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CHAPTER 1SOCIAL RESPONSIBILITY FRAMEWORKANSWERS TO THE DISCUSSION QUESTIONS: Define social responsibility. How does this view of the role of business differ from your previous perceptions? How is it consistent with your attitudes and beliefs about business? The text defines social responsibility as ...

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CHAPTER 1 SOCIAL RESPONSIBILITY FRAMEWORK ANSWERS TO THE DISCUSSION QUESTIONS: 1.

Define social responsibility. How does this view of the role of business differ from your previous perceptions? How is it consistent with your attitudes and beliefs about business? The text defines social responsibility as the adoption by a business of a strategic focus for fulfilling the economic, legal, ethical, and philanthropic responsibilities expected of it by its stakeholders. How students respond to this definition will vary based on their previous perceptions and beliefs.

2.

If a company is named to one of the “best in social responsibility” lists, what positive effects can it potentially reap? What are the possible costs or negative outcomes that may be associated with being named to one of these lists? As with other forms of publicity, being named to a “best in social responsibility” list can help improve a company’s image, reputation, and overall standing with stakeholders. For example, employees will take pride in working for a company that receives such an honor. Customers and suppliers may be more willing to conduct business with a firm that is widely regarded, recognized, and trusted for its positive behaviors. However, companies that self-promote or otherwise unjustly gain this reputation may become targets of close scrutiny. Now the company will be expected to live up to the standard that is expected from being named to one of these lists. If the company doesn’t continue to make the list, customers might believe the firm lowered its standards or isn’t as ethical or qualified as other firms. Because every company has a number of risk areas and therefore is not immune to problems, there is risk in touting a firm’s social responsibility activities and achievements. In this case, one misstep could create problems that harm a company’s solid reputation.

3.

What historical trends have affected the social responsibilities of business? How have recent scandals affected the business climate, including any changes in responsibilities and expectations? In the 1950s and 1960s, corporate managers were placed under few restraints in their administrative practices. But instead of abusing the privilege, a majority of managers and companies used the opportunity to cultivate positive public relations and enact various social endeavors. Corporate dollars were invested in communities, including charitable, artistic, and cultural activities. This trend changed in the 1970s and 1980s due to economic turmoil. In order to protect themselves in the wake of increasing threats and instability, companies began to focus more on their core competencies and attempted to reduce product diversity. The 1980s and 1990s found corporations focusing more on profitability and economies of scale. The main objectives became efficiency and productivity. However, the need for corporate responsibility was renewed in the 1990s, partly due to various business scandals. In the text, Mark Lilla summarized these trends. He states that in the 1960s, we developed a stronger interest in social issues and the need to resolve them. Then the economic turmoil of the 1980s gave notice to the negative influence that companies have on society when they become primarily profit-oriented. In trying to balance the global market economy and an interest in social justice, the need and intent for social responsibility was increasingly realized in the 1990s. This trend will continue into the 2000s, as recent events in the business environment have created a solid focus on the role of business in

society. For example, the terrorist attacks in September 2001 brought workplace safety, crisis management, and many other social responsibility and stakeholder expectations to the forefront. Corporate crises in 2001 and 2002 further emphasized the need for businesses to take a serious approach to responsibility and resulted in new legislation. The financial crisis and economic recession of 2008 and 2009 tested social responsibility efforts enacted after the 2001 and 2002 crises and highlighted remaining weaknesses in business mechanisms and strategies. 4.

How would you respond to the statement that this chapter presents only the positive side of the argument that social responsibility results in improved organizational performance? Chapter 1 obviously presents the positive aspects of social responsibility and spends less time on the costs of these initiatives. While critics may argue that concepts and ideas advanced in the chapter are “pie in the sky” or naïve in some way, performance benefits are key to the practical application of social responsibility to business. Performance is a component of the social responsibility framework discussed in Chapter 1. Before approving any company initiative, managers and executives need evidence of the potential positive effects on performance. This chapter provides the type of evidence that is needed to persuade and motivate managers and executives to implement social responsibility programs. Companies that do not invest in and support social responsibility may experience a lack of public trust, less employee and customer commitment, and other effects that are counter to or opposite from the positive benefits advanced in the chapter.

5.

On the basis of the social responsibility model presented in this chapter, describe the philosophy, responsibilities, and stakeholders that make up a company’s approach to social responsibility. What are the short- and long-term outcomes of this effort? The model indicates how a company’s strategic philosophy centers on social responsibility. The four social responsibilities that a company accepts under this philosophy are economic, legal, ethical, and philanthropic. The stakeholders that are affected by this claim to social responsibility include employees, investors, customers, business partners, the community, the government, and the environment. Some short-term outcomes of social responsibility are financial performance and reputation. Long-term outcomes are commitment and trust that develop between the firm and various stakeholders.

6.

