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Chapter 1 The Business and Society Relationship SUGGESTED ANSWERS TO DISCUSSION QUESTIONS Students should recognize that their answers to these discussion questions should be well reasoned and supported with evidence. Although some answers will be more correct than others, students should be aware that simplistic answers to complex questions, problems, or issues such as these will never be “good” answers. What specific impacts, if any, did the ethics scandals of the early 2000s have on small and medium-sized firms? How do factors such as public scrutiny, stock prices, access to capital, and regulatory pressure shape the relationship between these firms and societal expectations of ethical behavior? We tend to focus on large firms when discussing business and society for a number of reasons. Large firms are more visible, their products and services are more widely known, and we generally equate size with power. All of these factors contribute to the fact that large firms are more susceptible to public scrutiny. It is debatable whether the ethics scandals of the first decade of the 2000s have had a significant impact on small and medium-sized firms. On the one hand, the scandals may have caused a general increase in the level of distrust of business. This had a chilling effect on stock prices and made it more difficult for smaller firms to raise money, especially through initial public offerings (IPOs). Furthermore, small and medium-sized firms that are not publicly-traded may feel pressure to adhere to the costly provisions of the Sarbanes-Oxley Act, as lenders, investors and competitors continue to stress that SOX provisions are the “best practices” by which all firms are measured. On the other hand, as stated above, the public tends to focus more on larger firms, so the scandals may not have “trickled down” to smaller firms on those occasions when members of society actually do think about them. What factors contribute to the effectiveness of pluralism in preventing the concentration of power within society, and how does this relate to the concept of checks and balances? Conversely, what challenges does pluralism pose in terms of managing conflicts of interest among diverse groups, and how might these challenges impact societal decision-making processes? The textbook lists several strengths (prevents power from being concentrated, maximizes freedom of expression, allegiance of individuals to groups is dispersed, creates a diversified set of loyalties to many organizations, and provides a set of checks and balances) and weaknesses (no unified direction to align individual pursuits, proliferating groups have overlapping goals, and promotes conflicts among groups). Students could conceivably make a case for any of these as the greatest strength and weakness. In my opinion, pluralism can prevent power from being too concentrated by providing a system of checks and balances, so that may be its greatest strength. However, students should recognize that power is still not evenly distributed, even in a pluralistic society. Some individuals and groups have more power than others—concentration is a matter of degree, not an either/or situation. The greatest weakness seems to lie in the fact that pluralism engenders conflicts of interest among groups with differing goals, thus leading to special-interest groups. There will hardly ever be a consensus among competing groups, which could lead to inaction or ineffective compromise. What are the key factors contributing to an environment where criticism of business thrives, as outlined in the provided answer? How do elements such as affluence, rising expectations, education levels, and media influence shape public perceptions and attitudes towards business practices? Many factors contribute to an atmosphere conducive to criticism of business. Affluence, or the level of wealth, allows people the luxury of being critical of social institutions (as Amartya Sen and John Kenneth Galbraith have both noted, people in poverty are primarily concerned with finding enough to eat, not the cause or cure for social ills). In addition, affluence often leads to rising expectations. People generally expect each succeeding generation to have higher standards of living and become dissatisfied if that does not occur. While the recent economic recession may moderate rising expectations in the short-run, the general trend of rising expectations may continue. Such expectations are likely to outpace business’s ability to respond, especially during a recession. Higher levels of education also contribute to a climate of criticism, because people expect more from life, are more aware of ills caused by business, and they are better equipped to research and analyze the causes of social problems. The mass media, particularly television, movies and the internet, often provides negative information about business to the public, which increases the public’s distrust and unfavorable perception of business. Observers of society have also noted three related trends that contribute to criticism of business, an entitlement mentality, the movement for equal rights, and a victimization philosophy. These trends can also be associated with increased levels of education and affluence, and in some ways, are examples of rising expectations. These trends also may be influenced and exacerbated by the media. How does Dr. Epstein categorize corporate power into different levels and spheres? Can you elaborate on the significance of each level and sphere in understanding the influence and impact of corporations on society? Dr. Epstein identified four levels of corporate power—macro, intermediate, micro, and individual. The macro level encompasses the entire corporate system. This can be seen in business’s ability to effectively lobby Congress to pass laws that enhance corporations’ ability to operate profitably, the fact that nearly half of the largest economies in the world are corporate, not