AN INTRODUCTION TO BUSINESS ETHICS CHAPTER THREE: CORPORATE SOCIAL RESPONSIBILITY Copyright © 2014 by McGraw-Hill Education. All rights reserved. THIS CHAPTER SEEKS TO  Help students continue developing the ability to identify and analyze ethical issues in business  Explain the ethical foundation for the classical model of corporate social responsibility  Review the ethical challenges to utilitarian and rights-based justifications of the classical model  Explain how the classical model is extended and developed through a moral minimum  Describe the stakeholder model of corporate social responsibility  Explain the ethical foundations of the stakeholder model 3-2 Copyright © 2014 by McGraw-Hill Education. All rights reserved. DISCUSSION CASE: WALMART  New York Times reported in 2012 that a six-year internal investigation found widespread bribery and corruption within Walmart’s Mexican operations  Walmart employees paid $24 million in bribes to promote expansion of business in Mexico  Walmart executives in Mexico knew of the bribes, and hid them from U.S. Walmart corporate offices  When the internal investigation was shared with corporate headquarters, Walmart executives ended the investigation 3-3 Copyright © 2014 by McGraw-Hill Education. All rights reserved. DISCUSSION CASE: WALMART (CONT.)  The Times also reported than only upon learning of the newspaper’s own investigation and plans to write a story did Walmart executives notify legal authorities  The U.S. Justice Department began an investigation of possible violations of the U.S. Corrupt Foreign Practices Act 3-4 Copyright © 2014 by McGraw-Hill Education. All rights reserved. DISCUSSION CASE: WALMART (CONT.)  Walmart is the world’s largest retail business, claiming over 200 million customer visits per week at more than 8,100 retail stores in 15 countries  Its total sales for fiscal year 2011 were $418 billion  Worldwide, it employs over 2.1 million people  It is the largest private employer in the U.S. and Mexico, and the largest employer in 25 U.S. states 3-5 Copyright © 2014 by McGraw-Hill Education. All rights reserved. DISCUSSION CASE: WALMART (CONT.)  In many ways, Walmart is a socially responsible corporation  Values promoted by Wal-Mart include honesty, respect, fairness and integrity  Wal-Mart culture was founded on three basic beliefs: respect for individuals, service to customers, and striving for excellence  Defenders point out that its economic success is evidence of how well Walmart is fulfilling its social responsibility 3-6 Copyright © 2014 by McGraw-Hill Education. All rights reserved. DISCUSSION CASE: WALMART (CONT.)  Walmart has created immense value for shareholders, consumers, suppliers, and employees  It regularly contributes to community and social causes  The Walmart Foundation is the largest corporate cash contributor ...

1. AN INTRODUCTION TO BUSINESS ETHICS
CHAPTER THREE: CORPORATE SOCIAL RESPONSIBILITY
Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THIS CHAPTER SEEKS TO
analyze ethical issues in business
corporate
social responsibility
-based
justifications of the classical model
lassical model is extended and developed
through a moral minimum
responsibility
3-2 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.

2. DISCUSSION CASE: WALMART
-year internal
investigation found widespread bribery and corruption
within Walmart’s Mexican operations
expansion of business in Mexico
them from U.S. Walmart corporate offices
headquarters, Walmart executives ended the investigation
3-3 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
DISCUSSION CASE: WALMART (CONT.)
newspaper’s own investigation and plans to write a
story did Walmart executives notify legal authorities
possible violations of the U.S. Corrupt Foreign Practices
Act

3. 3-4 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
DISCUSSION CASE: WALMART (CONT.)
over 200 million customer visits per week at more than
8,100 retail stores in 15 countries
eople
the largest employer in 25 U.S. states
3-5 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
DISCUSSION CASE: WALMART (CONT.)
cially responsible
corporation
-Mart include honesty, respect,
fairness and integrity
-Mart culture was founded on three basic beliefs: respect
for individuals, service to customers, and striving for
excellence

4. enders point out that its economic success is evidence of
how well Walmart is fulfilling its social responsibility
3-6 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
DISCUSSION CASE: WALMART (CONT.)
e value for shareholders,
consumers, suppliers, and employees
contributor in the U.S.
sh and in-
kind
gifts to charitable organizations
more energy efficient, reducing its carbon footprint, reducing
wastes and packaging
3-7 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
DISCUSSION CASE: WALMART (CONT.)
-
admired corporations in the world

5. -Mart
on behalf of every major constituency—customers,
employees, suppliers, competitors, communities—
with whom Wal-Mart interacts
3-8 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
DISCUSSION CASE: WALMART (CONT.)
manipulative pricing
-priced goods and their placement in stores are a ploy
to entice customers to purchase more and higher priced
goods
low wages, minimum work hours, high productivity,
and keeping unions out
3-9 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
DISCUSSION CASE: WALMART (CONT.)
poverty-level wages

6. employees, compared with other companies,
Walmart employees pay a disproportionately
high percentage of the cost
its low wages
3-10 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
DISCUSSION CASE: WALMART (CONT.)
employees to work overtime without pay and to
work off-the-clock
Americans with Disabilities Act
-union
activities
child labor laws
3-11 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
DISCUSSION CASE: WALMART (CONT.)

