Business and Society: Ethics and Stakeholder Management

730 Pages·1999·3.76 MB·English

by  Archie B. Carroll

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The Business/Society
Relationship
C H A P T E R O B J E C T I V E S
After studying this chapter, you should be able to:
1 Define business and society and their interrelationship.
2 Explain pluralism and identify its strengths and weaknesses.
3 Explain how our pluralistic society has become a special-interest society.
4 Discuss the major criticisms of business and characterize business’s general response.
5 Identify the major themes of this book: the managerial approach, ethics, and stake-
holder management.
Over the past decade, many news stories have brought to the attention of the public
numerous social and ethical issues that have framed the business/society relation-
ship. Because the news media have a flair for the dramatic, it is not surprising that
the reporting of these issues has been characterized by criticisms of various actions,
decisions, and behaviors on the part of business management. Visible examples of
these criticisms have included accusations against H.B. Fuller Co. that it has been
selling glue in Honduras that is being indiscriminately used for “sniffing” by Hon-
duran street children, an exposé of Beech-Nut Nutrition Company’s practice of sell-
ing adulterated apple juice and passing it off to the public as “100% fruit juices,”
lawsuits against Dow Corning for its sale of defective silicone breast implants, allega-
tions that Sears Roebuck & Co. engaged in sales abuses at its auto centers by pres-
suring customers to purchase unneeded or unwanted services, and accusations and
lawsuits against the tobacco industry for manufacturing and marketing what an
increasing number of people consider to be an inherently dangerous product. The
litany of such issues could go on and on, but these examples will serve to illustrate
the continuing tensions between business and society, which can be traced to spe-
cific incidents or events.
In addition to these specific incidents, many general issues that carry social or
ethical implications have arisen within the relationship between business and soci-
ety. Some of these general issues have included sexual harassment in the workplace,
toxic waste disposal crises, use of lie detectors, minority rights, AIDS in the work-
place, smoking in the workplace, drug testing, insider trading, whistle blowing,
product liability crises, fetal protection issues, and use of political action committees
by business to influence the outcome of legislation.
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Chapter 1 The Business/Society Relationship 3
This sampling of both specific corporate incidents and general issues typifies the
kinds of stories about business and society that one finds today in newspapers and
magazines and on television. We offer these issues as illustrations of the widespread
interactions between business and society that occur on an almost daily basis.
Most of these corporate episodes are situations in which the public or some seg-
ment of the public believes that a firm has done wrong or treated some individual or
group unfairly. Indeed, in some cases major laws have been broken. In any event, all of
these episodes have involved questions of whether or not business firms have behaved
properly. Thus, ethical questions typically reside in these kinds of situations. In today’s
socially aware environment, a business firm frequently finds itself on the defensive—
that is, it finds itself being criticized for some action it has taken or failed to take.
Whether a business is right or wrong sometimes does not matter. Powerful groups of
individuals can frequently exert enormous pressure on businesses and wield signifi-
cant influence on public opinion, causing firms to take particular courses of action.
In other cases, such as the general issues mentioned earlier, businesses are attempt-
ing to deal with broad societal concerns (such as the “rights” movement, smoking in
the workplace, and AIDS in the workplace), on which there are no positions that are
clearly acceptable to everyone involved. Nevertheless, businesses must weigh the pros
and cons of these issues and adopt the best postures, given the many and conflicting
points of view that are being expressed. Although the correct responses are not easy to
identify, businesses must respond and be willing to live with the consequences.
At a broad level, we are discussing the role of business in society. Abstract debates
on this issue have taken place. In this book we will address some of these concerns—
the role of business versus government in our socioeconomic system, what a firm must
do to be considered socially responsible, and what managers must do to be thought of
as ethical. The issues we mentioned earlier are anything but abstract. They require
immediate attention and definite courses of action, which quite often become the
next subject of debate on the roles and responsibilities of business in society.
