The Corporation

And
External
Stakeholders
1

Chapter Topics
1.

2.

3.

4.

5.

Managing corporate responsibility in

the marketplace: crises and
opportunities
Managing corporate responsibility with
external stakeholders
Corporate responsibility and consumer
stakeholders
Corporate responsibility in advertising,
product safety, and liability
Corporate responsibility and the
environment

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Managing Corporate
Responsibility in the
Marketplace: Crises and
Opportunities
Managing legal and moral responsibility in the
marketplace can be a significant part of a
corporations activities.
Figure 5.1 in the text
Classic corporate crises
Corporate social responsibility refers to a
businesss attention to and promotion of the
welfare and goodwill of stakeholders.
Evidence supports that corporations that are
socially responsible have a competitive advantage
in the following areas:

Reputation
Successful social investment portfolios
Ability to attract quality employees

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Managing Corporate
Responsibility with External
Stakeholders
The stakeholder management
approach views the corporation as a
legal entity and a collective of
individuals and groups.

Social contract: a set of rules and

assumptions about behavior
patterns among various elements of
society.

The social contract between a

corporation and its stakeholders is
often based on implicit as well as
explicit
agreements.
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Managing Corporate
Responsibility with External
Stakeholders

The covenantal ethic concept is related to

the social contract view and is also central
to a stakeholder management approach.
The covenantal ethic focuses on the
importance of relationships, social as well
as economic, among businesses,
customers, and stakeholders.
At a more general view, it is argued that a
corporations obligations include, in
addition to making a profit, acting justly,
causing no unavoidable, unjustifiable
harm, and preventing harm where
possible.

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Managing Corporate
Responsibility with External
Stakeholders
Five broad guidelines suggested by Keith
Davis that business professionals should
follow to be socially responsible include:

Businesses have a social role of trustee for

societys resources

Business shall operate as a two-way open

system with open receipt of inputs from
society and open disclosure of its operations
to the public

Social costs/benefits shall be considered

before proceeding

The consumer shall pay for the costs of

consumption

Businesses have responsibilities where social

needs exist
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Managing Corporate
Responsibility with External
Stakeholders
Issues management should be a
continuous strategic process that
involves all business and functional
units. Methods used in this process
include:

Environmental scanning
Brainstorming
Probability and impact matrix

Three organizational levels at which

companies use issues management:

Corporate level

Functional level

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Corporate Responsibility
Toward Consumer
Stakeholders
Consumers may be the most
important stakeholders of
corporations.
Corporations have certain
responsibilities and duties toward
their customers and consumers in
society:

Duty to inform
Duty not to misrepresent
Duty not to force or take undue advantage
Duty to take due care to prevent any
unforeseeable injuries

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Corporate Responsibility
Toward Consumer
Stakeholders
Related rights consumers
have in their social contact
with corporations include:

Right
Right
Right
Right
Right

to
to
to
to
to

safety
free and rational choice
know
be heard
be compensated

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Corporate Responsibility
Toward Consumer
Stakeholders
The free-market theory holds that
the primary aim of business is to
make a profit.

There are several arguments

regarding the free-market theory.

The mixed market economy

perspective include a balance
between the private property
systems and the government laws,
policies, and regulations that protect
consumers and citizens.
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Corporate Responsibility in
Advertising, Product
Safety, and Liability
The purposes of advertising include:

Inform customers about products and services

Persuade customers to make purchases

The American Association of Advertising

(AAA) has a code of ethics that help
organizations monitor their own ads.
The Federal Trade Commission (FTC) and the
Department of Labor (DOL are federal
agencies appointed and funded to monitor
and eliminate false and misleading
advertising when corporate self-regulation
is not used or fails to control harm done to
consumers.

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Corporate Responsibility in
Advertising, Product
Safety, and Liability
Advertising on the Internet
presents new opportunities and
problems for consumers.
At issue ethically is the
unlimited availability of and
exposure to explicit and other
questionable content on ads
and Websites.

