Introduction Patagonia: The Responsible Company Specializing in outdoor clothing in a niche market, Patagonia, Inc. has long been considered a responsible company. Top executives make it apriority to convey the message that they care about their employees, their customers, and the environment. What does it mean to be aresponsible company? The founder and owner of Patagonia, Yvon Chouinard, has admitted that he did not intend for Patagonia to be anindustry leader in social and environmental responsibility when he started the company in 1972. Only after addressing a series of decisionsin product design, supply, and marketing did Patagonia executives realize that every business has responsibilities beyond profit. Chouinarddecided that he wanted to make a difference in the world by offering quality products that had minimal environmental impact and providingemployees with meaningful work. In 1988, staff at one of the Patagonia stores began to experience headaches due to a malfunctioning ventilation system that was recirculatingformaldehyde into the air. The source of formaldehyde was linked to the finishing process of the cotton used in the company’s products. Byexploring the issue in detail, Patagonia discovered that formaldehyde in clothing could create adverse reactions for customers, includingcancers and other illnesses. In response, the company investigated the environmental impact of the materials in their clothing. Based on theirfindings, they initiated a switch to organic cotton that was not readily available. Working with suppliers in the United States and laterinternationally, Patagonia was able to secure a greater supply of organic cotton that is free from the harmful chemicals that can affectcustomers and employees as well as the environment. These types of situations have shown that being a responsible company entailsfocusing on a broad range of stakeholders and provides for a viable and sustainable business. Patagonia has since become a leader in social responsibility. In their book, The Responsible Company (2012), Chouinard and Vincent Stanley,the company’s chief storyteller and editor of the Footprint Chronicles (the company’s website that provides transparency to the public byshowing the social and environmental impact of Patagonia products), share five elements of business responsibility as a model for othercompanies. These are responsibilities to: 1. The health of the business, including the obligation of a company to stay financially viable. 2. The workers, including caring for the people who make and sell its products. 3. Customers, focusing on the value of the products and services that satisfy the customers through truthful and honest relationships. 4. The community, which incorporates the varied interests of the neighborhoods and cities where they conduct business, including thevirtual community of blogs and social media. 5. Nature, by recognizing that our economy depends on nature and the resources that it provides. The a.

1. Introduction
Patagonia: The Responsible Company
Specializing in outdoor clothing in a niche market, Patagonia, I
nc. has long been considered a responsible company. Top execut
ives make it apriority to convey the message that they care abou
t their employees, their customers, and the environment. What d
oes it mean to be aresponsible company? The founder and owner
of Patagonia, Yvon Chouinard, has admitted that he did not inte
nd for Patagonia to be anindustry leader in social and environm
ental responsibility when he started the company in 1972. Only
after addressing a series of decisionsin product design, supply,
and marketing did Patagonia executives realize that every busin
ess has responsibilities beyond profit. Chouinarddecided that he
wanted to make a difference in the world by offering quality pr
oducts that had minimal environmental impact and providingem
ployees with meaningful work.
In 1988, staff at one of the Patagonia stores began to experience
headaches due to a malfunctioning ventilation system that was
recirculatingformaldehyde into the air. The source of formaldeh
yde was linked to the finishing process of the cotton used in the
company’s products. Byexploring the issue in detail, Patagonia
discovered that formaldehyde in clothing could create adverse r
eactions for customers, includingcancers and other illnesses. In
response, the company investigated the environmental impact of
the materials in their clothing. Based on theirfindings, they init
iated a switch to organic cotton that was not readily available.
Working with suppliers in the United States and laterinternation
ally, Patagonia was able to secure a greater supply of organic co
tton that is free from the harmful chemicals that can affectcusto
mers and employees as well as the environment. These types of
situations have shown that being a responsible company entailsf
ocusing on a broad range of stakeholders and provides for a via
ble and sustainable business.
Patagonia has since become a leader in social responsibility. In

2. their book, The Responsible Company (2012), Chouinard and Vi
ncent Stanley,the company’s chief storyteller and editor of the F
ootprint Chronicles (the company’s website that provides transp
arency to the public byshowing the social and environmental im
pact of Patagonia products), share five elements of business res
ponsibility as a model for othercompanies. These are responsibil
ities to:
1.
The health of the business, including the obligation of a compan
y to stay financially viable.
2.
The workers, including caring for the people who make and sell
its products.
3.
Customers, focusing on the value of the products and services th
at satisfy the customers through truthful and honest relationship
s.
4.
The community, which incorporates the varied interests of the n
eighborhoods and cities where they conduct business, including
thevirtual community of blogs and social media.
5.
Nature, by recognizing that our economy depends on nature and
the resources that it provides. The authors call on businesses to
bemore humble and learn to live on the planet without destroyin
g it.
A major theme in the responsibility strategy of Patagonia is to d
o no harm, which is based on ethical and responsible business p
ractices.
What is the difference between business ethics and corporate so
cial responsibility (CSR)? One major distinction is that the prim
ary goal ofbusiness ethics programs is to prevent harm, whereas
the objective of CSR initiatives is to do good. Societal expectat
ions are evolving forethical and responsible businesses. A poll o
n corporate social responsibility of over 25,000 people in 23 co
untries shows that making a profitand obeying laws is not enoug

3. h (Environics International Ltd., 1999). In most of the countries
polled, the majority of citizens expected thatcompanies also ex
hibit higher ethical standards and improve society. As we see in
the Patagonia example, responsible businesses strive tocreate p
ositive impacts while avoiding harm.
An ethical business goes beyond compliance and recognizes the
responsibilities to both internal and external stakeholders. Resp
onsiblecompanies require “leaders who care, who are morally co
nscious, open towards the diversity of stakeholders inside and o
utside thecorporation and who are aware of and understand the r
esponsibilities of business in society” (Pless, 2007, p. 438). A g
lobal survey in 2008found that 76% of chief executive officers (
CEOs) and senior executives believe it is important for senior e
xecutives to be able to respond tosocial issues that their busines
ses could address, such as natural resource scarcity, poverty, co
rruption, and human rights violations (Gitsham,2009). However,
fewer than 8% feel that either their organization or business sc
hools develop the knowledge and skills to manage such socialre
sponsibility initiatives. Executives surveyed in a 2010 study exp
ect that employees will be tasked with “doing their jobs in a diff
erent way,being mindful of their impact on energy and environm
ent” (Deloitte, 2010, p. 16).
This chapter examines the social responsibility of business and t
he role of ethics in responsible business. We will begin by discu
ssing thedifferent strategic approaches available to responsible
companies. Next, industry examples will demonstrate the value
of strategic corporatesocial responsibility by outlining five outc
omes that increase competitiveness and foster growth. The chapt
er concludes withrecommendations for meeting ethical and resp
onsible obligations from a stakeholder perspective.2.1 Foundati
ons of Corporate Social Responsibility
Corporate social responsibility can encompass a variety of diffe
rent activities, which may be described as good neighborliness o
r goodcitizenship. Socially responsive firms actively seek to do
no harm, for example by providing a safe working environment
or adopting cleanproduction processes. Corporate social respons

4. ibility also obliges companies to create initiatives for solving br
oad social problems such asurban decay, substance abuse, and p
overty. There is no consensus on a single definition of corporate
social responsibility. Modern perceptionsof corporate social res
ponsibility have evolved from initially focusing on individual m
anager responsibility for social consequences of actionsin the 1
950s to a firm’s responsibility to multiple stakeholders today. R
egardless, a socially responsive firm monitors and assessesenvir
onmental conditions, attends to stakeholder demands, and desig
ns policies to respond to changing conditions (Ackerman, 1975).
Social Responsibility and Ethics
The premise of corporate social responsibility is the ethical dut
y of businesses to accept responsibility for the consequences of
their actionsbeyond financial performance. Howard Bowen’s 19
53 book Social Responsibilities of the Businessman describes so
cial responsibility as “theobligation of businessmen to pursue th
ose policies, to make those decisions, or to follow those lines of
action which are desirable in terms ofthe objectives and values
of our society” (p. 60). According to DiMaggio and Powell (198
3), companies operate within a social framework ofnorms, value
s, and assumptions about what constitutes acceptable behavior,
and they fear losing the freedom to conduct businessindependen
tly if they are found to be unresponsive to social pressures for r
esponsible business. If powerful stakeholders in society do nota
ccept a company’s actions, they may increase regulation or revo
ke a company’s legitimacy to conduct business. For example, C
anadianmining companies have been under mounting pressure fr
om African countries to address negative social and environmen
tal impacts andhuman rights violations (Campbell, 2008). The c
ompanies could lose public support for mining operations within
the region if they do notcomply with international standards.
A business’s relationship with societal expectations is a social c
ontract, or a basic agreement that defines the broad duties of a b
usinessrequired to retain society’s support. Laws and regulation
s express the formal part of this contract. The tacit part of the s

5. ocial contractencompasses stakeholders’ expectations based on t
heir values and norms. Through legal or stakeholder action, com
panies recognize thatviolations can seriously harm the reputatio
n and financial well-
being of their businesses. Therefore, one view of social responsi
bility isprimarily a risk management strategy.
Since there is no consensus on how corporate social responsibili
ty guides firm behavior, there are many terms to describe compa
ny initiativesfor meeting societal expectations: corporate respon
sibility, corporate citizenship, sustainability, strategic philanthr
opy, and creating sharedvalue. Regardless of the terminology, c
ompanies adopting a responsible approach to business tend to st
ress ethical behavior andresponsiveness to multiple stakeholders
. Three common approaches to corporate social responsibility ar
e based on obligations, citizenship,and sustainability.
Social Responsibility as Obligation
Many companies view corporate social responsibility as the obli
gation to meet society’s economic, legal, ethical, and discretion
aryexpectations for the organization (see Figure 2.1). The econo
mic and legal components refer to a business’s obligation to pro
duce goods andservices at a profit while obeying laws. Economi
c and legal obligations are an inherent part of corporate respons
ibility, as businessescontribute to social welfare in the form of j
obs, products, and innovation. The ethical component refers to t
he behaviors and norms that asociety expects, and the discretion
ary component encompasses voluntary and philanthropic activiti
es of contributions of money, time, andtalent. Consensus is lack
ing on the degree of responsibility that businesses have for each
of the components and often varies worldwide.Figure 2.1: Pyra
mid of social responsibility
The economic, legal, ethical, and philanthropic obligations that
a business must meet areviewed as corporate social responsibilit
y.
Source: Adapted from The Pyramid of Corporate Social Respons

