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Business and Society
Stakeholders, Ethics, Public Policy
Seventeenth Edition
Anne T. Lawrence
San José State Unive rsity
James Weber
Duque sne Unive rsity
Vanessa D. Hill
Unive rsity of Louisiana
Dav id Wasieleski
Duque sne Unive rsity
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Page ii
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BUSINESS AND SOCIETY: STAKEHOLDERS, ETHICS, PUBLIC POLICY, SEVENTEENTH EDITION
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Names: Lawrence, Anne T., author. | Weber, James (Business ethics professor), author.
Title: Business and society : stakeholders, ethics, public policy / Anne T. Lawrence, San José State University, James Weber,
Duquesne University.
Description: Seventeenth edition. | New York, NY : McGraw Hill Education, [2023] | Includes bibliographical references and
index.
Identifiers: LCCN 2021044073 (print) | LCCN 2021044074 (ebook) | ISBN 9781264080915 (paperback ; alk. paper) | ISBN
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About the Authors
Anne T. Lawrence
San José State Universitys
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Anne T. Lawrence is professor of management emerita at San José State University. She holds a PhD
from the University of California, Berkeley, and completed two years of postdoctoral study at Stanford
University. Her articles, cases, and reviews have appeared in many journals, including the Academy of
Management Review, Case Research Journal, Business & Society, Journal of Management Education,
California Management Review, Business and Society Review, Research in Corporate Social Performance
and Policy, and Journal of Corporate Citizenship. Her cases in business and society have been reprinted in
many textbooks and anthologies. She served as guest editor of the Case Research Journal. She served as
president of the North American Case Research Association (NACRA) and is a Fellow of NACRA,
from which she received a Distinguished Contributor Award in 2014. She received the Curtis E. Tate
Award for Outstanding Case of the Year (1998, 2009, and 2015). At San José State University, she was
named Outstanding Professor of the Year in 2005. In 2015, she received a Master Teacher in Ethics
Award from The Wheatley Institution at Brigham Young University. She founded and currently serves as
chair of the board of the Case Research Foundation.
James Weber
Duquesne University
James Weber is the Rev. Martin Hehir, C. S. Sp. Endowed Chair in Scholarly Excellence and a
professor of management and business ethics at Duquesne University, where he also serves as the
managing director of the Albert P. Viragh Institute for Ethics in Business. He holds a PhD from the
University of Pittsburgh and has taught at the University of San Francisco, University of Pittsburgh, and
Marquette University. His areas of interest and research include personal, managerial, and organizational
values and cognitive moral reasoning. His work has appeared in Organization Science, Human Relations,
Business & Society, Journal of Business Ethics, and Business Ethics Quarterly. He received the SIM Sumner
Marcus Award for lifetime contribution to the Social Issues in Management division of the Academy of
Management in 2013. He was recognized by the Social Issues in Management division with the Best
Paper Award in 1989 and 1994 and received the Best Article Award from the International Association
for Business and Society (IABS) in 1998. He has served as division chair of the Social Issues in
Management division of the Academy of Management. He has also served as president of the IABS and
is currently president of the IABS Fellows.
Vanessa D. Hill
University of Louisiana at Lafayette
Vanessa D. Hill is an associate professor of management at the B.I. Moody III College of Business
Administration, University of Louisiana at Lafayette. She earned her PhD from Carnegie Mellon
University and has taught at the University of Arizona and Winthrop University. She holds two
professional certifications in Human Resource Management: the Senior Certified Professional (SHRMSCP) by the Society of Human Resource Management and the Senior Professional in Human Resources
(SPHR) by the Human Resource Certification Institute. Her research interests include corporate social
responsibility, business ethics, leadership, and workplace values. Her work has been published in several
journals including Business and Society Review, Journal of Business Ethics, Journal of Management
History, and Journal of Management Inquiry. She is an associate editor for Business and Society Review
and serves on the editorial review boards for the journals Business & Society and The Journal of Business
Ethics. She served as president of the International Association of Business and Society (IABS) and was
inducted as an IABS Fellow in 2018.
David M. Wasieleski
Duquesne University
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David M. Wasieleski (PhD, University of Pittsburgh) is the Albert P. Viragh Professor of Business
Ethics in the Palumbo-Donahue School of Business at Duquesne University and executive director of the
Albert P. Viragh Institute for Ethics in Business at Duquesne. David also is an affiliate research
professor at the ICN Business School in Nancy, France. His academic research focuses on natural
science approaches to understanding ethical decision-making and the formation of social contracts
within organizational contexts. He also studies the effects of cognitive biases and moral intensity on
perceptions of ethical issues. His work has been published in Business & Society, Business Ethics
Quarterly, Organization & Environment, Journal of Applied and Behavioral Sciences, and the Journal of
Business Ethics. At Duquesne, he teaches business ethics, organizational behavior, management, and
sustainability. Currently, he is editor-in-chief of Business and Society Review. He served as chair of the
Social Issues in Management division of the Academy of Management and current serves as president of
the U.S. chapter of the International Humanistic Management Association.
Preface
In a world economy that is becoming increasingly integrated and interdependent, the relationship Page v
between business and society is becoming ever more complex. The globalization of business, the
emergence of civil society organizations in many nations, and rapidly changing government regulations
and international agreements have significantly altered the job of managers and the nature of strategic
decision making within the firm.
At no time has business faced greater public scrutiny or more urgent demands to act in an ethical and
socially responsible manner than at the present. Consider the following:
The global calamity of the coronavirus pandemic focused renewed attention on the roles of governments; pharmaceutical,
biotechnology, and medical equipment companies; and civil society organizations in solving urgent public health problems. How
should newly invented vaccines, medical treatments, and protective equipment be equitably distributed among the world’s nations
and across vast divides of wealth and income? Governments faced the task of how best to mobilize and incentivize the private
sector to tackle one of the biggest challenges of a generation. And the ravages of the pandemic forced many businesses to weigh
the delicate balance between their intellectual property rights and the urgent demands of millions threatened by a previously
unknown disease. Many business leaders pondered to what extent their organizations bore responsibility for the health of their
employees, customers, and the wider community.
A host of new technologies have become part of the everyday lives of billions of the world’s people. Advances in the basic sciences
are stimulating extraordinary changes in medicine, agriculture, telecommunications, and transportation, which have the potential
to enhance peoples’ health and quality of life. Artificial intelligence can be used to drive vehicles, diagnose illnesses, and manage
investments. Technology has changed how we interact with others, bringing people closer together through social networking,
instant messaging, and photo and video sharing. These innovations hold great promise. But they also raise serious ethical issues,
such as those associated with the use of the Internet to exploit or defraud others, censor free expression, or invade individuals’
privacy. Businesses must learn to harness powerful technologies for good, while acting responsibly and ethically toward their many
stakeholders.
Businesses in the United States and other nations are transforming the employment relationship, abandoning practices that once
provided job security and guaranteed pensions in favor of highly flexible but less secure forms of employment. The rise of the
“gig” economy has transformed many workers into self-employed contractors. Many jobs, including those in the service sector, are
being outsourced to the emerging economies of China, India, and other nations. As jobs shift abroad, multinational corporations
are challenged to address their obligations to workers in far-flung locations with widely different cultures and to respond to calls
for voluntary commitments to enlightened labor standards and human rights. The burgeoning movement for racial justice has
once again raised the critical issue of equity and inclusion in society. The #MeToo movement has focused a spotlight on sexual
harassment and abusive behavior and led to the fall of well-known executives and media personalities and calls for change in
workplace culture.
Severe weather events—wildfires, hurricanes, and floods—have urgently focused attention on the human impact on natural systems,
prompting both businesses and governments to act. An emerging consensus about the causes and risks of climate change is
leading many companies to adopt new practices, and once again the nations of the world have experimented with public policies
designed to limit the emissions of greenhouse gases, most notably in the Paris Agreement. Many businesses have cut air
pollution, curbed solid waste, and designed products and buildings to be more energy-efficient, saving money in the process. A
better understanding of how human activities affect natural resources is producing a growing understanding that economic growth
must be achieved in balance with environmental protection if development is to be sustainable.
Many regions of the world and its nations are developing at an extraordinary rate. Yet, the prosperity that accompanies
Page vi
economic growth is not shared equally. Access to health care, adequate nutrition, and education remain unevenly
distributed among and within the world’s nations, and inequalities of wealth and income have become greater than they have been
in many years. These trends have challenged businesses to consider the impact of their compensation, recruitment, and
professional development practices on the persistent—and in some cases, growing—gap between the haves and the have-nots. Big
corporate tax cuts in the United States have required companies to decide whether to distribute their windfalls to their executives,
shareholders, employees, or customers; to invest in new jobs; or to buy back stock.
In many nations, legislators have questioned business’s influence on politics. Business has a legitimate role to play in the public
policy process, but it has on occasion shaded over into undue influence and even corruption. Technology offers candidates and
political parties new ways to reach out and inform potential voters, but it has also created new opportunities for manipulation of
the electoral process through deceptive messaging. Political violence and attacks on electoral processes have prompted some
firms to question their campaign contributions and their roles in protecting democratic institutions. Businesses the world over are
challenged to determine their legitimate scope of influence and how to voice their interests most effectively in the public policy
process.
The new Seventeenth Edition of Business and Society addresses this complex agenda of issues and their
impact on business and its stakeholders. It is designed to be the required textbook in an undergraduate
or graduate course in Business and Society; Business, Government and Society; Social Issues in
Management; or the Environment of Business. It may also be used, in whole or in part, in courses in
Business Ethics and Public Affairs Management. This new edition of the text is also appropriate for an
undergraduate sociology course that focuses on the role of business in society or on contemporary
issues in business.