As we reach the millennium, many economic, legal, ethical, and social questions
and issues about business and society are under debate. This period is turbulent in
the sense that it has been characterized by significant changes in the economy, in
society, in technology, and in global relationships. Against this continuing turbu-
lence in the business/society relationship, we want to develop some ideas that are
fundamental to an understanding of where we are and how we got here.
BUSINESS AND SOCIETY
This chapter will discuss certain concepts that are important in the continuing
business/society discussion. Among these concepts are pluralism, our special-interest
society, business criticism, and corporate social response. But let us first define and
explain two key terms: businessand society.
Business: Defined
Businessis the collection of private, commercially oriented (profit-oriented) organi-
zations, ranging in size from one-person proprietorships (such as The Grill Restau-
rant, Chastain’s Office Supplies, and Zim’s Bagels) to corporate giants (such as
The Business/Society Relationship 3
4 PART ONE Business, Society, and Stakeholders
Microsoft, BellSouth, Coca-Cola, and Hewlett-Packard). Between these extremes, of
course, are many medium-sized proprietorships, partnerships, and corporations.
When we speak of business in this comprehensive sense, we refer to businesses of
all sizes and in all types of industries. But as we embark on our discussion of business
and society, we will, for a variety of reasons, doubtless find ourselves speaking more
of bigbusiness in selectedindustries. Why? For one thing, big business is highly visible.
Its products and advertising are more widely disseminated. Consequently, it is more
frequently in the critical public eye. In addition, people in our society often associ-
ate size with power, and the powerful are given closer scrutiny. Although it is well
known that small businesses in our society far outnumber large ones, the impact,
pervasiveness, power, and visibility of large firms keep them on the front page much
more of the time.
With respect to different industries, some are simply more conducive to the cre-
ation of visible social problems than are others. For example, many manufacturing
firms by nature cause air and water pollution. Such firms, therefore, are more likely
to be subject to criticism than, say, a life insurance company, which emits no obvious
pollution. The auto industry is a particular case in point. Much of the criticism
against General Motors (GM) and the other automakers is raised because of their
high visibility as manufacturers, the products they make (which are the largest sin-
gle source of air pollution), and the popularity of their products (nearly every fam-
ily owns one or more cars). In the case of the auto industry, we have not yet worked
out an ideal solution to the product-disposal problem, so we see unsightly remnants
of metal and plastic on every roadside.
Some industries are highly visible because of the advertising-intensive nature of
their products (for example, Miller Brewing, General Mills, Toyota, and Procter &
Gamble). Other industries (for example, the cigarette, toy, and food products indus-
tries) are scrutinized because of the possible effects of their products on health or
because of their roles in providing health-related products (pharmaceutical firms).
When we refer to business in its relationship with society, therefore, we may focus
our attention too much on large businesses in particular industries. But we should
not lose sight of the fact that small- and medium-sized companies also are impor-
tant. In fact, over the past decade, problems have arisen for small businesses because
they have been subjected to many of the same regulations and demands as those
imposed by government on large organizations. In many instances, however, smaller
businesses do not have the resources to meet the requirements for increased account-
ability on many of the social fronts that we will discuss.
Society: Defined
Societymay be defined as a community, a nation, or a broad grouping of people hav-
ing common traditions, values, institutions, and collective activities and interests. As
such, when we speak of business/society relationships, we may in fact mean business
and the local community (business and Cincinnati), business and the United States
as a whole, or business and a specific group of people (consumers, minorities, stock-
holders).
When we refer to business and the entire society, we think of society as being
composed of numerous interest groups, more or less formalized organizations, and
a variety of institutions. Each of these groups, organizations, and institutions is a
4 The Business/Society Relationship
Chapter 1 The Business/Society Relationship 5
purposeful aggregation of people who have banded together because they repre-
sent a common cause or share a set of common beliefs about a particular issue.