6. ibility: Toward the Moral Management ofOrganizational Stakeh
olders, by A. B. Carroll, 1991, Business Horizons, 34(4), p. 42.
A company’s economic responsibilities relate to profits realized
in the production of goods and services. A business needs to be
financiallyviable in order to employ workers, pay taxes, and aw
ard dividends to investors. The fulfillment of economic obligati
ons of a business is thebasis for the company’s annual reports fo
r the shareholders. For example, the annual report for Harley-
Davidson Inc. begins with a letter toshareholders highlighting re
venue, sales growth, and market share (Harley-
Davidson, 2012). Economic obligations can focus on internalsta
keholders, such as the company’s responsibility to create shareh
older value, or external stakeholders, such as providing product
s forconsumers, creating employment, and stimulating an indust
ry (Chabowski, Mena, & Gonzalez-Padron, 2011).
Legal responsibilities entail a company’s obligations to obey lo
cal, regional, national, or international laws. Regulations seek t
o create a fairand competitive environment for businesses, safeg
uard natural resources, protect consumers, and ensure safe work
places. Consequences fornot meeting legal obligations include f
ines, imprisonment of company executives, and revoking of busi
ness permits. Companies have legalobligations toward many sta
keholders. Compliance with regulations includes protecting emp
loyees through a safe workplace free ofharassment and fair com
pensation. Legal obligations to customers require companies to
meet product safety requirements, pricing policies,and advertisi
ng regulations. Regulations enforcing accurate financial records
and reporting protect company investors. Environmental lawspr
otect natural resources.
Companies have ethical obligations beyond those required by la
w. Ethical responsibilities include concern for employees by cre
ating a fairand equitable work culture. Ethical norms that guide
the business’s responsibility for ethical behavior can change as
new issues emerge.Shifting political and economic environment
s can also influence a business’s ethical obligations. For exampl
e, Chinese executives considerethical obligations to include safe

7. guarding social order and creating a harmonious society; these o
bligations come from the Chinesegovernment’s emphasis on soc
ially responsible businesses (Gonzalez-
Padron, Fan, & Zhou, 2014).
Discretionary responsibilities often include voluntary and charit
able activities that benefit others and derive from society’s expe
ctations tocontribute to the well-
being of the community. Voluntary programs such as on-
site child care, fitness and wellness services, and companypicni
cs improve the quality of employees’ work-
life balance. Some companies refer to discretionary activities to
ward external stakeholders asphilanthropic responsibilities. Phil
anthropic activities include donations of money or talents to cha
rities, employee volunteer programs forcommunity projects, cau
se-
related marketing, and collaborations with nonprofit organizatio
ns to address social issues.
Social Responsibility as Corporate Citizenship
Corporate citizenship refers to a managerial approach to commit
to responsible business policies and practices with a strategic f
ocus onserving communities. Business managers use the term co
rporate citizenship interchangeably with corporate social respon
sibility with twodistinctions. First, corporate citizenship primari
ly describes organizational initiatives that are not required by la
w, which support localcommunities (Gardberg & Fombrun, 2006
). These activities often relate to philanthropic initiatives such a
s corporate volunteerism, charitablecontributions, support for co
mmunity education and healthcare initiatives, and programs to i
mprove the environment.
These ideals are often reflected in corporate citizenship stateme
nts, such as that of The Boeing Company: “The enduring strengt
h of ourbusiness depends on healthy and vibrant communities. G
iving back to communities is important to our employees and a
core value of TheBoeing Company” (Boeing, 2012, p. 2); and M
icrosoft: “Our citizenship mission is to serve globally the needs

8. of communities and fulfill ourresponsibilities to the public” (Mi
crosoft, 2013, p. 4).
Second, many company statements of corporate citizenship refer
to business conduct, ethical standards, and responsible business
practices(Matten & Crane, 2005).
Headquartered in Geneva, Switzerland, the World Economic For
um is an international institution that strives to improve the stat
e of theworld by engaging business, political, academic, and oth
er leaders of society to address responses to economic, social, a
nd political changes(World Economic Forum, 2014a). It offers t
he Framework for Action for organizations that strive to exempl
ify global corporate citizenship:
A.
PROVIDE LEADERSHIP: Set the strategic direction for corpora
te citizenship in your company and engage in the wider debateo
n globalization and the role of business in development.
i.
Articulate purpose, principles, and values internally and externa
lly
ii. Promote the business case internally
iii. Engage the financial sector
iv.
Enter the debate on globalization and the role of business in dev
elopment
B.
DEFINE WHAT IT MEANS FOR YOUR COMPANY: Define th
e key issues, stakeholders and spheres of influence that are rele
vantfor corporate citizenship in your company and industry.
i. Define the issues
ii. Agree on company’s spheres of influence
iii. Identify key stakeholders
C.
MAKE IT HAPPEN: Establish and implement appropriate polici
es and procedures, and engage in dialogue and partnershipwith k
ey stakeholders to embed corporate citizenship into the compan
y’s strategy and operations.

9. i. Put corporate citizenship on the board agenda
ii.
Establish internal performance, communication, incentive and m
easurement systems
iii. Engage in dialogue and partnership
iv. Encourage innovation and creativity
v. Build the next generation of business leaders
D.
BE TRANSPARENT ABOUT IT: Build confidence by communi
cating consistently with different stakeholders about thecompan
y’s principles, policies and practices in a transparent manner, wi
thin the bounds of commercial confidentiality.
i. Agree what and how to measure
ii. Develop a graduated programme for external reporting
iii.
Be realistic about what is possible in a given timeframe and whe
n building expectations
(World Economic Forum, 2002/2013, p. 6)
The Center for Corporate Citizenship at Boston College publish
es a Corporate Social Responsibility Index that ranks companies
based onpublic perceptions of their citizenship, governance, an
d workplace culture (Boston College Center for Corporate Citiz
enship, 2011). Thecitizenship dimension relates to how the com
pany contributes positively to its surrounding community in a so
cially and environmentallyresponsible fashion. Governance refe
rs to the degree that the company manages its business fairly an
d transparently with high ethicalbusiness standards. The workpl
ace dimension focuses on fair treatment of employees through w
ages and training. Table 2.1 lists the top 20companies ranked by
Boston College’s Corporate Social Responsibility Index in 201
1.Table 2.1: Boston College Center for Corporate Citizenship’s
Top 20 Ranked Companies
Rank
Company
Corporate Social Responsibility Index (CSRI)

10. 1
Publix Super Markets Inc.
80.59
2
Google
77.10
3
UPS
76.16
4
Kellogg’s
76.16
5
Amazon.com
75.93
6
Berkshire Hathaway
75.78
7
FedEx
75.73
8
Campbell Soup Company
75.40
9
Baxter International
75.18
10
3M
75.03
11
Johnson & Johnson
74.49
12
The Walt Disney Company
74.35

11. 13
Coca-Cola Bottlers
74.14
14
Hershey Company
74.06
15
Texas Instruments
74.05
16
Green Mountain Coffee Roasters
73.89
17
Clorox
73.88
18
Microsoft
73.87
19
Caterpillar
73.70
20
Harris Bank
73.61
Source: Boston College Center for Corporate Citizenship, 2014,
retrieved from www.BCCorporateCitizenship.org.
Social Responsibility as Sustainability
In recent decades, it has become increasingly common for busin
esses to frame their social responsibilities in terms of sustainabi
lity. Theconcept of sustainability reflects the recognition of the
finite limits of nature, propagating the need for businesses to op
timize the economic,environmental, and social components of s
ociety. Because of environmental issues of the 1980s, such as th
e 1984 Bhopal chemical releaseand droughts in Africa, the Unit
ed Nations formed the Brundtland Commission to recommend so

12. lutions to the decline in global naturalresources. Their report, “
Our Common Future,” highlights that “economic and ecology ca
n interact destructively” and calls for businesses,governments, a
nd nonprofits to consider sustainable development, or “meeting
the needs of the present generation without compromisingthe ab
ility of future generations to meet their own needs” (World Com
mission on Environment and Development, 1987, p. 43). In resp
onse,companies have begun adopting sustainable business practi
ces to look beyond financial profit and consider its impact on so
cial, economic,and ecological resources of the community. Read
Business Best: Blue Star Recyclers for an example of a compan
y with a strategic focus onsustainable business.Business Best: B
lue Star Recyclers
Blue Star Recyclers of Colorado Springs competes in an electro
nics recycling industry that reclaims components or usable mate
rialsfrom used electronic products. In the United States, the elec
tronics recycling industry generates more than $5 billion in reve
nue andemploys approximately 30,000 to 45,000 people (2010 e
stimates) (Daoud, 2011). Electronic recyclers prevent the toxic
substances intelevisions, computers, computer peripherals, facsi
mile machines, DVD players, and videocassette recorders from
contaminatinglandfills.
Blue Star Recyclers provides electronic waste (e-
waste) pickup and hard drive/data destruction services to over 4
00 businesses,organizations, and government entities in Colorad
o. It collects nearly 40% of e-
waste from residential sources, which is much higherthan the in
dustry average of 25% (Daoud, 2011). To encourage residents to
recycle, Blue Star Recyclers has established seven drop-
offlocations in southern Colorado where residents can recycle th
eir e-
waste conveniently. The business claims to have ethically recycl
edover 5 million pounds of e-waste since 2009.
The company’s mission is to recycle electronics and other mater
ials and create local jobs for people with autism and other disab
ilities.Blue Star Recyclers has 17 employees: six in management

13. and office positions, and 11 workers with disabilities. The com
pany hasreported zero turnover, zero accidents, zero theft, and
minimal employee absences amongst its workforce with disabili
ties. Prior tofinding employment at Blue Star Recyclers, all of t
he workers with developmental disabilities were unemployed an
d spent their timeparticipating in day programs paid for by the s
tate. By creating a vocational path for people with development
al disabilities, thecompany saves taxpayers and the government
approximately $100,000 per year in Social Security benefits.
Blue Star Recyclers donates hundreds of hours of service to sup
porting the community, advocating for their workforce, and crea
tinggovernment relations to help support both their recycling an
d job creation effort. The Colorado Association for Recycling re
cognizedBlue Star Recyclers with the Outstanding Outreach Aw
ard for 2012. As a result, the company continues to grow.
Questions to Consider
1.
How does the business model of Blue Star Recyclers incorporat
e economic, environmental, and social dimensions of asustainab
le business?
2.
How might the employees with disabilities benefit from these e
mployment opportunities?
3.
How do you think the company has been able to achieve such ex
ceptional outcomes?
4.
Evaluate Blue Star Recyclers against the five elements of a resp
onsible company established by Patagonia’s leadership. WouldB
lue Star Recyclers be considered a responsible company?
Sustainable companies view their responsibilities through a tripl
e bottom line, which incorporates economic, environmental, and
socialdimensions in reporting performance (see Figure 2.2) (El
kington, 1998). Each of the dimensions includes responsibilities
to companystakeholders. The economic dimension represents th