The core argument of Business and Society is that corporations serve a broad public purpose: to create
value for society. All companies must make a profit for their owners. Indeed, if they did not, they would
not long survive. However, corporations create many other kinds of value as well. They are responsible
for professional development for their employees, innovative new products for their customers, and
generosity to their communities. They must partner with a wide range of individuals and groups in
society to advance collaborative goals. In our view, corporations have multiple obligations, and all
stakeholders’ interests must be considered.
A Tradition of Excellence
Since the 1960s, when Professors Keith Davis and Robert Blomstrom wrote the first edition of Page vii
this book, Business and Society has maintained a position of leadership by discussing central
issues of corporate social performance in a form that students and faculty have found engaging and
stimulating. The leadership of the two founding authors, and later of Professors William C. Frederick
and James E. Post, helped Business and Society to achieve a consistently high standard of quality and
market acceptance. Thanks to these authors’ remarkable eye for the emerging issues that shape the
organizational, social, and public policy environments in which students will soon live and work, the
book has added value to the business education of many thousands of students.
Business and Society has continued through several successive author teams to be the market leader in its
field. The current authors bring a broad background of business and society research, teaching,
consulting, and case development to the ongoing evolution of the text. We are especially pleased that
two new authors, Vanessa D. Hill and David M. Wasieleski, have come on board for this edition. With an
expanded author team, the new Seventeenth Edition of Business and Society builds on its legacy of market
leadership by reexamining such central issues as the role of business in society, the nature of corporate
responsibility and global citizenship, business ethics practices, and the complex roles of government
and business in a global community.
For Instructors
For instructors, this textbook offers a complete set of supplements.
Instructor Library
The Connect Management Instructor Library is a repository for additional resources to improve student
engagement in and out of class. The instructor can select and use any asset that enhances their lecture.
The Connect Instructor Library includes an extensive instructor’s resource manual—fully revised for this
edition—with lecture outlines, discussion case questions and answers, tips from experienced instructors,
and extensive case teaching notes. A computerized test bank (Test Builder) and PowerPoint slides for
every chapter are also provided.
Create
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chapters, combine material from other content sources, and quickly upload self-developed
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thousands of leading McGraw-Hill textbooks and arranged to fit a specific class or teaching
approach. Create even allows an instructor to personalize the book’s appearance by selecting
the cover and adding the instructor’s name, school, and course information and to select a print
or eBook format.
For Students
Business and Society has long been popular with students because of its lively writing, up-to-date
examples, and clear explanations of theory. This textbook has benefited greatly from feedback over the
years from thousands of students who have used the material in the authors’ own classrooms. Its
strengths are in many ways a testimony to the students who have used earlier generations of Business and
Society.
The new Seventeenth Edition of the text is designed to be as student-friendly as always. Each chapter
opens with a list of key learning objectives to help focus student reading and study. Numerous figures,
exhibits, and real-world business examples (set as blocks of colored type) illustrate and elaborate the
main points. A glossary at the end of the book provides definitions for bold-faced and other important
terms. Internet references and a full section-by-section bibliography guide students who wish to do
further research on topics of their choice, and subject and name indexes help students locate items in the
book.
Page viii
Instructors: Student Success Starts with You
Tools to enhance your unique voice
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Page ix
Students: Get Learning that Fits You
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Study anytime, anywhere
Download the free ReadAnywhere app and access your online
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New for the Seventeenth Edition
Over the years, the issues addressed by Business and Society have changed as the environment of
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business itself has been transformed. This Seventeenth Edition is no exception, as readers will
discover. Some issues have become less compelling and have been replaced by others on the business
agenda, while others have endured through the years.
The Seventeenth Edition has been thoroughly revised and updated to reflect the latest theoretical work in
the field and statistical data, as well as recent events. Among the new additions are:
New discussion of theoretical advances in stakeholder theory, corporate citizenship, public affairs
management, public and private regulation, Earth systems trends, corporate governance, sustainability
reporting, social investing, reputation management, business partnerships, supply chain codes of
conduct, social entrepreneurship, corporate philanthropy, and crisis management.
Treatment of practical issues, such as artificial intelligence and robotics, gender diversity, the
movement for racial justice, ransomware and cybercrime, political advertising and campaign
contributions, public and media relations, the latest developments in the regulatory environment in
which businesses operate, and the impact of the coronavirus pandemic on the relationships between
businesses and their workers, customers, and suppliers.
New full-length cases and Discussion Cases on such timely topics as Boeing’s 737 MAX crisis,
discrimination at Starbucks’ airport shops, Nestlé and child labor in the cocoa supply chain, trade
disputes with China in the mobile phone industry, 3M and the distribution of personal protective
equipment during the COVID-19 pandemic, GM’s carbon neutrality goals, workers’ efforts to unionize
at Amazon, the Vale Mining Company dam collapse in Brazil, the risks to users of popular online
trading apps like Robinhood, China’s “social credit” system, the debate over restaurant “gratuity
included” tipping policies, and employment discrimination based on peoples’ names.
Finally, this is a book with a vision. It is not simply a compendium of information and ideas. The new
edition of Business and Society articulates the view that in a global community, where traditional buffers
no longer protect business from external change, managers can create strategies that integrate
stakeholder interests, respect personal values, support community development, and are implemented
fairly. Most important, businesses can achieve these goals while also being economically successful.
Indeed, this may be the only way to achieve economic success over the long term.
Anne T. Lawrence
James Weber
Vanessa D. Hill
David M. Wasieleski
Acknowledgments
We are grateful for the assistance of many colleagues at universities in the United States and
Page xi
abroad who over the years have helped shape this book with their excellent suggestions and
ideas. We also note the feedback from students in our classes and at other colleges and universities that
has helped make this book as user-friendly as possible.
We wish to express our appreciation for the colleagues who provided detailed reviews for this edition.
These reviewers were Jorge A. Arevalo, Morgan State University; Gina R. M. Armer, St. Martin’s
University; Philip Baban, University of Memphis; Audrey Blume, Wilmington University; Cynthia E.
Clark, Bentley University; David Jacobs, Morgan State University; and Suzanne Palmer, J.D., LL.M.,
Albright College. Their insights helped guide our revision.
Thanks are also due Randall Harris of Texas A&M University Corpus Christi; Daniel Jacobs of Loyola
Marymount University; Kelly R. Hall, Juanne Greene, and Ram Subramanian of Stetson University;
Emily Tichenor of Smith Gambrell & Russell LLP; Samir Kumar Barua of the Indian Institute of
Management Ahmedabad; Mahendra R. Gujarathi of Bentley University; and Janet Rovenpor, Grishma
Shah, and Musa Jafar of Manhattan College, who contributed cases to this edition.
We are grateful to several individuals have made specific research contributions to this project. Denise
Kleinrichert, of the Center for Ethical and Sustainable Business Management at San Francisco State
University, provided material on B Corporations and social entrepreneurship for
Chapter 3, which we
appreciate. Jacob Hebda and Alexandra Kramer of Duquesne University provided able research
assistance. Thanks are due also to Carolyn Roose Eagle, Ben Eagle, and Nate Marsh for research
support. Emily Marsh, of Colorbox Industries, provided graphic design services.
Debra M. Staab provided able research assistance and undertook the complex task of preparing the
instructor’s resource manual, test bank, PowerPoint slides, and other ancillary materials. Her
contributions have been invaluable.
Page xii
In addition, we are grateful to the many colleagues who over the years have generously shared
with us their insights into the theory and pedagogy of business and society. In particular, we would like
to thank Cynthia E. Clark, Jill Brown, and Michael E. Johnson-Cramer of Bentley University; Shawn
Berman and Natalia Vidal of University of New Mexico; Garima Sharma of Georgia State University;
Harry J. Van Buren III and Dawn Elm (emerita) of the University of St. Thomas; Anke Arnaud of Embry
Riddle Aeronautical University; Jennifer J. Griffin of Loyola University of Chicago; Ronald M. Roman,
Thomas Altura, and Matthew Maguire of San José State University; Heather Elms of American
University; Joseph A. Petrick of Wright State University; Kathleen Rehbein of Marquette University;
Judith Schrempf-Stirling of the University of Geneva; Michelle Westermann-Behaylo of the University of
Amsterdam; Diane Swanson and Bernie Hayen of Kansas State University; Cynthia M. Orms of Georgia
College & State University; Ali Al-Kazemi of Kuwait University; Sandra Waddock of Boston College;
Mary C. Gentile of the University of Virginia Darden School of Business; Jamie Hendry of Bucknell
University; John Mahon (emeritus) and Stephanie Welcomer of the University of Maine; Bradley Agle of
Brigham Young University; Gina Vega of Merrimack College; Craig Dunn and Brian Burton of Western
Washington University; Lori V. Ryan of San Diego State University; Bryan W. Husted of EGADE
Business School Monterrey; Sharon Livesey of Fordham University; Barry Mitnick of the University of
Pittsburgh; Virginia Gerde of Furman University; Matthew Drake of Duquesne University; Robbin Derry
of the University of Lethbridge; Linda Klebe Treviño of Pennsylvania State University; Mary
Meisenhelter of York College of Pennsylvania; Amy Hillman and Gerald Keim of Arizona State
University; Barbara Altman of Texas A&M University Central Texas; Richard Wokutch of Virginia Tech
University (emeritus); Lynda Brown of the University of Montana; Kathleen A. Getz of Mercyhurst
University; Gordon P. Rands of Western Illinois University; Paul S. Adler of the University of Southern
California; Linda C. Rodriguez of the University of South Carolina Aiken; Emmanuel Raufflet of HEC
Montreal; Bruce Paton (emeritus) of Menlo College; Smita Trivedi, Tom E. Thomas, Geoffrey Desa,
and Murray Silverman (retired) of San Francisco State University; Jacob Park of Castleton University;
Armand Gilinsky of Sonoma State University; and Tara Ceranic Salinas of the University of San Diego.