Examples of interest groups or purposeful organizations are numerous: Friends of
the Earth, Common Cause, chambers of commerce, National Association of Manu-
facturers, Mothers Against Drunk Driving, and Ralph Nader’s consumer activists.
THE MACROENVIRONMENT
The environment is a key concept in understanding business/society relationships.
At its broadest level, the environment might be thought of in terms of a macro-
environment, which includes the total environment outside the firm. The macroen-
vironment is the total societal context in which the organization resides. In a sense,
the idea of the macroenvironment is just another way of thinking about society. In
fact, early courses on business and society in business schools were sometimes (and
some still are) entitled “Business and Its Environment.” The concept of the macro-
environment, however, evokes different images or ways of thinking about business/
society relationships and is therefore useful in terms of framing or understanding
the total business context.
The view of the macroenvironment as developed by Liam Fahey and V.K.
Narayanan is useful for our purposes. They see the macroenvironment as being
composed of four segments: social, economic, political, and technological.1
The social segment (or environment) focuses on demographics, lifestyles, and
social values of the society. Of particular interest here is the manner in which shifts
in these factors affect the organization and its functioning. The economic segment
focuses on the nature and direction of the economy in which business operates.
Variables of interest might include such indices as gross national product, inflation,
interest rates, unemployment rates, foreign-exchange fluctuations, and various
other aspects of economic activity. In the past decade, the global economy has dom-
inated the economic segment of the environment.
The politicalsegment focuses on the processes by which laws get passed and offi-
cials get elected and all other aspects of the interaction between the firm, political
processes, and government. Of particular interest to business in this segment are
the regulatory process and the changes that occur over time in business regulation,
various industries, and various issues. Finally, the technological segment represents
the total set of technology-based advancements or progress taking place in society.
Pertinent aspects of this segment include new products, processes, and materials, as
well as the states of knowledge and scientific advancement in both theoretical and
applied senses. The process of technological change is of special importance here.2
Thinking of business/society relationships in terms of the macroenvironment pro-
vides us with a different but useful way of understanding the kinds of issues that con-
stitute the broad milieu in which business functions. Throughout this book we will see
evidence of these environmental segments in a state of turbulence and will come to
appreciate what challenges managers face as they strive to develop effective organiza-
tions. Each of the many specific groups and organizations that make up ourpluralistic
society can typically be traced to one of these four environmental segments; therefore,
it is helpful to appreciate at a conceptual level what these segments are.
The Business/Society Relationship 5
6 PART ONE Business, Society, and Stakeholders
ROLE OF PLURALISM
Our society’s pluralistic nature makes for business/society relationships that are
more interesting and novel than those in some other societies. Pluralismis a condi-
tion in which there is diffusion of power among the society’s many groups and orga-
nizations. Joseph W. McGuire’s straightforward definition of a pluralistic society is
useful for our purposes: “A pluralistic society is one in which there is wide decentral-
ization and diversity of power concentration.”3
The key descriptive terms in this definition are decentralization and diversity. In
other words, power is dispersed. Power is not in the hands of any single institution
(such as business, government, labor, or the military) or a small number of groups.
Many years ago, in The Federalist Papers, James Madison speculated that pluralism was
a virtuous scheme. He correctly anticipated the rise of numerous organizations in
our society as a consequence of it. Some of the virtues of a pluralistic society are
summarized in Figure 1–1.
Weaknesses and Strengths of Pluralism
All societal systems have their weaknesses, and pluralism is no exception. One weak-
ness in a pluralistic system is that it creates an environment in which the diverse insti-
tutions pursue their own self-interests, with the result that there is no central direction
to unify individual pursuits. Another weakness is that groups and institutions prolifer-
ate to the extent that their goals tend to overlap, thus causing confusion as to which
organizations best serve which functions. Pluralism forces conflict onto center stage
because of its emphasis on autonomous groups, each pursuing its own objectives. In
light of these concerns, a pluralistic system does not appear to be very efficient.
