Ch 1

Front 1

Relationships

Back 1

Business ethics issues, conflicts, and successes revolve around relationships. One of the most important aspects of business.

Front 2

Stakeholder Framework

Back 2

Helps identify the internal stakeholders such as employees, boards of directors, and managers and external stakeholders such as customers, special- interest groups, regulators, and others who agree, collaborate, and have con-frontations on ethical issues. Most ethical issues exist because of conflicts in values and belief patterns about right and wrong between and within stakeholder groups. This framework allows a firm to identify, monitor, and respond to the needs, values, and expectations of different stakeholder groups.

Front 3

Corporate Governance

Back 3

The formal system of accountability and control of ethical and socially responsible behavior. In theory, the board of directors provides oversight for all decisions and use of resources. Ethical issues relate to role of the board of directors, shareholder relationship, internal control, risk management, and executive compensation. Ethical leadership is associated with appropriate corporate governance.

Front 4

Stakeholders

Back 4

These groups are influenced by business, but they also have the ability to influence businesses. Apply their values and standards to many diverse issues— working conditions, consumer rights, environmental conservation, product safety, and proper information disclosure— that may or may not directly affect an individual stakeholder’s own welfare. Provide resources that are more or less critical to a firm’s long- term success. These resources may be both tangible and intangible. When individual stakeholders share similar expectations about desirable business conduct, they may choose to establish or join formal communities that are dedicated to better defining and advocating these values and expectations. Stakeholders’ ability to withdraw— or to threaten to withdraw— these needed resources gives them power over businesses.

Front 5

Reputation

Back 5

A factor in the consumers’ perceptions of product attributes and corporate image features that lead to consumer willingness to purchase goods and services at profitable prices.

Front 6

Scandals

Back 6

Will generally impact the company’s reputation both from investor confidence and consumer confidence. As investor perceptions and decisions begin to take their toll, shareholder value will drop, exposing the company to consumer scrutiny that can increase the damage. Some may lead to boycotts and aggressive campaigns to dampen sales and earnings.

Front 7

Social Responsibility

Back 7

We can assess the level of social responsibility that an organization bears by scrutinizing its effects on the issues of concern to its stakeholders.

Front 8

Primary Stakeholders

Back 8

Those whose continued association is absolutely necessary for a firm’s survival; these include employees, customers, investors, and shareholders, as well as the governments and communities that provide necessary infrastructure. Some firms take actions that can damage relationships with primary stakeholders.

Front 9

Secondary Stakeholders

Back 9

Do not typically engage in transactions with a company and thus are not essential for its survival; these include the media, trade associations, and special- interest groups.

Front 10

Stakeholder Interaction Model

Back 10

Offers a conceptualization of the relationship between businesses and stakeholders. There are two- way relationships between the firm and a host of stakeholders. In addition to the fundamental input of investors, employees, and suppliers, this approach recognizes other stakeholders and explicitly acknowledges the dialogue that exists between a firm’s internal and external environments.

Front 11

Stakeholder Orientation

Back 11

The degree to which a firm understands and addresses stakeholder demands. This orientation comprises three sets of activities: The organization- wide generation of data about stakeholder groups and assessment of the firm’s effects on these groups, the distribution of this information throughout the firm, and the organization’s responsiveness as a whole to this intelligence. Can be viewed as a continuum in that firms are likely to adopt the concept to varying degrees. To gauge a given firm’s stakeholder orientation, it is necessary to evaluate the extent to which the firm adopts behaviors that typify both the generation and dissemination of stakeholder intelligence and responsiveness to it. A given organization may generate and disseminate more intelligence about certain stakeholder communities than about others and, as a result, may respond to that intelligence differently.

Front 12

Generating Data about Stakeholders

Back 12

Begins with identifying the stakeholders that are relevant to the firm. Relevant stakeholder communities should be analyzed on the basis of the power that each enjoys as well as by the ties between them. Next, the firm should characterize the concerns about the business’s conduct that each relevant stakeholder group shares. Finally, the company should evaluate its impact on the issues that are important to the various stakeholders it has identified. This information should be circulated throughout the firm. A stakeholder orientation is not complete unless it includes activities that address stakeholder issues.

Front 13

Responsive Processes

Back 13

The responsiveness of the organization as a whole to stakeholder intelligence consists of the initiatives that the firm adopts to ensure that it abides by or exceeds stakeholder expectations and has a positive impact on stakeholder issues. Such activities are likely to be specific to a particular stakeholder group or to a particular stakeholder issue. Typically involve the participation of the concerned stakeholder groups.

Front 14

Social Responsibility

Back 14

Business ethics embodies standards, norms, and expectations that reflect a concern of major stakeholders. Associated with increased profits by contributing to employee commitment and customer loyalty. Considered a contract to society. Quantitative credibility is needed if it is considered an important corporate concern.

Front 15

Enlightened Capitalism

Back 15

A notion of capitalism that reemphasizes stakeholder concerns and issues. This common good is associated with six psychological motives and that each individual has to produce for the common good, with values such as Propriety, Prudence, Reason, Sentiment and promoting the happiness of mankind.