7. California, Illinois, Ohio, Texas, and Florida, filed a class-
action lawsuit against Walmart alleging sex-
discrimination against women employees
sates resulted in the arrest of over 250 illegal aliens
working as janitors in Walmart stores – a ploy to lower
wages, deny overtime pay and exploit illegal status of
employees
3-12 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
DISCUSSION CASE: WALMART (CONT.)
Walmart as a major
factor in the demise of small towns and local businesses
for the harms it can cause suppliers to bid against each
other in a type of “reverse auction” in which suppliers
compete to see who can offer their products at the
lowest prices resulting in suppliers going out of business
3-13 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
DISCUSSION CASE: WALMART (CONT.)
m the 1980s is
responsible for the loss of American jobs as American
businesses have been forced to outsource their

8. production as the only means to meet Walmart’s price
targets
Central America, and Saipan who use sweatshops to
produce clothing for Walmart
3-14 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
BUSINESS ETHICS IS NORMATIVE
in making decisions?
e proper role of business in society?
responsibility to serve the interests of
stockholders before acting for society’s
interests?
3-15 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE CLASSICAL MODEL OF CORPORATION SOCIAL
RESPONSIBILITY
responsibility in last century

9. -prize winning
Economist:
“[In a free economy], there is one and only one social
responsibility of business – to use its resources and
engage in activities designed to increase its profits so
long as it stays within the rules of the game…”
3-16 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE CLASSICAL MODEL OF CORPORATION SOCIAL
RESPONSIBILITY
management by the free market theory we
would likely “undermine the very foundations of
our free society.”
he most influential public
policy philosophies in history
3-17 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE CLASSICAL MODEL OF CORPORATION SOCIAL
RESPONSIBILITY
Example: Walmart
- Despite lawsuits and regulatory infractions, we

10. can assume, as a matter of corporate policy,
Walmart has always been committed to obeying
the law
- Walmart’s managers have sought to maximize
stockholder profit within the law
3-18 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE CLASSICAL MODEL OF CORPORATE SOCIAL
RESPONSIBILITY
strategy?
consequences result from each spending
decision.
ors whose
resources can be used to increase business
3-19 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE CLASSICAL MODEL OF CORPORATE SOCIAL
RESPONSIBILITY

11. understood as private property
maximization of profit is spending someone
else’s money for your own purposes. This is
ethically equivalent to theft.
profits under this model
3-20 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE CLASSICAL MODEL OF CORPORATE SOCIAL
RESPONSIBILITY
-faire approach
to business
control, allows the market to function most
efficiently
3-21 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
ASSESSMENT OF CLASSICAL MODEL
of maximally satisfying consumer demand?

12. appropriate as legitimate ethical goals?
3-22 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
ASSESSMENT OF CLASSICAL MODEL
result in a net increase in consumer satisfaction
therefore no means exists to ensure that these goods
get allocated to those who most value them
3-23 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
ASSESSMENT OF CLASSICAL MODEL
result in a net increase in consumer satisfaction
-interested behavior results in worse outcomes
than if behavior had been coordinated (Prisoner’s
dilemma)

13. 3-24 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
ASSESSMENT OF CLASSICAL MODEL
that a single and simple directive such as maximize
profits will produce the greater overall good in all cases
and in every situation
ocial goods remain
unasked from within market transactions: what is good
for individuals is not necessarily good for society
3-25 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
ASSESSMENT OF CLASSICAL MODEL
pragmatic theory
changing world, Utilitarians remain ready to revise their
principles in light of changing consequences
-market principles should be: Maximize profit

14. when doing so produces the greatest overall good for
the greatest number of people
3-26 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
ASSESSMENT OF CLASSICAL MODEL
Ad hoc attempts to repair market failures are
socially inadequate
- First generation problem
- Inappropriate influence
- Consumer preferences are addresses only as
they are expressed in the market: there is no
guarantee of happiness
3-27 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
ASSESSMENT OF CLASSICAL MODEL
Economic growth measures only the quantity of
what consumers spend, it does not assess the
quality of what they are purchasing with that
spending
Efficient markets provide no substantive ethical
basis for evaluating the ethical content or quality

15. of consumer choice
3-28 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
ASSESSMENT OF CLASSICAL MODEL
of profits
rm to the basic rules of society
These restrictions are minimal.
3-29 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE PRIVATE PROPERTY DEFENSE
consequences of the market?
roperty rights are not absolute.
rights of others.
liability

16. between investors and owners
3-30 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE MORAL MINIMUM
obligation to obey a moral minimum
use no harm
While it is ethically good for managers to prevent harm or to do
some good, their duty to stockholders overrides these
concerns
3-31 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE MORAL MINIMUM
major challenge

17. conflict with the interests of employees, consumers,
suppliers or society, business management must
carefully analyze the situation to determine ethical
responsibility
3-32 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE MORAL MINIMUM
Compliance with the law is insufficient for an
ethically responsible business
3-33 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE STAKEHOLDER THEORY
Every business affects a wide variety of people
- benefiting some and imposing costs on
others
The Stakeholder theory rejects the premise that
the primary beneficiaries of business decisions
should be investors
3-34 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.

18. THE STAKEHOLDER THEORY
and Broad Stakeholder theory
vital to the survival and success of the corporation”
who can affect or be affected by the corporation?”
3-35 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE STAKEHOLDER THEORY
management had an overriding obligation to
stockholders, the law now recognizes a wide
range of managerial obligations to stakeholders
such as consumers, employees, competitors, the
environment, and the disabled
3-36 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE STAKEHOLDER THEORY

19. balance the ethical interests of all affected
parties
consider the consequences of its decisions for
the well-being of all affected groups
3-37 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
THE STAKEHOLDER THEORY
interests
from the imperative to balance stakeholder interests
Stakeholder theory seems to offer little practical advice
to managers
3-38 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.
CONCLUSION

20. continuum
ts increases
upon the pursuit of profit
utilitarian and deontological ethics
3-39 Copyright © 2014 by McGraw-Hill Education. All rights
reserved.