History and experience have demonstrated, however, that the merits of pluralism
are considerable and that most people in our society prefer the situation that has
resulted from it. Indeed, pluralism has worked to achieve equilibrium in the bal-
ance of power of the dominant institutions that constitute the American way of life.
Business versus Multiple Publics and Systems
Knowing that society is composed of so many different semiautonomous and autono-
mousgroups might cause one to question whether we can realistically speak of soci-
ety in a broad sense that has any generally agreed-upon meaning. Nevertheless, we
do speak in such terms, knowing that, unless we specify a particular societal sub-
group or subsystem, we are referring to all those persons, groups, and institutions
that constitute our society. This situation raises an important point: When we speak
of business/society relationships, we usually refer either to particular segments or
subgroups of society (consumerists, women, minorities, environmentalists, youth) or
to business and some system in our society (politics, law, custom, religion, econom-
ics). These groups of people or systems may also be referred to in an institutional
form (business and the courts, business and Common Cause, business and the
church, business and the AFL-CIO, business and the Federal Trade Commission).
Figure 1–2 displays in pictorial form the points of interface between business and
some of these multiple publics, or stakeholders, with which business has social rela-
tionships. Stakeholders are those groups or individuals with whom an organization
interacts or has interdependencies. We will develop the stakeholder concept further
6 The Business/Society Relationship
Chapter 1 The Business/Society Relationship 7
FIGURE 1–1 The Virtues of a Pluralistic Society
• A pluralistic society prevents power from being concentrated in the hands of a few.
• A pluralistic society maximizes freedom of expression and action and strikes a balance
between monism (social organization into one institution) on the one hand and anarchy (social
organization into an infinite number of persons) on the other.a
• In a pluralistic society, the allegiance of individuals to groups is dispersed.
• Pluralism creates a wildly diversified set of loyalties to many organizations and minimizes the
danger that a leader of any one organization will be left uncontrolled.b
• Pluralism provides a built-in set of checks and balances, in that groups can exert power over
one another with no single organization (business, government) dominating and becoming
overly influential.
SOURCES:aKeith Davis and Robert L. Blomstrom, Business and Society: Environment and Responsibility,3d ed. (New York:
McGraw-Hill, 1975), 63. bJoseph W. McGuire, Business and Society(New York: McGraw-Hill, 1963), 132.
in Chapter 3. Note that each of the stakeholder groups may be further divided into
more specific subgroups.
If sheer numbers of relationships are an indicator of complexity, we could easily
argue that business’s current relationships with different segments of society consti-
tute a truly complex environment. And if we had the capacity to draw a diagram sim-
ilar to Figure 1–2 that noted all the detail composing each of those points of
interface, it would be too overwhelming to comprehend. Today, business manage-
ment cannot sidestep this problem, because management must live with these inter-
faces on a daily basis.
FIGURE 1–2 Business and Selected Stakeholder Relationships
Environmental
Local
Groups
State
General
Public
Federal
Community Government
Unions
Corporate
Business
Raiders Older
Owners Employees Employees
Private
Women
Citizens
Consumers Minorities
Institutional
Civil Liberties Activists
Investors
Consumer Activists Product Liability
Threats
The Business/Society Relationship 7
8 PART ONE Business, Society, and Stakeholders
OUR SPECIAL-INTEREST SOCIETY
One could well argue that our pluralistic society has become a special-interest society.
That is, we have carried the idea of pluralism to an extreme position in which we have
literally tens of thousands of special-interest groups, each pursuing its own limited
agenda. General-purpose interest organizations, such as Common Cause and the
United States Chamber of Commerce, still exist. However, the past two decades have
been characterized by increasing specialization on the part of interest groups repre-
senting all sectors of society—consumers, employees, communities, the environment,
government, and business itself. One recent newspaper headline noted that “there is
a group for every cause.” Special-interest groups not only have grown in number at an
accelerated pace but also have become increasingly activist, intense, diverse, and
focused on single issues. Such groups are increasingly committed to their causes.
