Desjardins5e ppt ch3

CHAPTER THREE: CORPORATE SOCIAL RESPONSIBILITY
AN INTRODUCTION TO BUSINESS ETHICS
Copyright © 2014 by McGraw-Hill Education. All rights reserved.

THIS CHAPTER SEEKS TO
 Help students continue developing the ability to identify and
analyze ethical issues in business
 Explain the ethical foundation for the classical model of corporate
social responsibility
 Review the ethical challenges to utilitarian and rights-based
justifications of the classical model
 Explain how the classical model is extended and developed
through a moral minimum
 Describe the stakeholder model of corporate social responsibility
 Explain the ethical foundations of the stakeholder model
Copyright © 2014 by McGraw-Hill Education. All rights reserved. 3-2

DISCUSSION CASE: WALMART
 New York Times reported in 2012 that a six-year internal
investigation found widespread bribery and corruption
within Walmart’s Mexican operations
 Walmart employees paid $24 million in bribes to promote
expansion of business in Mexico
 Walmart executives in Mexico knew of the bribes, and hid
them from U.S. Walmart corporate offices
 When the internal investigation was shared with corporate
headquarters, Walmart executives ended the investigation

DISCUSSION CASE: WALMART (CONT.)
 The Times also reported than only upon learning of the
newspaper’s own investigation and plans to write a
story did Walmart executives notify legal authorities
 The U.S. Justice Department began an investigation of
possible violations of the U.S. Corrupt Foreign Practices
Act

 Walmart is the world’s largest retail business, claiming
over 200 million customer visits per week at more than
8,100 retail stores in 15 countries
 Its total sales for fiscal year 2011 were $418 billion
 Worldwide, it employs over 2.1 million people
 It is the largest private employer in the U.S. and Mexico, and
the largest employer in 25 U.S. states

 In many ways, Walmart is a socially responsible
corporation
 Values promoted by Wal-Mart include honesty, respect,
fairness and integrity
 Wal-Mart culture was founded on three basic beliefs: respect
for individuals, service to customers, and striving for
excellence
 Defenders point out that its economic success is evidence of
how well Walmart is fulfilling its social responsibility

 Walmart has created immense value for shareholders,
consumers, suppliers, and employees
 It regularly contributes to community and social causes
 The Walmart Foundation is the largest corporate cash
contributor in the U.S.
 In 2009, it donated more than $378 million in cash and in-kind
gifts to charitable organizations
 It has major sustainability goals for its operations: becoming
more energy efficient, reducing its carbon footprint, reducing
wastes and packaging

 Critics portray Walmart as among the least-admired
corporations in the world
 Ethical criticisms have been raised against Wal-Mart
on behalf of every major constituency—customers,
employees, suppliers, competitors, communities—
with whom Wal-Mart interacts

 Critics claim that Walmart engages in deceptive and
manipulative pricing
Low-priced goods and their placement in stores are a ploy
to entice customers to purchase more and higher priced
goods
 Walmart aggressively controls labor costs through
low wages, minimum work hours, high productivity,
and keeping unions out

 Critics claim that Walmart pays its workers
poverty-level wages
 While Walmart offers health care benefits to its
employees, compared with other companies,
Walmart employees pay a disproportionately
high percentage of the cost
 Walmart has created a government subsidy for
its low wages

 Walmart has been accused of illegally requiring
employees to work overtime without pay and to
work off-the-clock
 Walmart has been sued for violating the
Americans with Disabilities Act
 Walmart is being sued for illegal anti-union
activities
 Walmart has been cited for being in violation of
child labor laws

 June 2001, current and former employees from
California, Illinois, Ohio, Texas, and Florida, filed a class-action
lawsuit against Walmart alleging sex-discrimination
against women employees
 October 2003, federal raids on 60 Walmart stores in 20
sates resulted in the arrest of over 250 illegal aliens
working as janitors in Walmart stores – a ploy to lower
wages, deny overtime pay and exploit illegal status of
employees

 Many local communities criticize Walmart as a major
factor in the demise of small towns and local businesses
 Walmart’s aggressive strategy to lower costs is
criticized for the harms it can cause suppliers to bid
against each other in a type of “reverse auction” in
which suppliers compete to see who can offer their
products at the lowest prices resulting in suppliers going
out of business

 The “Buy American” campaign from the 1980s is
responsible for the loss of American jobs as American
businesses have been forced to outsource their
production as the only means to meet Walmart’s price
targets
 Walmart has been accused of using suppliers in China,
Central America, and Saipan who use sweatshops to
produce clothing for Walmart

BUSINESS ETHICS IS NORMATIVE
 What is the proper role of business management
in making decisions?
 What is the proper role of business in society?
 Do business managers have an overriding ethical
responsibility to serve the interests of
stockholders before acting for society’s
interests?