14. e financial impact of the organization in the economic viability
of the surroundingcommunity through the sales of products and
services, profits paid to investors or reinvested into the firm, an
d taxes paid. The environmentaldimension centers on the compa
ny stewardship of natural resources and includes reducing waste
that ends up in landfills and polluteswaterways, reducing energ
y use and carbon emissions, and complying with environmental
regulations. Finally, the social dimension focuseson the influenc
e the company has on people and includes encouraging an inclus
ive approach to employees, customers, and suppliers;respecting
the human dignity of the workforce; and supporting community
projects for addressing social issues.Figure 2.2: Triple bottom li
ne dimensions
Economic, environmental, and social dimensions make up the tri
ple bottom line of sustainable companies;companies can achieve
the greatest competitive advantage at the points where the dime
nsions overlap.
Companies can achieve the greatest competitive advantage in th
e areas where the dimensions overlap (Gonzalez-
Padron, 2013). Companiesthat meet responsibilities in the econo
mic and social dimensions create wealth for communities and m
eet its responsibilities to employeesand customers. Activities th
at contribute to solutions of social issues include creating jobs,
employee development programs, and marketingcampaigns. Co
mpanies collaborate with nonprofit organizations to address soci
al issues for which they have no special competence. Forexampl
e, Procter and Gamble Co. partners with UNICEF to combat fata
l maternal and neonatal tetanus by donating the cost of one tetan
usvaccine for every purchase of specially-
marked Pampers diapers and wipes. The program also offers em
ployees a three-
month paid sabbaticalto volunteer with UNICEF, increasing em
ployee commitment and retention while providing valuable kno
wledge to a nonprofit organization.
At the intersection of the environmental and economic dimensio

15. ns of the triple bottom line, organizations realize savings from g
reaterresource efficiency, lower regulatory costs, and revenue fr
om innovative energy efficient products. Programs may involve
changes that are assimple as turning off computers nightly and u
sing motion detectors to turn off lights in offices. The chemical
company Ecolab reducedmaterial and waste disposal costs by $3
20,000 annually by reusing product scraps and saved $260,000 a
nnually by better controllingchemical use in production. Hewlet
t-
Packard developed an innovative soldering process that eliminat
ed lead well before a 2006 EuropeanUnion’s Restriction of Haza
rdous Substances Directive regulating the use of lead in electron
ics products. Procter and Gamble offers cold-
water specialty detergents to address the energy costs of heating
water for laundry (Nidumolu, Prahalad, & Rangaswami, 2009).
Finally, at the intersection of social environmental dimensions,
companies focus on stakeholder groups of employees, customers
, andsuppliers. Employee health and safety is at risk when toxic
materials are present in product manufacturing. The community
can experiencedetrimental effects from chemical use from produ
ction and product disposal. Residents worry about clean drinkin
g water in areas wheremanufacturing facilities discharge wastes
into the ground. Energy companies struggle to provide society w
ith fuel while minimizingenvironmental damage. Natural gas as
an energy source is extracted through the process of hydraulic fr
acturing, also known as fracking,which involves injecting press
urized liquid into the earth to break up shale and release the gas
contained within. However, residents nearfracking sites express
concerns about the impact on the community’s water and air qu
ality (Gold, 2013; “Public express concerns overfracking in thei
r communities,” 2014; “Water industry sets out concerns over fr
acking,” 2013). An Internet search yields many videos ofpeople
who live near fracking sites lighting the water running out of th
eir faucets on fire. There may be some truth to the concerns. A
2013study of the drinking water wells in an area of hydraulic fr
acking in northeastern Pennsylvania found that methane was pre

16. sent in 82% of thewater, with concentrations six times higher fo
r homes within one kilometer of the gas wells (Jackson et al., 20
13).
Customers care about the responsiveness of a company’s supply
chain to social and environmental responsibility. Apple Inc. cus
tomersbecame concerned when reports of 137 workers at a Chin
ese supplier sustained injuries from a toxic chemical used in ma
king the slick glassscreens of the iPhone (Barboza, 2011). When
Mattel, Inc. discovered unapproved leaded paint in its supply c
hain, the company recalled over 2million toys from customers in
2007 (Becker, Edwards, & Massey, 2010). In reaction to parent
al concern over the safety for their children,Walmart set strict p
roduct safety requirements for its toy suppliers that went beyon
d regulations for lead and other chemical content in toys(Pereira
& Stecklow, 2008). As a result of Walmart’s stringent criteria,
other retailers will be able to access a safe and reliable supply o
f toys.
Customer safety is a concern for companies as health risks such
as cancers, developmental disorders, and obesity are linked to c
hemicalexposures from household, personal care, and food prod
ucts. Companies have to redesign products to remove banned to
xins from theirproduction, while consumers are becoming more
educated on the dangers of continuous exposure to the accepted
levels of chemicals in dailyproduct use. Consumers cannot rely
on industry regulations alone to feel secure about the products t
hey purchase; they must sort throughthe myriad claims of natura
l, healthy, and organic product features on labels. There are no r
egulations on what the term natural means onproduct labels. For
example, Kraft Foods Group, Inc. markets a natural lemonade f
lavor of Crystal Light, a low-
calorie drink mix. Theconsumer advocacy group, Center for Sci
ence in the Public Interest (CSPI) has threatened a lawsuit if Kr
aft Foods continues claiming naturalflavor. According to the CS
PI, “the products contain several decidedly unnatural ingredient
s, including the artificial sweeteners aspartame andacesulfame-
potassium, artificial colors such as Red 40, Yellow 5, and Blue

17. 1, the factory-
produced texturizer maltodextrin, and thecontroversial synthetic
preservative butylated hydroxyanisole, or BHA” (Center for Sci
ence in the Public Interest, 2014, para. 4).
To help customers recognize legitimate natural products, compa
nies may seek certification by third-
party associations such as the NaturalProducts Association (NP
A). This nonprofit organization offers certifications for natural i
ngredients in foods, dietary supplements, home careproducts, an
d health/beauty aids. Certification allows product labels to inclu
de the recognized NPA Natural Seal so that consumers haveconf
idence that marketing claims are legitimate. Standards focus on
four dimensions—
natural ingredients, safety, responsibility, andsustainability:
1.
Natural Ingredients: A product labeled ‘natural’ should be made
up of only, or at least almost only, natural ingredients and bem
anufactured with appropriate processes.
2.
Safety: A product labeled ‘natural’ should avoid any ingredient
that has peer-
reviewed, scientific research showing human health orenvironm
ental risk.
3.
Responsibility: A product labeled ‘natural’ should use no anima
l testing in its development except where required by law.
4.
Sustainability: A product labeled ‘natural’ should use biodegrad
able ingredients and the most environmentally sensitive packagi
ng.(Natural Products Association, n.d., para. 4–7)
Strategic Philanthropy
Businesses and organizations that stress philanthropy and charit
y as part of their approach to social responsibility go beyond ec
onomic andlegal obligations. The focus of this approach is on ac
tivities unrelated to the core business, such as donations or enco

18. uraging employeeengagement in volunteer work. Strategic phila
nthropy combines a company’s business mission with its charita
ble mission by linking socialinitiatives that support commercial
objectives. Companies that adopt a strategic view of their philan
thropic activities use their organization’score competencies and
resources to address broader social, customer, employee, and su
pplier problems and needs. Strategic philanthropyincludes mone
tary donations, employee volunteerism, and sharing of specializ
ed talent with a nonprofit organization.
Addressing Social Issues
Companies that engage in strategic philanthropy will often selec
t a social issue that resonates with stakeholders and then initiate
arelationship with a reputable nonprofit organization connected
to that issue. For example, the pharmaceutical leader, Merck &
Co., Inc. usesits expertise in developing and producing drugs to
eliminate river blindness, one of the leading causes of preventab
le blindness worldwide.For the past 25 years, Merck has donate
d millions of doses to poor countries where river blindness is m
ost prevalent (Merck, 2012). Thebenefits accrue to both the com
pany and beneficiary organizations. The charitable activities ge
nerate greater customer recognition thatincreases the company’s
reputation as a responsible business. The nonprofit organizatio
n gains a higher level of awareness for its cause thatcreates incr
emental support by the community.
Many companies support Junior Achievement, a nonprofit organ
ization that teaches K-
12 students about entrepreneurship, workforcereadiness, and fin
ancial literacy by sponsoring business education in classrooms.
Participation includes financial support for class materialsand p
roviding an employee as the instructor. The company benefits fr
om involvement in the community, providing employees an opp
ortunityto share their business experiences, and increasing the f
uture labor force’s understanding of business concepts.
Some companies create their own charitable initiative to address
a social issue related to their industry. In 2009, AT&T Inc. beg

19. an a campaignto deter text messaging while driving that receive
s support from consumer safety organizations, law enforcement,
educators, nationalretailers, regulatory agencies, and legislator
s. Since then, three other wireless service providers joined the i
nitiative. The program includesvoluntary commitments to avoid
text messaging while driving, education programs, mobile appli
cations for blocking text messages if driving,and employee invo
lvement in spreading the message to customers.
Cause Marketing
Cause marketing is a form of strategic philanthropy in which ch
aritable contributions are based on purchases of a product. It ent
ails formingan alliance with a nonprofit charity in an effort to r
aise funds and awareness for the cause while building sales and
awareness of the company.This type of strategic philanthropy ti
es an organization’s product(s) directly to a social concern. Co
mmunications include the company’scommitment to the cause,
which enhances the image that the customer has of the brand. A
cause-
related marketing campaign may affectconsumer attitude toward
the product, purchasing behavior, and customer loyalty. Offers
tied to a particular product or charity may occur fora specific pe
riod of time or become an integral part of the product or brand.
For example, Newman’s Own donates all profits from the sale o
fproducts to charity. TOMS donates a pair of shoes for each pair
purchased. The success of the TOMS’s business model prompte
d the companyto offer eyewear in 2011. For every purchase of s
unglasses, the company is able to restore the sight of visually i
mpaired individuals throughprescription glasses, surgery, and m
edical treatments.
Customers must be willing to purchase the specified products of
a cause-
related marketing campaign to meet company and nonprofitfinan
cial expectations. Therefore, companies strive to understand cus
tomer motivations for paying more for a product or service toco
ntribute to a social cause. Cause marketing offers appear to wor

20. k best for luxury goods, for which donating to a well-
known charitablecause may help offset consumers’ feelings of g
uilt associated with the purchase (Boenigk & Schuchardt, 2013).
The social issue must alsoresonate with the target consumer.
According to the International Agency for Research on Cancer (
2012), the specialized cancer agency of the World Health Organ
ization, breastcancer is the most common cancer in women worl
dwide, with an estimation of more than 1.7 million new cases oc
curring among womenworldwide in a year. One customer from t
he United Kingdom expressed support for this cause-
related marketing campaign by donating tobreast cancer researc
h and saying:
. . . . it is primarily due to the fact that my mum supports it and
also because it is a cause which I am in interested in. Because b
eing awoman, I feel that a cause such as Breast Cancer does inte
rest women in particular because so many of us are affected by i
t.(Broderick, Jogi, & Garry, 2003, p. 594)
In the United States, General Mills, Inc. sponsors a campaign fo
r consumers to help in the fight against breast cancer when purc
hasingproducts such as Yoplait, Cheerios, Cinnamon Toast Crun
ch, Nature Valley, Green Giant, Betty Crocker, and Pillsbury. Si
nce women are theprimary purchasers of household groceries, th
e cure for this disease prompts consumers to participate in this c
ause-related marketingcampaign.
Consumers support cause-
related marketing offers depending on the geographic scope of t
he issue or campaign. Studies show that customersare more likel
y to support organizations or causes that have local or regional
benefits, but consider programs that have an international reacht
o be more impressive (Grau & Folse, 2007; Vanhamme, Lindgre
en, Reast, & Popering, 2012). Short-
term initiatives that provide local disasterrelief can also generat
e positive reputational and brand loyalty effects. Denver-
based Frontier Airlines donated a portion of its buy-on-
boardsales over four months to help people affected by the Colo
rado wildfires in 2013 (Frontier Airlines, 2013).