Consider the role that various business disciplines, including marketing, finance, accounting, and human resources, have in social responsibility. What specific views and philosophies do these different disciplines bring to the implementation of social responsibility? All functional areas have a role and responsibility in the social responsibility orientation and outcomes of any organization. The marketing area of the corporation must be ethical in marketing the firm’s product, such as not using exaggeration in sales presentations or misleading advertising. The finance and accounting department must ensure the product is being sold at the price that provides value to the customer and profitability to the firm. Accounting and finance personnel must also make sure that information presented on all financial reports is accurately represented and that these reports are available to all stakeholders. The human resources department must keep a constant and positive relationship with all employees and other stakeholders. Thus, every department has a role in developing positive and trusting relationships with stakeholders. Beyond specific responsibilities, each department and discipline brings a unique perspective that can greatly enrich the social responsibility effort. For example, employees in human resources are knowledgeable about the practices that lead to better relationships with employee

stakeholders. The finance department is acutely aware of investors’ expectations, whereas the marketing discipline specializes in understanding the needs and perceptions of customer groups. Accounting provides an expertise in tracking expenditures and measuring value with a variety of constituents. Thus, the particular stakeholder expertise of a department can be integral for developing mutually beneficial relationships and strategic responsibility.

CHAPTER 2 STRATEGIC MANAGEMENT OF STAKEHOLDER RELATIONSHIPS ANSWERS TO THE DISCUSSION QUESTIONS: 7.

Define stakeholder in your own terms. Compare your definition with the definition used in this chapter. A stakeholder is someone who may affect or be affected by a company. This is a very broad definition that offers little detail on what is meant by company, such as its operations, productions, employees, suppliers, shareholders, and customers. These are considered in more depth in this chapter.

8.

What is the difference between primary and secondary stakeholders? Why is it important for companies to make this distinction? Primary stakeholders are groups that are fundamental to a company’s operations and survival. Secondary stakeholders are influenced by and influence the firm but are not engaged in economic exchanges with the firm or fundamental to its daily survival. It is important for the managers to understand that, although primary groups may present more day-to-day concerns, secondary groups cannot be ignored or consistently given less consideration in the social responsibility process. Secondary stakeholders can still greatly influence the company.

9.

How do legitimacy, urgency, and power attributes positively and negatively affect a stakeholder’s ability to develop relationships with organizations? Power can be used both positively and negatively and involves coercive, utilitarian, and symbolic measures. Symbolic power is the least threatening because it involves the use of letters, advertising, websites, and other media to generate awareness on an issue. If power is used in concert with disparagement or violence, the stakeholder’s means may overshadow its ends or desired goals. By having a valid concern and the ability to communicate effectively, a stakeholder gains legitimacy and can positively influence its relationships with organizations. However, a stakeholder who presents false or inaccurate information will suffer from illegitimacy. This could cause organizations and other stakeholders to turn their backs on the group that is trying to negotiate or communicate. Urgency might cause a stakeholder group to start protests and actions in advance of having full information or legitimacy. This situation would negatively affect its relationship with the organization. However, urgency could help the company recognize an emerging issue, and the group with an urgent claim that has legitimacy and positive power may assist the company in becoming a better corporate citizen.

10. What is reputation management? Explain why companies are concerned about their reputation and its effects on stakeholders. What are the four elements of reputation management? Why is it important to manage these elements? Reputation management is the process of building and sustaining a company’s good name and generating positive feedback from stakeholders. If a company’s reputation is mangled, it will take a long time for it to return to its former status, if ever it does. When reputations are damaged or questioned, trust is often a central issue. The loss of trust with key stakeholders has the potential to affect most aspects of the business. The four elements of reputation management are identity, image, performance, and reputation. These elements must be aligned and are determined

by various stakeholders’ views of the company. Recognizing the importance and salience of stakeholder views and beliefs is central to reputation management. 11. Define crisis management. What should a company facing a crisis do to satisfy its stakeholders and protect its reputation? Crisis management is the process of handling a high-impact event characterized by ambiguity and the need for swift action. The company facing the crisis should provide accurate and timely information to stakeholders as events and decisions unfold. Most experts recommend that a company be relatively ambiguous in initial statements so that the company won’t be embarrassed or harmed by incomplete or erroneous information. Company actions and words throughout the crisis will have an effect on reputation, so this period requires solid planning, research, and consideration of the social responsibility philosophy and stakeholder concerns. 12. Describe the process of developing stakeholder relationships. What parts of the process seem most important? What parts seem most difficult? The steps include: (1) assessing the corporate culture, (2) identifying stakeholder groups, (3) identifying stakeholder issues, (4) assessing the organization’s commitment to social responsibility, (5) identifying resources and determining urgency, and (6) gaining stakeholder feedback. The importance of these steps is to include feedback from relevant stakeholders in formulating organizational strategy and implementation. Although there is a “last step,” the process does not begin and end in a distinct way. Instead, relationships need constant and consistent attention. The most important step is to monitor and acknowledge the issues of the legitimate stakeholders. This is also the most difficult step because both the concerns and the legitimate groups could be constantly changing. 13. How can a stakeholder orientation be implemented to improve social responsibility? The degree to which a firm understands and addresses stakeholder demands can be referred to as a stakeholder orientation. This orientation comprises three sets of activities: (1) the organization wide generation of data about stakeholder groups and assessment of the firm’s effects on these groups; (2) the distribution of this information throughout the firm; and (3) the organization’s responsiveness as a whole to this intelligence. Ultimately, a strong stakeholder orientation will improve social responsibility. 14. What are the differences among the reactive, defensive, accommodative, and proactive approaches to stakeholder relationships? These approaches assume different levels of social responsibility and stakeholder orientation. The reactive approach to stakeholder relationships is the least effective because it denies responsibility. The defensive approach admits responsibility but fights it. The accommodative approach accepts responsibility. The proactive approach anticipates responsibility and is most aligned with the concept of strategic responsibility in Chapter 1. For example, in the E. coli outbreak at Jack in the Box restaurants, the company initially used a defensive strategy when it claimed that children may have unwittingly spread the bacteria. The firm also publicized the fact that hundreds of cases of E. coli poisoning occur every year. Later, the firm may have migrated to an accommodative approach, but it still suffered financial losses and a tarnished reputation.