Front 16

Corporate Ethical Responsibility

Back 16

Should include rights and duties, consequences and values, all of which refer to specific strategic decisions. The ethical component of business strategy should be capable of providing an assessment of top- management, workgroup, and individual behavior as it relates to ethical decisions.

Front 17

Business Ethics

Back 17

Carefully thought- out rules or heuristics of business conduct that guide decision making.

Front 18

International Organization for Standardization

Back 18

Has tried to establish a corporate responsibility standard, the ISO 26000; although the ISO 26000 has been demoted to a guideline rather than a standard, the discussion and debate surrounding the process is valuable. Whereas corporate responsibility needs quantitative credibility, significant aspects are more qualitative in nature: employee satisfaction, customer motivations, company values, and ethical decision- making processes, for instance. All to some extent can be broken down into quantitative data, but the essence of them cannot. However, they also shift constantly, which makes yesterday’s survey an addition to today’s recycle bin.

Front 19

Two Going Green Rival Groups

Back 19

Are vying for leadership in government adoption of environmental rules that determine whether a building can be called green. There is concern about stakeholder relationships between the two groups:

Front 20

Green Globes

Back 20

Led by a former timber- company executive and received much of its seed money from timber and wood- products companies.

Front 21

Leadership in Energy and Environmental Design

Back 21

A nonprofit organization with less ties to business interest.

Front 22

Four Levels of Social Responsibility

Back 22

Economic, Legal, Ethical, Philanthropic

Front 23

Economic Social Responsibility

Back 23

Companies have an economic responsibility to be profitable so that they can provide a return on investment to their owners and investors, create jobs for the community, and contribute goods and services to the economy.

Front 24

Legal Social Responsibility

Back 24

Businesses are also expected to obey all laws and regulations.

Front 25

Ethic Social Responsibility

Back 25

Comprises principles and standards that guide behavior in the world of business.

Front 26

Philanthropic Social Responsibility

Back 26

Activities that are not required of businesses but promote human welfare or goodwill.

Front 27

Corporate Citizenship

Back 27

Used to express the extent to which businesses strategically meet the economic, legal, ethical, and philanthropic responsibilities placed on them by their various stakeholders. Four interrelated dimensions: strong sustained economic performance, rigorous compliance, ethical actions beyond what the law requires, and voluntary contributions that advance the reputation and stakeholder commitment of the organization. A firm’s commitment to corporate citizenship indicates a strategic focus on fulfilling the social responsibilities that its stakeholders expect of it. Involves acting on the firm’s commitment to the corporate citizenship philosophy and measuring the extent to which it follows through by actually implementing citizenship initiatives.

Front 28

Reputation

Back 28

One of an organization’s greatest intangible assets with tangible value. The value of a positive reputation is difficult to quantify, but it is very important. A single negative incident can influence perceptions of a corporation’s image and reputation instantly and for years afterwards. Corporate reputation, image, and brands are more important than ever and are among the most critical aspects of sustaining relationships with constituents. It takes companies decades to build a great reputation, yet just one slip can cost a company dearly. Although an organization does not control its reputation in a direct sense, its actions, choices, behaviors, and consequences do influence the reputation that exists in perceptions of stakeholders.

Front 29

The Federal Sentencing Guidlines for Organizations

Back 29

Provides incentives for developing an ethical culture and efforts to prevent misconduct. Today, the failure to balance stakeholder interests can result in a failure to maximize shareholders’ wealth. Most firms are moving more toward a balanced stakeholder model as they see that this approach will sustain the relationships necessary for long- run success.

Front 30

Fiduciaries

Back 30

Persons placed in positions of trust who use due care and loyalty in acting on behalf of the best interests of the organization. Both directors and officers of corporations are fiduciaries for the shareholders.

Front 31

Duty of Diligence

Back 31

A duty of care to make informed and prudent decisions. Directors have a duty to avoid ethical misconduct in their director role and to provide leadership in decisions to prevent ethical misconduct in the organization. Directors are not held responsible for negative outcomes if they are informed and diligent in their decision making. This means they have an obligation to request information, research, use accountants and attorneys, and obtain the services of ethical compliance consultants.

Front 32

Duty of Loyalty

Back 32

All decisions should be in the interests of the corporation and its stakeholders. Conflicts of interest exist when a director uses the position to obtain personal gain usually at the expense of the organization. Opportunities to know about the investments, business ventures, and stock- market information create issues that could violate the duty of loyalty.

Front 33

Officer Compensation Packages

Back 33

Challenge directors, especially those on the board and not independent. Directors have an opportunity to vote for others’ compensation in return for their own increased compensation.

Front 34

Insider Trading

Back 34

Of a firm’s stock has very specific rules, and violations can result in serious punishment.