21. Some companies affiliate their products with a social issue that
is not local nor a natural disaster by supporting co-
branding programs like(RED) (Ponte, Richey, & Baab, 2009). (
RED) is a nonprofit organization that encourages companies to
donate a portion of the profits ofspecified products to a fund tha
t strives to eradicate HIV/AIDS from African nations where the
disease is most prevalent. Companies thatparticipate in the (RE
D) program include Apple, Starbucks Corporation, Coca-
Cola, SAP AG, Shazam, The Girl Skateboard Co. Inc., NandaHo
me, Fatboy USA, and Bed Bath & Beyond. For example, Apple
offers a (PRODUCT)RED iPhone 5s leather case that retails for
$39. Thecompany prominently displays that the portion of the p
urchase price donated to the Global Fund to fight AIDS provide
s for 7.5 days of life-saving pills.
Creating Shared Value
The concept of shared value combines social responsibilities wit
h the profit-
making motive of business. Creating shared value resonateswith
companies rather than obligatory or philanthropic views of corp
orate social responsibility. Porter and Kramer (2011) promote cr
eatingshared value in recognition of the close interdependence o
f a healthy economy and the competitiveness of a company. Co
mpanies that publishshared value reports include Nestlé, De Bee
rs, and Novo Nordisk A/S.
Shared value reports differ from corporate social responsibility
reports. Reports on shared value expand on company sustainabil
ity reportsthat focus on business impacts to the environment, ec
onomy, and society, while corporate social responsibility report
s focus on complianceand meeting obligations. In its 2013 Share
d Value Report, the electric and gas provider Avista Corp. sum
marized the shared value approachbest: “In our report, we shift t
o a new perspective that demonstrates how our strategic busines
s interests, including philanthropy andcommunity involvement,
create the opportunity to bring value to our stakeholders—
shared value” (Avista, 2013, p. 3).

22. As depicted in Figure 2.3, Nestlé structures its social responsibi
lity initiatives with a shared value approach, building on the fou
ndations ofsustainability and compliance.Figure 2.3: Nestlé in s
ociety
For Nestlé, creating shared value builds on compliance and sust
ainability to mitigatebusiness risks, protect company reputation,
and reduce costs. Nestlé creates shared valuein three areas: nutr
ition, water, and rural development.
Source: Reprinted with permission from Nestlé. Nestlé in societ
y: Creating shared value and meeting ourcommitments 2012.
Global Perspectives of Social Responsibility
The Economist article “Going Global” (2008) highlights the nec
essity for multinational corporations to balance the needs and ex
pectations oflocal communities in developing a business strateg
y in other countries. The article references a survey in which ex
ecutives in five countriesoutlined the issues they expected to be
of particular importance to their communities over the course of
five years.
The top five important global issues ranked by executives from
the United States, Britain, Germany, China, and Brazil for the y
ears 2009 to2014 included the environment, safer products, retir
ement benefits, healthcare benefits, and affordable products. Ho
wever, rankings variedby country; for example, human rights iss
ues were in the top five only for Brazil and job losses from outs
ourcing were a concern mainly forthe United States and German
y.
Global companies recognize that not all countries view corporat
e social responsibility in the same way. In most Anglo countries
such as thosein Western Europe, Australia, and the United Stat
es, businesses recognize corporate social responsibility as a dist
inct concept. However, insome regions of the world, treating CS
R as a separate strategy is an unfamiliar concept to business lea
dership because prioritizing the needsof society is already inher
ent in commerce.

23. Based on Confucianism values, Japanese managers have a stron
g sense of the spirit of social responsibility as a way of doing b
usiness(shobaido). In interviews of Japanese executives, one stu
dy found that
CSR is understood to describe those corporate principles or poli
cies [keieirinen] which have long been influencing corporateacti
vities. Japanese managers describe the principles as “to put utm
ost priority on respecting human dignity, safety, and legalcompl
iance,” and “to contribute to society via our business or mono z
ukuri [making things].” (Fukukawa & Teramoto, 2009, p. 138).
Adopting universal norms such as human rights may conflict wit
h ingrained Confucianism beliefs of collectivism, paternalism, a
nd harmony,all of which stress organizational welfare over indi
vidual achievements (Ip, 2009).
The business responsibilities to engage in charity and philanthro
py are viewed differently across economic systems and cultural
dimensionssuch as ethnicity and religion. Whether managers vie
w the profit motive as the primary role of business can influenc
e their views of the socialresponsibility of their company. The l
evel of charitable donations for disaster relief by Asian firms va
ries significantly from that of Europeanor U.S. firms (Muller &
Whiteman, 2009). One study found that managers from Singapor
e and Malaysia, particularly the Malay Muslims, aremore orient
ed toward profit than other business priorities such as employee
and environmental welfare (Yong, 2008). Chinese companiesex
pect the government, rather than businesses, to address social an
d environmental issues, a sentiment reinforced by the Chinesego
vernment’s “unwillingness to provide tax incentives for compan
ies’ charitable actions” (Lam, 2009, p. 143). In one study, Chine
se managersof subsidiaries of multinational corporations percei
ved that “the responsibility of enterprises was to pay taxes, foll
ow laws, provideemployment, and develop capital for future gro
wth” (Lam, 2009, p. 139). Finland has a strong social system da
ting from the 19th centurywhen improving living conditions bec
ame the responsibility of the state and municipalities. Therefore
, Finnish executives have said,“charitable work is neither necess

24. ary nor even appropriate for companies paying taxes and fulfilli
ng their obligations to society” (Elisa, 2004,p. 20).
Countries experiencing a transition from a planned economy (e.
g., communism) to a free market have ambiguous views of ethic
s and socialresponsibility. An extensive survey of Hungarian ma
nagers found that more than half of the participants felt that bus
iness ethics and socialresponsibility are not as much of a concer
n as company survival. One respondent stated: “ . . . if others di
d not take [corporate socialresponsibility] into consideration, th
en we would do the same and not put ethics very high” (Fulop &
Hisrich, 2000, p. 12). A later study of theCentral Eastern Europ
ean countries revealed that the majority of residents consider th
e profit motive of business to be less ethical thanresidents in the
United States do, yet have a more positive outlook of ethical bu
siness than a similar sample in the United States (Padelford &W
hite, 2010). One explanation may be that publicized ethical laps
es of companies in the United States have generated a cynicism
of businessin the American public.
To address the global challenges of ethics and responsibility, co
mpanies can find many opportunities to help communities throu
gh a globalcorporate citizenship strategy. For companies that int
end to conduct business responsibly within the international mar
ketplace, Logsdon andWood (2002) recommend the following st
eps:
1.
Embed a set of fundamental values that reflect universal ethical
standards in the corporate code of conduct and in corporate poli
cies;
2.
Encourage thoughtful awareness throughout the organization reg
arding where the code and policies fit well and where they migh
t notalign with stakeholder expectations;
3. Analyze and experiment to deal with problem cases; and
4.
Establish systematic learning processes to communicate the resu
lts of implementation and experiments internally and externally.

25. A company should consider the social responsibility approach th
at fits with their organizational culture, mission, and goals. Indu
stry leadershave shifted from focusing solely on charitable activ
ities and are incorporating their social responsibility approach
with company strategy.Strategic corporate social responsibility
connects the company’s business objectives with its social initia
tives, thereby generating benefits forboth the company and soci
ety. The next section will take a closer look at the competitive a
dvantage that strategic social responsibility canbring to a compa
ny.
2.2 The Advantages of Social Responsibility
A company that prioritizes social responsibility in its business s
trategies fosters both competitiveness and growth (see Table 2.2
for industryexamples for each category). Social responsibility c
an strengthen company competitiveness by enhancing its positio
n in the industry throughdeveloping a talented workforce, achie
ving a reliable supply of high-
quality materials for production, and facilitating rules and incen
tives thatgovern competition. Second, socially responsible comp
anies foster growth by increasing innovation through new produ
cts and services, andproviding access to new market segments a
nd increasing demand for products and services (Gonzalez-
Padron & Nason, 2009; Porter &Kramer, 2006).
Table 2.2: Competitive advantages of social responsibility
Outcomes
Examples
CompetitiveEnvironment
Talentedworkforce
Develop skilled labor pool
Reduce costs generated byemployee attraction and turnover
Honeywell partners with the National Aeronautics and SpaceAd
ministration (NASA) in a middle school science education progr
amto promote future supply of scientists, engineers, and technol
ogists.