CHAPTER 3 CORPORATE GOVERNANCE ANSWERS TO THE DISCUSSION QUESTIONS 15. What is corporate governance? Why is corporate governance an important concern for companies that are pursuing the social responsibility approach? How does it improve or change the nature of executive and managerial decision making? Corporate governance is the formal system of accountability and control for organizational decisions and resources. Governance is the organizing dimension for keeping a firm focused on continuous improvement, accountability, and responses to varying stakeholder interests. The decision makers now have to take into account many more people than was required before. 16. Compare the shareholder and stakeholder models of corporate governance. Which one seems to predominate today? What implications does this have for businesses in today’s complex environment? The shareholder model is founded in classic economic precepts, including the maximization of wealth for investors and owners. It focuses on developing and improving the formal system of performance accountability between top management and the firms’ shareholders. Under the stakeholder model, the purpose of business is conceived in a broader fashion. Although a company has a responsibility for economic success and viability, it must also answer to other parties, including employees, suppliers, government agencies, communities, and groups with which it interacts. Many businesses have evolved into the stakeholder model as a result of government initiatives, consumer activism, industry activity, and other external forces. Financial return, or economic viability, is an important measure of success for all firms; the legal dimension of social responsibility is also a compulsory consideration. 17. What role does executive compensation play in risk-taking and accountability? Why do some people partially blame compensation for the failures of the subprime mortgage and financial industries in 2008-2009? The SEC believes that compensation may be linked to excessive risk-taking. Performancelinked compensation may encourage executives to focus on short-term performance at the expense of long-term growth. Lucrative financial incentives existed for performance in the financial industry. In the arena of subprime lending, top managers and CEOs were complacent about the wrongdoings as long as profits were good. The use of derivatives became so profitable that traders and managers lost sight of anything but their incentives for selling the instruments. Compensation packages that do not encourage excessive risk-taking may help to minimize the widespread problems experienced in the subprime mortgage and financial industries in 2008– 2009. 18. What is the role of the board of directors in corporate governance? What responsibilities does the board have? The role of the board of directors in social responsibility is to ensure a governance focus. For example, a company’s board of directors appoints its top executives, assesses their performance, helps set strategic direction, and ensures that control and accountability mechanisms are in place. Thus, the board of directors has a fundamental role in corporate governance since it provides the

ultimate oversight for company decisions. The board and officers of the corporation must exercise the duty of care and the duty of loyalty in acting on behalf of the best interests of the firm. 19. What role do shareholders and other investors play in corporate governance? How can investors effect change? Shareholders and investors have assumed risk by investing in the company and are therefore concerned with overall company strategy, executive decision making, resource allocation and use, and performance. These groups are very concerned with governance issues and often express their concerns through shareholder meetings and other means. Because nearly three-quarters of American investors take social responsibility into account, companies are encouraged to change for reasons beyond financial return. Social investments also help individuals and institutions meet their social responsibility goals while providing a strong financial return. 20. Why are internal controls and risk management important in corporate governance? Describe three approaches organizations may take to managing risk. Internal controls are used to limit employee or management opportunism, or the use of corporate assets for individualistic or nonstrategic purposes. Risk management is a control element that allows the company to anticipate and remedy organizational risks. If a risk is categorized as a hazard, then risk management’s main focus is minimizing the negative situation. If a risk is considered an uncertainty, then it will be hedged through quantitative plans and models. Finally, a risk may be considered an opportunity for innovation and entrepreneurship. 21. Why is the issue of executive compensation controversial? Are today’s corporate executives worth the compensation packages they receive? Many people believe that executives have not earned or are not worth millions of dollars in annual salary and stock options. On the other hand, some people believe that executives deserve the rewards they receive because they assume so much risk on behalf of the company. When determining the amount of compensation an executive should be given, achievement of performance g...