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DSST: Business Ethics & Society

Terms in this set (582)

People first pass through two stages known collectively as the pre-conventional level. In the first stage, people are motivated by trying to avoid punishment; their actions are bad if they get punished and good if they don't. In this stage, Lauren would give her father the money because she doesn't want him to punish her. At the second stage, people are motivated purely by self-interest. Lauren at this stage would likely keep the money, thinking that, even if she can't afford a bike, she can use it to buy something else good for herself. The next level of moral development, the conventional, also contains two stages. Adolescents typically operate at this level, as do some adults. In stage three, people make moral decisions based on getting people to like them. Lauren might decide to give her father the money because this will improve her relationship with him; but if her mother is upset by her father's drinking, she might decide to give the money to her mother in order to be a 'good girl' in her eyes. Her decision would be based on whichever social relationship seemed most important. In stage four, moral reasoning centers around maintaining a functioning society by recognizing that laws are more important the individual needs. In this stage, Lauren probably wouldn't give her father the money, because his alcoholism is disruptive to the stability of their family and community.

The final level of moral development is called the post-conventional. Not all adults reach this level; many are stuck at some of the earlier stages. Post-conventional moral thinkers reject the rigidity of laws, believing that they should be ignored or changed if they're not good laws. In stage five, people will try to act in ways that achieve the most good for the most number of people; they'd judge a law as unjust if it failed to do this. Lauren at this stage would not give her father the money, because she'd recognize that his alcoholism is hurting his family and himself. Stage six thinkers develop ethical principles and a sense of justice. Actions are taken because they are right in themselves, not because they help achieve other goals. Though Kohlberg theorized that this stage existed, he had trouble finding people who were always operating at this level. For Lauren to exhibit stage six moral reasoning, she'd have to have a strongly developed sense of the injustice of giving her father money for beer.
Stages of Corporate Citizenship
Fun Town did not always embrace the idea of corporate citizenship. There are five stages of corporate citizenship that all companies will progress through as they gain more experience and understanding. In each of the stages, the following dimensions emerge: citizenship concept, strategic intent, leadership, structure, issues management, stakeholder relationships and transparency. Let's take a look at how Fun Town has moved through each of the stages:

Elementary: In this first stage, the focus of Fun Town's citizenship concept was on building profits, providing jobs and paying taxes. Their intent was to comply with all legal regulations. Fun Town also had poor leadership who did not pay attention to any stakeholders, and they handled problems defensively or tried to hide problems from the public. Fun Town had been known to ignore customer complaints and did not ever consider offering community support. They turned down offering sick children free entrance to the park and gave the excuse that it would hurt profits too much.
Engaged: Fun Town did realize that the company would not survive if they did not start becoming engaged with their community stakeholders. They began to focus their citizenship concept on philanthropy, or charity work. They held multiple charity events at the park, such as reduced park admission for donating items to their food pantry. Fun Town fired the old CEO and replaced her with a new individual who became interactive with stakeholders. The company adopted public relations to improve their image, but was still reactive to many issues. A key example would be when the park employees went on strike as management refused to listen to their demands. Fun Town's management then had to quickly try and resolve the problem while the park remained closed for over a week.
Innovative: The third stage of Fun Town's adaptation of corporate citizenship is focused on stakeholder management. Their leadership is now focused on staying abreast of any business development, while organizing cross-functional teams and responses. Stakeholders are extremely influential and Fun Town has weekly meetings with all community groups to proactively uncover potential problems.
Integrated: Fun Town's time period in this stage resulted in proactive partnerships with all stakeholders. For instance, customers were tapped to organize blogs discussing amusement parks and help organize events. Engineers from the company donated time to give tips to high schools students interested in their field.
Transforming: Fun Town has finally progressed into the last stage, which focuses on a company being a market creator, visionary and transparent with all issues. Fun Town has become the most popular park in the country due to its reputation and customer dedication. In fact, other Fun Towns are being built across the country. They will also be the first company to single-handedly build a new park based entirely on customer feedback. It will be called Space Town and consist of numerous rides that simulate space flight, living on the moon and Mars and coasters with incredible G forces.
A B corporation is very similar to a traditional corporation, but with one big difference. Whereas a traditional corporation exists only to make money, a B corporation also exists to do something good for society. But wait, how can a company make money and do good for society? Actually, it's pretty easy to imagine. Let's say that your company owned a massive amount of land along a river that was popular for kayakers. You could commercialize it all and have massive billboards along the river for the kayakers to pass. If your corporation owned it, that would be well within your rights, and it would make you more money. However, a B corporation would take a different approach. Instead of building billboards, it may declare the surrounding forest to be a parkland and a wildlife refuge that charges a small parking and admission fee. That is a positive act for society as well as a way for your corporation to make money. B corporations are identical to other more traditional corporations except for the express mandate to perform good works in the community. As a result, they allow profit to be pursued along with social and ethical benefits. B corporations are a relatively new phenomenon but are already attracting attention. They allow their founders to guarantee that socially good work will continue to be done into the future. Proof of such work must be filed with state authorities every year alongside typical corporate reporting, and if there is a suspicion that good work is not being done, shareholders often have the right to sue for proof.
The Food and Drug Administration (FDA) administers federal food purity laws, drug testing and cosmetics safety. Companies need to ensure that their food or drug products are safe to use for all consumers or face fines or criminal charges. The FDA is also responsible for recalls to protect consumers from getting sick, injury or death. A recent recall was over a fruit company whose products were possibly contaminated with Listeria, which is a bacterium that can sicken consumers resulting in death for those with compromised immune systems. The Food and Drug Administration (FDA) administers federal food purity laws, drug testing and cosmetics safety. astly, they also are involved in counterterrorism by protecting our food supply and watching for the development of public health threats.