FTC provides regulatory guidelines

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advertising
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Corporate Responsibility in
Advertising, Product
Safety, and Liability
Moral responsibility for
consumers in advertising can be
viewed along a continuum.

Paternalism
Illusion of free choice

Enforcement of advertising

Bans on ads

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Corporate Responsibility in
Advertising, Product
Safety, and Liability
Arguments for advertising:

Introduces people to and influences

them to buy goods and services

Enables companies to be competitive

Helps nations maintain a prosperous

economy

Helps a nations balance of trade and

debt payments

Enriches consumers lives

Consumers are not ignorant and do

know
the difference
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Corporate Responsibility in
Advertising, Product
Safety, and Liability
Arguments against advertising:

Cross the thin line between deception

and puffery
Tells half-truths
Conceals facts
Intentionally deceive with a profit
goal in mind

Fast food industry advertising

Tobacco and alcohol advertising

Ethics and advertising

Advertising
and
free speech
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Corporate Responsibility in
Advertising, Product
Safety, and Liability
Managing product safety should be
priority number one for corporations.
The National Commission on Product
Safety (NCPS) notes that product
risks should be reasonable.
Three steps firms can use to assess
product safety from an ethical
perspective include:

How much safety is technically

attainable?
What is the acceptable risk level?
Does the product meet standards?

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Corporate Responsibility in
Advertising, Product
Safety, and Liability
Product liability doctrines:

Privity
Negligence
Strict liability
Absolute liability

Two broad purposes of product liability

lawsuits:

Provide a level of compensation for injured

parties
Act to deter negligent marketing

33 states have laws in the making to limit

liability and damages awards.

E-commerce
and
product
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17

Corporate
Responsibility and the
Environment
The most significant environmental
problems include:

Toxic air pollution

Water pollution and the threat of scarcity
Hazardous waste and land pollution

Causes of environmental pollution

include:

Consumer affluence

Materialistic cultural values

Urbanization

Population explosion

New and uncontrolled technologies

activities
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Corporate
Responsibility and the
Environment
A number of governmental
regulatory agencies have been
created to develop and enforce
policies and laws to protect the
general and workplace
environments:

OSHA

CPSC

EPA

CEQ
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19

Corporate
Responsibility and the
Environment
An innovative trend in new ecology ethical
thinking is linking the concepts of:

Green marketing
Environmental justice
Industrial ecology

The ethical principles of rights and duties

regarding the treatment of the environment and
multiple stakeholders are:

Rights of future generations

Right to a livable environment

New assumptions and practices driving corporate

changes toward the environment include:

International community
Green marketing
Environmentally friendly strategies

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20

Chapter 11

Corporate Responsibility,
Ethics and Strategic HRM

This chapter aims to:

Explore the growing interest in
ethics and Corporate Social
Responsibility

Understand the economic and

socio-political context of HRM

Discuss the relevance of ethical

theories, the law and theories of
rights and justice to HRM

Consider organisations as human

organisations and how people within them
are critical to the delivery of ethical
behaviour, at all levels

Assess the nature and use of

organisational values and ethical codes

Assess HRM as a profession and its role in

organisational ethics and Corporate Social
Responsibility (CSR)

Corporate Social Responsibility and

Business Ethics

Whats in a name?

Corporate Responsibility/Social
Responsibility/
CSR

All imply taking into account range of

stakeholders in considering economic,
social / political and environmental factors

Other terms include:

Corporate Philanthropy giving to

others in need

Corporate Citizenship acting as agents

in economic, social and political issues

Sustainability the link between a

sustainable business and a sustainable
planet

CSR Definitions

business decision-making linked to ethical values,

compliance with legal requirements, and respect
for people, communities, and the environment
Originates from a US organisation that encourages
corporate social responsibility, Business for Social
Responsibility (www.bsr.org)

process by which a company manages, measures

and reports its commitment to improve its positive
impact on society and the environment
Emphasises that to be successful and sustainable
CSR approaches must be integrated into the very
heart of the business and not left as a separate
function or responsibility (www.bitc.org.uk)

