2-3Issues in Social Responsibility
Social responsibility rests on a stakeholder orientation. The realities of global warming, obesity, consumer protection, and other issues are causing companies to look at a broader, more inclusive stakeholder orientation. In other words, a broader view of social responsibility looks beyond pragmatic and firm-centric interests and considers the long-term welfare of society. Each stakeholder is given due consideration. There needs to be a movement away from self-serving “co-optation” and a narrow focus on profit maximization. In fact, there is strong evidence that an overemphasis on profit maximization is counter-productive. Long-term relationships with stakeholders develop trust, loyalty, and the performance necessary to maintain profitability. Issues generally associated with social responsibility can be separated into four general categories: social issues, consumer protection, sustainability, and corporate governance.
Social issues are associated with the common good. The common good is the idea that because people live in a community, social rules should benefit the community. This supports the premise that all people have the right to try and obtain the basic necessities of life. In other words, social issues deal with concerns affecting large segments of society and the welfare of the entire society. In terms of social responsibility, managers address social issues by examining the different groups to which they have an obligation. Managers failing to meet these social obligations can create criticism and negative publicity for their organizations.
Social issues may encompass events such as jobs lost through outsourcing, health issues, gun rights, and poverty. While these issues may be indirectly related to business, there is a need to reflect on them in developing strategies in certain cases. Issues that directly relate to business include obesity, smoking, and exploiting vulnerable or impoverished populations, as well as a number of other issues. For example, marketers are increasingly targeting food advertising to children through websites. One study found approximately 85 percent of food brands have websites with content targeted toward children. With the childhood obesity epidemic increasing, marketers of foods perceived to be unhealthy are being pressured to change their strategies to account for this growing concern. In addition, some economic issues have ramifications to society such as antitrust, employee well-being, insider trading, and other issues that diminish competition and consumer choice.
First, data privacy is one of the most important social and ethical issues facing marketing today. The Federal Trade Commission regulates issues related to data privacy. Cybercrimes, such as identity theft and online fraud, are major concerns. There is a need to address the ethical and legal responsibilities to determine risks and develop protection to consumers. All organizations need to understand how to develop cybersecurity and have contingency plans to respond if a data breach happens. With big data and the need to collect consumer data come the responsibility to establish a data privacy ethical culture as a top priority.
The second major issue is consumer protection, which often occurs in the form of laws passed to protect consumers from unfair and deceptive business practices. Issues involving consumer protection usually have an immediate impact on the consumer after a purchase. Major areas of concern include advertising, environmental hazards, financial practices, and product safety. Because consumers are less knowledgeable about certain products or business practices, it is the responsibility of companies to take precautions to prevent consumers from being harmed by their products. For instance, businesses marketing products that could potentially be harmful have the responsibility to put warning labels on their products. The Federal Trade Commission and the Consumer Financial Protection Bureau are intent on enforcing consumer protection laws and pursuing violations.
Deceptive advertising has been a hot topic in the consumer protection area. For instance, covert marketing occurs when companies use promotional tools to make consumers believe the promotion is coming from an independent third party rather than from the company. Often companies are forced to disclose to consumers if they are paying another entity to promote their products. However, as with many business ethics issues, some advertising practices skirt the line between ethical and questionable behavior. For instance, some believe promotions embedded into television programs without informing consumers are a type of covert marketing that warrants greater consumer protection. Native advertising has become another issue. Native advertising blends digital advertisements or company promotions with content on the website where it is featured. The promotion has the look and feel of the content. Critics claim that native advertising might confuse consumers if they cannot tell the difference between an advertisement and legitimate content. Companies must be knowledgeable about consumer protection laws and recognize whether their practices could be construed as deceptive or unfair.
The third major issue is sustainability. We define sustainability as the potential for the long-term well-being of the natural environment, including all biological entities, as well as the mutually beneficial interactions among nature and individuals, organizations, and business strategies. With major environmental challenges such as global warming and the passage of new environmental legislation, businesses can no longer afford to ignore the natural environment as a stakeholder. Companies with an effective environmental management system certified by ISO 14001—an international environmental management standard—tend to have improved financial performance in the long run. Even industries traditionally considered high in pollution, such as the oil and gas industry, are investing in sustainable practices like alternative energy. Because sustainability is a major ethical issue, we cover this topic in more detail in Chapter 12.
Corporate governance is the fourth major issue of corporate social responsibility. Corporate governance involves the development of formal systems of accountability, oversight, and control. Strong corporate governance mechanisms remove the opportunity for employees to make unethical decisions. Research has shown that corporate governance has a positive relationship with social responsibility. For instance, one study revealed a positive correlation with corporate governance and corporate social responsibility engagement. Additionally, firms with strong corporate governance mechanisms that prompt them to disclose their social responsibility initiatives can establish legitimacy and trust among their stakeholders. We discuss corporate governance in more detail later in this chapter.
2-4Social Responsibility and the Importance of a Stakeholder Orientation
Many business people and scholars question the role of ethics and social responsibility in business. Legal and economic responsibilities are generally accepted as the most important determinants of performance. “If this is well done,” say classical economic theorists, “profits are maximized more or less continuously and firms carry out their major responsibilities to society.” Some economists believe if companies address economic and legal issues they satisfy the demands of society, and trying to anticipate and meet additional needs would be almost impossible. Milton Friedman has been quoted as saying “the basic mission of business [is] … to produce goods and services at a profit, and in doing this, business [is] making its maximum contribution to society and, in fact, being socially responsible.” Even with the business ethics scandals of the twenty-first century, Friedman suggests that although those individuals guilty of wrongdoing should be held accountable, the market is a better deterrent to wrongdoing than new laws and regulations. Thus, Friedman would diminish the role of stakeholders such as the government and employees in requiring businesses to demonstrate responsible and ethical behavior. Friedman’s capitalism is a far cry from Adam Smith, one of the founders of capitalism. Smith developed the concept of the invisible hand and explored the role of self-interest in economic systems; however, he went on to explain that the “common good is associated with six psychological motives and that each individual has to produce for the common good, with values such as Propriety, Prudence, Reason, Sentiment and promoting the happiness of mankind.” These values correlate with the needs and concerns of stakeholders. Smith established normative expectations for motives and behaviors in his theories about the invisible hand. For instance, he distinguished justice as consisting of perfect or inalienable rights, such as the right to property, from beneficence, consisting of imperfect rights that should be performed but cannot be forced. A stakeholder orientation perspective would advocate managers take into account both the perfect and imperfect rights of stakeholders. Yet when trade-offs are necessary, justice should be given priority over beneficence.
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