THE CLASSICAL MODEL OF CORPORATION SOCIAL
RESPONSIBILITY
 Roots in free market economic theory
 Most influential theory of corporate
responsibility in last century
 Milton Friedman, Nobel-prize winning
Economist:
“[In a free economy], there is one and only one social
responsibility of business – to use its resources and
engage in activities designed to increase its profits so
long as it stays within the rules of the game…”

RESPONSIBILITY
 Milton: By disregarding the role assigned
management by the free market theory we
would likely “undermine the very foundations of
our free society.”
 “The market” is one of the most influential
public policy philosophies in history

RESPONSIBILITY
Example: Walmart
- Despite lawsuits and regulatory infractions, we
can assume, as a matter of corporate policy,
Walmart has always been committed to obeying
the law
- Walmart’s managers have sought to maximize
stockholder profit within the law

THE CLASSICAL MODEL OF CORPORATE SOCIAL
RESPONSIBILITY
 How would “the market” evaluate Walmart’s
strategy?
 Efficiency means that more beneficial
consequences result from each spending
decision.
 Efficiency attracts more investors whose
resources can be used to increase business
 Society benefits

RESPONSIBILITY
 The right of private property: business is
understood as private property
 Pursuing any social objective other than the
maximization of profit is spending someone
else’s money for your own purposes. This is
ethically equivalent to theft.
 Business management must pursue maximum
profits under this model

RESPONSIBILITY
 Government must have a laissez-faire approach
to business
 Freedom from government regulation and
control, allows the market to function most
efficiently

ASSESSMENT OF CLASSICAL MODEL
 Are free markets adequate as means to the ends
of maximally satisfying consumer demand?
 Are the ends pursued by free markets
appropriate as legitimate ethical goals?

 Market failures: the pursuit of profit will not
result in a net increase in consumer satisfaction
 Pollution
 Resource depletion
 Ground contamination
 No pricing mechanism exists for these public goods,
therefore no means exists to ensure that these goods
get allocated to those who most value them

 Market failures: the pursuit of profit will not
result in a net increase in consumer satisfaction
 Self-interested behavior results in worse outcomes
than if behavior had been coordinated (Prisoner’s
dilemma)
 Food additives
 Vehicles that use too much gasoline and pollute the air
 Exposure to workplace chemicals

 The market is so complex that it is extremely unlikely
that a single and simple directive such as maximize
profits will produce the greater overall good in all cases
and in every situation
 Questions about public and social goods remain
unasked from within market transactions: what is good
for individuals is not necessarily good for society

 Utilitarianism is a pragmatic theory
 Because we can never know the future in a complex and
changing world, Utilitarians remain ready to revise their
principles in light of changing consequences
 Utilitarian-market principles should be: Maximize profit
when doing so produces the greatest overall good for
the greatest number of people

Ad hoc attempts to repair market failures are
socially inadequate
- First generation problem
- Inappropriate influence
- Consumer preferences are addresses only as
they are expressed in the market: there is no
guarantee of happiness

Economic growth measures only the quantity of
what consumers spend, it does not assess the
quality of what they are purchasing with that
spending
Efficient markets provide no substantive ethical
basis for evaluating the ethical content or quality
of consumer choice

 Milton Friedman recognized limits to the pursuit
of profits
 Stay within the rules of the game
 Conform to the basic rules of society
These restrictions are minimal.

THE PRIVATE PROPERTY DEFENSE
 Do the rights of private owners supersede the
consequences of the market?
 Property rights are not absolute.
 One’s right to use property is constrained by the
rights of others.
 The property rights of stockholder: limited legal
liability
 Understood in the proper context: distinction
between investors and owners

THE MORAL MINIMUM
 Normal Bowie: the pursuit of profit is constrained by an
obligation to obey a moral minimum
 This framework distinguishes between
 Ethical imperatives to cause no harm
 Ethical imperatives to prevent harm
 Ethical imperatives to do good
While it is ethically good for managers to prevent harm or to do
some good, their duty to stockholders overrides these
concerns

THE MORAL MINIMUM
 Distinguishing between these three imperatives is a
major challenge
 For every case in which stockholder interests appears to
conflict with the interests of employees, consumers,
suppliers or society, business management must
carefully analyze the situation to determine ethical
responsibility

THE MORAL MINIMUM
Compliance with the law is insufficient for an
ethically responsible business

THE STAKEHOLDER THEORY
Every business affects a wide variety of people
- benefiting some and imposing costs on
others
The Stakeholder theory rejects the premise that
the primary beneficiaries of business decisions
should be investors

 William Evans and R. Edward Freeman: Narrow
and Broad Stakeholder theory
 Narrowly: A stakeholder includes “any group who are
vital to the survival and success of the corporation”
 Broadly: A stakeholder is “any group or individual
who can affect or be affected by the corporation?”

 While it was true a century ago that
management had an overriding obligation to
stockholders, the law now recognizes a wide
range of managerial obligations to stakeholders
such as consumers, employees, competitors, the
environment, and the disabled
 What is fiduciary duty?

 Stakeholder theory requires management to
balance the ethical interests of all affected
parties
 Stakeholder theory requires that management
consider the consequences of its decisions for
the well-being of all affected groups

 Challenges to Stakeholder theory:
 Problems with identifying stakeholders and their
interests
 Problems deciding what course of action follows
from the imperative to balance stakeholder interests
Stakeholder theory seems to offer little practical advice
to managers

CONCLUSION
 Corporate Social Responsibility Models lie across a
continuum
 Moderation occurs as the range of constraints increases
upon the pursuit of profit
 These theories are variations on the balancing of
utilitarian and deontological ethics
 Whose interests should reign supreme?

Desjardins5e ppt ch3

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