national, or in the profound effects that business has on individuals’ lives. The intermediate level of power resides within particular groups of corporations acting in concert. This type of power is often associated with industries, such as the auto manufacturers, insurance companies or financial services firms. An example of the intermediate level of corporate power is the military-industrial complex that influences defense spending. The micro level of corporate power is wielded by an individual firm. The best example of this level is Microsoft, with its dominance of the computer operating system market. Finally, the individual level of corporate power is vested in individual corporate leaders. Jack Welsh, retired CEO of General Electric, Bill Gates, founder of Microsoft, Warren Buffett, the CEO of Berkshire Hathaway, and Martha Stewart, founder of Martha Stewart Living Omnimedia, are good examples of people who exercise the individual level of corporate power. Spheres of power include economic, political, social/cultural, technological, environmental, and power over the individual. The fact that corporations control billions of dollars in assets and sales shows their economic power. Nearly half of the largest economies in the world are corporations, not nations. Corporate lobbying efforts, political action committees (PACs), and direct influence on elected officials (e.g., former Vice President Cheney’s “secret” energy policy meetings with corporate leaders) all show the political power enjoyed by corporations. Virtually all new technology is manufactured and distributed by corporations, and much of it is invented in corporate R&D labs—such as cellular telephones, medical treatment, and hybrid automobiles. Corporations produce vehicles that are the number one source of air pollution in the world, and determine the fashions that teens wear and the movies that we watch. Because most people work for corporations and buy most of their products from corporations, corporate power over the individual is undeniable. How does the concept of the "iron law of responsibility" elucidate the relationship between power and responsibility in organizations? Can you provide examples of how this principle applies to business practices, particularly in terms of consumer protection and regulatory intervention? The iron law of responsibility basically says that there is a balance required between power and responsibility to others. The more power an organization has, the more responsibilities that same entity will have. This concept is actually one that most children learn in one form or another. “To whom much is given, much is expected.” “Rights bear responsibilities.” A social contract is an implicit agreement between two parties or social institutions that states the rights and duties of each party. As consumers, we have a right to expect that the products we buy will work properly and not subject us to unreasonable risks. This right extends to financial services products. Abusive practices with credit cards and other predatory practices showed that this social contract was being violated on a regular basis by some corporations. Certain businesses have exploited consumers’ financial circumstances, lack of education or general naivety to bind them to unconscionable contracts. As a result, these consumers may find themselves in situations where they cannot realistically meet their debt obligations. To the extent that these businesses use unfair or predatory practices in selling their financial products, regulation is necessary to protect consumers. As a result, the federal government is justified in creating new regulations to meet this need. GROUP ACTIVITY This group activity focuses on business criticism and the corporate response. Divide students into groups of four to five students. Distribute the latest edition of national, regional and local newspapers among different groups in the class. Have the group identify the number of articles that criticize business or an employer-related decision. Have the group identify the number of articles that paint business in a favorable light. Ask students to pick a negative article and a positive article for a more in depth analysis. Students should consider the following questions for each article: Is the business practice or decision accurately portrayed? What is the intended audience of the newspaper? Do you think the affluence, education, expectations and mentality of the intended audience impacts the newspaper’s portrayal of the business decision? If so, how? How should the business in question respond to this situation? Once students have had an opportunity to discuss the review questions in their group, ask each group to report the number of negative versus positive articles and to summarize their answers to the review questions for the class. Look for trends or discrepancies to discuss with the class as a whole. For example, ask students to consider whether they believe business is treated differently by national, regional and local papers based on the responses of each group. Further, ask students to contemplate whether the affluence, education, expectations and mentality of the intended audience affects the way a particular newspaper reports on the actions of business. Finally, encourage students to explore the range of corporate responses to negative and positive media. This activity is designed to engage students in critically analyzing media coverage of business practices and decisions, as well as exploring how businesses should respond to both negative and positive portrayals in the media. Here's a possible response to the activity: Group Activity Summary Number of Articles: Group 1: Identified 6 negative articles and 4 positive articles. Group 2: Found 8 negative articles and 2 positive articles. Group 3: Recognized 5 negative articles and 5 positive articles. Review Questions Analysis: Accurate Portrayal: Group discussions revealed that while some articles accurately portrayed the business practices or