineer, and market its devices to customers in many countries. Shares in the company 18 “Now It’s Official: Cape Wind Project Dead,” Boston Globe, December 1, 2017, and “After 16 Years, Hopes for Cape Cod Wind Farm Float Away,” The New York Times, December 19, 2017. The story of the opposition to Cape Wind is told in Robert Whitcomb and Wendy Williams, Cape Wind: Money, Celebrity, Energy, Class, Politics, and the Battle for Our Energy Future (New York: PublicAffairs, 2008). 19 Timothy J. Rowley, “The Power of and in Stakeholder Networks,” in David M. Wasieleski and James Weber (eds.) Stakeholder Management, Business and Society 360: Volume 1, pp. 101–122 (Bingley, United Kingdom: Emerald Publishing Limited, 2017). Chapter 1 The Corporation and Its Stakeholders 11 FIGURE 1.2 A Firm and its Stakeholders Employees Nongovernmental organizations Creditors Customers Business Firm Shareholders Governments Competitors Suppliers are owned by investors around the world, including many of its own employees and managers. Production is carried out by suppliers in Asia. Banks provide credit to the company, as well as to other companies. Competing firms sell their products to some of the same customers, and also contract production to some of the same Asian suppliers. Nongovernmental organizations may seek to lobby the government concerning the firm’s practices, and may count some employees among their members. A visual representation of this company and its stakeholders is shown in Figure 1.2. As Figure 1.2 suggests, some individuals or groups may play multiple stakeholder roles. Some theorists use the term role sets to refer to this phenomenon. For exle, a person may work at a company, but also live in the surrounding community, own shares of company stock in his or her 401(k) retirement account, and even purchase the company’s products from time to time. This person has several stakes in a company’s actions. Later sections of this book (especially Chapters 13 through 19) will discuss in more detail the relationship between business and its various stakeholders. Stakeholder Analysis An important part of the modern manager’s job is to identify relevant stakeholders and to understand both their interests and the power they may have to assert these interests. This process is called stakeholder analysis. The organization from whose perspective the analysis is conducted is called the focal organization. 12 Part One Business in Society FIGURE 1.3 Who are the relevant stakeholders? The Four Key Questions of Stakeholder Analysis What are the interests of each stakeholder? What is the power of each stakeholder? How are coalitions likely to form? The first step of a stakeholder analysis is for managers of the focal organization to identify the issue at hand. For exle, in the Cape Wind situation discussed earlier in this chapter, Energy Management Inc. had to analyze how to win regulatory approval for the construction of its wind farm. Once the issue is determined, managers must ask four key questions, as discussed below and summarized in Figure 1.3. Who are the relevant stakeholders? The first question requires management to identify and map the relevant stakeholders. Exhibit 1.B, which appears later in this chapter, provides a guide. However, not all stakeholders listed will be relevant in every management situation. For exle, a privately held firm will not have shareholders. Some businesses sell directly to customers online, and therefore will not have retailers. In other situations, a firm may have a stakeholder—say, a creditor that has loaned money—but this group is not relevant to a particular issue that management faces. But stakeholder analysis involves more than simply identifying stakeholders; it also involves understanding the nature of their interests, power, legitimacy, and links with one another. Stakeholder Interests What are the interests of each stakeholder? Each stakeholder has a unique relationship to the organization, and managers must respond accordingly. Stakeholder interests are, essentially, the nature of each group’s stake. What are their concerns, and what do they want from their relationship with the firm?20 Shareholders, for their part, have an ownership interest in the firm. In exchange for their investment, shareholders expect to receive dividends and, over time, capital appreciation. The economic health of the corporation affects these people financially; their personal wealth—and often, their retirement security—is at stake. They may also seek to achieve social objectives through their choice of investments. Customers, for their part, are most 20 A full discussion of the interests of stakeholders may be found in R. Edward Freeman, Ethical Theory and Business (Englewood Cliffs, NJ: Prentice Hall, 1994). Chapter 1 The Corporation and Its Stakeholders 13 interested in gaining fair value and quality in exchange for the purchase price of goods and services. Suppliers wish to obtain profitable orders, use their capacity efficiently, and build stable relationships with their business customers. Employees, in exchange for their time and effort, want to receive fair compensation and an opportunity to develop their job skills. Governments, public interest groups, and local communities have another sort of relationship with the company. In general, their stake is broader than the financial stake of owners, customers, and suppliers. They may wish to protect the environment, assure human rights, or advance other broad social interests. Managers need to understand these complex and often intersecting stakeholder interests. Stakeholder Power What is the