These scholars’ dedication to the creative teaching of business and society has been a continuing
inspiration to us.
We continue to be grateful to the excellent editorial and production team at McGraw-Hill. We offer
special thanks to Laura Hurst Spell, our associate portfolio manager, for her skillful leadership of this
project. We also wish to recognize the able assistance of Sarah Blasco, editor, and of Sandy Wille,
content project manager, whose ability to keep us on track and on time has been critical. Natalie King
headed the excellent marketing team. Vanessa McClune, content project manager (assessment); Rachel
Hirschfield and Susan K. Culbertson, buyers; Traci Vaske, content licensing specialist; Mithun
Kothandath, project manager; and Straive, which designed the book cover, also played key roles. Each
of these people has provided professional contributions that we deeply value and appreciate.
As always, we are profoundly grateful for the ongoing support of our spouses, Paul Roose, Michael
Horaist, and Stephanie Glyptis.
Anne T. Lawrence
James Weber
Vanessa D. Hill
David M. Wasieleski
Brief Contents
PART ONE
Business in Society 1
.
The Corporation and Its Stakeholders 2
.
Managing P ublic Issues and Stakeholder Relationships 26
.
Corporate Social Responsibility and Global Citizenship 48
.
Business in a Globalized World 74
PART TWO
Business and Ethics 95
.
Ethics and Ethical Reasoning 96
.
Organizational Ethics 118
PART THREE
Business and Public Policy 139
.
Business–Gov ernment Relations 140
.
Infl uencing the P olitical Env ironment 163
PART FOUR
Business and the Natural Environment 189
.
Sustainable Dev elopment and Global Business 190
.
Managing for Sustainability 213
PART FIVE
Business and Technology 237
.
The Role of Technology 238
.
Regulating and Managing Technology 260
PART SIX
Business and Its Stakeholders 281
.
Shareholder Rights and Corporate Gov ernance 282
.
Consumer P rotection 305
.
Employees and the Corporation 326
Page xiii
.
Managing a Div erse Workforce 349
.
Business and Its Suppliers 374
.
The Community and the Corporation 395
.
Managing the P ublic and the Corporate Reputation 417
CASES IN BUSINESS AND SOCIETY 439
1.
Failure By Design: Boeing And The 737 Max 440
2.
P rofi ting from P ain: Business and the U.S. Opioid Epidemic 451
3.
Banning American P arts in Chinese Mobile P hones: Economic Sanctions, P olitical Infl uence, and Trump’s Trade War 462
4.
BP Blowout: The Aftermath of the Gulf Oil Disaster 470
5.
Wells Fargo’s Unauthorized Customer Accounts 479
6.
The Upper Big Branch Mine Disaster 488
7.
Starbucks at the Airport: Discrimination in P ublic Spaces 498
8.
Nestlé and Child Labor in The Cocoa Supply Chain 508
9.
The Boycott of Stoli Vodka 519
GLOSSARY 527
BIBLIOGRAPHY 538
INDEXES
Name 543
Subject 547
DIGITAL EDITION
Contents
PART ONE
BUSINESS IN SOCIETY 1
CHAPTER 1
The Corporation and Its Stakeholders 2
Business and Society 4
A Systems Perspective 5
The Stakeholder Theory of the Firm 6
The Stakeholder Concept 8
Different Kinds of Stakeholders 9
Stakeholder Analysis 11
Stakeholder Interests 12
Stakeholder Power 13
Stakeholder Coalitions 15
Stakeholder Mapping 16
The Corporation’s Boundary-Spanning Departments 19
The Dynamic Environment of Business 20
Creating Value in a Dynamic Environment 22
Summary 22
Key Terms 23
Internet Resources 23
Discussion Case: Tipping Point at Union Square Hospitality Group 23
CHAPTER 2
Managing Public Issues and Stakeholder Relationships 26
Public Issues 27
Environmental Analysis 30
Competitive Intelligence 32
Stakeholder Materiality 33
The Issue Management Process 35
Identify Issue 35
Analyze Issue 36
Generate Options 36
Take Action 37
Page xiv
E valuate Results 37
Organizing for Effective Issue Management 38
Stakeholder Engagement 39
Stages in the Business–Stakeholder Relationship 39
Drivers of Stakeholder E ngagement 40
The Role of Social Media in Stakeholder E ngagement 42
Stakeholder Dialogue 42
Stakeholder Networks 43
The Benefits of E ngagement 43
Summary 44
Key Terms 45
Internet Resources 45
Discussion Case: Robinhood: The Challenges of Keeping Pace with Innovation 45
CHAPTER 3
Corporate Social Responsibility and Global Citizenship 48
Corporate Power and Responsibility 50
Corporate Social Responsibility and Citizenship 52
The Origins of Corporate Social Responsibility 53
Balancing Social, Economic, and Legal Responsibilities 54
The Corporate Social Responsibility Question 55
Support for Corporate Social Responsibility 56
Concerns about Corporate Social Responsibility 59
Social Entrepreneurs and B Corporations 62
Management Systems for Corporate Social Responsibility and Citizenship 63
Stages of Corporate Citizenship 65
Assessing and Reporting Social Performance 67
Social Audit Standards 68
Social Reporting 68
Summary 70
Key Terms 71
Internet Resources 71
Discussion Case: Corporate Social Responsibility at Gravity Payments 71
CHAPTER 4
Business in a Globalized World 74
The Process of Globalization 75
Major Multinational E nterprises 76
International Financial and Trade Institutions 78
The Benefits and Costs of Globalization 81
Benefits of Globalization 81
Costs of Globalization 82
Doing Business in a Diverse World 84
Comparative Political and E conomic Systems 84
Global Inequality and the Bottom of the Pyramid 87
Collaborative Partnerships for Global Problem Solving 89
A Three-Sector World 89
Summary 91
Key Terms 92
Internet Resources 92
Discussion Case: Intel and the Responsible Minerals Initiative 92
PART TWO
BUSINESS AND ETHICS 95
CHAPTER 5
Ethics and Ethical Reasoning 96
The Meaning of Ethics 97
What Is Business E thics? 98
Why Should Business Be E thical? 99
Why Ethical Problems Occur in Business 103
Personal Gain and Selfish Interest 103
Competitive Pressures on Profits 104
Conflicts of Interest 104
Cross-Cultural Contradictions 104
The Core Elements of Ethical Character 1105
Managers’ Values 105
Spirituality in the Workplace 106
Managers’ Moral Development 107
Analyzing Ethical Problems in Business 109
Virtue E thics: Pursuing a “Good” Life 109
Utility: Comparing Benefits and Costs 110
Rights: Determining and Protecting E ntitlements 112
Justice: Is It Fair? 112
Applying E thical Reasoning to Business Activities 113
The Moral Intensity of an Ethical Issue 113
Summary 114
Key Terms 115
Internet Resources 115
Page xv
Discussion Case: 3M and N95 Respirators for Americans 115
CHAPTER 6
Organizational Ethics 118
Corporate Ethical Climates 119
Business Ethics across Organizational Functions 121
Accounting E thics 121
Financial E thics 123
Marketing E thics 123
Information Technology E thics 124
Supply Chain E thics 125
Making Ethics Work in Corporations 126
Building E thical Safeguards into the Company 127
Ethics in a Global Economy 132
E fforts to Curtail Unethical Practices 134
Summary 135
Key Terms 135
Internet Resources 136
Discussion Case: The Vale Mining Company Dam Collapse 136
PART THREE
BUSINESS AND PUBLIC POLICY 139
CHAPTER 7
Business–Government Relations 140
How Business and Government Relate 142
Seeking a Collaborative Partnership 142
Working in Opposition to Government 142
Legitimacy Issues 143
Government’s Public Policy Role 144
E lements of Public Policy 144
Types of Public Policy 147
Government Regulation of Business 149
Market Failure 150
Negative E xternalities 150
Natural Monopolies 151
E thical Arguments 151
Types of Regulation 151
The E ffects of Regulation 155
Regulation in a Global Context 158
Summary 159
Key Terms 160
Internet Resources 160
Discussion Case: Government’s Response to the Coronavirus Pandemic in the United States and th
e E uropean Union 160
CHAPTER 8
Influencing the Political Environment 163
Participants in the Political Environment 165
Business as a Political Participant 165
Influencing the Business–Government Relationship 166
Corporate Political Strategy 166
Political Action Tactics 167
Promoting an Information Strategy 168
Promoting a Financial-Incentive Strategy 171
Promoting a Constituency-Building Strategy 177
Levels of Political Involvement 180
Managing the Political Environment 181
Business Political Action: A Global Challenge 182
Summary 183
Key Terms 184
Internet Resources 184
Discussion Case: Political Action by the U.S. Steel Industry, 2015–2020 184
PART FOUR
BUSINESS AND THE NATURAL ENVIRONMENT 189
CHAPTER 9
Sustainable Development and Global Business 190
Business and Society in the Natural Environment 192
Sustainable Development 193
Sustainable Development Goals 194
Planetary Boundaries 195
The Great Acceleration 196
Socio-Economic Trends 197
Population Growth 197
Urbanization 197
E nergy Use 198
GDP Growth 199
Earth System Trends 200
Page xvi
Climate Change 200
Stratospheric Ozone 202
Land and Water Resources 202
Threats to Marine E cosystems 204
Decline of Biodiversity 205
Response of the International Business Community 206
Circular E conomy 207
Summary 209
Key Terms 209
Internet Resources 209
Discussion Case: Clean Cooking 210
CHAPTER 10
Managing for Sustainability 213
Role of Government 215
Major Areas of E nvironmental Regulation 215
Alternative Policy Approaches 220
Costs and Benefits of Environmental Regulation 223
Managing for Sustainability 225
Leading Change for Sustainability 225
Sustainability Management in Practice 226
E nvironmental Auditing and Reporting 228
Sustainability Management as a Competitive Advantage 229
Cost Savings 229
Brand Differentiation 230
Technological Innovation 231
