This document discusses corporate responsibility and external stakeholders. It covers 5 topics: 1) managing responsibility in the marketplace, 2) managing responsibility with external stakeholders, 3) responsibility toward consumers, 4) responsibility in advertising, product safety and liability, and 5) responsibility toward the environment. The document notes that corporations can gain competitive advantages like reputation and ability to attract employees by being socially responsible. It also discusses stakeholders, social contracts, and corporations' duties and obligations to various external groups.

1. Copyright © 2003 by South-
Western, a division of Thomson
Learning 1
Chapter Five
The Corporation
And
External Stakeholders

2. Copyright © 2003 by South-Western, a division of Thomson
Learning 2
Chapter Topics
1. Managing corporate responsibility in the
marketplace: crises and opportunities
2. Managing corporate responsibility with
external stakeholders
3. Corporate responsibility and consumer
stakeholders
4. Corporate responsibility in advertising,
product safety, and liability
5. Corporate responsibility and the
environment

3. Copyright © 2003 by South-Western, a division of Thomson
Learning 3
Managing Corporate Responsibility
in the Marketplace: Crises and
Opportunities
 Managing legal and moral responsibility in the
marketplace can be a significant part of a corporation’s
activities.
 Figure 5.1 in the text
 Classic corporate crises
 Corporate social responsibility refers to a business’s
attention to and promotion of the welfare and goodwill
of stakeholders.
 Evidence supports that corporations that are socially
responsible have a competitive advantage in the
following areas:
 Reputation
 Successful social investment portfolios
 Ability to attract quality employees

4. Copyright © 2003 by South-Western, a division of Thomson
Learning 4
Managing Corporate
Responsibility with External
Stakeholders
 The stakeholder management
approach views the corporation as a
legal entity and a collective of
individuals and groups.
 Social contract: a set of rules and
assumptions about behavior patterns
among various elements of society.
 The social contract between a
corporation and its stakeholders is
often based on implicit as well as
explicit agreements.

5. Copyright © 2003 by South-Western, a division of Thomson
Learning 5
Managing Corporate
Responsibility with External
Stakeholders
 The covenantal ethic concept is related to
the social contract view and is also central to
a stakeholder management approach.
 The covenantal ethic focuses on the
importance of relationships, social as well as
economic, among businesses, customers, and
stakeholders.
 At a more general view, it is argued that a
corporation’s obligations include, in addition
to making a profit, acting justly, causing no
unavoidable, unjustifiable harm, and
preventing harm where possible.

6. Copyright © 2003 by South-Western, a division of Thomson
Learning 6
Managing Corporate
Responsibility with External
Stakeholders
 Five broad guidelines suggested by Keith
Davis that business professionals should
follow to be socially responsible include:
 Businesses have a social role of trustee for
society’s resources
 Business shall operate as a two-way open system
with open receipt of inputs from society and open
disclosure of its operations to the public
 Social costs/benefits shall be considered before
proceeding
 The consumer shall pay for the costs of
consumption
 Businesses have responsibilities where social needs
exist

7. Copyright © 2003 by South-Western, a division of Thomson
Learning 7
Managing Corporate
Responsibility with External
Stakeholders
 Issues management should be a
continuous strategic process that
involves all business and functional units.
Methods used in this process include:
 Environmental scanning
 Brainstorming
 Probability and impact matrix
 Three organizational levels at which
companies use issues management:
 Corporate level
 Functional level
 Process-oriented

8. Copyright © 2003 by South-Western, a division of Thomson
Learning 8
Corporate Responsibility
Toward Consumer
Stakeholders
 Consumers may be the most important
stakeholders of corporations.
 Corporations have certain
responsibilities and duties toward
their customers and consumers in
society:
 Duty to inform
 Duty not to misrepresent
 Duty not to force or take undue advantage
 Duty to take due care to prevent any
unforeseeable injuries

9. Copyright © 2003 by South-Western, a division of Thomson
Learning 9
Corporate Responsibility
Toward Consumer
Stakeholders
 Related rights consumers have in
their social contact with
corporations include:
 Right to safety
 Right to free and rational choice
 Right to know
 Right to be heard
 Right to be compensated

10. Copyright © 2003 by South-Western, a division of Thomson
Learning 10
Corporate Responsibility
Toward Consumer
Stakeholders
 The free-market theory holds that the
primary aim of business is to make a
profit.
 There are several arguments regarding
the free-market theory.
 The mixed market economy perspective
include a balance between the private
property systems and the government
laws, policies, and regulations that
protect consumers and citizens.