26. Apache Footwear reduced labor turnover by building one-
story, red-
brick buildings for staff, organizing Saturday night movies and
dances,and hiring its employees’ relatives.
Reliablesupplychain
Secure consistent, long-
term, andsustainable access to safe, high-
quality raw materials andproducts
Pepsi shares its expertise about potato farming under desertcond
itions with the Chinese Ministry of Agriculture to ensuremateria
ls for snack foods marketed in China.
Favorablerules andincentives
Reduce costs and regulationswithin the industry
Reduce local resistance to entryin new markets
General Electric, Cinergy, and Bechtel developed solutions to re
ducecoal emissions in energy plants, meeting environmental reg
ulationsand at a lower cost than traditional practices.
Altria Group works with governments to secure fair excise taxst
ructures in many of its key markets.
Growth
Newproductandservicesinnovation
Create products to reach unmetsocial needs and increasedifferen
tiation
Develop cutting edge technologyfor unmet social or environmen
talneeds
Heinz partners with advisory groups from around the world to g
uidedevelopment of healthier foods meeting diverse dietary nee
ds.
Ecolab developed a new washing process for hotel and healthcar
elaundries using an innovative process to conserve energy and

27. water.
Newmarketsandcustomers
Gain access to new markets
Increase demand througheducation and infrastructuredevelopme
nt
Hindustan Unilever Ltd. is improving health conditions in rural
Indiathrough its education programs on hygiene while creating d
emand forsoap products.
Cisco, Hewlett-
Packard, and Nokia Oyj are partner organizations inthe United
Nations Information and Communication TechnologiesTask For
ce to encourage universal access to information technology.
Source: Social Responsibility as a Strategy, by T. L. Gonzalez-
Padron, 2011, in B. Keillor and T. Wilkinson (Eds.), Internation
al Business in the 21st Century (Vol. 3), pp. 117–147.
Socially responsible companies also achieve a sustainable comp
etitive advantage by implementing differentiating strategies that
other firmscannot duplicate (Barney, 1991). Socially responsiv
e strategies may be difficult for competitors to imitate for three
reasons. First, corporateresponsiveness policies develop over a
period of years, creating a reputational advantage. Second, the
mechanisms by which the corporateresponsiveness policies inter
act to generate value can be complex. Third, competitors would
have difficulty replicating social aspects such ascompany cultur
e and interpersonal relationships that contribute to social respon
siveness. Each of these advantages will be explored in thesectio
ns that follow.
Competitiveness
Business organizations with a strategic approach to social respo
nsibility can enhance their competitiveness within an industry t
hroughattention to employees, suppliers, and regulatory stakeho
lders. First, companies with an integrated social responsibility p
rogram are morelikely to attract, develop, and inspire a talented

28. workforce. Second, focusing on the supply chain can provide fo
r a reliable supply of productsand raw materials for production.
Third, the competitive environment can change through facilitat
ing favorable rules and regulations withinthe industry.
Talented Workforce
A talented workforce gives a company an advantage that compet
itors may not easily replicate. Patagonia stresses that employee
commitmentand productivity comes from a feeling of making a
difference and doing the right thing (Chouinard & Stanley, 2012
). Volunteer programs helpemployees make a difference by shar
ing their expertise to improve the world. Patagonia offers variou
s volunteer programs for employees tosupport global environme
ntal work. Employees of International Business Machines Corpo
ration (IBM) have opportunities to engage insolving social prob
lems in emerging and developing markets. IBM feels that the pr
ogram benefits employees by enhancing their globalleadership s
kills that help communities and the company (Guamieri & Kao,
2008).
Companies that engage in education projects that benefit society
can create a talent pool for their industry. Honeywell Internatio
nal, Inc.sponsors a middle school science program in the United
States with the National Aeronautics and Space Administration
(NASA) in order toencourage children to pursue careers in scien
ce, engineering, and technology. Hewlett-
Packard supports technology centers at 12 Russianuniversities t
o focus on building practical information technology-
related business skills, with top performers hired as interns at th
ecompany’s labs.
Attracting and keeping employees is a time-
consuming and expensive process for businesses. Companies ca
n spend up to 150% of anemployee’s salary to search and select
a replacement for a vacant position (Palanski, Avey, & Jiraporn,
2014). Turnover is lower whenemployees perceive a company t
o be ethical and responsible (Stewart, Volpone, Avery, & McKa
y, 2011). In China, migrants from rural areasprovide much of th
e factory labor. However, as the demand for labor has increased,

29. the number of workers willing to work for low wages andcrowd
ed living conditions has declined. In response to the 10% emplo
yee turnover rate in their Chinese manufacturing locations, Apa
cheFootwear India Pvt. Ltd. offers incentives to factory workers
such as private living quarters, Saturday night movies and danc
es, and hiringpreference for its employees’ relatives (Roberts, 2
005).
Reliable Supply Chain
Secure, consistent, long-
term, and sustainable access to safe, high-
quality raw materials and products strengthens a company’scom
petitiveness. Suppliers seek buyers who will treat them with res
pect and integrity. Key ethical issues influencing supplier relati
onshipsinclude a) demonstrating partiality toward suppliers pref
erred by upper management; b) allowing personalities to improp
erly influence thebuying decision; and c) failing to provide pro
mpt, honest responses to inquiries and requests (Cooper, Frank,
& Kemp, 2000).
As supply chains and markets become more global, companies a
re more likely to accept responsibility for the actions of their su
ppliers. Socialissues in global supply chains include unsafe wor
k environments, harmful environmental outputs, and poor produ
ct quality or output.Responsible businesses select and evaluate s
uppliers on their social and environmental performance; pay mo
re for vendors with good socialpolicies, thereby helping compet
ent vendors become socially responsive; and help socially respo
nsive vendors to become competent(Drumwright, 1994).
There are many examples of how socially responsible initiatives
ensure a reliable supply chain. Companies may share agricultur
al expertise toensure a sufficient supply of quality raw materials
. In the United States, Patagonia worked with cotton growers, gi
nners, and spinners toestablish a reliable supply of organic cotto
n. As its supply chain expanded to Asia, Patagonia gave the sam
e support to cotton growers inThailand (Chouinard & Stanley, 2
012). Starbucks helps coffee bean farmers to implement new an
d sustainable farming techniques in manycountries. The Hershey

30. Company collaborates with the World Cocoa Foundation to enc
ourage responsible cocoa farming and to supportincome improv
ement for cocoa-
growing families. Pepsi shares its expertise about potato farmin
g with the Chinese Ministry of Agriculture toincrease quality m
aterials for snack foods marketed in China.
Another way to ensure a reliable supply chain is for companies t
o engage in projects to protect scarce natural resources that are
necessary formanufacturing their products. Water is a key ingre
dient in beverages, resulting in strategic social responsibility pr
ojects by Pepsi and Coca-
Cola to preserve and conserve water. For example, by 2020, Coc
a-
Cola’s goal is to “safely return to communities and nature an am
ount ofwater equal to what we use in our finished beverages and
their production” (“Collaborating to replenish the water we use
,” 2013).
Favorable Rules and Incentives
The competitive environment of a firm may improve because of
social responsibility activities. Responsible companies experien
ce lower localresistance to entry in new markets and reduced co
sts and regulations within the industry. Government administrati
ve rules, laws, andpolicies shape the competitive environment.
The costs of compliance with regulations increase the cost of do
ing business and reducecompany resources available for new pr
oduct development or capital investments (see Going Global: D
oing Business Around the World).Companies that engage in pro
active social responsibility gain a competitive advantage by loo
king beyond the costs of compliance to seekinnovative solutions
to regulatory pressures.
Going Global: Doing Business Around The World
The World Bank issues an annual report on the rules and regulat
ions that shape the business environment. The 2014 report exam
ines11 indicators of regulations relevant to business in 189 coun
tries (World Bank, 2013). The costs and complexity of conducti
ngbusiness vary by country. For example, starting a company in

31. New Zealand takes half a day with almost no fees, but a new bu
sinesstakes 208 days in Suriname and 144 days in Venezuela. B
usiness regulations affect a company’s ability to advance from s
tart-up todaily operations (see Figure 2.4).
Figure 2.4: Regulations as measured by Doing Business affect fi
rms throughouttheir life cycle
The World Bank identifies 11 indicators of regulations and legal
infrastructure that relate to a firm’s lifecycle.
Source: Doing Business 2014: Understanding Regulations for S
mall and Medium-
Size Enterprises (11th ed.), by World Bank,2013.
Ethical and responsible businesses can alleviate some costs by a
voiding legal disputes, as the costs can be high to enforce contr
acts orhandle conflicts with customers and suppliers. Companies
can spend an average of 622 days in court to resolve a dispute a
nd incurcosts up to 35% of the value of the claim (World Bank,
2013). Careful attention to the interests of customers, employee
s, and supplierscreates a competitive advantage through reliable
revenue and supply of labor and materials.
The World Bank report (2013) found a high correlation between
a country’s regulatory environment and its competitive environ
ment.A stable regulatory environment that supports business an
d preserves a level playing field allows companies to prosper. Fi
gure 2.5shows a graphic illustration of the correlation between t
he Doing Business and World Economic Forum rankings on glo
balcompetitiveness that measure economic stability, public insti
tution reliability, and business sophistication. The World Econo
micForum’s Global Competitiveness Index includes the business
community’s perception of the business environment. Variation
s amongthe company responses within a country indicate that co
mpanies’ experiences with regulations differ. Perhaps the engag
ement of localgovernments allows for ease in doing business.
Figure 2.5: Relationship between Doing Business and World Ec
onomic Forumrankings on global competitiveness
A high correlation (0.84) between the Doing Business and the

32. World Economic Forum’s GlobalCompetitiveness Index’s ranki
ngs demonstrates the relationship between transparent and effici
entregulation on the propensity for entrepreneurs to innovate an
d expand.
Source: Doing Business 2014: Understanding Regulations for S
mall and Medium-
Size Enterprises (11th ed.), by World Bank,2013, p. 24.
Questions to Consider
1.
What methods could a multinational corporation use to navigate
through business regulations in other countries?
2.
How can a company lobby for favorable business conditions in a
country in a responsible manner?
3.
How should a manager handle a request to pay a fee to expedite
business approvals in order to compete with the localcompanies
?
Some business requirements create entry barriers that protect lo
cal industries. The escalation of a global economic crisis beginn
ing in 2008created a public movement for protecting domestic c
ompanies through increased tariff and non-
tariff barriers (Bussière, Pérez-
Barreiro,Straub, & Taglioni, 2011). In 2009, the Chinese govern
ment stipulated that only Chinese companies should receive con
tracts for governmentstimulus projects. Meanwhile, the United
States reinforced its Buy American requirements in the America
n Recovery and Reinvestment Act(ARRA) of 2009. To respond t
o a public backlash against foreign companies, wind turbine co
mpanies from China and Spain have invested incommunity proje
cts in the United States to generate goodwill and a reputation fo
r quality (Fletcher, 2010).
There are ample examples of companies gaining competitive ad
vantage through proactive social responsibility to address regula
toryconcerns. When conducting business internationally, collab