Reduction of Regulatory, Liability, and Climate Change Risk 231
Strategic Planning 231
Summary 233
Key Terms 234
Internet Resources 234
Discussion Case: General Motors’ Drive for Carbon Neutrality 234
PART FIVE
BUSINESS AND TECHNOLOGY 237
CHAPTER 11
The Role of Technology 238
Technology Defined 240
Phases of Technology in Society 240
The Role of Technology in Our Daily Lives 241
The Presence of the Internet 241
Unwanted Technology Threats 244
Big Data 244
Public Access to and Use of Technology 245
The Digital Divide in the United States and Worldwide 245
Mobile Telephones 247
Cryptocurrency 247
Social Networking 248
Ethical Challenges Involving Technology 249
The Loss of Privacy 250
Free Speech Issues 251
Government Censorship of Free Speech 252
The Impact of Scientific Breakthroughs 253
Genetically E ngineered Foods 253
Sequencing of the Human Genome 254
Biotechnology and Stem Cell Research 255
Medical Breakthroughs 256
Summary 257
Key Terms 257
Internet Resources 258
Discussion Case: China’s Social Credit System 258
CHAPTER 12
Regulating and Managing Technology 260
Government Regulation of Technology 262
The Role of Technology in Business 263
Access to Stakeholders’ Personal Information 264
E -Business 265
Artificial Intelligence in the Workplace and their Challenges 266
The Use of Artificial Intelligence at Work 267
Robotics in the Workplace 268
The E mergence of Drones in Business 269
The Chief Information, Security, Technology Officer 270
Cybercrime: A Threat to Organizations and the Public 271
E xploring Why Hackers Hack 271
Costs of Cybercrime 273
Business Responses to Invasions of Information Security 275
Government Efforts to Combat Cybercrime 276
Page xvii
Summary 277
Key Terms 278
Internet Resources 278
Discussion Case: The Arrival of Autonomous Cars—Bright Future or Looming Threat? 278
PART SIX
BUSINESS AND ITS STAKEHOLDERS 281
CHAPTER 13
Shareholder Rights and Corporate Governance 282
Shareholders Around the World 284
Who Are Shareholders? 284
Objectives of Stock Ownership 285
Shareholders’ Legal Rights and Safeguards 286
Corporate Governance 287
The Board of Directors 287
Principles of Good Governance 289
Special Issue: Executive Compensation 291
Shareholder Activism 295
The Rise of Institutional Investors 295
Social Investment 296
Shareholder Lawsuits 298
Government Protection of Shareholder Interests 299
Securities and E xchange Commission 299
Information Transparency and Disclosure 299
Insider Trading 299
Shareholders and the Corporation 301
Summary 302
Key Terms 302
Internet Resources 302
Discussion Case: Corporate Governance and E xecutive Misconduct at Wynn Resorts 303
CHAPTER 14
Consumer Protection 305
The Rights of Consumers 307
Self-Advocacy for Consumer Interests 308
How Government Protects Consumers 309
Goals of Consumer Laws 309
Major Consumer Protection Agencies 310
Consumer Privacy in the Digital Age 313
Using the Courts and Product Liability Laws 316
Strict Liability 316
Product Liability Reform and Alternative Dispute Resolution 318
Positive Business Responses to Consumerism 319
Managing for Quality 319
Voluntary Industry Codes of Conduct 320
Consumer Affairs Departments 321
Product Recalls 322
Consumerism’s Achievements 322
Summary 323
Key Terms 323
Internet Resources 323
Discussion Case: Volkswagen’s “Clean Diesel” Campaign 324
CHAPTER 15
Employees and the Corporation 326
The Employment Relationship 328
Workplace Rights 329
The Right to Organize and Bargain Collectively 329
The Right to a Safe and Healthy Workplace 332
Job Security and the Right to Due Process 334
Fair Wages and Income Inequality 336
The Right to Privacy in the Workplace 339
E lectronic Monitoring 339
Romance in the Workplace 341
E mployee Drug Use and Testing 341
Alcohol Abuse at Work 343
E mployee Theft and Honesty Testing 343
The Right to Blow the Whistle and Free Speech in the Workplace 344
Summary 346
Key Terms 346
Internet Resources 346
Discussion Case: Do it Without Dues 347
CHAPTER 16
Managing a Diverse Workforce 349
The Changing Face of the Workforce 350
Gender and Race in the Workplace 352
Women and Minorities at Work 352
Page xviii
The Gender and Racial Pay Gap 353
Where Women and Persons of Color Manage 356
Breaking the Glass Ceiling 356
Women and Minority Business Ownership 359
Government’s Role in Securing Equal Employment Opportunity 359
E qual E mployment Opportunity 360
Affirmative Action 361
Sexual and Racial Harassment 361
What Business Can Do: Diversity and Inclusion Policies and Practices 364
Balancing Work and Life 367
Child Care and E lder Care 367
Work Flexibility 369
Summary 370
Key Terms 371
Internet Resources 371
Discussion Case: Hello, My Name Is . . . 371
CHAPTER 17
Business and Its Suppliers 374
Suppliers 376
Social, Ethical, and Environmental Issues in Global Supply Chains 379
Social Issues 379
E thical Issues 380
E nvironmental Issues 382
Supply Chain Risk 383
Private Regulation of the Business–Supplier Relationship 384
Supply Chain Auditing 386
Supplier Development and Capability Building 388
Summary 391
Key Terms 392
Internet Resources 392
Discussion Case: IKE A’s Sustainable Cotton Supply Chain 392
CHAPTER 18
The Community and the Corporation 395
The Business–Community Relationship 397
The Business Case for Community Involvement 399
Community Relations 400
E conomic Development 401
Housing 402
Aid to Minority, Women, and Disabled Veteran-Owned E nterprises 401
Disaster, Terrorism, and War Relief 402
Corporate Giving 403
Forms of Corporate Giving 406
Priorities in Corporate Giving 409
Corporate Giving in a Strategic Context 409
Measuring the Return on Social Investment 411
Building Collaborative Partnerships 412
Summary 414
Key Terms 414
Internet Resources 414
Discussion Case: Salesforce’s 1+1+1 Integrated Philanthropy Model 415
CHAPTER 19
Managing the Public and the Corporate Reputation 417
The General Public 418
What Is Reputation? 419
Why Does Reputation Matter? 420
The Public Relations Department 421
Public Relations in the Internet and Social Media Age 422
Brand Management 424
Crisis Management 425
Engaging Key Stakeholders with Specific Tactics 428
E xecutive Visibility 430
User-Generated Content 431
Paid Content 432
E vent Sponsorship 433
Image Advertisements 434
Summary 435
Key Terms 436
Internet Resources 436
Discussion Case: United Airlines—Navigating a Social Media Storm 436
CASES IN BUSINESS AND SOCIETY 439
1.
Failure By Design: Boeing And The 737 Max 440
2.
P rofi ting from P ain: Business and the U.S. Opioid Epidemic 451
3.
Banning American P arts in Chinese Mobile P hones: Economic Sanctions, P olitical Infl uence, and Trump’s Trade War 462
4.
BP Blowout: The Aftermath of the Gulf Oil Disaster 470
5.
Wells Fargo’s Unauthorized Customer Accounts 479
6.
The Upper Big Branch Mine Disaster 488
7.
Starbucks at the Airport: Discrimination in P ublic Spaces 498
8.
Nestlé and Child Labor in The Cocoa Supply Chain 508
9.
The Boycott of Stoli Vodka 519
Page xix
Glossary 527
Bibliography 538
Indexes
Name Index 543
Subject Index 547
Page xx
PART ONE
Business in Society
Page 1
CHAPTER ONE
The Corporation and Its Stakeholders
Page 2
Business corporations have complex relationships with many individuals and organizations in society. The term stakeholder
refers to all those that affect, or are affected by, the actions of the firm. An important part of management’s role is to identify a firm’s
relevant stakeholders and understand the nature of their interests, power, and alliances with one another. Building positive and mutually
beneficial relationships across organizational boundaries can help enhance a company’s reputation and address critical social and ethical
challenges. In a world of fast-paced globalization, shifting public expectations and government policies, growing ecological concerns, and
new technologies, managers face the difficult challenge of achieving economic results while simultaneously creating value for all their
diverse stakeholders.
This Chapter Focuses on These Key Learning Objectives:
LO 1-1
Understanding the relationship between business and society and the ways in which business and society are part of an
interactive system.
LO 1-2
Considering the purpose of the modern corporation.
LO 1-3
Knowing what a stakeholder is and who a corporation’s market and nonmarket and internal and external stakeholders
are.
LO 1-4
Conducting a stakeholder analysis and understanding the basis of stakeholder interests and power.
LO 1-5
Recognizing the diverse ways in which modern corporations organize internally to interact with various stakeholders.
LO 1-6
Analyzing the forces of change that continually reshape the business and society relationship.
Amazon—which some have called the “Earth’s biggest store”—is an important part of many of our lives. We
browse on Amazon, watch on Amazon, and buy on Amazon. We freely disclose to Amazon our wishes,
interests, and willingness to pay. You may well have purchased or rented this textbook from Amazon.
In 2021, Amazon was the largest Internet retailer in the world, valued at an eye-popping $1.6 trillion. It Page 3
was the second largest private employer in the United States (after Walmart), with more than 780,000
employees. As the coronavirus pandemic gutted many businesses, Amazon just kept growing—its revenue
surged 37 percent in 2020 over the prior year as many people pivoted to online shopping and delivery during
the lockdowns.
