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Advantages of Ethical Responsibility in Corporations

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Introduction

In this decade of scandalous business affairs played out in public including Enron, WorldCom and Martha Stewart, there has obviously been a heightened media attention to business ethics and corporate responsibility. However, this issue has plagued companies, governments, and the public for centuries. So, the topic is not so much new as it seems to have been sensationalized.

The purpose of this brief is to review the theories surrounding social and ethical responsibility in the corporate arena today. An analysis of the advantages for organizations in the business community to conduct themselves in this manner is also offered. As well, specific situations where a company may jeopardize or harm its stakeholders are considered. Finally, a quick look at Dell computers and how corporate responsibility plays in its overall business activity is provided.

Socially and Ethically responsible: What does that mean?

There has certainly been a shift in thinking since Milton Friedman penned his classic essay on corporate responsibility, claiming that the main responsibility any business actually had was to make a profit (Friedman, M 200, pp. 51 – 55). Although some still concur that his original theory was correct and should be applied to businesses today (The Ethics of Business, 2005, p.21).

Much has been written and many theories have been proposed regarding business ethics in general. It’s been given many names like corporate responsibility, corporate social performance, social consciousness, and social accounting. Two main theories for corporations acting socially and ethically responsibility are the stakeholder theory and the social contract theory (Cooper 2004, pp. 20-26). For the purpose of this study, focus will be placed on the stakeholder theory, which focuses primarily on the interest of the stakeholders. The social contract theory focuses on society as a whole and the benefits that a business can offer in this capacity (Cooper 2004, p.26).

Utilizing the stakeholder theory helps to provide an outline for measuring a company’s social performance. First, it is important to differentiate between a stakeholder and a shareholder in a company. Shareholders are financially invested in the company and do make it onto the company stakeholder list. What is crucial to understand is that the stakeholder list consists of many groups other than the shareholders. The main stakeholders for most companies (although there are oftentimes many others) include shareholders, employees, consumers, suppliers, and the environment (Cooper 2004, p.6). Additionally, the stakeholder can be though of as a group that is essential for the corporations existence (Brown 2005, p.19). For example, if all the consumers stopped using a certain company’s product, the company would undoubtedly go out of business.

Traditionally, those financially invested in a company as shareholders, have required companies to be financially accountable for their actions. With the growing trend in social and ethical responsibility, stakeholders are now expecting (and sometimes demanding) for companies to provide some type of social accounting.

Back to the main question – what does it mean for a company to be socially and ethically responsible? The question is more difficult that it may seem because so many opinions exist on this manner, so many theories, and so many definitions. When considered at a higher level, it is clear that this topic can be very subjective and in response, most companies develop their own unique requirements to act in a socially positive and ethical manner to keep its stakeholders satisfied. Overall, according to the stakeholder theory, a company operates in an ethical and socially responsible manner when it takes into consideration the affect it may have on the many factions within society and its own corporate structure that is may have some responsibility (Cooper 2004, p.21).

An example as it relates to one specific stakeholder group is the employees. When a company acts socially responsible for its employees, it offers adequate employee remuneration, job security, and health and safety (Cooper 2004, p. 123).

Why should an Organization be Socially and Ethically Responsible?

Our society is in the midst of the Information Age where zillions of megabytes of information are available to consumers with a few clicks on the keypad. Because of this, more and more consumers are putting their money where there mouth is before purchasing products. Many consumers are interested in the social and ethical behavior of organizations in general and will let it affect their purchasing decisions. In addition, there are ample resources for consumers to find information on most large companies without relying solely on that company’s website or annual report, which can be presented in manners that only reflect positively on the company in question. For example, the SocialFunds.com website (www.socialfunds.com) touts itself as “the largest personal finance site devoted to socially responsible investing”. Here, a potential investor, consumer, or interested community member can find specific information about many company’s and its specific efforts in the corporate social responsibility arena.

Another reason why a company should act socially and ethically responsible is for company image and public relations. Not just for consumers, but for suppliers, investors, potential partners, and employees. For example, any employees take pride in working for a company that is seen as holding high standards for business ethics. It reflects on the way they feel they are treated in the workplace, how they perform their jobs, and their company loyalty. As well, companies benefit from this positive image by attracting highly qualified employees.

An important motivator in companies acting socially responsible is avoiding expensive legal battles if it is found that it was aware of a problem and didn’t bring it the public’s attention. The big tobacco lawsuits are an excellent example of the enormous costs a company (or consortium of companies) can incur in this type of situation. Not to mention the horrific public relations and negative press that can result.

Why do organizations act in ways that may harm their Stakeholders?