Front 35

Corporate Governance

Back 35

To remove the opportunity for employees to make unethical decisions, most companies have developed formal systems of accountability, oversight, and control. Establishes fundamental systems and processes: for preventing and detecting misconduct, for investigating and disciplining, and for recovery and continuous improvement. Effective corporate governance creates a compliance and ethics culture so that employees feel that integrity is at the core of competitiveness. Even if a company has adopted a consensus approach for decision making, there should be oversight and authority for delegating tasks, making difficult and sometimes controversial decisions, balancing power throughout the firm, and maintaining ethical compliance. Governance also provides mechanisms for identifying risks and for planning for recovery when mistakes or problems occur. Also part of the corporate culture. A governance system that does not provide checks and balances creates opportunities for top managers to put their own self- interests before those of important stakeholders. Two major approaches:

Front 36

Accountability

Back 36

How closely workplace decisions are aligned with a firm’s stated strategic direction and its compliance with ethical and legal considerations.

Front 37

Oversight

Back 37

Provides a system of checks and balances that limit employees’ and managers’ opportunities to deviate from policies and strategies and that prevent unethical and illegal activities.

Front 38

Control

Back 38

The process of auditing and improving organizational decisions and actions.

Front 39

Shareholder Model of Corporate Governance

Back 39

Founded in classic economic precepts, including the goal of maximizing wealth for investors and owners. For publicly traded firms, corporate governance focuses on developing and improving the formal system for maintaining performance accountability between top management and the firms’ shareholders. Thus, a shareholder orientation should drive a firm’s decisions toward serving the best interests of investors. Underlying these decisions is a classic agency problem, where ownership ( that is, investors) and control ( that is, man-agers) are separate. Managers act as agents for investors, whose primary goal is increasing the value of the stock they own. However, investors and managers are distinct parties with unique insights, goals, and values with respect to the business. Managers, for example, may have motivations beyond stockholder value, such as market share, personal compensation, or attachment to particular products and projects.

Front 40

Stakeholder Model of Corporate Governance

Back 40

Adopts a broader view of the purpose of business. Although a company has a responsibility for economic success and viability to satisfy its stockholders, it also must answer to other stakeholders with which it interacts. Due to limited resources, companies must determine which of their stakeholders are primary. Once the primary groups have been identified, managers must then implement the appropriate corporate governance mechanisms to promote the development of long- term relationships. This approach entails creating governance systems that consider stakeholder welfare in tandem with corporate needs and interests.

Front 41

Board of Directors

Back 41

Board members assume ultimate authority for their organization’s effectiveness and subsequent performance. Assume legal responsibility for the firm’s resources and decisions, and they appoint its top executive officers. And for creating an ethical culture that provides leadership, values, and compliance. It provides the intangible benefit of ensuring the success of both the organization and people involved in the fiduciary arrangement. Made of outside directors who have little vested interest in the firm before assuming the director role.

Front 42

Executive Compensation

Back 42

One of the biggest issues the board of directors face. Most boards spend more time deciding how much to compensate top executives than they do ensuring the integrity of the company’s financial reporting systems. Compensated for their leadership, organizational service, and performance. Based now on the performance of the company while the CEO was there. One study determined that companies that divulge more details about their corporate governance practices generate higher shareholder returns than less transparent companies.

Front 43

Managing Responsibility and Business Ethics

Back 43

Assessing the corporate culture; Identifying stakeholder groups; Identifying stakeholder issues; Assessing the organizational commitment to social responsibility; Identifying resources and determining urgency; Gaining stakeholder feedback. The importance of these steps is to include feedback from relevant stakeholders in formulating organizational strategy and implementation.

Front 44

Assessing the Corporate Culture

Back 44

To enhance organizational fit, a social responsibility program must align with the corporate culture of the organization. The purpose of this first step is to identify the organizational mission, values, and norms that are likely to have implications for social responsibility.

Front 45

Identifying Stakeholder Groups

Back 45

In managing this stage, it is important to recognize stakeholder needs, wants, and desires. Many important issues gain visibility because key constituencies such as con-sumer groups, regulators, or the media express an interest.

Front 46

Identifying Stakeholder Issues

Back 46

Consists then in understanding the nature of the main issues of concern to these stakeholders. Conditions for collaboration exist when problems are so complex that multiple stakeholders are required to resolve the issue and the weaknesses of adversarial approaches are understood.

Front 47

Assessing Organizational Commitment to Social Responsibility

Back 47

Brings these three first stages together to arrive at an understanding of social responsibility that specifically matches the organization of interest. This general definition will then be used to evaluate current practices and to select concrete social responsibility initiatives.

Front 48

Identifying Resources and Determining Urgency

Back 48

The prioritization of stakeholders and issues, along with the assessment of past performance, provides for allocating resources. Two main criteria can be considered: First is the levels of financial and organizational investments required by different actions; second is the urgency when prioritizing social responsibility challenges. When the challenge under consideration is viewed as significant and when stakeholder pressures on the issue could be expected, then the challenge can be considered as urgent.

Front 49

Gaining Stakeholder Feedback

Back 49

Stakeholder feedback can be generated through a variety of means. First, stakeholders’ general assessment of the firm and its practices can be obtained through satisfaction or reputation surveys. Second, gauge stakeholders’ perceptions of the firm’s contributions to specific issues, stakeholder- generated media can be assessed. Third, more formal research may be conducted using focus groups, observation, and surveys.