power of each stakeholder? Stakeholder power means the ability to use resources to make an event happen or to secure a desired outcome. Stakeholders have five different kinds of power: voting power, economic power, political power, legal power, and informational power. Voting power means that the stakeholder has a legitimate right to cast a vote. Shareholders typically have voting power proportionate to the percentage of the company’s stock they own. They typically have an opportunity to vote on such major decisions as mergers and acquisitions, the composition of the board of directors, and other issues that may come before the annual meeting. (Shareholder voting power should be distinguished from the voting power exercised by citizens, which is discussed below.) For exle, Starboard Value LP, a New York-based hedge fund, used its voting power as a shareholder to force change in a company it had invested in. Starboard bought more than 10 percent of the shares of Mellanox Technologies, an Israeli semiconductor company, and called for radical change, slamming management for “weak execution,” “excessive spending,” and “missed growth opportunities.” When Mellanox did not respond aggressively enough, in 2018 Starboard and its allies fielded their own slate of nominees in the election for the board of directors and organized support from other voting shareholders. The company eventually compromised with Starboard, agreeing to add two of the activists’ nominees to the board and a third if performance goals were not met. In recent years, activist investors like Starboard Value have won one board seat for every two board election caigns they have waged.21 Suppliers, customers, employees, and other stakeholders have economic power with the company. Suppliers, for exle, can withhold supplies or refuse to fill orders if a company fails to meet its contractual responsibilities. Customers may refuse to buy a company’s products or services if the company acts improperly. They can boycott products if they believe the goods are too expensive, poorly made, or unsafe. Employees, for their part, can refuse to work under certain conditions, a form of economic power known as a strike or slowdown. Economic power often depends on how well organized a stakeholder group is. For exle, workers who are organized into unions usually have more economic power than do workers who try to negotiate individually with their employers. Governments exercise political power through legislation, regulations, or lawsuits. While government agencies act directly, other stakeholders use their political power 21 “Mellanox, Starboard Settle on New Board Members,” Reuters, June 19, 2018; “Starboard Value to Launch Proxy Fight for Entire Board at Mellanox,” The Wall Street Journal, January 17, 2018; and “Review and Analysis of 2017 U.S. Shareholder Activism,” Sullivan #038; Cromwell LLP, March 26, 2018. 14 Part One Business in Society indirectly by urging government to use its powers by passing new laws or enacting regulations. Citizens may also vote for candidates that support their views with respect to government laws and regulations affecting business, a different kind of voting power than the one discussed above. Stakeholders may also exercise political power directly, as when social, environmental, or community activists organize to protest a particular corporate action. Stakeholders have legal power when they bring suit against a company for damages, based on harm caused by the firm; for instance, lawsuits brought by customers for damages caused by defective products, brought by employees for damages caused by workplace injury, or brought by environmentalists for damages caused by pollution or harm to species or habitat. After the mortgage lender Countrywide collapsed, many institutional shareholders, such as state pension funds, sued Bank of America (which had acquired Countrywide) to recoup some of their losses. Finally, stakeholders have informational power when they have access to valuable data, facts, or details and are able to bring their own information and perspectives to the attention of the public or key decision makers. With the explosive growth of technologies that facilitate the sharing of information, this kind of stakeholder power has become increasingly important. Consumers’ ability to use social networks to express their views about businesses they like—and do not like—has given them power they did not previously have. For exle, Yelp Inc. operates a website where people can search for local businesses, post reviews, and read others’ comments. In 2016, a dozen years after its launch, Yelp attracted 145 million unique visitors every month. Its reviewers collectively have gained considerable influence. Restaurants, cultural venues, hair salons, and other establishments can attract customers with five-star ratings and “People Love Us on Yelp” stickers in their windows—but, by the same token, can be badly hurt when reviews turn nasty. A Harvard Business School study reported that a one-star increase in an independent restaurant’s Yelp rating led to a 5 to 9 percent increase in revenue. Some businesses have complained that Yelp reviewers have too much power. “My business just died,” said the sole proprietor of a housecleaning business. “Once they locked me into the 3.5 stars, I wasn’t getting any calls.”22 Activists often try to use all of these kinds of power when they want to change a company’s policy. For exle, human rights activists wanted to bring pressure on Unocal Corporation to change its practices in Burma (Myanmar), where it had entered into a joint venture with the