Growing
Interest
and and
Awareness
High-profile
scandals
unethicalof
Ethics
and CSR
behaviour

Demand for ethical behaviour

Globalisation and instant communications
Public awareness and consumer
behaviour
Reputational risk
Used as a competitive advantage
Offensive and defensive marketing

Other Pressures and Influences

Government policies and regulations

Laws / policies / funding, e.g regeneration
Tax supportive / punitive

Charities and NGOs (civil society)

HRM Strategy issues

Recruitment
Retention
Corporate culture

Market Economics and Differing Views

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)
Milton Friedman, The Social Responsibility of Business is to
Increase its Profits, The New York Times Magazine, 13
September 1970

A business of business outlook has blinded

companies to outcomes (or shifts in their implicit social
contract) which often could have been anticipated
Ian Davis, The Biggest Contract, The Economist, 28 May
2005

A stakeholder is defined as any group or

individual who is
either harmed by or benefits from the
corporation; or whose rights can be
violated or have to be respected, by the
corporation
Evan and Freeman (1993)

Steps of Social Responsibility

Philanthropic

Ethical

Legal

Economic

A. Carroll, The Pyramid of Corporate Social

Responsibility (1991)

Stakeholders
Examples

Shareholders
Customers
Employees
Suppliers
Communities local and global
Governments
Civil society

Globalisation can be defined as:

the progressive eroding of the relevance of
territorial bases for social economic and
political activities, processes and relations
(Scholte, 2000)

Strategic HRM Issues

Conflicts of interest create complexity in
ethical dilemmas in the workplace (and how
to handle them)
This can include decisions about recruitment
and training as well as approaches to reward
management and employee relations

Ethics or Values in Action

Ethical theories provide rules that can be
applied to any given situation. Most fall into
two broad groups:
1. those that base the judgement of the
decision on the outcome of the actions
2. those that do not look at the whether the
outcomes are desirable but at the underlying
principles of the motivation to act
(see downsizing example in chapter)

Virtue Ethics good actions come from good

people
Absolutism v Relativism (important in
globalisation):

Absolutists maintain that if an ethical

principle is valid, it must be applicable
everywhere

Relativists would say that there is no one

view of ethics and what is ethical is always
related to the social, cultural and historical
context

Further theories to consider:

Discourse Ethics (using discourse to

resolve conflict and achieve mutually
acceptable solutions)

Feminist Ethics (emphasising care for

others and the promotion of harmonious
relationships)

Postmodern Ethics (using moral impulses

and emotions to address ethical dilemmas)

Justice
Distributive concerned
with outcomes and
equity
Procedural concerned
with processes and
activities
Interactional concerned
with communication,
including trust and
openness

Trust, fairness and justice all affect the

expectations of individuals psychological
contracts
Individual personal values and integrity
are important
Kohlberg (1969) developed stages of
moral reasoning and cognitive
development
Mismatch between an individual
employees stage of moral reasoning and
that of an organisation (or those in
positions of power within it) can result in
actions such as whistleblowing

The Nature of Organisations

Organisations are collections of people

working together in a coordinated and
structured fashion to achieve one or more
goals (Barney and Griffin, 1992, p2)

It is the people within organisations (their

individual morals, values and attitudes
that affect decisions, behaviour and
actions at all levels) who are critical to the
delivery of ethical behaviour

Ethics & HRM

Human Resource Management evolved from

Personnel Management with its roots in the welfare
officers role in the original philanthropic business
organisations such as Cadburys and Rowntrees in the
1900s

HRM is seen to promote working relationships,

employee involvement, development, equal
opportunities and justice. Yet it is unitarist in its
approach, minimising the role of trade unions

The strategy of justifying its existence in accounting

terms may cede too much to the dominant accounting
culture which in turn may also achieve little security
for the HRM function (Armstrong, 1999)