decisions, others seemed to exaggerate or misinterpret the situation. Factors such as bias, lack of context, and sensationalism were noted as influencing the portrayal. Intended Audience Impact: Students recognized that the intended audience of the newspaper indeed influenced how business decisions were portrayed. National newspapers tended to have a broader audience and might focus more on the broader societal implications, while local newspapers might cater to a more specific demographic and frame the news accordingly. Corporate Response: Regarding how businesses should respond, students suggested that businesses should first assess the accuracy of the portrayal and then consider transparency, accountability, and responsiveness in their responses. Some advocated for proactive communication strategies to address concerns raised in negative articles, while others emphasized the importance of maintaining integrity and ethical standards. Class Discussion Points: Regional Differences: Students debated whether there were regional biases in media coverage, with some arguing that national newspapers might adopt a more critical stance due to their broader audience, while regional papers might have closer ties to local businesses and therefore be more favorable. Audience Influence: The influence of the audience's affluence, education, expectations, and mentality on media portrayal was a topic of interest. Students discussed how certain demographics might be more receptive to negative or positive portrayals based on their worldview and values. Corporate Responses: Exploring the range of corporate responses to negative and positive media coverage led to discussions about crisis management, reputation management, and the long-term impact of media perception on a company's brand and bottom line. Overall, the activity sparked insightful discussions about the complex relationship between media, business, and society, highlighting the importance of critical thinking and nuanced analysis in interpreting media portrayals of business practices and decisions. INDIVIDUAL ASSIGNMENT Distribute the following instructions to each student: Select a company and research recent news items that have been released regarding the company. In a written response, note whether the articles were positive or negative for the company. Describe how the company’s actions may impact an individual’s perception of business in the United States. Identify responsibilities that the company has to various stakeholder groups mentioned in the articles. Finally, note any sustainability issues that confront the company and provide suggestions for how the company should handle these issues. There's a sample response to the instructions: Company: XYZ Corporation Recent News Items: 1. Positive News: XYZ Corporation announces record-breaking quarterly profits, exceeding analyst expectations. The company attributes its success to innovative product launches and strong consumer demand. 2. Negative News: XYZ Corporation faces criticism for environmental violations at one of its manufacturing facilities. Reports suggest that the company has been dumping untreated wastewater into local waterways, posing a threat to the surrounding ecosystem. Impact on Perception of Business in the United States: Positive news articles about XYZ Corporation's financial success may bolster the perception of a thriving and innovative business environment in the United States. However, negative reports regarding environmental violations could tarnish the reputation of not only XYZ Corporation but also the broader business community, raising concerns about corporate responsibility and regulatory oversight. Responsibilities to Stakeholder Groups: 1. Shareholders: XYZ Corporation has a responsibility to shareholders to maintain transparency and integrity in its financial reporting. The company should address any concerns raised by negative news articles and take corrective actions to mitigate risks to shareholder value. 2. Employees: The company owes a duty to its employees to provide a safe and ethical work environment. Any allegations of environmental violations must be investigated promptly, and measures should be implemented to ensure compliance with environmental regulations and protect employee well-being. 3. Local Community: XYZ Corporation has an obligation to the local community affected by its operations to address environmental concerns and mitigate any adverse impacts on the environment. The company should engage with community stakeholders to address their concerns and implement sustainable practices that minimize environmental harm. Sustainability Issues: The environmental violations reported in the negative news articles highlight a significant sustainability issue for XYZ Corporation. To handle this issue effectively, the company should: 1. Conduct a thorough investigation into the reported violations and take immediate action to halt any further environmental damage. 2. Implement robust environmental management systems and compliance measures to prevent future violations. 3. Invest in sustainable technologies and practices to reduce the company's environmental footprint and promote responsible stewardship of natural resources. 4. Engage with environmental organizations and regulatory agencies to demonstrate a commitment to sustainability and foster transparency in environmental management practices. By addressing these sustainability issues proactively, XYZ Corporation can demonstrate its commitment to corporate responsibility and contribute to a positive perception of business in the United States. This response provides a structured approach to analyzing recent news articles about a selected company, considering their impact on perception, stakeholder responsibilities, and sustainability issues. Chapter 2 Corporate Citizenship: Social Responsibility, Responsiveness, and Performance SUGGESTED ANSWERS TO DISCUSSION QUESTIONS Students should recognize that their answers to these discussion questions should be well reasoned and supported with evidence. Although some answers will be more correct than others, students should be aware that simplistic answers to complex questions, problems, or issues such as these will never be “good” answers. What are the key components of Carroll's Pyramid of Corporate Social Responsibility, and how does it reflect society's expectations of corporations? Provide examples to illustrate each level of the pyramid and discuss the challenges companies face in simultaneously fulfilling all four responsibilities.