The company’s founder and CEO, Jeff Bezos, was the world’s richest person, with a net worth approaching
$200 billion. Shareholders in the company had been richly rewarded; in early 2021, the price of Amazon’s
stock was 19 times higher than it had been a decade earlier. The company was enormously popular with
consumers, who turned to Amazon for one-click convenience, free and speedy delivery, and the ability to
compare a seemingly endless assortment of products based on price and reviews. Small businesses affiliated
with Amazon Marketplace were able to tap into the company’s global e-commerce platform and unrivaled
logistics to reach customers they never could have reached before. No doubt, many had benefited from
Amazon’s success.
Yet the company had also become the target of criticism from many quarters, charged with destroying brickand-mortar businesses, relentlessly driving their own employees, unfairly besting competitors, and pressuring
communities for concessions. Consider that:
Much of Amazon’s success had come at the expense of brick-and-mortar stores. Iconic retailers—such as Macy’s, JCPenney, and Target—
had shed thousands of jobs as Amazon attracted ever-larger slices of consumer spending. A leading economist calculated that the rise of
online commerce had caused the cumulative loss of 1.2 million retailing jobs—positions such as cashiers, salespeople, and stock clerks—
in the United States. 1 Many of these jobs were held by women and minorities (who made up 57 percent and 31 percent, respectively, of
retail employees). 2 Traditional retailing, concluded Scott Galloway, the author of The Four: The Hidde n DNA of Amazon, Apple , Face book,
and Google , had been “ravaged and depopulated by a single player”—Amazon. 3
Amazon’s own employees, by some accounts, were subject to an unusually punishing work culture. An investigative report by The Ne w
York Time s, based on interviews with more than 100 current and former white-collar employees, found a pattern of setting “unreasonably
high” performance standards, continually monitoring performance, and weeding out employees in a “rank and yank” system that one called
“purposeful Darwinism.” Turnover rates were among the highest in the Fortune 500. Said one former marketer, “Amazon is where
overachievers go to feel bad about themselves.” 4
Amazon’s control of both online and voice-activated search gave it powerful advantages—leading to what some saw as unfair competition.
One study found that under some conditions, products displayed under “customers who bought this item also bought” were dominated by
Amazon’s own private-label brands. 5 Alexa, Amazon’s voice-activated virtual assistant on Echo and other digital devices, also gave the
company an edge. The consulting firm Bain & Company found that Alexa’s recommendations were biased toward “Amazon’s Choice” and
the company’s own private-label products (after products the customer had previously ordered). “The ‘endless aisle’ just got a lot smaller,”
Bain concluded. 6
Page 4
In 2019, Amazon announced its final decision in a two-year process to select a second North American headquarters outside
Seattle. Tantalized by the prospect of 50,000 new jobs paying $100,000 or more, 238 cities and regions had submitted proposals. In the
end, the company settled on Arlington, Virginia (outside Washington DC), which offered a well-educated workforce and $750 million in
financial incentives. Some thought these taxpayer subsidies were well worth it, but anti-Amazon activists disagreed, calling for “invest[ing]
in our communities instead.” 7
Amazon’s experience illustrates, on a particularly large scale, the challenges of managing successfully in a
complex network of stakeholders. The company’s actions affected not only itself, but also many other people,
groups, and organizations in society. Customers, employees, business partners and suppliers, competitors,
shareholders, creditors, governments, and local communities all had a stake in Amazon’s decisions.
Every modern company, whether small or large, is part of a vast global business system. Whether a firm has 50
employees or, like Amazon, more than half a million—its links to customers, suppliers, employees, and
communities are certain to be numerous, diverse, and vital to its success. This is why the relationship between
business and society is important for you to understand as both a citizen and a manager.
Business and Society
Business today is arguably the most dominant institution in the world. The term business refers here to any
organization that is engaged in making a product or providing a service for a profit. Consider that in the
United States today there are 6 million businesses, according to government estimates, and in the rest of
the world, there are uncounted millions more. Of course, these businesses vary greatly in size and
impact. They range from a woman who helps support her family by selling handmade tortillas by the side
of the road in Mexico City for a few pesos, to ExxonMobil, a huge corporation that employs almost
75,000 workers and earns annual revenues of $265 billion in almost every nation in the world.
Society, in its broadest sense, refers to human beings and to the social structures they collectively create.
In a more specific sense, the term is used to refer to segments of humankind, such as members of a
particular community, nation, or interest group. As a set of organizations created by humans, business
is clearly a part of society. At the same time, it is also a distinct entity, separated from the rest of society
by clear boundaries. Business is engaged in ongoing exchanges with its external environment across
these dividing lines. For example, businesses recruit workers, buy supplies, and borrow money; they
also sell products, donate time, and pay taxes. This book is broadly concerned with the relationship
between business and society. A simple diagram of the relationship between the two appears in
Figure 1.1.
FIGURE
Business and Society: An Interactiv e System
1.1
As the Amazon example that opened this chapter illustrates, business and society are highly
Page 5
interdependent. Business activities impact other activities in society, and actions by various social
actors and governments continuously affect business. To manage these interdependencies, managers
need an understanding of their company’s key relationships and how the social and economic system of
which they are a part affects, and is affected by, their decisions.
A Systems Perspective
General systems theory, first introduced in the 1940s, argues that all organisms are open to, and interact
with, their external environments. Although most organisms have clear boundaries, they cannot be
understood in isolation, but only in relationship to their surroundings. This simple but powerful idea
can be applied to many disciplines. For example, in botany, the growth of a plant cannot be explained
without reference to soil, light, oxygen, moisture, and other characteristics of its environment. As
applied to management theory, the systems concept implies that business firms (social organisms) are
embedded in a broader social structure (external environment) with which they constantly interact.
Corporations have ongoing boundary exchanges with customers, governments, competitors, suppliers,
communities, and many other individuals and groups. Just as good soil, water, and light help a plant
grow, positive interactions with society benefit a business firm.
Like biological organisms, moreover, businesses must adapt to changes in the environment. Plants
growing in low-moisture environments must develop survival strategies, like the cactus that evolves to
store water in its leaves. Similarly, a telecommunications company in a newly deregulated market must
learn to compete by changing the products and services it offers. The key to business survival is often
this ability to adapt effectively to changing conditions. In business, systems theory provides a powerful
tool to help managers conceptualize the relationship between their companies and their external
environments.
Systems theory helps us understand how business and society, taken together, form an interactive social
system. Each needs the other, and each influences the other. They are entwined so completely that any
action taken by one will surely affect the other. They are both separate and connected. Business is part of
society, and society penetrates far and often into business decisions. In a world where global
communication is rapidly expanding, the connections are closer than ever before. Throughout this book
we discuss examples of organizations and people that are grappling with the challenges of, and helping
to shape, business–society relationships.
The Stakeholder Theory of the Firm
What is the purpose of the modern corporation? To whom, or what, should the firm be
responsible?8 No question is more central to the relationship between business and society.
Page 6
In the shareholder theory of the firm (sometimes also called the ownership theory), the firm is seen as the
property of its owners. The purpose of the firm is to maximize its long-term market value, that is, to
make the most money it can for shareholders who own stock in the company. Managers and boards of
directors are agents of shareholders and have no obligations to others, other than those directly specified
by law. In this view, owners’ interests are paramount and take precedence over the interests of others.
A contrasting view, called the stakeholder theory of the firm, argues that corporations serve a broad public
purpose: to create value for society. All companies must make a profit for their owners; indeed, if they
did not, they would not long survive. However, corporations create many other kinds of value as well,
such as professional development for their employees and innovative new products for their customers.
In this view, corporations have multiple obligations, and all stakeholders’ interests must be considered.
This perspective was well expressed by Laurence Fink, the CEO of BlackRock, a global firm that
manages more than $5 trillion worth of assets for its clients. In a letter to CEOs, Fink stated that “. . .
every company must not only deliver financial performance, but also show how it makes a positive
contribution to society. Companies must benefit all of their stakeholders, including shareholders,
employees, customers, and the communities in which they operate.” 9
Supporters of the stakeholder theory of the firm make three core arguments for their position: descriptive,
instrumental, and normative.10
The descriptive argument says that the stakeholder view is simply a more realistic description of how
companies really work. Managers must pay keen attention, of course, to their quarterly and annual
financial performance. Keeping Wall Street satisfied by managing for growth—thereby attracting more
investors and increasing the stock price—is a core part of any top manager’s job. But the job of
management is much more complex than this. To produce consistent results, managers must be
concerned with producing high-quality and innovative products and services for their customers,
attracting and retaining talented employees, and complying with a plethora of complex government
regulations. As a practical matter, managers direct their energies toward all stakeholders, not just
owners. The case at the end of this chapter shows how managers at the Union Square Hospitality Group,
a group of restaurants, considered the interests of many stakeholders in deciding how its servers should
be compensated.
Page 7
The instrumental argument says that stakeholder management is more effective as a corporate
strategy. A wide range of studies have shown that companies that behave responsibly toward multiple
stakeholder groups perform better financially, over the long run, than those that do not. (This empirical
evidence is further explored in Chapter 3.) These findings make sense, because good relationships
with stakeholders are themselves a source of value for the firm. Attention to stakeholders’ rights and
concerns can help produce motivated employees, satisfied customers, committed suppliers, and
supportive communities, all good for the company’s bottom line.