There are multiple reasons why a company may act in a way that is considered harmful to its stakeholders. The pressure to make a profit and conflicting stakeholder interests are two key reasons this occurs. Many companies create stakeholder maps that help to categorize and “rank” the many segments of stakeholders (Johnson & Scholes 2001, p.168). Sometimes, the desire of one stakeholder group supercedes the desires of another because of the internal power ranking assigned to stakeholders to help manage these conflicts. In the case of conflict, many companies attempt to change the “orientation” of these stakeholders, sometimes involving someone who is considered an impartial party but who has influence over that group (Johnson & Scholes 2001, p. 180).

It is interesting to consider a classic example of a company that did not act in the best interest of its customers, a very large stakeholder, in the Ford Pinto Case. In summary, back in the late 60’, Ford was in a rush to get its Ford Pinto out the door to compete with some tough competition from Japan. Right before release, during the crash test phase, a flaw in the location of the gas tank was identified. After a cost benefit analysis was conducted, it was concluded that Ford could not cost justify the $11 per car it would cost to fix the defect. Ford projected costs to fix the flaw at $137 million and the projected benefits to be paid to cover repairs, injuries and deaths to be $49.5 million. Cost to repair cars, replace cars, and pay insurance policies for potential deaths came to a much lower number so Ford released the cars without fixing the defect. In the end, Ford was the first American company to ever become indicted or prosecuted on criminal homicide charges and ended up paying much more in legal fees and jury awards (one case alone was awarded $128 million) than they ever would have paid just to fix the problem before release of the product. Of course, this is an extreme case but a clear example of the consequences of a lack of moral and ethical responsibility from a company.

Dell Computers – What have you done for your Stakeholders Lately?

Often, it is easy to discuss the topics of corporate responsibility and business ethics in theory but difficult to see them applied in actual business practices. Dell Computers (Dell) has clearly embraced the new era of social and corporate responsibility and it is evident on its website (www.dell.com). In fact, Dell has even created a position to uphold its high level of commitment to corporate social responsibility. Thurmond B. Woodard is the Chief Ethics and Compliance Officer: Vice President, Global Diversity and oversees the programs that work to promote and ensure corporate social responsibility for Dell. Dell also boasts of it commitment to the environment, its code of conduct, and the “Soul of Dell”, all addressing issues that affect adherence to corporate ethics and specific stakeholder interests (www.dell.com).

Not only does Dell promote its commitment to high standards of business ethics on its website, but it is also proactively involved with many initiatives within the industry to improve corporate ethics (Miel 2005). Dell joined many of its other industry leaders to create the Electronics Industry Code of Conduct about a year ago. The industry is attempting to be proactive in maintaining a positive image when it comes to ethics, especially after the very public scandals over the last few years. Manufacturers are asked to sign the code which outlines protections for employee safety, child labor concerns, working conditions, and much more (Miel 2005).

Conclusion

In summary, this brief outlines incentives for corporations today to act in a socially correct and ethical manner. As well, theories and definitions have been provided regarding what should be expected from a socially responsible organization. Some companies end up acting in ways that are considered to be harmful to some stakeholder groups and this in also reviewed. Finally, Dell is offered as a current company that is positioning itself as a highly socially conscious and ethical company.

References

Birsch, D 1994, The Ford Pinto Case: A Study in Applied Ethics, Business, and

Technology, State University of New York Press, Albany, NY.

Brown, M 2005, Corporate Integrity: Rethinking Organizational Ethics and Leadership,

Cambridge University Press, New York.

Chief Ethics and Compliance Officer; Vice President, Global Diversity 2005. Retrieved

October 31, 2005 from http://www1.us.dell.com/content.

Corporate Social Research Center 2005. Retrieved October 31, 2205 from

http://www.socialfunds.com.

Cooper, S 2004, Corporate Social Performance: A Stakeholder Approach, Ashgate

Publishing Limited, England.

‘Electronics Industry Institutes Code of Conduct’ 2005, Manufacturing Business

Technology, vol. 23, issue 1, p.12.

Friedman, M 2000, ‘The Social Responsibility of Business Is to Increase its Profits”,

Ethical Theory and Business, Prentice Hall, pp.51-55.

http://www.dell.com

Johnson, G (ed.) & Scholes, K 2001, Exploring Public Sector Strategy, Pearson

Educational Ltd, England.

Lozano, J 2000, Understanding Business Ethics as a Learning Process, Kluwer

Academic Publishers, The Netherlands.

Miel, R 2005, ‘Electronics firms set code for ethical production practices’, Plastics News,

vol. 17, issue 4, pp. 14-15.

‘The Ethics of Business’ 2005, Economist, vol. 374, issue 8410, pp. 20-22. Retrieved

October 31, 2005 from Business Source Premier.


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