The Pyramid of Corporate Social Responsibility is a graphic representation of Carroll’s four-part definition of CSR. According to Carroll, society has four expectations of a corporation—economic, legal, ethical, and philanthropic. The pyramid shows the economic responsibility at the bottom, because it is the foundation upon which all others rest. Society’s first expectation of a corporation is that it will be profitable. This is consistent with classical economic thought, which provides that management must maximize the profits of its owners. Companies that repeatedly do not show a profit will see falling stock prices and eventual bankruptcy and may find it more difficult (if not impossible) to meet their legal, ethical and philanthropic responsibilities. Several companies in both the automotive and airline industries struggled to meet their economic responsibilities and landed in bankruptcy as a result. The second level is legal, because society requires corporations to follow the law, just as they are required to make a profit. Companies can receive stiff penalties for breaking the law. In the last decade, hundreds of publicly-traded companies were investigated by federal regulatory agencies for abusive practices related to stock option grants and were subjected to penalties due to faulty accounting and public disclosures. The third level is the ethical responsibility—society expects ethical behavior of companies. The corporate scandals that shaped the beginning of this century pointed out that society expects honest and fair reporting of financial operations by executives. If this expectation is violated, the executives can face criminal charges, as Martha Stewart and several Enron officials discovered. More recently, executives in financial services firms have found themselves subject to public scrutiny for arguably unethical practices related to aggressive lending practices. On the other hand, companies may find themselves recognized for their ethical activities. Starbucks and the Timberland Company are often recognized for their ethical practices. At the top is the philanthropic responsibility. Society desires this of corporations, but the company has discretion in whether it performs at this level or not. Walmart and AT&T are two firms that are widely praised for their philanthropic endeavors, especially their charitable cash contributions. While the economic responsibility is the base of the pyramid, a CSR or stakeholder perspective would focus on the pyramid as a unified whole. Companies are expected to fulfill their economic, legal, ethical and philanthropic responsibilities simultaneously, meaning that companies need to concurrently (1) make a profit, (2) obey the law, (3) be ethical and (4) be a good corporate citizen. While the simultaneous fulfillment of all four responsibilities can be challenging, the best moral managers will use moral imagination to develop solutions to corporate dilemmas that meet all four responsibilities at the same time. What are the arguments for and against Corporate Social Responsibility (CSR), as discussed in the provided answer? How do proponents and critics of CSR support their respective positions, and what implications do these arguments have for businesses and society? There are few, if any, legitimate arguments against CSR. The closest one could come to making a logical argument is that corporations should not be required to “fill the gaps” in social policy. That is, corporations should not be held responsible for providing funds and services for things that governments should be doing (e.g., school funding or social safety nets). The primary argument for CSR is that corporations are recognized as “persons” and receive as many, if not more, rights and privileges than do actual persons. If corporations are to benefit from such “citizenship,” they should be expected to contribute to society, just like actual persons are. The Wall Street Journal recently reexamined this debate in an August 2010 story entitled “The Case Against Corporate Social Responsibility.” In this article, Dr. Aneel Karnani, a Professor of Strategy at the University of Michigan's Stephen M. Ross School of Business, argues that “in cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests.” This article certainly has prompted many in the pro-CSR camp to respond. In a BusinessEthics.com article entitled “Opinion: The Case Against the Case Against CSR,” Tim Mohin, the director of corporate responsibility at AMD, contends that CSR is a win-win situation for companies and that smart companies take a long view and build brand value and investment with CSR. What are the key distinctions between corporate social responsibility (CSR), corporate social responsiveness, and corporate social performance, as outlined in Carroll's four-part definition? How do these concepts differ in their focus and implications for businesses, and can you provide examples to illustrate each concept? Carroll’s four-part definition of corporate social responsibility is “The social responsibility of business encompasses the economic, legal, ethical, and discretionary (philanthropic) expectations that society has of organizations at a given point in time.” The concept of corporate social responsibility has been criticized because its focus is on accountability or obligation to meet certain minimum duties. Corporate social responsiveness is a more proactive and action oriented concept, wherein business firms anticipate