For example, the FDA has announced that there is a burgeoning amount of false claims from companies suggesting that they have a product that will cure or safeguard consumers against the Ebola virus. The FDA issued a severe warning to prevent consumers from being scammed and purchasing products which do not work.astly, they also are involved in counterterrorism by protecting our food supply and watching for the development of public health threats.

For example, the FDA has announced that there is a burgeoning amount of false claims from companies suggesting that they have a product that will cure or safeguard consumers against the Ebola virus. The FDA issued a severe warning to prevent consumers from being scammed and purchasing products which do not work.
The Sarbanes-Oxley Act , also known as SOX, is a federal law that protects investors from fraudulent accounting practices. The Sarbanes-Oxley Act, also known as SOX, is a federal law that protects investors from fraudulent accounting activities. It was enacted in 2002, following several high-profile corporate scandals that cost investors billions of dollars.

One of the scandals that best exemplifies the purpose of enacting SOX is the Enron case. This case involved a scheme of fraudulent financial reporting that was carried out by the firm Arthur Andersen, which was employed by Enron, and Enron corporate executives.

There are three main purposes for the Sarbanes-Oxley Act. First, SOX made sure that corporate executives were aware of what appeared on company financial statements. No longer can they plead ignorance if these reports are found to be falsified. A second purpose of the act is to ensure that audit reports are included in the financial statements of a company. An audit report is a report prepared by an auditor that validates the reliability of a company's financial statements. An auditor is a professional whose job it is to examine the financial records of a company and prepare the audit report. A third important purpose of SOX is to make sure that publicly traded companies have internal controls in place.

Though this act cannot ensure that all accounting firms and all companies will be truthful in their reporting practices, it does make sure that there are repercussions for fraudulent behavior.
or WPA, protects disclosures of misconduct. This law protects federal employees who disclose illegal or improper government activities. The WPA shields federal employees from retaliatory action once the employee voluntarily discloses information regarding dishonest or illegal activities within a government organization. The government can't take action against, or threaten to take action against, the employee. Generally, this means the government can't fire, demote, suspend, threaten, harass, or discriminate against a whistleblower.

The WPA was enacted in 1989 and most recently updated through the Whistleblower Protection Enhancement Act of 2012. But, federal whistleblowers were around long before that. In 1966, a 27-year old epidemiologist working for the U.S. Public Health Service discovered the Tuskegee Syphilis Experiment while conducting routine interviews on patients.