33. oration with the government and regulatory agencies provides fo
r a favorablebusiness environment. The tobacco company Altria
Group, Inc. works with governments “to secure fair excise tax st
ructures in many of its keymarkets, with numerous countries ad
opting minimum excise taxes and several considering the adopti
on of minimum reference prices” (AltriaGroup, Inc., 2004, p. 6)
. The energy industry adopted a proactive approach that reduced
costs of compliance. General Electric, Cinergy Corp.,and Becht
el Corporation joined forces to develop solutions to reduce coal
emissions in energy plants. By working together, the companies
discovered innovative approaches for meeting environmental re
gulations at a lower cost than traditional practices.
Growth
Socially responsible companies can achieve a competitive advan
tage by developing innovative products and services and accessi
ng newmarket segments for existing products and services. How
ever, to obtain this benefit, companies require a full understandi
ng of customerneeds, competitors’ actions, and technological de
velopment (Calantone, Cavusgil, & Zhao, 2002). Companies wit
h a broad base ofstakeholders can utilize stakeholders’ knowled
ge and expertise to generate new ideas. For example, E. I. du Po
nt de Nemours and Company(DuPont) includes a diverse set of s
takeholders from India, Africa, and Latin America in developing
a strategy for biotechnology development,and has even invited
environmental proponents such as the former head of Greenpeac
e International to provide divergent views on the issue(Hart & S
harma, 2004). Product development and new market developmen
t provide for a sustainable growth of the business.
New Product and Services Innovation
A firm can gain a competitive advantage in its industry by creati
ng products to fulfill unmet social needs. Leading companies in
the packagedfoods industry recognize the effect their products h
ave on the health and wellness of consumers, as obesity has crea
ted health andproductivity concerns for society. The United Stat
es has one of the highest obesity rates of developed countries. T
he World HealthOrganization (2010) estimated that over 48% of

34. adult women and over 44% of adult men in the United States ar
e obese when measured by abody mass index (BMI) over 30. Th
e costs of obesity in the United States have reached $450 billion
annually, including costs to individuals,taxpayers, employers, a
nd other industries (Aglgazy, Gipstein, Riahi, & Tryon, 2010).
Obesity-
related costs include direct medical costs andindirect costs; dire
ct medical costs related to obesity reach $160 billion annually (
Aglgazy, Gipstein, Riahi, & Tryon, 2010). The individualbears
out-of-
pocket expenses, taxpayers pay for Medicaid/Medicare costs, an
d hospitals have to invest in equipment to accommodate obesepa
tients. Through a voluntary industry initiative, food and beverag
e companies are reducing caloric content by offering new lower
calorieproducts, reducing sodium and sugar content of existing
products, and providing packages with smaller portions. Nestlé
developed newtechnology to make ice cream with half the fat an
d one third of the calories. Food and beverage companies addres
sing the social concerns ofhealth and nutrition have experienced
stronger sales growth and financial returns (Strom, 2014).
Working with a wide variety of stakeholders has generated inno
vative approaches in attaining goals of offering healthier food o
ptions. Forexample, Heinz sponsors studies and symposiums wit
h leading nutritionists, dieticians, and physicians from around t
he world for bolsteringnutrient content and reducing sodium and
fats in ketchup, soups, sauces, and frozen foods.
Companies can also achieve a competitive advantage from devel
oping technology for addressing concerns for the conservation o
f naturalresources. Ecolab has become a global industry leader i
n offering cleaning, sanitizing, and food safety products that co
nsider the total impacton the environment. One innovative prod
uct, a waterless lubricant called DryExx, addressed concerns of
their food and beverage clientswanting to reduce the costs and r
eputational damage of high water usage in the bottling process.
Along with improved productionefficiencies, one large bottling
plant reduced water use by 1.5 million gallons annually (Millim

35. an, Gonzalez-Padron, & Ferguson, 2012).
Ecolab offers another innovative cleaning product that addresse
s environmental and social issues for companies. Traditionally,
floor cleaningrequires strong chemicals and rinsing with water t
hat creates unsafe and slippery surfaces. Ecolab leveraged techn
ology from laundrydetergents to develop a new enzyme-
based floor cleaning formula (Wash ‘n Walk) that negated the n
eed for rinsing with water. This allowsEcolab’s customers to pu
rchase a product that reduces slips and falls, provides for a hygi
enic environment, and reduces water usage. Througha focus on
product solutions that meet social and environmental issues, Ec
olab maintains growth even during softening industry demand(
MarketLine, 2011).
New Markets and Customers
Companies may realize competitive advantages by acquiring ne
w customers through increasing demand for products because of
their sociallyresponsible activities. There are two general appro
aches to developing future demand: promoting product usage an
d enabling capacity.Consumer companies target educational pro
grams to access populations that could become a viable market f
or their products and services.Students worldwide achieve comp
uter literacy through computer firms’ support for education prog
rams and donations of personal laptops.
The personal care divisions of Unilever drive demand for produ
cts through educational initiatives. The company collaborates w
ith the FDIWorld Dental Federation to fund oral health projects
in 38 countries, including mobile dental vans in developing nati
ons. Hindustan Unilever,the Indian subsidiary of Unilever, is im
proving health conditions in India through its education progra
ms on hygiene that benefit not only thecompany, but also the qu
ality of life for rural Indians.
“It’s not enough for the company to look at market-
share increase,” says Anand Kripalu, 42, the company’s head of
detergents and acreative thinker behind many of the company’s
rural-
outreach strategies. “We want to spread the message of hygiene

36. and really usethe Lifebuoy brand to deliver that benefit to consu
mers. This isn’t just good for us as a brand; it’s good for the co
untry.” (Balu, 2001,p. 120)
Strategic philanthropic projects enable capacity by developing t
he infrastructure and capabilities to support future demand for p
roducts andservices. Computer and information industries recog
nize that collaboration with government and other industry part
ners will foster growthfor hardware and software in new market
s. Hewlett-
Packard, Microsoft Corporation, and Cisco joined forces with Jo
rdanian companies tostrengthen the country’s information techn
ology industry. In 2001, Secretary-
General Kofi Annan established a United Nations Informationan
d Communication Technologies (UNICT) Task Force that includ
ed industry leaders, government agencies, nongovernmental age
ncies, andeducational institutions to increase access to informati
on technology. Task force members from the private sector incl
uded representativesfrom Cisco, Siemens AG, SAP, Nokia, Micr
osoft, Hewlett-
Packard, Infosys, and Sun Microsystems, Inc. While the task for
ce ended in 2004, themember companies continue to create the i
nfrastructure to allow greater access to information through the
Internet and phone.
2.3 From Shareholders to Stakeholders
Most businesses are driven by a short-
term profit motive and are legally bound to maximize profits for
shareholders. The obligation to protectshareholder investments
influences strategic business decisions throughout an organizati
on. A shareholder orientation refers to thecompany focus on pro
fits and consideration of the shareholders as the primary stakeho
lders in the firm. The focus on financial markets in theUnited St
ates and the United Kingdom has propagated a short-
term view of financial success, sometimes at the expense of oth
er key companystakeholders such as customers, employees, and
communities. The collapse of Enron, Arthur Andersen, and Leh
man Brothers Holdings Inc.has prompted shareholders to deman

37. d more attention to the long-
term sustainability of the business by including ethical and resp
onsiblepractices. By shifting focus from solely shareholders to
multiple stakeholder groups, companies can provide financial re
turn to shareholdersthrough long-term growth and viability.
Corporate Governance
Responsible companies require a management system that provi
des oversight, accountability, and control known as corporate g
overnance.Oversight refers to the processes that ensure complia
nce with ethical and legal standards. Accountability references t
he responsibilities forperformance that align with the company’
s strategic direction and for the way that performance is achieve
d. Controls refer to processes forauditing and monitoring compa
ny activities to ensure compliance with ethical standards.
The basic structure of a legal corporation consists of three main
levels of authority:
·
The shareholders own the corporation by obtaining shares of sto
ck in it.
·
The stockholders, in turn, elect a board of directors to manage t
he corporation.
·
The board then designates officers to operate the business, with
the CEO at the top and various levels of managers beneath. Com
panyofficers are responsible for setting the direction of the com
pany under the direction of the board.
Board directors and officers have a fiduciary duty to manage the
company in a way that protects its shareholders. Their responsi
bilities areoutlined in the company charter that must meet regul
atory guidelines of the country where the company is registered.
Management isresponsible for implementing the business strate
gy within the policies and procedures that guide acceptable con
duct.
Corporate governance provides the structure for establishing rel
ationships between the company’s management, its board, its sh

38. areholders,and other stakeholders. The trust and confidence in t
he company depends on the transparent and ethical management
of the organization.Corporate governance provides the structure
to set the company objectives, establish parameters to achieve t
he objectives, and monitor theperformance in meeting goals. By
demonstrating how the company strategy is in the best interest
of the shareholders, investors gainconfidence in the business an
d provide access to capital.
The corporate governance of a company relies on the legal, regu
latory, and institutional environments that set the operational fr
amework.Regulations address the potential conflicts of interest
between the ownership and management of the company. In som
e jurisdictions, thepowers of certain stakeholders are protected.
In Germany, stakeholders like banks, labor unions, and commun
ity representatives must be apart of the company’s supervisory b
oard (Bauer, Braun, & Clark, 2008). The Sarbanes-
Oxley Act of 2002 prohibits public companies fromextending pe
rsonal loans to directors or officers. Most regulations are aimed
at large publicly listed companies, but corporate governance isj
ust as important for privately held and family-
owned businesses. Family businesses in particular must address
the potential disputes fromemployment of family members, priv
ate use of assets, and dividend decisions.
The role of the board of directors evolved as business failures e
voked a call for greater responsibility for company activities. E
arly legal casesin the United States and the United Kingdom mi
nimized the board members’ liability for company wrongdoings.
Rulings on cases expressedthe opinions that the board members
of a corporation do not have the same amount of time and atten
tion to the running of the business asthe managers of the busine
ss (“Liability of corporation directors for negligence,” 1906). O
ver the years, sentiments changed to make theboard members ac
countable to company shareholders. After the ethical scandals o
f Enron and WorldCom, the Sarbanes-
Oxley Act reaffirmedthat the CEO and chief financial officer (C
FO) hold the primary responsibility for the accuracy of financial