social expectations and meet them before they are imposed as a new responsibility on the company. A corporation that obeys existing laws is displaying corporate social responsibility. An example of corporate social responsiveness would be a firm providing child care benefits to its working parents, thus responding to the reality of issues faced by working families. Corporate social performance focuses on what firms are actually able to accomplish – specifically, the outcomes or results of their acceptance of corporate social responsibility and implementation of corporate social responsiveness. Corporate social performance includes a recognition of the four corporate responsibilities identified by Carroll and measures the success of the firm’s responsiveness to these responsibilities. What are the similarities and differences between the Triple Bottom Line approach and Carroll's CSR Pyramid in assessing corporate responsibility? How does each model address the economic, social, and environmental dimensions, and how might they complement or overlap with each other in promoting sustainability and corporate citizenship? The Triple Bottom Line provides results of operations in three inter-related fields—economic, social, and environmental. The overriding theme in the Triple Bottom Line is sustainability of the firm’s operations, its stakeholders’ lives, and the environment. The CSR Pyramid recognizes four levels of responsibility—economic, legal, ethical, and philanthropic. Both models recognize the economic sphere. The Triple Bottom Line’s social and environmental concepts could include elements of the legal, ethical, and philanthropic levels of responsibility in the CSR Pyramid. What are some current examples of corporate social responsibility initiatives undertaken by companies such as Starbucks, Southwest Airlines, and Ben & Jerry's Ice Cream? How do these initiatives reflect the companies' commitment to social responsibility, responsiveness, and performance, and what impact do they have on their stakeholders and society at large? This question is left to the class instructor as time and events will have altered the facts available at the time this is being written. At the time of this writing, the author would suggest that students review the corporate social responsibility reports of Starbucks, Southwest and Ben and Jerry’s Ice Cream. What are the potential implications and contradictions of socially responsible investing (SRI) in relation to corporate social performance (CSP)? How do considerations of financial returns versus ethical concerns influence investors' decisions, and how might this impact companies' efforts towards corporate social responsibility? On the one hand, socially responsible investing seems to send the message that the investor is concerned about the firm’s CSP. However, the fact that returns on ethical investing approximate market returns seems to downplay this view. If the investor is truly concerned with the firm’s CSP, he or she should be willing to accept a lower rate of return on the investment. In addition, the vast majority of investments never reach the firm. Unless the firm is offering a new issue of stock, the proceeds of the sale go to the previous owner of the securities, not to the firm. GROUP ACTIVITY Have students establish the parameters for a social screen for investments. Specifically, ask students to identify the criteria for socially responsible investments. Once the class establishes the “social screen” as a group, divide the students into groups of four to five students. Each group will be given a theoretical account with $500 to invest in firms that meet the criteria established by the entire class. Each group should be given a week to research firms for potential investment. Each group should provide a summary sheet to the instructor allocating the $500 among socially responsible investments that meet the class criteria. Each group should track the return on their investments through the end of the semester and report the value of their portfolio at that time. Opportunity should be given to discuss why certain investments were made. Instructors may want to provide some type of reward for the group with the greatest return on investment. Groups that select companies that do not meet the class social screen should be disqualified. Here's how you could structure the activity: Socially Responsible Investment Group Activity Step 1: Establishing the Social Screen Criteria 1. Class Discussion: Facilitate a class discussion to identify the criteria for socially responsible investments. This could include factors such as environmental sustainability, ethical labor practices, diversity and inclusion, community engagement, and corporate governance. 2. Group Consensus: Encourage students to collaboratively establish the parameters for the social screen based on the class discussion. Document the agreed-upon criteria to serve as guidelines for investment decisions. Step 2: Investment Research 1. Group Formation: Divide students into groups of four to five students. 2. Allocation of Theoretical Funds: Provide each group with a theoretical account containing $500 to invest in firms that meet the established social screen criteria. 3. Research Phase: Allocate one week for each group to research potential investment opportunities. Students should analyze company profiles, financial performance, and adherence to the social screen criteria. Step 3: Investment Allocation 1. Summary Sheet: Instruct each group to prepare a summary sheet outlining their investment allocations. This sheet should detail the amount invested in each company and justification for their selections based on the social screen criteria. Step 4: Tracking Investment Performance 1. Portfolio Management: Throughout the semester, students should track the performance of their investment portfolio. They should record any changes in the value of their investments and the reasons behind these fluctuations. 