Peter Buxtun uncovered information revealing that the federal government purposely denied medical treatment to black men, mostly sharecroppers, suffering from syphilis. Despite the invention of penicillin in the 1940s and widespread education on prevention in the 1960s, these men were allowed to suffer, infect their wives and children, and die so that the federal government could conduct autopsies for medical research. Almost 400 men unwittingly participated in the experiments between 1932 and 1972.

Buxtun filed formal ethical complaints with the government two times before finally turning to the media four years later. After the public found out, the medical experiments were ended and medical research saw major overhauls. According to President Bill Clinton years later, 'the United States government did something that was wrong - deeply, profoundly, morally wrong. It was an outrage to our commitment to integrity and equality for all our citizens... clearly racist.
All business sectors in the United States operate under guidelines that have been established either directly or indirectly by our government. The accounting industry is no different. The organization that oversees accounting practices is called the Securities and Exchange Commission, which is also known as the SEC. On October 29th, 1929, stock prices plummeted. Investors panicked and started trying to sell stock as quickly as they could. In one day alone, over 16.4 million shares of stock were sold! The market was overwhelmed, and the economy was devastated. Not only did individuals lose everything they had and many companies were forced to close their doors, but these same groups of individuals also lost trust with the entire banking and finance environment.

Government leaders wanted to know why this happened and why so many people lost so much money. In their investigation it was discovered that some of the problems that attributed to the stock market crash came from faulty financial statement reporting. That's why by 1934, the government stepped in and created the Securities and Exchange Commission.

The SEC was established as a committee to oversee the banking and finance sector of the business world. More importantly, they were charged with regulating the practices of the accounting industry. The number one goal of the SEC is to protect the investors. In order to do this, there has to be true and accurate financial information that's reported on all the financial statements.
Outsourcing occurs when a company retains another business to perform some of its work activities. These companies are usually located in foreign countries with lower labor costs and a less strict regulatory environment. Lower labor costs. Companies typically outsource to businesses in developing countries where the cost of labor is significantly cheaper. Lower labor costs will improve the company's bottom line.
Less regulations. Developing countries often have a low level of regulatory restrictions, which can also reduce the cost of operations and increase productivity. For example, there may not be limits on overtime or on work, health, and safety issues.
Focus on core competencies. Companies that outsource lower-level work, or work the business is not optimized to perform, can then focus on the work activities at which they excel. This will increase productivity, efficiency, and effectiveness. For example, a tech company in Silicon Valley may be better off outsourcing its manufacturing operations to a company in China so it can focus on research and development.
Reduced overhead. Outsourcing can also reduce a company's overhead costs because the outsourcing company uses its own facilities, equipment, and personnel to perform the work. In fact, it's theoretically possible to engage in massive manufacturing ventures out of a room of your house if you outsource all the manufacturing to a factory overseas.
Flexibility. Outsourcing means that a company can stay lean and mean, which makes it easier to adapt to change. For example, companies don't have to invest a bunch of money and resources into a new plant and equipment that may become obsolete quickly. Instead, they can pass that risk off to the outsourcing firms.
Think of a stakeholder as a person or group that can affect or be affected by an organization. Stakeholders can come from inside or outside of the business. Examples include customers, employees, stockholders, suppliers, non-profit groups, government, and the local community, among many others. Stakeholders
Businesses do not function in a black hole where they are not responsible to anyone else but themselves. In fact, organizations have numerous individuals and groups that they must cater to in order to be a productive part of society. The question is, exactly who are they responsible to? The answer is, they are responsible to every stakeholder.

In this lesson, you will learn the definition of a stakeholder and how they are impacted by business decisions. A stakeholder is any person or group associated with the organization that has a stake in the organization's output.

Examples of stakeholders include society, customers, investors, government and employees. Most companies have found that employees, customers and shareholders are the three most important stakeholders to an organization. An organization's performance has a direct impact on the stakeholders. Many companies have adopted a belief to act ethically and be responsible to all of their different stakeholders. The problem is that each type of decision influences stakeholders differently. Let's take a look at the top ways that a company's decisions can impact stakeholders via our company example of Life Drugs, who is a local medicine manufacturer.
Life Drugs had to pay a large fine due to company negligence regarding the heart drug.