The consequence of such specialization is that each of these groups has been able
to attract a significant following that is dedicated
to the group’s goals. Increased memberships
have meant increased revenues and a clearer
focus as each of these groups has aggressively
sought its limited purposes. The likelihood of
One of the most interesting and demanding pressures on
these groups working at cross-purposes and with
thebusiness/society relationship is that exerted by special-
no unified set of goals has made life immensely
interest groups. Many of these groups focus on specific top-
ics, then direct their concerns or demands to companies they more complex for the major institutions, such as
wish to influence. Special-interest groups have become more business, that have to deal with them.
numerous and increasingly activist, diverse, and focused
onsingle issues. Unique companies, such as Good Money,
Inc., which specialize in socially responsible and ethical
investing, consuming, and business practices, have reason
tocatalog and monitor these interest groups. One of Good BUSINESS CRITICISM
Money’s Web pages, “Social Investing and Consuming AND CORPORATE RESPONSE
Activist Groups and Organizations,” found at www.
goodmoney.com/directry_active.htm, lists and briefly It is inevitable in a pluralistic, special-interest
describes a few of the special-interest groups with which busi- society that the major institutions that make up
ness must contend. Good Money’s Web page contains more that society, such as business and government,
information about the following special-interest groups, but
will become the subjects of considerable criti-
it catalogs many more.
cism. Our purpose here is not so much to focus
• 20/20 Vision—An advocacy organization dedicated to on the negative as to illustrate how the process
protecting the environment and promoting peace through
of business criticism has shaped the major
grassroots action.
issues in the evolution of the business/society
• EarthWINS—An organization dedicated to supporting
relationship today. Were it not for the fact that
activism for the environment, peace, justice, human rights,
and Native Americans. individuals and groups have been critical of
• Environmental Defense Fund—A group that reports and business, we would not be dealing with this sub-
acts on a broad range of regional, national, and interna- ject in a book, and no changes would occur in
tional environmental issues. the business/society relationship over time. But
• International Fund for Animal Welfare—An organization such changes havetaken place, and it is helpful
that promotes the just and kind treatment of animals.
to see the role that business criticism has
• Public Interest Research Group (The PIRGs)—Groups that
assumed. The idea of business response to criti-
promote social action to safeguard the public interest.
cism will be developed more completely in Chap-
• Rainforest Action Network—An organization whose mis-
ter 2, where we present the business criticism/
sion is to save the world’s rainforests from destruction.
response cycle.
8 The Business/Society Relationship
Chapter 1 The Business/Society Relationship 9
Figure 1–3 illustrates how selected factors that have arisen in the societal environ-
ment have created an atmosphere in which business criticism has taken place. In
this chapter, we see response on the part of business as entailing an increased concern
for the social environmentand a changed social contract(relationship) between business
and society.
Factors in the Social Environment
Many factors in the social environment have created a climate in which criticism of
business has taken place and flourished. Some of these factors are relatively inde-
pendent, and some are interrelated with others. In other words, they occur and
grow hand in hand.
Affluence and Education
Two factors that have developed side by side are affluenceand education.As a society
becomes more affluent and better educated, higher expectations for its major insti-
tutions, such as business, naturally follow.
Affluencerefers to the level of wealth, disposable income, and standard of living of
the society. Measures of our country’s standard of living indicate that it has been ris-
ing for decades. Although some Americans perceive that U.S. living standards have
stopped rising, data from the Conference Board indicate that life is better for most
FIGURE 1–3 Social Environment Factors, Business Criticism,
and Corporate Response
Affluence Awareness
Education
Factors in the Social Environment
Rising Expectations Rights Movement
Entitlement Mentality Victimization Philosophy
Business Criticism
Increased Concern for A Changed
the Societal Environment Social Contract