2. Final Portfolio Evaluation: At the end of the semester, each group should report the value of their portfolio. They should also reflect on the success of their investment strategy and discuss any challenges faced during the process. Step 5: Discussion and Reward 1. Group Presentations: Provide an opportunity for each group to present their investment strategy, portfolio composition, and performance outcomes to the class. Encourage discussion on why certain investments were made and how they align with the social screen criteria. 2. Evaluation and Reward: Recognize the group with the greatest return on investment, considering adherence to the social screen criteria. Consider providing a reward or acknowledgment for their achievement. Note: Any groups that select companies that do not meet the class social screen should be disqualified from consideration for the reward. This structured approach allows students to apply theoretical concepts of socially responsible investing in a practical setting, fostering critical thinking and collaborative decision-making skills. INDIVIDUAL ASSIGNMENT Have students read the August 2010 Wall Street Journal article entitled “The Case Against Corporate Social Responsibility,” by Dr. Aneel Karnani (see http://online.wsj.com/article/SB10001424052748703338004575230112664504890.html). Ask students to independently research academic and business responses to this article. Students should summarize the arguments for and against Corporate Social Responsibility based upon their review of Dr. Karnani’s article and their own independent research. Students then should state which argument that they find most persuasive and why. In "The Case Against Corporate Social Responsibility," Dr. Aneel Karnani argues that the idea of corporations engaging in social responsibility beyond profit-making is flawed. He contends that the primary responsibility of corporations is to maximize profits within the boundaries of the law and ethical norms. He argues that corporate social responsibility (CSR) initiatives often fail to address societal problems effectively and can even harm the very stakeholders they aim to help. Karnani suggests that instead of diverting resources to CSR activities, corporations should focus on improving their core business operations, which can have a more significant positive impact on society through job creation, innovation, and economic growth. Academic and business responses to Karnani's arguments vary. Some scholars and practitioners support Karnani's view, emphasizing the importance of profit maximization as the primary goal of corporations. They argue that businesses are not equipped to solve complex social problems and that CSR initiatives may distract from their core objectives. However, others disagree with Karnani, advocating for a broader understanding of corporate responsibility. They argue that corporations have a duty to consider the interests of various stakeholders, including employees, customers, communities, and the environment, beyond just shareholders. Proponents of CSR argue that businesses can contribute to society in meaningful ways while still pursuing profits, and that responsible business practices can enhance long-term sustainability and profitability. After reviewing both perspectives, individuals may find themselves drawn to one argument over the other based on their values, beliefs, and understanding of business ethics. Some may find Karnani's emphasis on the primacy of profit maximization convincing, especially if they prioritize economic efficiency and the role of businesses in creating wealth. Others may find the arguments in favor of CSR more compelling, particularly if they value corporate accountability, sustainability, and the broader social impact of business activities. Ultimately, the most persuasive argument for each student will depend on their own interpretation of corporate responsibility and the role of businesses in society. Chapter 3 The Stakeholder Approach to Business, Society, and Ethics SUGGESTED ANSWERS TO DISCUSSION QUESTIONS Students should recognize that their answers to these discussion questions should be well reasoned and supported with evidence. Although some answers will be more correct than others, students should be aware that simplistic answers to complex questions, problems, or issues such as these will never be “good” answers. What are the key stakeholders and stakes involved for college students, as discussed in the provided answer? How do these stakeholders and their respective stakes influence the decisions and actions of college students, and what implications does this have for their academic and professional endeavors? As college students, the people in class may have a widely varied list of stakes and stakeholders. Stakeholders may include parents, a spouse or significant other, possibly children, classmates, the instructor, employers or employees, and many others. The stakes held by each of these groups or individuals will be equally varied, from the pride parents may take in seeing their offspring graduate from college, to a spouse who can benefit from the student’s greater earning capacity, to the employer who will have a better qualified employee (and may have to pay more for that person). How does the evolution from the production view to the stakeholder view of the firm reflect changing perspectives on the role of business in society, and what are the key differences between these perspectives? The production view of the firm was the earliest, most simplistic model. In it, the only groups considered were those who dealt directly with the firm in a business capacity, either supplying factors of production or buying the firm’s products. As business firms became more complex and management functions separated from ownership, a more sophisticated model, the managerial view of the firm, was developed. In addition to the stakeholders recognized in the production view, the managerial view acknowledged other major constituents such as employees and owners. The current