Unfortunately, the company also decided to move their headquarters from New Jersey to Georgia and layoff over 25% of their workforce. This business decision had a positive impact for investors as the stock price increased, but a negative impact on the employees as many lost their jobs. The decision also caused many employees to rethink their job commitment and loyalty to the company. This is an example to illustrate that not all decisions impact stakeholders the same way. There is a constant struggle to balance the needs and satisfaction of all of the different stakeholders.
Stakeholder engagement is the building of 2-way relationships between organizations and stakeholders. In order to say that a company is partaking in stakeholder engagement, they must be working with at least one stakeholder group, such as employees, investors, or the community. Munchie Natural Bars is a manufacturer of healthy food snack bars. They are a relatively new company that is trying to grow their business through developing stakeholder relationships. They know the benefits to stakeholder engagement include higher productivity and the ability to more easily reach corporate goals. Let's see their plan in action.

Stakeholders are not immediately in love with a business. Just like in real relationships, a business relationship with stakeholders develops over time through stages. The stages are:

1. Inactive

Munchie Natural Bars' first year after launching the business was in an inactive stage. The company treated their stakeholders with little regard to any problems or concerns. The company preferred to operate as an island and not engage government, community, investors or even their customers. Their only concern was producing and selling bars.

2. Reactive

By the second year of business, Munchie realized that they could not ignore all stakeholders. They were losing investors and receiving poor reviews from their customers. The company entered into the reactive stage, where Munchie only responded to stakeholders when they had to and usually in an unprofessional or defensive way. For example, Munchie had also launched a protein shake to miserable sales. Most stakeholders were pushing for the company to cut its losses and drop the new product. Munchie only agreed to quiet the stakeholders and customers, not because they believed it was a good idea.

3. Proactive

In the third year, a new CEO was hired to try and revive the company's profits and products. The CEO also felt that the company needed to develop proactive relationships with their stakeholders by trying to predict and respond to their concerns. The new CEO, Nate Ural, was able to create an open-door policy that helped the stakeholders communicate directly with management.

For example, Nate actually asked for recommendations and ideas for new products directly from the different stakeholders groups. He was successful at creating stakeholder dialogue, where his company and stakeholders meet face to face frequently to discuss issues and problems. For example, Nate holds employee open houses where employees can stop by and ask questions about any company issues. His plan was so effective that it provided Munchie with the final stage of collaborative relationships.

4. Interactive

Munchie was able to successfully move into the final stage of collaborative relationships with their stakeholders, called interactive. This is where Munchie worked constantly with stakeholders to develop trust, honesty and participation. The company has been able to launch new products, build new factories and distribution centers, and has exceptional ties to their customers and local community. Nate also believes in creating stakeholder networks by utilizing the expertise of different stakeholder groups to work collaboratively to solve problems and issues. He was able to use his stakeholder networks to solve training issues in his factories.

The final result for Munchie is a long-term, productive relationship with all of their stakeholder groups. Oh... and the successful launch of Munchie Cereal!
Stakeholder engagement is the building of 2-way relationships between organizations and stakeholders. In order to say that a company is partaking in stakeholder engagement, they must be working with at least one stakeholder group, such as employees, investors, or the community. Munchie Natural Bars is a manufacturer of healthy food snack bars. They are a relatively new company that is trying to grow their business through developing stakeholder relationships. They know the benefits to stakeholder engagement include higher productivity and the ability to more easily reach corporate goals. Let's see their plan in action. Stages of Relationship Building
Stakeholders are not immediately in love with a business. Just like in real relationships, a business relationship with stakeholders develops over time through stages. The stages are:

1. Inactive

Munchie Natural Bars' first year after launching the business was in an inactive stage. The company treated their stakeholders with little regard to any problems or concerns. The company preferred to operate as an island and not engage government, community, investors or even their customers. Their only concern was producing and selling bars.

2. Reactive

By the second year of business, Munchie realized that they could not ignore all stakeholders. They were losing investors and receiving poor reviews from their customers. The company entered into the reactive stage, where Munchie only responded to stakeholders when they had to and usually in an unprofessional or defensive way. For example, Munchie had also launched a protein shake to miserable sales. Most stakeholders were pushing for the company to cut its losses and drop the new product. Munchie only agreed to quiet the stakeholders and customers, not because they believed it was a good idea.