39. reports. The act also stresses therole of the board of directors i
n representing the shareholders, stipulating responsibilities for a
n audit committee to oversee external auditsof the financial stat
ements.
More companies are recognizing that profit cannot be the sole p
urpose of business. A stakeholder approach to corporate govern
ance includesthe views of multiple groups, including employees
, suppliers, and the community. Some companies have even gon
e as far as invitingshareholder activists on the board. In a rare
move, Microsoft appointed the president of ValueAct Capital M
anagement LP to its board ofdirectors, who then expressed disco
ntent with Microsoft’s performance and high executive compens
ation (Ovide, 2013). While it seems riskyto invite an aggressor t
o participate in managing the company, Microsoft’s approach si
gnaled a trend to take on issues proactively to gaincompetitive a
dvantage. Paying attention to multiple stakeholder demands pro
vides the company with greater financial performance throughin
creased reputation, customer satisfaction, and financial perform
ance (Maignan, Gonzalez-Padron, Hult, & Ferrell, 2011).
Industry leaders in social responsibility look beyond creating sh
areholder value to create value for employees, customers, suppli
ers, and thecommunity. Using these stakeholders allows for bett
er collaboration and opportunities to address social and environ
mental concerns, as eachstakeholder brings different resources a
nd benefits to the company. How can an organization manage m
ultiple stakeholder expectations for aresponsible business? A co
mpany needs to develop a stakeholder perspective to realize the
advantages of socially responsive initiatives.
A Stakeholder Perspective
Responsible companies must attend to its many stakeholders by
developing capabilities for managing stakeholder relationships.
Astakeholder approach in business contends that managers must
satisfy various constituents (e.g., customers, employees, suppli
ers, and localcommunity organizations) that could withdraw sup
port for the firm if important social responsibilities were unmet.
Stakeholders may beconcerned about the safety of products, the

40. well-
being of employees, the transparency of company reports, and t
he social or environmentalimpact of corporate activities. Compa
nies that recognize the strategic importance of doing the right th
ing consider relevant stakeholderissues when making decisions
about the business. As a result, these companies embed a stakeh
older perspective into their culture, whichbecomes ingrained in
their values, norms, and behaviors.
The extent to which an organization understands and addresses s
takeholder demands in daily operations and strategic planning c
an bereferred to as a stakeholder orientation. A stakeholder orie
ntation consists of three activities: 1) the collection of informati
on on relevantstakeholder groups that includes the company’s ef
fects on these groups, 2) the dissemination of the stakeholder in
formation throughout theorganization for inclusion in strategic
decision making, and 3) the responsiveness of the company to th
e information (Maignan & Ferrell,2004). Adopting a stakeholder
orientation allows firms the opportunity to understand its impac
t on stakeholders, anticipate changingsocietal expectations, and
use its capacity for innovation to create additional business valu
e from superior social and environmentalperformance (Laszlo, S
herman, Whalen, & Ellison, 2005).
The importance of a stakeholder varies over a firm’s life cycle a
nd shapes the firm’s responsiveness to the stakeholder group. St
akeholdersthat control a company’s valuable resources can use v
arious influential strategies to obtain desired actions from the or
ganization, includingconsumer boycotts such as those against St
arKist Co. to change tuna fishing practices. Managers should co
nsider that stakeholders not onlyinteract with the firm, but also
interact with other stakeholders, thus increasing the stakeholder
s’ power to exert pressure on the company.An example is Monsa
nto Company’s abandoned attempt to commercialize seed sterili
zation technology because of protests initiated byIndian farmers
that spread worldwide.
Identifying Stakeholders
The first task for a company adopting a stakeholder perspective

41. is to identify and prioritize the stakeholder groups. As was disc
ussed inChapter 1, a stakeholder includes any person or group w
ho can affect or be affected by a company’s activities. This broa
d definition meansthat managers should consider many stakehol
der groups. There is no generic list of stakeholders for all comp
anies as the groups that anorganization affects depend on the siz
e, industry, and geography of the company. It makes sense that
utilities (such as energy and air travel)would have a greater foc
us on regulatory groups than other industries. Companies with s
ales and production in many countries struggle withunique issue
s relating to employees, suppliers, and the government. Harley-
Davidson tailors products sold in Asian markets to meet stringe
ntregulations for lower noise levels of their motorcycles that are
inconsistent with their brand image. Managers must be able to r
ecognize thesalient stakeholder groups—
those to which their company must devote the most attention (M
itchell, Agle, & Wood, 1997).
Companies generally identify two classifications of stakeholder
s. Primary stakeholders are those groups whose continued associ
ation arenecessary for a firm’s survival and often include custo
mers, employees, suppliers, investors, and shareholders. Each c
ategory of stakeholdersmay include various subgroups that eithe
r share similar perspectives or have differing stakes in the organ
ization. For example, an employeestakeholder group could inclu
de management, staff, temporary employees, and retired employ
ees. While most employees would bedependent on the company
for earnings, the amount of influence that each subgroup may ex
ert to change work policies can vary. Thecomposition of the sta
keholder groups that a company considers primary depends on t
he industry and business strategy. Table 2.3 providesexamples o
f common subgroups that make up the overall stakeholder group
s that companies may consider most important to their business.
Table 2.3: Stakeholder group composition
Stakeholder Category
Company Stakeholders
Stakeholder Concerns

42. Customers
Distribution channel (wholesaler, retailer, dealer)
Consumer
Fair and reliable product supply
Safe products
Truthful advertising
Employees
Executive level
Management
Staff
New employees
Temporary workforce
Retirees
Business continuity and success
Professional development
Equal opportunity
Health and safety
Benefits
Suppliers
Supplier of materials
Service providers
Contract manufacturers
Honoring contract terms
Timely payment for goods and services
Protection of supplier intellectual property
Timely and accurate forecasting information
Investors
Fund managers
Institutional investors
Pension funds
Rating agencies
Business strategy and continuity
Risk and reputation management
Financial performance
Source: Modified from Stakeholder Research Associates Canada
Inc., United Nations Environment Programme, and AccountAbi

43. lity, 2005b, The Stakeholder Engagement Manual: Volume 2: T
hePractitioner’s Handbook on Stakeholder Engagement.
Governments and local communities, whose laws influence com
pany operations and tax obligations while providing infrastructu
re andmarkets to the company, can be primary or secondary stak
eholders (Clarkson, 1995; Frederick, Davis, & Post, 1988). Seco
ndarystakeholders can influence the firm or be influenced by the
firm, but are not directly necessary for its survival. These stake
holders typicallyinclude consumer advocate groups, media, unio
ns, political groups, the scientific community, and trade associa
tions. A secondary stakeholdercan also be a representative for i
nterests that cannot represent themselves, such as the American
Heart Association acting for the well-
beingof current and future generations at risk for heart disease o
r Greenpeace protecting the environment. Some organizations c
onsider thenatural environment as a stakeholder as company acti
vities depend on and affect the supply of resources like water an
d clean air. However, aquestion arises about whether the natural
environment can be a stakeholder group since it has no voice or
ability to engage in dialogue with acompany (Jacobs, 1997).
A company’s relationship with its stakeholders involves two-
way interaction between the entities. Businesses need to learn fr
om thestakeholder groups regarding their concerns and demands
, while stakeholder groups require information from the compan
y. Stakeholdergroups can also interact with other stakeholder gr
oups, combining resources to influence company strategy. Figur
e 2.6 shows a samplestakeholder map that illustrates a company’
s stakeholder groups and their relationships with the firm and ea
ch other.
Figure 2.6: Sample stakeholder map
The company and its stakeholders should have two-
way relationships, sharing information to create results.
Three stakeholder attributes contribute to the importance of a st
akeholder group to a company—
power, legitimacy, and urgency (Mitchell etal., 1997). Power ref

44. ers to the extent that a stakeholder can impose its will in its rela
tionship with the firm. Power can be coercive, using forceor thr
eats. Utilitarian power entails offering incentives or a material g
ain. Symbolic influences such as status or trophies create norma
tivepower. A stakeholder has legitimacy when its actions toward
the firm are desirable or proper within the norms, values, and b
eliefs of thelarger society. Urgency is the extent to which stakeh
older efforts call for immediate attention by a firm. It arises fro
m the stakeholder’sperception that any delay in attending to the
issue is unacceptable and/or the issue is of critical importance t
o the stakeholder.
While these three attributes are important, companies must unde
rstand that stakeholder identification and prioritization is not a
one-
timetask. Stakeholder groups can change over time in reaction t
o triggering events, such as natural disasters, negative publicity
over businesspractices, and legislative actions (Maurer & Sachs,
2005). Although a stakeholder group has the power to impose it
s will, they may notexercise that power unless there is an urgent
need.
Stakeholder Influence on Ethical Business
Stakeholder groups can exert their power and influence to chang
e a company’s behavior. Groups that provide a resource that a c
ompanyrequires, such as labor or capital, can have a greater imp
act on business than stakeholder groups that do not control valu
able resources.Unethical conduct of a business that harms a stak
eholder group may incite an adverse reaction from that group. F
or example, whencompanies collude to raise prices on common
auto parts, the consumers pay more for auto maintenance. The r
eputation of the industrysuffers, and consumers are less likely t
o trust the service providers for auto repairs. Stakeholder group
s can withhold resources or stipulateconditions on the usage of t
he resource (Frooman, 1999).
Withholding strategies include the threat or actual discontinuan
ce of providing a resource to a company until the company chan
ges a certainbehavior or activity. Stakeholder groups may boyco

45. tt brands that exploit child labor, use deceptive advertising, or o
ffer unsafe products. Whenstakeholder groups perceive the com
pany is not acting ethically or with integrity, they are more likel
y to withhold resources. The amount ofinfluence a stakeholder g
roup has depends on the extent to which the company is depend
ent on the resources that a group provides. Forexample, workers
provide labor to produce products or services. If a company dis
regards employee needs during a downsizing, such aslayoffs wit
hout advance notice or forcing employees to quit, then the empl
oyees may strike or leave for other employment. However, many
employees are not in a position that allows them to forgo wages.
Instead of complete withholding of the labor resource, they ma
y withdrawslightly, as evident in slowdowns in production after
a downsizing.
Stakeholder groups may continue to supply a resource to a comp
any, but attach conditions on the usage of the resource. Oftenti
mes theseconditions arise after a period of withholding or threat
of withholding. Labor issues are one example. Strikes or the thr
eat of strikes can occurwhen management and employees do not
agree on working conditions, wages, or employee benefits. How
ever, if the company agrees tonegotiate in good faith, employee
s may return to work while the conditions are being formalized.
As another example, retailers agree tocontinue with a purchasin
g agreement from suppliers only with proof of environmental an
d social standards compliance.
Depending on the power of the stakeholder group to make dema
nds on a company, they may exercise their influence directly or
indirectly.Direct strategies are those that the stakeholder group
can control on their own. Indirect strategies require stakeholder
groups to affiliate withother groups that can shift the power to i
nfluence change within the company. Consider the labor issue o
f disgruntled employees. If theemployee group is organized, the
y may be able to negotiate demands on their own. Otherwise, e
mployees may seek government regulatoryassistance to address
inequities in the workplace. Indirect strategies are often necessa
ry to effect change that could not be accomplishedalone. One ex