Rights & Duties of Employees

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41

Rights & Duties of Employees

The rights & duties include:
The issues include:

freedom from discrimination

race, gender, age, disability,

privacy
surveillance of employees, work-life balance

due process
disciplinary / dismissal,
promotion,
grievance

participation and association,

trade unions, participation and
involvement

healthy & safe working occupational health, working conditions

conditions

fair wages pay, new forms of work,

industrial action

freedom of conscience & whistleblowing

speech

work
access to employment and opportunities
(Adapted from Crane & Matten (2007) Business Ethics, 2nd edn,
Oxford University Press)

Ethical Principles / Codes &

Values
Mission
or value statements
Codes of ethics

Organisation codes
They should be aspirational and set out
rules / expectations for employees

Professional codes
Obligations to obey the law, be competent
and character-based norms

HRs Role in Ethics and CSR

CSR is an opportunity for HR to demonstrate
a strategic focus and act as a business
partner. CSR needs to be embedded in an
organisations culture to make a change to
actions and attitudes, and the support of the
top team is critical to success

CIPDs
Corporate Social Responsibility fact sheet
(June 2006)

CSR Competency Framework

Understanding society
Building capacity
Questioning business as usual
Stakeholder relations
Strategic view
Harnessing diversity
There are five levels of attainment for each
characteristic.
These range from basic awareness to
understanding, application, integration
and leadership
(www.bitc.org.uk)

CSR Competency Framework

In developing a strategy for
Corporate Responsibility, Ethics and
Strategic HRM it is important to pay
as much attention to how such as
strategy will be implemented as to
the strategy itself

Key Principles of Implementation

1. Establish and clarifying the organisations
core values and principles. These are the
thread that binds all the policies and principles
together
2. Ensure that there is clear leadership
throughout the organisation in establishing the
core values and principles
3. Develop an understanding of the
organisations stakeholders, the nature of the
relationships and responsibilities towards them

4. Ensure that the business strategy, ethical

principles, CSR and HR practices are aligned
5. Communicate consistently and effectively
to all stakeholders
6. Provide timely and appropriate training to
reinforce values and principles
7. Review strategy, policy, procedures and
practices to ensure consistency and
compliance

Challenges of this Chapter

To understand the key strategic role that

HRM practitioners in organisations can
play in Corporate Responsibility and Ethics

For all engaged in HRM to appreciate the

different philosophies, perspectives and
cultures in developing approaches to
ethical decision- making

To bring together literature from the many

different disciplines contributing to the
debates about Corporate Responsibility,
Ethics and Strategic HRM to develop
theoretical frameworks for the conduct of
HRM in organisations

To ensure that higher education and

professional bodies follow the UN Principles for
Responsible Management Education' in the
design and delivery of management education,
including HRM

To develop reliable methodologies for exploring

the difference between the espoused and the
enacted organisational strategies and policies
in relation to corporate responsibility and
ethics

To explore models and strategies that develop

thinking and analytical skills using ethical
frameworks to promote the integration of
responsible and ethical decision-making in
HRM

Figure 3.1 - Elements of the

Marketing Mix within an
Environmental Framework

51

The Competitive
Environment

Interactive process that occurs in

the marketplace among:

Marketers of directly competitive

products

Marketers of products that can be

substituted for one another

Marketers competing for the

consumers purchasing power
52

The Competitive
Environment

Marketing decisions by individual firms

influence:

Consumer responses in the marketplace

Marketing strategies of competitors

Few organizations have monopoly

positions

Monopoly - Market structure in which a single

seller dominates trade in a good or service for
which buyers can find no close substitutes
53

The Competitive
Environment

Antitrust laws - Designed to

prevent restraints on trade such as
business monopolies

Oligopoly - Few number of sellers

in an industry with high start-up
costs which keep out new
competitors
54

Types of Competition

Direct

Among marketers of similar products

Example: Alternative suppliers in the cell

phone market such as Verizon and AT&T

Indirect

Involves products that are easily substituted

Example: In the fast-food industry, pizza

competes with chicken, hamburgers, and
tacos
55

Types of Competition

Competition among all firms that

compete for consumers purchases

All firms compete for a limited

number of dollars that consumers can
or will spend

Example: The purchase of a Honda

Accord might compete with a
Norwegian Cruise Line cruise
56

Developing a Competitive
Strategy

Competitive strategy - Methods

through which a firm deals with its
competitive environment

Should we compete?