stakeholder view of the firm recognizes all of the groups previously mentioned, as well as a myriad of other stakeholders that can affect or be affected by the company. These include, among others, government, community members, and the natural environment. Another significant difference between the stakeholder view of the firm and its predecessors is that benefits of the firm’s operations are seen as accruing to all stakeholders (in one form or another), whereas before, the firm itself was the central figure in that calculus. What distinctions can be made between primary and secondary stakeholders, as well as social and nonsocial stakeholders, within the context of a business like Ford Motor Company? Primary stakeholders are those groups or persons who have a direct stake in the organization. Secondary stakeholders have more public or special interests in the firm, rather than direct stakes. Social stakeholders appear to encompass entities that humans consider human-related, i.e., individuals and groups of individuals. Nonsocial stakeholders seem to be non-human entities, such as wildlife, the natural environment, or future generations, or groups of humans who represent the interests of those non-humans. If we look at a large manufacturer like Ford Motor Company, its stakeholders might include: (1) primary social stakeholders—customers and employees; (2) secondary social stakeholders—General Motors and the National Highway Safety Board; (3) primary nonsocial stakeholders—polar bears whose natural habitat is being damaged by climate change, and (4) secondary nonsocial stakeholders—citizen groups that support clean air initiatives. What strategies can companies employ to effectively balance their economic, legal, ethical, and philanthropic responsibilities to various stakeholder groups, ultimately fostering the development of sustainable practices within their operations? Additionally, how can companies collaborate with key stakeholders such as employees, communities, customers, suppliers, and shareholders to create sustainable products and practices while mitigating environmental, health, and safety impacts? By balancing its economic, legal, ethical and philanthropic responsibilities to various stakeholder groups, a company is more likely to develop sustainable practices. Companies also can work with relevant stakeholder groups (employees, communities, customers, suppliers, shareholders and others) to create sustainable products and practices and to mitigate the environmental, health and safety impacts of its products. How do the different levels of stakeholder management capability, particularly Level 1 and Level 3, reflect a progression in a company's approach to engaging with stakeholders? What key factors, such as proactive learning, stakeholder inclusion in planning, and genuine engagement, contribute to advancing from one level to the next? And importantly, how does the mindset and commitment of senior management influence this progression, particularly in transitioning from Level 1 to Level 3? There are two primary differences between Level 1 and Level 3 of SMC. The first is actively learning about stakeholders and including their stakes in the planning process. The second step is to actually engage the stakeholders and develop transactions or a relationship with them. Although the textbook does not specify this, perhaps the most important step in moving from Level 1 to Level 3 is for senior managers to care enough about other stakeholders that they are willing to initiate these steps. Much more is accomplished through internal motivation than through coercion. What factors contribute to the growing support for stakeholder inclusion within corporations, despite evidence of prioritizing those in control at the expense of others in certain industries? A cynic would look at the current business climate and declare that the stakeholder corporation is an impractical dream that will not come to fruition any time soon. Recent failures in the financial services and automotive industries (among others) and the continuing disparity in CEO and worker pay provide much evidence that primary consideration is given to enriching those in control of the organization at the expense of all others. However, this ignores the groundswell of support for stakeholder inclusion by many, both inside and outside of corporations. This support, along with the complexity of business operations and relationships, will almost require that firms recognize and give credence to the claims their various stakeholders hold on them. There is a paradox at work here, just as there is in the centralization/decentralization question in the management of a firm. As the operating environment becomes more complex, the initial reaction to gaining control is to centralize decision-making. However, the sheer complexity soon makes centralization impossible—the few decision makers are overwhelmed. Thus, decentralization becomes the only way to deal with complexity. In a similar manner, the sheer complexity and strength of stakeholder demands will soon mandate that firms recognize them and deal with them. GROUP ACTIVITY Divide students into groups of four to five students. Have each group review the corporate social responsibility report of a different company. Ask the students to determine the stakeholders addressed by the company’s CSR report. Students should then select one stakeholder group and determine how the company addressed the five key questions of stakeholder management with regards to the selected stakeholder: (1) Who Are Our Stakeholders? (Students should indicate the selected stakeholder group here); (2) What Are Our Stakeholders’ Stakes?; (3) What Opportunities and Challenges Do Our Stakeholders Present?; (4) What Responsibilities Does the Firm Have to Its Stakeholders? and (5) What Strategies or Actions Should Management Take? Each group should make a poster that succinctly addresses the five questions for their company. Students should be encouraged to review the poster presentations of other groups. The instructor may want to quiz the entire class regarding the poster presentations. Sample outline for a group activity based on reviewing corporate social responsibility reports: 1. Group Formation: • Divide students into groups of four to five. • Assign each group a different company and provide them with access to the company's corporate social responsibility (CSR) report. 