government to build a gas pipeline. Critics charged that many human rights violations occurred during this project, including forced labor and relocations. In an effort to pressure Unocal to change its behavior, activists organized protests at shareholder meetings (voting power), called for boycotts of Unocal products (economic power), promoted local ordinances prohibiting cities from buying from Unocal (political power), brought a lawsuit for damages on behalf of Burmese villagers (legal power), and gathered information about government abuses by interviewing Burmese refugees and publicizing the results online (informational power). These activists increased their chances of success by mobilizing many kinds of power. This combination of tactics eventually forced Unocal to pay compensation to people whose rights had been violated and to fund education and health care projects in the pipeline region.23 22 Michael Luca, “Reviews, Reputation, and Revenue: The Case of Yelp.Com,” Harvard Business School NOM Unit Working Paper No. 12-016, March 16, 2016; and “Is Yelp Fair to Businesses?” PC World, November 15, 2011. 23 Further information about the caign against Unocal is available at www.earthrights.org/unocal. Chapter 1 The Corporation and Its Stakeholders 15 Exhibit 1.B provides a schematic summary of some of the main interests and powers of both market and nonmarket stakeholders. Stakeholder Coalitions An understanding of stakeholder interests and power enables managers to answer the final question of stakeholder analysis regarding coalitions. How are coalitions likely to form? Not surprisingly, stakeholder interests often coincide. For exle, consumers of fresh fruit and farmworkers who harvest that fruit in the field may have a shared interest in reducing the use of pesticides, because of possible adverse health effects from exposure to chemicals. When their interests are similar, stakeholders may form coalitions, temporary alliances to pursue a common interest. Companies may be both opposed and supported by stakeholder coalitions, as shown in the exle of the controversial Keystone XL pipeline. TransCanada, a major North American energy company, sought approval to build a pipeline from Alberta, Canada, to Steele City, Nebraska, where it would connect to existing pipelines running to refineries and ports along the Gulf Coast. In opposing the Keystone XL pipeline, environmentalists argued it would enable the export of oil extracted from Canadian tar sands, an energy-intensive and dirty process. When burned, the tar sands oil would release carbon dioxide, contributing to further climate change, and spills from the pipeline could foul water supplies. They were joined in coalition by other groups, such as ranchers, farmers, and Native Americans whose land would be crossed by the pipeline. On the other side, construction unions, many local governments, and business groups supported the pipeline, saying that it would create jobs, reduce U.S. dependence on foreign oil, and provide a safer method of transport than trains or tanker trucks. In 2018, debate still raged, and construction on the project had not begun.24 Stakeholder coalitions are not static. Groups that are highly involved with a company today may be less involved tomorrow. Issues that are controversial at one time may be uncontroversial later; stakeholders that are dependent on an organization at one time may be less so at another. To make matters more complicated, the process of shifting coalitions does not occur uniformly in all parts of a large corporation. Stakeholders involved with one part of a large company often have little or nothing to do with other parts of the organization. The discussion case at the end of this chapter describes the coalitions that developed in favor of and opposition to new regulations that would require the ride-hailing start-up Uber to insure drivers logged onto its system to look for customers. Another variation of stakeholder analysis focuses on stakeholder salience. Some scholars have suggested that managers pay the most attention to stakeholders possessing greater salience. (Something is salient when it stands out from a background, is seen as important, or draws attention.) Stakeholders stand out to managers when they have power, legitimacy, and urgency. This section has already discussed various forms of stakeholder power. Legitimacy refers to the extent to which a stakeholder’s actions are seen as proper or appropriate by the broader society, because they are clearly affected by the company’s actions. Urgency refers to the time-sensitivity of a stakeholder’s claim, that is, the extent to which it demands 24 “Keystone XL Pipeline Has Enough Oil Suppliers, Will be Built, TransCanada Says,” Inside Climate News, January 18, 2018; “Keystone Pipeline Pros, Cons and Steps to a Final Decision,” The New York Times, November 18, 2014. Exhibit 1.B Stakeholders: Nature of Interest and Power Nature of Interest— Stakeholder Wishes To: Nature of Power—Stakeholder Influences Company By: Employees ■ Maintain stable employment in firm ■ Receive fair pay for work and mandated benefits ■ Work in safe, comfortable environment ■ Union bargaining power ■ Work actions or strikes ■ Publicity Shareholders ■ Receive a satisfactory return on investments (dividends) ■ Realize appreciation in stock value over time ■ Exercising voting rights based on share ownership ■ Exercising rights to inspect company books and records Customers ■ Receive fair exchange: value and quality for money spent ■ Receive safe, reliable products ■ Receive accurate information ■ Be able to voice concerns ■ Purchasing