11. Copyright © 2003 by South-Western, a division of Thomson
Learning 11
Corporate Responsibility in
Advertising, Product Safety,
and Liability
 The purposes of advertising include:
 Inform customers about products and services
 Persuade customers to make purchases
 The American Association of Advertising (AAA)
has a code of ethics that help organizations
monitor their own ads.
 The Federal Trade Commission (FTC) and the
Department of Labor (DOL are federal agencies
appointed and funded to monitor and eliminate
false and misleading advertising when corporate
self-regulation is not used or fails to control
harm done to consumers.

12. Copyright © 2003 by South-Western, a division of Thomson
Learning 12
Corporate Responsibility in
Advertising, Product Safety,
and Liability
 Advertising on the Internet
presents new opportunities and
problems for consumers.
 At issue ethically is the unlimited
availability of and exposure to
explicit and other questionable
content on ads and Websites.
 FTC provides regulatory guidelines for
on-line advertising

13. Copyright © 2003 by South-Western, a division of Thomson
Learning 13
Corporate Responsibility in
Advertising, Product Safety,
and Liability
 Moral responsibility for consumers in
advertising can be viewed along a
continuum.
 Paternalism
 Illusion of free choice
 Enforcement of advertising
 Bans on ads

14. Copyright © 2003 by South-Western, a division of Thomson
Learning 14
Corporate Responsibility in
Advertising, Product Safety,
and Liability
 Arguments for advertising:
 Introduces people to and influences them
to buy goods and services
 Enables companies to be competitive
 Helps nations maintain a prosperous
economy
 Helps a nation’s balance of trade and debt
payments
 Enriches consumers’ lives
 Consumers are not ignorant and do know
the difference

15. Copyright © 2003 by South-Western, a division of Thomson
Learning 15
Corporate Responsibility in
Advertising, Product Safety,
and Liability
 Arguments against advertising:
 Cross the thin line between deception and
puffery
 Tells half-truths
 Conceals facts
 Intentionally deceive with a profit goal in
mind
 Fast food industry advertising
 Tobacco and alcohol advertising
 Ethics and advertising
 Advertising and free speech

16. Copyright © 2003 by South-Western, a division of Thomson
Learning 16
Corporate Responsibility in
Advertising, Product Safety,
and Liability
 Managing product safety should be
priority number one for corporations.
 The National Commission on Product
Safety (NCPS) notes that product risks
should be reasonable.
 Three steps firms can use to assess
product safety from an ethical
perspective include:
 How much safety is technically attainable?
 What is the acceptable risk level?
 Does the product meet standards?

17. Copyright © 2003 by South-Western, a division of Thomson
Learning 17
Corporate Responsibility in
Advertising, Product Safety,
and Liability
 Product liability doctrines:
 Privity
 Negligence
 Strict liability
 Absolute liability
 Two broad purposes of product liability lawsuits:
 Provide a level of compensation for injured parties
 Act to deter negligent marketing
 33 states have laws in the making to limit
liability and damages awards.
 E-commerce and product liability

18. Copyright © 2003 by South-Western, a division of Thomson
Learning 18
Corporate Responsibility
and the Environment
 The most significant environmental problems
include:
 Toxic air pollution
 Water pollution and the threat of scarcity
 Hazardous waste and land pollution
 Causes of environmental pollution include:
 Consumer affluence
 Materialistic cultural values
 Urbanization
 Population explosion
 New and uncontrolled technologies
 Industrial activities

19. Copyright © 2003 by South-Western, a division of Thomson
Learning 19
Corporate Responsibility
and the Environment
 A number of governmental regulatory
agencies have been created to develop
and enforce policies and laws to
protect the general and workplace
environments:
 OSHA
 CPSC
 EPA
 CEQ

20. Copyright © 2003 by South-Western, a division of Thomson
Learning 20
Corporate Responsibility
and the Environment
 An innovative trend in new ecology ethical thinking is
linking the concepts of:
 Green marketing
 Environmental justice
 Industrial ecology
 The ethical principles of rights and duties regarding
the treatment of the environment and multiple
stakeholders are:
 Rights of future generations
 Right to a livable environment
 New assumptions and practices driving corporate
changes toward the environment include:
 International community
 Green marketing
 Environmentally friendly strategies