46. ample relates to environmental activist groups attempting to red
uce dependence on fossil fuels by encouraging energy-
efficientproducts. The largest provider of household appliances,
General Electric, initially resisted pressures for product redesig
n. Change could notoccur until the ENERGY STAR program alli
ed with Maytag Corporation and Whirlpool Corporation to educ
ate consumers. In turn, consumersbegan purchasing ENERGY S
TAR products instead of General Electric products—
a withholding strategy. This strategy forced General Electricto c
hange its behavior and begin developing ENERGY STAR produ
cts (Hendry, 2005).
Stakeholder Issues
Responsible companies develop the capability to respond to stak
eholder concerns. What are the common issues that may arise w
henbusiness activities affect stakeholder groups? Some of the ge
neral considerations each category of stakeholder may bring to t
he attention ofthe company are part of the stakeholder identifica
tion process (such as CSR issues). Understanding what each sta
keholder group values canimprove company responsiveness to t
heir needs.
Customers are primary stakeholders of a company. Their awaren
ess, purchase, use, and repurchase of products are necessary for
the financialviability of the firm. Customers want a fair price an
d reliable supply of desired products. Therefore, companies mus
t consider pricingstrategies to offer value to the consumer; relia
ble supply may depend on securing depleting natural resources.
Ethical businesses refrain fromprice collusion or monopolistic
maneuvers. Customers value honesty in the marketing and adver
tising of products. They value their healthand safety and expect
products to perform as promised without negative consequences.
Parents are concerned that toys, furniture, andaccessories do no
t pose a danger to their children. However, companies recognize
unintended consequences of marketing products andservices tha
t can affect consumers. For example, products such as pornogra
phy, guns, gambling, tobacco, and alcohol are legal but have a h
ighprobability of being consumed in a socially unacceptable wa

47. y. Other issues include the marketing of products and services t
o vulnerablepopulations, such as children or the elderly. Compa
nies must balance the different consumer stakeholder groups in
developing marketingstrategy.
The ethical, social, and environmental impacts of a company an
d its products are important to customers. Over one third of Am
ericanconsumers are more likely to buy environmentally respons
ible products, switching to brands that have a positive reputatio
n for ethicalbehavior, though studies often find that French and
German consumers appear more willing to support responsible b
usinesses than their U.S.counterparts do (Maignan, 2001). In Ch
ina, consumer awareness of issues like the environment and wor
king conditions is increasing.
Another important primary stakeholder group is employees. The
y are concerned with their livelihood and supporting their famili
es. Issuesfor employees focus on the continuity of the business t
o provide wages and benefits. The employee stakeholder categor
y is broad andincludes line workers, administrative staff, manag
ement, and executives. Therefore, the issues and concerns may v
ary by occupation.Employees expect a safe workplace with equa
l opportunity for advancement and development. Companies are
required to comply withregulations that enforce many of these c
oncerns.
Attention to this stakeholder group’s concerns makes for happy
employees. Employee satisfaction has a direct effect on compan
yperformance and customer satisfaction that enhances a compan
y’s reputation (Martinez & Norman, 2004). Many organizations
providebenefits to support employees in work-
family issues. Some companies offer child care benefits to cove
r costs of working parents, while othersmay offer flexible work
schedules to accommodate family obligations.
Suppliers are also stakeholders in a company. This group refers
to individuals, firms, or industries that provide materials, servic
es, and/orassembly/manufacturing to the company. Suppliers see
k customers who honor contract terms, provide timely payment f
or goods andservices, respect their intellectual property, and sha

48. re accurate forecasting information. Managers must pay attentio
n both to the needs of thesupply chain and to socially responsibl
e purchasing practices, including incorporation of noneconomic
buying criteria related to diversity,environmental, and labor iss
ues. The Institute for Supply Management (2012) has developed
a framework of responsible supply chainmanagement that provi
des direction to professionals on how their companies and suppl
iers can develop and integrate sustainable andsocially responsib
le practices into the business and supply chain. The guide provi
des tools and resources for including these principles insourcing
products and services, such as anti-
corruption; diversity and inclusiveness; workforce and supply b
ase; environment; ethics andbusiness conduct; financial integrit
y and transparency; global citizenship; health and safety; human
rights; labor rights; and sustainability.
Shareholders are most concerned with the business strategy and
continuity of the company. Business failures such as Enron and
WorldComhave prompted investors to scrutinize the managemen
t of risks and the reputational effects on the business. Concern i
s mainly on financialperformance, but the manner of achieving t
he financial performance is becoming more of an issue for share
holders. Shareholder activistsrepresent groups of investors that
demand changes in business strategy. Their tactics range from s
hareholder resolution to hostile takeovers.The direct selling co
mpany, Herbalife International had to defend its business when
hedge fund manager Bill Ackman claimed the companyrelied on
inflated pricing, misleading sales information, and a complicate
d incentive plan to hide a pyramid scheme. Herbalife promptlyre
sponded to assure its investors that it was a legitimate multi-
level direct selling company following all ethical standards of t
he industry.
Stakeholder Engagement
Company efforts to understand and address stakeholder demand
s in its activities and decision-
making processes depend on stakeholderengagement (as introdu
ced in Chapter 1). Stakeholder engagement includes gathering i

49. nformation about stakeholder interests andexpectations, sharing
information on company activities and performance, and dialogu
e and consultation. Effective management ofstakeholders can re
duce the risk that a stakeholder group will engage in withholdin
g or usage methods to influence the company strategy.
Stakeholder Engagement Strategies
Depending on the relationship with specific stakeholder groups,
companies can employ a variety of methods for relating to the s
ub-
categoriesof a stakeholder group (see Table 2.4 for stakeholder
engagement strategies). Depending on the power and legitimacy
of the stakeholders,management may feel that one-
way communication is sufficient. For issues that are of critical i
mportance or are time-
sensitive, a dialogue orpartnership approach may be preferred to
establish a two-
way communication. Engagement strategies also need to conside
r how stakeholdergroups interact with each other. Some approac
hes target a single stakeholder group to address their unique con
cerns, such as employeetraining or employee benefit informatio
n. Others may include multiple stakeholder groups on an issue,
such as a task force to develop energy-
efficient products that includes employees, customers, and envir
onmental activist groups.
Table 2.4: Stakeholder engagement strategies
One-way
Two-way
Communication
Consultation
Dialogue
Partnerships
“Informing”
“Asking”
“Discussing”
“Involving”
Employee training

50. Internal and external newsletters
Press releases, press conferences, mediaadvertising
Tours
Open houses and town hall meetings
Websites
Social media communications
Speeches, conference presentations
Company brochures and reports
Employee suggestionsPrograms
Questionnaire surveys
Focus groups
Community meetings
Advisory forums
Online discussion forums
Leadership summits orroundtables
Advisory panels
Online forums
Cross-sector alliances
Multi-stakeholderForums
Source: Based on Stakeholder Research Associates Canada Inc.,
United Nations Environment Programme, and AccountAbility,
2005a, The Stakeholder Engagement Manual: Volume 1: The Gu
ideto Practitioners’ Perspectives on Stakeholder Engagement.
One-
way communication with stakeholders is a normal part of busine
ss as companies convey information about their company, brand
, orproduct to customers and the public. Through a communicati
on program, internal and external stakeholders become informed
on the issuesthat the company identifies as most important. Ho
wever, trust in corporate communications is low among custome
rs, employees, and thepublic (Edelman, 2013). For an effective
communication engagement strategy, the company must demons
trate honesty, transparency,accuracy, and timeliness.
Use of Internet communication allows companies to provide inf
ormation to stakeholder groups on a regular and immediate basi
s. Socialmedia websites such as Facebook, Twitter, and YouTub

51. e allow companies to connect with customers and prospects to g
enerate a sense ofcommunity and loyalty to a brand. The compa
ny website is a resource of information that employees, custome
rs, suppliers, and the public canaccess to learn how the compan
y is addressing their concerns. During a crisis, companies can u
se e-
mail and social media to communicatewith all stakeholders. Tim
berland LLC used an organized e-
mail response to address over 65,000 Greenpeace supporters acc
using theenvironmentally responsible apparel company of suppo
rting slave labor, destroying the Amazon rainforest, and exacerb
ating global warming(Swartz, 2010). The company responded to
each person with a carefully crafted message stressing Timberl
and’s commitment to theenvironment. Follow-
up messages continued as the company worked with Greenpeace
to address issues in the supply chain.
Consultation involves gathering information or advice from stak
eholders that the company may consider in strategic decision ma
king.Surveys are an example of a one-
way consultative approach for discovering employee and custom
er satisfaction, supplier compliance, andcommunity perceptions
of the company. While the results of each survey may not influe
nce company actions, the respondents should receivesome ackno
wledgment that the survey results warranted consideration. Fiel
d sales representatives gather information about client needs as
apart of sales calls, making sales staff an important source of co
nsumer input. Management may also hold or attend community
or associationmeetings to listen to concerns on company activiti
es.
Formal consultative approaches include advisory groups or sugg
estion programs. Advisory forums include industry or other exp
erts toprovide new perspectives on company activities. Online c
ampaigns seeking customer or public input to name a product ge
nerate enthusiasmfor the brand. Goodyear Tire & Rubber Compa
ny sought names for a new blimp, promising the winner use of t
he blimp for a day. Afterreceiving 21,000 ideas, they settled on

52. the name Spirit of Innovation (Hockensmith, 2006). Companies
can use similar approaches to gaininput on other business issues
. Employee suggestion programs seek ideas for improvement, of
ten offering cash incentives for any cost-
savingrecommendations that are worth implementing. Employee
s can be champions for energy conservation and safer work proc
esses.
Dialogue strategies entail two-
way conversations that involve an exchange of information. Rat
her than gathering information throughconsultation and having t
he company choose how to use the information, a dialogue appr
oach seeks to foster cooperation on an issue,strategy, or initiati
ve. Stakeholder groups are encouraged to ask questions, interpre
t information, and make recommendations. Formaldialogue enga
gement strategies include leadership forums and advisory panels
where all stakeholders explore solutions to a business issue.Pas
sword-
protected extranets encourage dialogue with external stakeholde
rs at Volvo Group. Companies forced to address social issues du
eto shareholder resolutions may seek to communicate with the a
ctivist group to negotiate an acceptable solution to both parties
(Rehbein,Logsdon, & Buren, 2013). Dialogue strategies require
that all stakeholder groups have mutual trust and good faith in a
ddressing the subjectunder discussion.
When companies find that responding to stakeholder demands re
quires additional resources or expertise beyond their capabilitie
s, apartnership with other organizations involves multiple stake
holder groups. This engagement strategy goes beyond talking an
d focuses onaction. When a business works with nonprofits or g
overnment agencies to solve a social issue, this is known as a cr
oss-
sector alliance. Thereare benefits for all to collaborate. On the b
usiness side, the motivations traditionally revolve around increa
sed legitimacy, positive reputationeffects, increased social statu
s, recognition, and opportunities for learning. Businesses have e
normous resources at their disposal and canprovide partner orga