goods from competitors ■ Boycotting companies whose products are unsatisfactory or whose policies are unacceptable Suppliers ■ Receive regular orders for goods ■ Be paid promptly for supplies delivered ■ Use capacity efficiently ■ Build stable relationships with business customers ■ Be treated ethically ■ Refusing to meet orders if conditions of contract are breached ■ Supplying to competitors Retailers, Wholesalers ■ Receive quality goods in a timely fashion at reasonable cost ■ Offer reliable products that consumers trust and value ■ Buying from other suppliers if terms of contract are unsatisfactory ■ Boycotting companies whose goods or policies are unsatisfactory Creditors ■ Receive repayment of loans ■ Collect debts and interest ■ Calling in loans if payments are not made ■ Utilizing legal authorities to repossess or take over property if loan payments are severely delinquent Stakeholder Market Stakeholders immediate action. The more of these three attributes a stakeholder possesses, the greater the stakeholder’s salience and the more likely that managers will notice and respond.25 Stakeholder Mapping Once managers have conducted a stakeholder analysis, they can use it to develop a stakeholder map, a visual representation of the relationships among stakeholder interests, power, and coalitions with respect to a particular issue.26 (A stakeholder map can 25 Ronald K. Mitchell, Bradley R. Agle, and Donna J. Wood, “Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts,” Academy of Management Review 22, no. 4 (1997), pp. 853–86. 26 For two alternative approaches to stakeholder mapping, see David Saiia and Vananh Le, “A Map Leading to Less Waste,” Proceedings of the International Association for Business and Society 20: 302–13 (2009); and Robert Boutilier, Stakeholder Politics: Social Capital, Sustainable Development, and the Corporation (Sheffield, UK: Greenleaf Publishing, 2009), Chs. 6 and 7. 16 Stakeholder Nature of Interest— Stakeholder Wishes To: Nature of Power—Stakeholder Influences Company By: Nonmarket Stakeholders Communities ■ Employ local residents in the company ■ Ensure that the local environment is protected ■ Ensure that the local area is developed ■ Refusing to extend additional credit ■ Issuing or restricting operating licenses and permits ■ Lobbying government for regulation of the company’s policies or methods of land use and waste disposal Nongovernmental organizations ■ Monitor company actions and policies to ensure that they conform to legal and ethical standards ■ Promote social and economic development ■ Gaining broad public support through publicizing the issue ■ Lobbying government for regulation of the company Business support groups (e.g., trade associations) ■ Provide research and information which will help the company or industry perform in a changing environment ■ Using its staff and resources to assist company in business endeavors and development efforts ■ Providing legal or “group” political support beyond that which an individual company can provide for itself Governments ■ Promote economic development ■ Encourage social improvements ■ Raise revenues through taxes ■ Adopting regulations and laws ■ Issuing licenses and permits ■ Allowing or disallowing commercial activity The general public ■ Protect social values ■ Minimize risks ■ Achieve prosperity for society ■ Receive fair and honest communication ■ Networking with other stakeholders ■ Pressing government to act ■ Condemning or praising individual companies Competitors ■ Compete fairly ■ Cooperate on industry-wide or community issues ■ Seek new customers ■ Pressing government for fair competition policies ■ Suing companies that compete unfairly also be used to represent stakeholder salience, to help a firm identify which stakeholders may require more of their attention.) Consider the following exle: In Anaheim, California, a real estate developer called SunCal purchased a large lot near to the Disneyland theme park. SunCal planned to build condominiums, with 15 percent of the units set aside for below-market-rate rental apartments. Because the site was in the resort district, the developer required special permission from the city council to proceed. Affordable housing advocates quickly backed SunCal’s plans. Some unions representing Disney employees also supported the idea, as did environmentalists drawn by the prospect of reducing long commutes, a contributor to the region’s air pollution. Disney, however, strenuously opposed SunCal’s plan, arguing that the land should be used only for tourism-related development such as hotels and restaurants; the company was supported by the chamber of commerce and various businesses in the resort district. The city council itself was split. 17 18 Part One Business in Society If SunCal conducted a stakeholder analysis of this situation, it would conclude that the interests of relevant stakeholders were divided. Some, including Disney and various local businesses and some politicians, opposed its plan. But others, including some unions, affordable housing advocates, environmentalists, and other politicians, supported it. An analysis of coalitions would show how these stakeholders were likely to ally with one another. An analysis of power would show that Disney had enormous clout in Anaheim, because it was the city’s major employer and taxpayer, with power far exceeding that of other relevant stakeholders. SunCal would no doubt conclude from this analysis that it was unlikely to succeed in building on this site. A stakeholder map of this situation is shown in F…
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