2. Reviewing CSR Reports: • Instruct each group to review the CSR report of their assigned company. • Ask them to identify the stakeholders addressed by the company in the report. 3. Selecting Stakeholder Group: • Each group selects one stakeholder group from the CSR report to focus on. 4. Addressing the Five Key Questions: • Provide students with the five key questions of stakeholder management: • Who Are Our Stakeholders? (Students should indicate the selected stakeholder group here) • What Are Our Stakeholders’ Stakes? • What Opportunities and Challenges Do Our Stakeholders Present? • What Responsibilities Does the Firm Have to Its Stakeholders? • What Strategies or Actions Should Management Take? • Instruct each group to analyze how their assigned company addresses these questions specifically for the selected stakeholder group. 5. Creating Posters: • Each group creates a poster that succinctly addresses the five questions for their assigned company and stakeholder group. • Encourage students to use visuals, charts, and concise language to communicate their findings effectively. 6. Poster Presentations: • Each group presents their poster to the class, summarizing their analysis and key findings. • Encourage other students to ask questions and engage in discussion about the different approaches taken by each company. 7. Class Quiz: • After all groups have presented, conduct a quiz to test the understanding of the material covered in the poster presentations. • Ask questions related to the stakeholders, their stakes, opportunities, challenges, responsibilities, and suggested strategies/actions for each company. This activity allows students to engage with real-world CSR reports, analyze stakeholder management strategies, and develop critical thinking and presentation skills. It also promotes peer learning and discussion among students. INDIVIDUAL ASSIGNMENT Have students read the following scenario and use the five key questions in stakeholder management to determine how Starbuck’s should handle this stakeholder. A few years ago, Starbucks identified three areas in which government could impact the company’s ability to maximize profits in its Corporate Social Responsibility Report: (1) U.S. Tax Policy, (2) U.S. Trade Policy and (3) U.S. Healthcare Policy. Starbucks notes that (1) sound tax policy is critical to its continued competiveness, (2) bilateral and multilateral trade agreements help to create opportunities for corporate investment in emerging markets, and (3) rising healthcare costs could make it more difficult for the company to continue to provide healthcare benefits to its employees. To analyze how Starbucks should handle the stakeholder represented by government policies in the areas of U.S. Tax Policy, U.S. Trade Policy, and U.S. Healthcare Policy, we can use the five key questions in stakeholder management: 1. Who are the stakeholders? • In this scenario, the stakeholders are Starbucks as a corporation, its shareholders, its employees who benefit from healthcare benefits, customers who may be affected by potential changes in tax policy impacting prices, and the broader community that may be impacted by Starbucks' operations and contributions. 2. What are the stakeholders' interests and concerns? • Starbucks: Maintaining profitability, competitive advantage, and sustainable growth. • Shareholders: Maximizing returns on investment. • Employees: Access to quality healthcare benefits and job security. • Customers: Access to affordable and quality products. • Community: Economic development, job creation, and social responsibility. 3. What opportunities and threats do the stakeholders face? • Opportunities: Favorable tax policies can enhance Starbucks' competitiveness. Trade agreements can open up new markets for expansion. Providing healthcare benefits can improve employee satisfaction and retention. • Threats: Unfavorable tax policies or healthcare costs could impact profitability. Changes in trade policies could affect access to emerging markets and supply chains. 4. What economic, legal, ethical, and philanthropic responsibilities does Starbucks have toward these stakeholders? • Economic: Maximizing profits within legal and ethical boundaries. • Legal: Complying with tax laws, trade regulations, and healthcare mandates. • Ethical: Ensuring fair treatment of employees and responsible business practices. • Philanthropic: Contributing to the well-being of communities through CSR initiatives. 5. What actions should Starbucks take to address the stakeholders' concerns and advance its own interests? • Engage in lobbying and advocacy efforts to influence favorable tax policies that support its competitiveness. • Advocate for trade policies that facilitate global expansion and investment opportunities. • Explore innovative healthcare solutions to manage rising costs while continuing to provide quality benefits to employees. • Communicate transparently with shareholders, employees, customers, and communities about its positions and actions regarding these policy areas. • Actively participate in industry associations and partnerships to collaborate on addressing shared challenges and opportunities in these policy areas. By addressing these key questions, Starbucks can develop a comprehensive stakeholder management strategy that considers the interests and concerns of all parties involved while also advancing its own business objectives and commitment to corporate social responsibility. Solution Manual for Business and Society: Ethics, Sustainability, and Stakeholder Management Archie B. Carroll, Ann K. Buchholtz 9780538453165