Depends on firms resources, objectives, and

expected profit potential

In what markets should we compete?

Requires marketers to acknowledge their

firms limited resources
57

Developing a Competitive
Strategy

How should we compete?

Requires marketers to make product,

distribution, promotion, and pricing
decisions that give the firm a competitive
advantage

Time-based competition Strategy of developing and

distributing goods more quickly
than competitors
58

The Political-Legal
Environment

Consists of laws and their

interpretations that require firms to
operate under competitive
conditions and to protect
consumer rights

All marketers should be aware of the

major regulations that affect their
activities
59

Government Regulation

Falls into four historical phases:

Antimonopoly period of the late 19th and

early 20th centuries

Protecting competitors during the Great

Depression of the 1930s

The third phase focused on consumer

protection

Industry deregulation began in the late

1970s and continues to the present
60

The Social-Cultural
Environment

The relationship between the marketer,

society, and culture

Marketers must be sensitive to

demographic shifts and changing values

Increasing importance of cultural diversity

Example: Univision and Telemundo face

growing competition in Spanish-language
television programming

61

Consumerism

Social force within the environment

Aids and protects the consumer

Exerts legal, moral, and economic

pressures on business and
government

62

Consumerism

Consumer rights:

The right to choose freely

The right to be informed

The right to be heard

The right to be safe

63

Ethical Issues in Marketing

Marketing ethics - Marketers standards

of conduct and moral values

Some industries are required by law to

maintain corporate-level positions
responsible for ethics and legal compliance

Workplace may generate serious conflicts

when individuals discover that their ethical
beliefs dont match those of their employer

64

Figure 3.2 - Ethical Questions in

Marketing

65

Ethics in Marketing
Research

Consumers are concerned about privacy

Proliferation of databases

Selling of address lists

Ease with which consumer information can

be gathered

Several agencies offer assistance

The U.S. government maintains a
Do Not Call registry to prevent
unwanted telemarketing
66

Ethics in Product Strategy

Product quality, planned obsolescence,

brand similarity, and packaging raise
ethical issues

Example: Packaging strategy

Larger packages are more noticeable on the shelf

Oddly sized packages make price comparison
difficult
Bottles with concave bottoms appear to have
more liquid in them than they do

67

Ethics in Distribution

What is the appropriate degree of

control over the distribution
channel?

Should a company distribute its

products in marginally profitable
outlets that have no alternative
source of supply?
68

Ethics in Promotion

Truth in advertising is the bedrock

of ethics in promotion

Marketing to children has come

under increased scrutiny

Promoting specific products to

college students can raise ethical
questions
69

Ethics in Pricing

Most regulated aspect of a firms

marketing activities

Example: Credit-card companies

target consumers with poor credit
ratings

Offer them what industry observers call

subprime or fee-harvesting credit
cards

70

Social Responsibility in
Marketing

Marketing philosophies, policies,

procedures, and actions that have the
enhancement of societys welfare as a
primary objective
Four dimensions of social responsibility:

Economic
Legal
Ethical
Philanthropic
71

Figure 3.5 - The Four Step

Pyramid of Social
Responsibility

72

Marketings
Responsibilities

Corporate responsibility covers the

entire framework of society

Marketers must consider:

The global effects of their decisions

The long-term effects of their decisions

The well-being of future generations

Entire communities can benefit through

socially responsible investing
73

Marketing and Ecology

Ecology - The relationship between

organisms and their natural
environments

Environmental issues influence all

areas of marketing decision making

Green marketing - Production,

promotion, and reclamation of
environmentally sensitive products
74

Strategic Implications of
Marketing in the 21st Century

With the Internet and rapid changes in

technology, competition is even more
intense than before
Marketers face new regulations as the
political and legal environment responds to
changes in the United States and abroad
Ethics and social responsibility must
underlie everything that marketers do in
the 21st century
75