An example of a company that “does well by doing good” is the LEGO Group, the Danish maker of the interlocking
plastic building blocks enjoyed by children around the world. The company’s mission is “to inspire and develop the
builders of tomorrow.” LEGO donates one quarter of its profits to its foundation, the Centre for Creativity, Play,
and Learning, which supports learning through play—helping 1.8 million children a year through partners like
UNICEF. These programs not only help kids but also feed the company’s Idea Studio with a steady stream of
creative concepts. In 2021, in collaboration with the Universal Music Group, LEGO released its latest product—an
app that enabled children aged 7 to 10 to direct, star in, and share their own music videos. 11
The normative argument says that stakeholder management is simply the right thing to do. Corporations
have great power and control vast resources; these privileges carry with them a duty toward all those
affected by a corporation’s actions. Moreover, all stakeholders, not just owners, contribute something of
value to the corporation. A skilled engineer at Microsoft who applies his or her creativity to solving a
difficult programming problem has made a kind of investment in the company, even if it is not a
monetary investment. Any individual or group who contributes something of value or takes a risk, has a
moral right to some claim on the corporation’s rewards. 12
A basis for both the shareholder and stakeholder theories of the firm exists in law. The legal term fiduciary
means a person who exercises power on behalf of another, that is, who acts as the other’s agent. In U.S.
law, managers are considered fiduciaries of the owners of the firm (its shareholders) and have an
obligation to run the business in their interest. These legal concepts are clearly consistent with the
shareholder theory of the firm. However, other laws and court cases have given managers broad latitude
in the exercise of their fiduciary duties. In the United States (where corporations are chartered not by the
federal government but by the states), most states have passed laws that permit managers to take into
consideration a wide range of other stakeholders’ interests, including those of employees, customers,
creditors, suppliers, and communities. (Benefit corporations, firms with a special legal status that
obligates them to do so, are further discussed in Chapter 3.) In addition, many federal laws extend
specific protections to various groups of stakeholders, such as those that prohibit discrimination against
employees or grant consumers the right to sue if harmed by a product.
In other nations, the legal rights of nonowner stakeholders are often more fully developed than in Page 8
the United States. For example, several European countries—including Germany, France, Austria,
Denmark, Finland, and Sweden—require public companies to include employee members on their boards
of directors, so that their interests will be explicitly represented. A study commissioned by the European
Union in 2020 called for further changes in corporate governance to promote sustainable value creation
and the interests of all stakeholders. 13
In short, while the law requires managers to act on behalf of shareholders, it also gives them wide
discretion—and in some instances requires them—to manage on behalf of the full range of stakeholder
groups. The next section provides a more formal definition and an expanded discussion of the
stakeholder concept.
The Stakeholder Concept
The term stakeholder refers to persons and groups that affect, or are affected by, an organization’s
decisions, policies, and operations. 14 The word stake originally meant a pointed stick or post. The
word later became used as a verb, as when a person was said to mark territory with a stake to assert
ownership—that is, to stake a claim. 15 In the context of management theory, stake is used more
abstractly to mean an interest in—or claim on—a business enterprise. Those with a stake in the firm’s
actions include such diverse groups as customers, employees, shareholders (also called stockholders),
governments, suppliers, professional and trade associations, social and environmental activists, and
nongovernmental organizations. The term stakeholder is not the same as stockholder, although the words
sound similar. Stockholders—individuals or organizations that own shares of a company’s stock—are one
of several kinds of stakeholders.
Business organizations are embedded in networks involving many participants. Each of these
participants has a relationship with the firm, based on ongoing interactions. Each of them shares, to
some degree, in both the risks and rewards of the firm’s activities. And each has some claim on the firm’s
resources and attention, based on law, moral right, or both. The number of these stakeholders and the
variety of their interests can be large, making a company’s decisions complex, as the Amazon example
illustrates.
Managers make good decisions when they pay attention to the effects of their decisions on stakeholders,
as well as stakeholders’ effects on the company. On the positive side, strong relationships between a
corporation and its stakeholders are an asset that adds value. On the negative side, some companies
disregard stakeholders’ interests, either out of the belief that the stakeholder is wrong or out of the
misguided notion that an unhappy customer, employee, or regulator does not matter. Such attitudes often
prove costly to the company involved. Today, for example, companies know that they cannot locate a
factory or store in a community that strongly objects. They also know that making a product that is
perceived as unsafe invites lawsuits and jeopardizes market share.
Different Kinds of Stakeholders
Business interacts with society in many diverse ways, and a company’s relationships with various
stakeholders differ.
Page 9
Market stakeholders are those that engage in economic transactions with the company as it carries out its
purpose of providing society with goods and services. Each relationship between a business and one of
its market stakeholders is based on a unique transaction, or two-way exchange. Shareholders invest in the
firm and in return receive the potential for dividends and capital gains. Creditors loan money and collect
payments of interest and principal. Employees contribute their skills and knowledge in exchange for
wages, benefits, and the opportunity for personal satisfaction and professional development. In return for
payment, suppliers provide raw materials, energy, services, finished products, and other inputs; and
wholesalers, distributors, and retailers engage in market transactions with the firm as they help move the
product from plant to sales outlets to customers. All businesses need customers who are willing to buy
their products or services.
The puzzling question of whether managers should be classified as stakeholders along with other
employees is discussed in Exhibit 1.A.
Exhibit 1.A
Are Managers Stakeholders?
Are managers, especially top executives, stakeholders? This has been a contentious issue in stakeholder theory.
On the one hand, the answer clearly is “yes” Like other stakeholders, managers are impacted by the firm’s decisions. As
employees of the firm, managers receive compensation—often very generous compensation, as shown in
Chapter 13.
Their managerial roles confer opportunities for professional advancement, social status, and power over others. Managers
benefit from the company’s success and are hurt by its failure. For these reasons, they might properly be classified as
employees.
On the other hand, top executives are agents of the firm and are responsible for acting on its behalf. In the stakeholder
theory of the firm, their role is to integrate stakeholder interests, rather than to promote their own more narrow, selfish
goals. For these reasons, they might properly be classified as representatives of the firm itself, rather than as one of its
stakeholders.
Management theory has long recognized that these two roles of managers potentially conflict. The main job of executives
is to act for the company, but all too often they act primarily for themselves. Consider, for example, the many top executives
of Lehman Brothers, MF Global, and Merrill Lynch, who enriched themselves personally at the expense of shareholders,
employees, customers, and other stakeholders. The challenge of persuading top managers to act in the firm’s best
interest is further discussed in
Chapter 13.
Nonmarket stakeholders, by contrast, are people and groups who—although they do not engage in direct
economic exchange with the firm—are nonetheless affected by or can affect its actions. Nonmarket
stakeholders include the community, various levels of government, nongovernmental organizations,
business support groups, competitors, and the general public. Nonmarket stakeholders are not
necessarily less important than others, simply because they do not engage in direct economic exchange
with a business. On the contrary, interactions with such groups can be critical to a firm’s success or
failure, as shown in the following example.
In 2017, a company called Energy Management Inc. (EMI) said it would finally call off its 16-year effort to build a
wind farm off the shore of Cape Cod, Massachusetts, to supply clean, renewable power to New England customers.
The project, called Cape Wind, had generated intense opposition from residents of Cape Cod and nearby islands,
who were concerned that its 130 wind turbines would spoil the view and get in the way of boats. A nonprofit group
called Save Our Sound filed dozens of lawsuits, charging possible harm to wildlife, increased electricity rates, and
danger to aircraft. Local utilities had withdrawn their commitments to buy power from the wind farm, and state
regulators had denied permission for a power line connection to the mainland. “We were kept in a repeated sudden
death period,” said the company’s discouraged owner, using a football analogy. “And the goal posts kept
moving.” 16
In this instance, various stakeholders were able to block the company’s plans completely—even
though many did not have a market relationship with it.
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Theorists also distinguish between internal stakeholders and external stakeholders. Internal stakeholders are
those, such as employees and managers, who are employed by the firm. They are “inside” the firm, in the
sense that they contribute their effort and skill, usually at a company worksite. External stakeholders, by
contrast, are those who—although they may have important transactions with the firm—are not directly
employed by it.
The classification of government as a nonmarket stakeholder has been controversial in stakeholder
theory. Most theorists say that government is a nonmarket stakeholder (as does this book) because it
does not normally conduct any direct market exchanges (buying and selling) with business. However,
money often flows from business to government in the form of taxes and fees, and sometimes from
government to business in the form of subsidies or incentives. Moreover, some businesses—defense
contractors for example—do sell directly to the government and receive payment for goods and services
rendered. For this reason, a few theorists have called government a market stakeholder of business. And,
in a few cases, the government may take a direct ownership stake in a company—as the U.S. government
did after the financial crisis of 2008–09 when it invested in several banks and auto companies, becoming
a shareholder of these firms. Government also has special influence over business because of its ability to
charter and tax corporations, as well as make laws that regulate their activities. The unique relationship
between government and business is discussed throughout this book.
Other stakeholders also have some market and some nonmarket characteristics. For example, business
support groups, such as the Chamber of Commerce, are normally considered a nonmarket stakeholder.
However, companies may support the Chamber of Commerce with their membership dues—a market
exchange. Communities are a nonmarket stakeholder, but receive taxes, philanthropic contributions, and
other monetary benefits from businesses. These subtleties are further explored in later chapters.
Modern stakeholder theory recognizes that most business firms are embedded in a complex web Page 11
of stakeholders, many of which have independent relationships with each other. 17 In this view, a business
firm and its stakeholders are best visualized as an interconnected network. Imagine, for example, an
electronics company, based in the United States, that produces smartphones, tablets, and music players.
The firm employs people to design, engineer, and market its devices to customers in many countries.
Shares in the company are owned by investors around the world, including many of its own employees
and managers. Production is carried out by suppliers in Asia. Banks provide credit to the company, as
well as to other companies. Competing firms sell their products to some of the same customers and
contract production to some of the same Asian suppliers. Nongovernmental organizations may seek to
lobby the government concerning the firm’s practices and may count some employees among their
members. A visual representation of this company and its stakeholders is shown in Figure 1.2.