3. Proactive

In the third year, a new CEO was hired to try and revive the company's profits and products. The CEO also felt that the company needed to develop proactive relationships with their stakeholders by trying to predict and respond to their concerns. The new CEO, Nate Ural, was able to create an open-door policy that helped the stakeholders communicate directly with management.

For example, Nate actually asked for recommendations and ideas for new products directly from the different stakeholders groups. He was successful at creating stakeholder dialogue, where his company and stakeholders meet face to face frequently to discuss issues and problems. For example, Nate holds employee open houses where employees can stop by and ask questions about any company issues. His plan was so effective that it provided Munchie with the final stage of collaborative relationships.

4. Interactive

Munchie was able to successfully move into the final stage of collaborative relationships with their stakeholders, called interactive. This is where Munchie worked constantly with stakeholders to develop trust, honesty and participation. The company has been able to launch new products, build new factories and distribution centers, and has exceptional ties to their customers and local community. Nate also believes in creating stakeholder networks by utilizing the expertise of different stakeholder groups to work collaboratively to solve problems and issues. He was able to use his stakeholder networks to solve training issues in his factories.

The final result for Munchie is a long-term, productive relationship with all of their stakeholder groups. Oh... and the successful launch of Munchie Cereal!
The owners of an incorporated business are known as shareholders. The corporation must be operated in a manner that best benefits its shareholders. A shareholder can be a person, company or other entity. It's any entity that owns at least one share of a company's stock.

Although shareholders don't play an active role in the everyday business operations, they do have certain rights and duties that will be defined in the company's bylaws. Generally, shareholders have the right to:

Attend the corporation's annual meeting
Inspect the corporation's books and records
Vote on the appointment of directors and other corporate matters
Sue the corporation for wrongs committed by directors or officers
Approve the sale of company assets
Share in the proceeds if the company liquidates
Agree to merger or consolidation deals
Receive a portion of any dividends issued by the company
Since the corporation is an independent entity from the shareholders, the corporation is held legally liable for its own business debts, taxes and liabilities. The shareholders typically don't bear these burdens as individuals. As owners of the business, shareholders do well if the company does well. Conversely, shareholders lose money when the company loses money.

For example, let's say that Damon buys three shares of stock in his favorite company, Doughy's Donuts. That makes Damon a shareholder in Doughy's Donuts. Damon is now invited to attend the annual meetings, can vote on the board of directors and enjoys several other shareholder rights.
How do corporations organize internally to respond to and interact with stakeholders? A stakeholder is any person or group associated with the organization that has a stake in the organization's output. Corporations face a massive challenge in trying to organize, communicate and respond to all of their different stakeholders.

Gas Free Baby Foods is a prime example of a multinational corporation that has established a program that allows it to communicate to each of the following stakeholder groups: government, stockholders, customers, community, general public, media, environment and employees. In this lesson, you will learn through the example of Gas Free Baby Foods how modern corporations organize internally to interact with various stakeholders.
Another example of an incentive-based regulatory approach is tradable permits. Tradable permits are an approach to environmental protection that utilizes government-issued permits, which can be traded among polluters, for the release of a set amount of pollution. Let's take a look at how tradable permits work. The total amount of allowable emissions is set by a government authority. For example, the government understands that through the process of manufacturing and distributing products and services, a certain amount of carbon dioxide and other greenhouse gases will be produced and emitted into the atmosphere. The government decides on an allowable amount of emissions that enables businesses to function, while at the same time provide some environmental protection.

This total allowable amount is then divided up into permits and doled out to entities that create the pollutants. Each entity is free to emit pollutants as long as they have permits to cover the emissions.

The market now comes into play because permits can be 'traded,' which basically means they can be bought or sold amongst polluters. Polluters that find economical ways to reduce their emissions can sell their unused permits to other companies. In the same way, polluters that find it too expensive to reduce emissions can buy unused permits, essentially allowing them to emit more pollution. So, we see with tradable permits that total emissions are capped, yet companies are afforded the flexibility to either reduce their emissions or purchase 'allowances' from other companies.