FIGURE
1.2
A Firm and Its Stakeholders
As
Figure 1.2 suggests, some individuals or groups may play multiple stakeholder roles. Some
theorists use the term role sets to refer to this phenomenon. For example, a person may work at a
company, but also live in the surrounding community, own shares of company stock in his or her 401(k)
retirement account, and even purchase the company’s products from time to time. This person has
several stakes in a company’s actions.
Later sections of this book (especially Chapters 13 through
relationship between business and its various stakeholders.
19) will discuss in more detail the
Stakeholder Analysis
An important part of the modern manager’s job is to identify relevant stakeholders and to
Page 12
understand both their interests and the power they may have to assert these interests. This
process is called stakeholder analysis. The organization from whose perspective the analysis is conducted
is called the focal organization.
The first step of a stakeholder analysis is for managers of the focal organization to identify the issue at
hand. For example, in the Cape Wind situation discussed earlier in this chapter, Energy Management Inc.
had to analyze how to win regulatory approval for the construction of its wind farm. Once the issue is
determined, managers must ask four key questions, as discussed below and summarized in Figure 1.3.
FIGURE
The Four Key Questions of Stakeholder Analysis
1.3
Who are the relevant stakeholders?
The first question requires management to identify and map the relevant stakeholders.
Exhibit 1.B,
which appears later in this chapter, provides a guide. However, not all stakeholders listed will be relevant
in every management situation. For example, a privately held firm will not have shareholders. Some
businesses sell directly to customers online, and therefore will not have retailers. In other situations, a
firm may have a stakeholder—say, a creditor that has loaned money—but this group is not relevant to a
particular issue that management faces.
Exhibit 1.B
Stakeholders: Nature of Interest and Power
Nature of Power—Stakeholder Influences
Stakeholder
Nature of Interest—Stakeholder Wishes To:
Company By:
Market Stakeholders
Employees
Maintain stable employment in firm
Union bargaining power
Receive fair pay for work and mandated
Work actions or strikes
benefits
Publicity
Work in safe, comfortable environment
Shareholders
Receive a satisfactory return on investments
Exercising voting rights based on share
(dividends)
ownership
Realize appreciation in stock value over time
Exercising rights to inspect company books
and records
Customers
Receive fair exchange: value and quality for
Purchasing goods from competitors
money spent
Boycotting companies whose products are
Receive safe, reliable products
unsatisfactory or whose policies are
Receive accurate information
unacceptable
Be able to voice concerns
Suppliers
Receive regular orders for goods
Refusing to meet orders if conditions of
Be paid promptly for supplies delivered
contract are breached
Use capacity efficiently
Supplying to competitors
Build stable relationships with business
customers
Be treated ethically
Retailers,
Receive quality goods in a timely fashion at
Buying from other suppliers if terms of
Wholesalers
reasonable cost
contract are unsatisfactory
Offer reliable products that consumers trust
Boycotting companies whose goods or
and value
policies are unsatisfactory
Receive repayment of loans
Calling in loans if payments are not made
Collect debts and interest
Utilizing legal authorities to repossess or
Creditors
take over property if loan payments are
severely delinquent
Nonmarket Stakeholders
Nature of Power—Stakeholder Influences
Stakeholder
Nature of Interest—Stakeholder Wishes To:
Company By:
Communities
Employ local residents in the company
Refusing to extend additional credit
Ensure that the local environment is
Issuing or restricting operating licenses and
protected
permits
Ensure that the local area is developed
Lobbying government for regulation of the
company’s policies or methods of land use
and waste disposal
Nongovernmental
Monitor company actions and policies to
Gaining broad public support through
organizations
ensure that they conform to legal and ethical
publicizing the issue
standards
Lobbying government for regulation of the
Promote social and economic development
company
Business support
Provide research and information which will
Using its staff and resources to assist
groups (e.g., trade
help the company or industry perform in a
company in business endeavors and
associations)
changing environment
development efforts
Providing legal or “group” political support
beyond that which an individual company
can provide for itself
Governments
The general public
Competitors
Promote economic development
Adopting regulations and laws
Encourage social improvements
Issuing licenses and permits
Raise revenues through taxes
Allowing or disallowing commercial activity
Protect social values
Networking with other stakeholders
Minimize risks
Pressing government to act
Achieve prosperity for society
Condemning or praising individual
Receive fair and honest communication
companies
Compete fairly
Pressing government for fair competition
Cooperate on industry-wide or community
policies
issues
Suing companies that compete unfairly
Seek new customers
But stakeholder analysis involves more than simply identifying stakeholders; it also involves understanding
the nature of their interests, power, legitimacy, and links with one another.
Stakeholder Interests
What are the interests of each stakeholder?
Each stakeholder has a unique relationship to the organization, and managers must respond accordingly.
Stakeholder interests are, essentially, the nature of each group’s stake. What are their concerns, and what do
they want from their relationship with the firm?18
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Shareholders, for their part, have an ownership interest in the firm. In exchange for their investment,
shareholders expect to receive dividends and, over time, capital appreciation. The economic health of the
corporation affects these people financially; their personal wealth—and often, their retirement security—is
at stake. They may also seek to achieve social objectives through their choice of investments. Customers,
for their part, are most interested in gaining fair value and quality in exchange for the purchase price of
goods and services. Suppliers wish to obtain profitable orders, use their capacity efficiently, and build
stable relationships with their business customers. Employees, in exchange for their time and effort, want
to receive fair compensation and an opportunity to develop their job skills. Governments, public interest
groups, and local communities have another sort of relationship with the company. In general, their stake
is broader than the financial stake of owners, customers, and suppliers. They may wish to protect the
environment, assure human rights, or advance other broad social interests. Managers need to understand
these complex and often intersecting stakeholder interests.
Stakeholder Power
What is the power of each stakeholder?
Stakeholder power means the ability to use resources to make an event happen or to secure a desired
outcome. Stakeholders have five different kinds of power: voting power, economic power, political power,
legal power, and informational power.
Voting power means that the stakeholder has a legitimate right to cast a vote. Shareholders typically have
voting power proportionate to the percentage of the company’s stock they own. They typically have an
opportunity to vote on such major decisions as mergers and acquisitions, the composition of the board
of directors, and other issues that may come before the annual meeting. (Shareholder voting power
should be distinguished from the voting power exercised by citizens, which is discussed below.)
For example, Starboard Value LP, a New York-based hedge fund, used its voting power as a shareholder to force
change in a company it had invested in. Starboard bought more than 9 percent of the shares of Magellan Health, a
managed health care company based in Arizona, and called for radical change to boost its share value. When
Magellan did not respond aggressively enough, Starboard forced the company to expand its board of directors,
adding four of Starboard’s nominees. In 2021, the newly constituted board approved the sale of the company to the
health insurer Centene. Magellan shares jumped 12 percent after the announcement, providing a handsome return
for the hedge fund. In recent years, activist investors like Starboard Value have won one board seat for every board
election campaign they have waged. 19
Suppliers, customers, employees, and other stakeholders have economic power with the company.
Suppliers, for example, can withhold supplies or refuse to fill orders if a company fails to meet its
contractual responsibilities. Customers may refuse to buy a company’s products or services if the
company acts improperly. They can boycott products if they believe the goods are too expensive, poorly
made, or unsafe. Employees, for their part, can refuse to work under certain conditions, a form of
economic power known as a strike or slowdown. Economic power often depends on how well organized
a stakeholder group is. For example, workers who are organized into unions usually have more
economic power than do workers who try to negotiate individually with their employers.
Page 14
Governments exercise political power through legislation, regulations, or lawsuits. While
government agencies act directly, other stakeholders use their political power indirectly by urging
government to use its powers by passing new laws or enacting regulations. Citizens may also vote for
candidates that support their views with respect to government laws and regulations affecting business, a
different kind of voting power than the one discussed above. Stakeholders may also exercise political
power directly, as when social, environmental, or community activists organize to protest a particular
corporate action.
Stakeholders have legal power when they sue a company for damages, based on harm caused by the firm;
for instance, lawsuits brought by customers for damages caused by defective products, brought by
employees for damages caused by workplace injury, or brought by environmentalists for damages caused
by pollution or harm to species or habitat. After the mortgage lender Countrywide collapsed, many
institutional shareholders, such as state pension funds, sued Bank of America (which had acquired
Countrywide) to recoup some of their losses.
Finally, stakeholders have informational power when they have access to valuable data, facts, or details
and can bring their own information and perspectives to the attention of the public or key decision
makers. With the explosive growth of technologies that facilitate the sharing of information, this kind of
stakeholder power has become increasingly important.
Consumers’ ability to use social networks to express their views about businesses they like—and do not like—has
given them power they did not previously have. For example, Yelp Inc. operates a website where people can search
for local businesses, post reviews, and read others’ comments. In 2020, a decade and a half after its launch, Yelp
claimed 178 million unique visitors every month. Its reviewers collectively have gained considerable influence.
Restaurants, cultural venues, hair salons, and other establishments can attract customers with five-star ratings and
“People Love Us on Yelp” stickers in their windows—but, by the same token, can be badly hurt when reviews turn
nasty. A Harvard Business School study reported that a one-star increase in an independent restaurant’s Yelp rating
led to a 5 to 9 percent increase in revenue. Some businesses have complained that Yelp reviewers have too much
power. “My business just died,” said the sole proprietor of a housecleaning business. “Once they locked me into
the 3.5 stars, I wasn’t getting any calls.” 20
Activists often try to use all these kinds of power when they want to change a company’s policy. For
example, human rights activists wanted to bring pressure on Unocal Corporation to change its practices
in Burma (Myanmar), where it had entered a joint venture with the government to build a gas pipeline.
Critics charged that many human rights violations occurred during this project, including forced labor
and relocations. To pressure Unocal to change its behavior, activists organized protests at shareholder
meetings (voting power), called for boycotts of Unocal products (economic power), promoted local
ordinances prohibiting cities from buying from Unocal (political power), brought a lawsuit for damages
on behalf of Burmese villagers (legal power), and gathered information about government abuses by
interviewing Burmese refugees and publicizing the results online (informational power). These activists
increased their chances of success by mobilizing many kinds of power. This combination of tactics
eventually forced Unocal to pay compensation to people whose rights had been violated and to fund
education and health care projects in the pipeline region. 21
Exhibit 1.B provides a schematic summary of some of the main interests and powers of both market
and nonmarket stakeholders.
Stakeholder Coalitions
An understanding of stakeholder interests and power enables managers to answer the final
question of stakeholder analysis regarding coalitions.
Page 15
How are coalitions likely to form?
Not surprisingly, stakeholder interests often coincide. For example, consumers of fresh fruit and
farmworkers who harvest that fruit in the field may have a shared interest in reducing the use of pesticides,
because of possible adverse health effects from exposure to chemicals. When their interests are similar,
stakeholders may form coalitions, temporary alliances to pursue a common interest. Companies may be
both opposed and supported by stakeholder coalitions, as shown in the example of the controversial
Keystone XL pipeline.
TransCanada, a major North American energy company, sought approval to build a pipeline from Alberta, Canada,
to Steele City, Nebraska, where it would connect to existing pipelines running to refineries and ports along the Gulf
Coast. In opposing the Keystone XL pipeline, environmentalists argued it would enable the export of oil extracted
from Canadian tar sands, an energy-intensive and dirty process. When burned, the tar sands oil would release
carbon dioxide, contributing to further climate change, and spills from the pipeline could foul water supplies. They
were joined in coalition by other groups, such as ranchers, farmers, and Native Americans whose land would be
crossed by the pipeline. On the other side, construction unions, many local governments, and business groups
supported the pipeline, saying that it would create jobs, reduce U.S. dependence on foreign oil, and provide a safer
method of transport than trains or tanker trucks. After years of controversy, on his first full day in office in 2021,
President Biden canceled the permit for the pipeline, citing the climate change crisis, seemingly ending the
project. 22
Stakeholder coalitions are not static. Groups that are highly involved with a company today may be less
involved tomorrow. Issues that are controversial at one time may be uncontroversial later; stakeholders
that are dependent on an organization at one time may be less so at another. To make matters more
complicated, the process of shifting coalitions does not occur uniformly in all parts of a large
corporation. Stakeholders involved with one part of a large company often have little or nothing to do
with other parts of the organization.
The discussion case at the end of this chapter describes the coalitions that developed in favor of and
opposition to new regulations that would require the ride-hailing start-up Uber to insure drivers logged
onto its system to look for customers.
Another variation of stakeholder analysis focuses on stakeholder salience. Some scholars have suggested
that managers pay the most attention to stakeholders possessing greater salience. (Something is salient
when it stands out from a background, is seen as important, or draws attention.) Stakeholders stand out
to managers when they have power, legitimacy, and urgency. This section has already discussed various
forms of stakeholder power. Legitimacy refers to the extent to which the broader society sees a
stakeholder’s actions as proper or appropriate, because they are clearly affected by the company’s
actions. Urgency refers to the time-sensitivity of a stakeholder’s claim, that is, the extent to which it
demands immediate action. The more of these three attributes a stakeholder possesses, the greater the
stakeholder’s salience and the more likely that managers will notice and respond. 23
Stakeholder Mapping
Page 16
Once managers have conducted a stakeholder analysis, they can use it to develop a stakeholder
map, a visual representation of the relationships among stakeholder interests, power, and coalitions with
respect to a particular issue. 24 (A stakeholder map can also be used to represent stakeholder salience, to
help a firm identify which stakeholders may require more of their attention.) Consider the following
example:
In Anaheim, California, a real estate developer called SunCal purchased a large lot near to the Disneyland theme
park. SunCal planned to build condominiums, with 15 percent of the units set aside for below-market-rate rental
apartments. Because the site was in the resort district, the developer required special permission from the city
council to proceed. Affordable housing advocates quickly backed SunCal’s plans. Some unions representing
Disney employees also supported the idea, as did environmentalists drawn by the prospect of reducing long
commutes, a contributor to the region’s air pollution. Disney, however, strenuously opposed SunCal’s plan,
arguing that the land should be used only for tourism-related development such as hotels and restaurants; the
company was supported by the chamber of commerce and various businesses in the resort district. The city council
itself was split.
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If SunCal conducted a stakeholder analysis of this situation, it would conclude that the interests of
relevant stakeholders were divided. Some, including Disney and various local businesses and some
politicians, opposed its plan. But others, including some unions, affordable housing advocates,
environmentalists, and other politicians, supported it. An analysis of coalitions would show how these
stakeholders were likely to ally with one another. An analysis of power would show that Disney had
enormous clout in Anaheim, because it was the city’s major employer and taxpayer, with power far
exceeding that of other relevant stakeholders. SunCal would no doubt conclude from this analysis that it
was unlikely to succeed in building on this site. A stakeholder map of this situation is shown in
Figure 1.4. On the vertical axis, it shows various stakeholders’ level of power; on the horizontal axis,
it shows their position on the issue of SunCal’s proposed development.
FIGURE
Stakeholder Map of SunCal’s P roposed Dev elopment
1.4
Source: Graphic design by Colorbox Industries. © 2018. All rights reserved. Used by permission.
Page 18
A stakeholder map is a useful tool because it enables managers to see quickly how stakeholders feel
about an issue. It helps them see how stakeholder coalitions are likely to form, how powerful these
coalitions will be, and what outcomes are likely. The stakeholder map depicted in Figure 1.4 shows,
for example, that the coalition in quadrant 4—Disney, local businesses, and some members of the City
Council—is more powerful that the coalition in quadrant 2—unions, affordable housing activists,
environmental groups, and other City Council members. An additional benefit of stakeholder analysis is
that it can illuminate options that managers may not have initially noticed. In this example, SunCal might
have realized that Disney (high opposition, high power) very much wanted to block the proposed
development, but also had significant resources. Therefore, Disney might be willing to purchase the lot
itself, providing funds for SunCal to use to purchase and develop another site, with support from unions,
housing activists, and others. In short, stakeholder analysis and mapping can help managers “think
outside the box.”
The Corporation’s Boundary-Spanning Departments
How do corporations organize internally to respond to and interact with stakeholders?
Page 19
Boundary-spanning departments are departments, or offices, within an organization that reach across the
dividing line that separates the company from groups and people in society. Building positive and
mutually beneficial relationships across organizational boundaries is a growing part of management’s
role.
Figure 1.5 presents a list of the corporation’s market and nonmarket stakeholders, alongside the
corporate departments that typically have responsibility for engaging with them. As the figure suggests,
the organization of the corporation’s boundary-spanning functions is complex. For example, in many
companies, departments of public affairs or government relations interact with elected officials and
regulators. Departments of investor relations interact with shareholders; human resources with
employees; customer relations with customers; and community relations with the community.
Specialized departments of environment, health, and safety may deal with environmental compliance and
worker health and safety, and public relations or corporate communications. Many of these specific
departments will be discussed in more detail in later chapters.
FIGURE
1.5
The Corporation’s Boundary-Spanning Departments
The Dynamic Environment of Business
A core argument of this book is that the external environment of business is dynamic and ever
Page 20
changing. Businesses and their stakeholders do not interact in a vacuum. On the contrary, most
companies operate in a swirl of social, ethical, global, political, ecological, and technological change
that produces both opportunities and threats.
Figure 1.6 diagrams the six dynamic forces that
powerfully shape the business and society relationship. Each of these forces is introduced briefly below
and will be discussed in more detail later in this book.
Page 21
FIGURE
Forces That Shape the Business and Society Relationship
1.6
Changing socie tal e xpe ctations. Everywhere around the world, society’s expectations of business are
rising. People increasingly expect business to be more responsible, believing companies should pay
close attention to social issues and act as good citizens in society. New public issues constantly arise
that require action. Increasingly, business is faced with the daunting task of balancing its social, legal,
and economic obligations, seeking to meet its commitments to multiple stakeholders. Modern
businesses are increasingly exploring opportunities to act in ways that balance numerous stakeholders’
needs with their multiple obligations. These changes in society’s expectations of business, and how
managers have responded, are described in
Chapters 2 and
3.
Globalization. We live in an increasingly integrated world economy, characterized by the unceasing
movement of goods, services, and capital across national borders. Large transnational corporations do
business in scores of countries. Products and services people buy every day in the United States or
Germany may have come from Indonesia, Haiti, or Mexico. Today, economic forces truly play out on a
global stage. A financial crisis on Wall Street can quickly impact economies around the world. Societal
issues—such as the race to find a cure for COVID-19, the movement for racial justice, or the demands
of citizens everywhere for full access to the Internet—also cut across national boundaries.
Chapter 4
addresses the challenges of globalization.
Grow ing e mphasis on e thical re asoning and actions. The public also expects business to be ethical and
wants corporate managers to apply ethical principles or values—in other words, guidelines about what
is right or wrong, fair or unfair, or morally correct or incorrect—when they make business decisions.
Fair employment practices, concern for consumer safety, contribution to the welfare of the community,
and human rights protection around the world have become more prominent and important. Business
has created ethics programs to help ensure that employees are aware of these issues and act in
accordance with ethical standards. The ethical challenges faced by business, both domestically and
abroad—and business’s response—are discussed in
Chapters 5 and
6.
Evolving gove rnme nt re gulations and busine ss re sponse . The role of government has changed
dramatically in many nations in recent decades. Governments around the world have enacted a myriad
of new policies that …