Leaders in the same organization may even differ among themselves with respect to66
the importance they place on various stakeholders,
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their beliefs as to the positive/negative consequences that different stakeholders
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will enjoy/suffer, and
their beliefs as to the likelihood that certain consequences will occur.
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Consider a sample of stakeholder issues that have ethical implications by leaders within an organization as well as between organizations.67 Some leaders think it is ethically right to give uniform raises to all employees when raise money is extremely limited. Others think it is ethically right to continue to give performance-based raises in such circumstances. Some leaders think it is ethically right to focus only on per- formance evaluations when conducting layoffs. Others think it is ethically right to consider employee personal considerations. Some leaders think it is ethically right to monitor employees’ nonworkplace conduct. Others think it is ethically right to limit surveillance to workplace conduct such as theft and personal use of the Internet. Some leaders think it is ethically right to outsource as much work as possible to firms in foreign countries as a means of cutting labor and other costs to maximize profits for shareholders. Others think it is ethically right to retain as much work as possible in house within the home country.
The following Ethics Competency feature reports on the importance of mul- tiple stakeholders to Johnson & Johnson’s in striving to behave ethically as expressed through its credo.68 Johnson & Johnson (J&J) invents, develops, and produces health- care products for the consumer, including pharmaceutical, medical devices, and diag- nostic markets. J&J is headquartered in New Brunswick, New Jersey, and has more than 250 companies operating in 60 countries. The firm has approximately 119,000 employees.69 Over a number of years, Johnson & Johnson has received numerous awards for “walking the talk” with respect to living stakeholder ethics as expressed through its credo. Three of the recent ones include (1) rated number one by Barron’s on their world’s most respected companies list, (2) rated top 10 in Fortune magazine’s most admired companies, and (3) honored by Boston College’s Center for Corporate Citizenship as one of the most socially responsible companies.70
William C. Weldon, chairman and CEO, comments
“Johnson & Johnson is governed by the values set forth in our Credo, created by General Robert Wood Johnson in 1943. These principles have guided us for many years and will continue to set the tone of integrity for the entire Company . . .”
The J&J statement of Our Credo follows:
We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs, every- thing we do must be of high quality. We must constantly strive to reduce our costs in order
to maintain reasonable prices. Customers’
orders must be serviced promptly and accu- rately. Our suppliers and distributors must have an opportunity to make a fair profit. We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mind- ful of ways to help our employees fulfill their family responsibilities. Employees must feel
Ethics competency
Sustainable Development
The protection of the natural environment is a key area of growing commitment and interest by organizations and stakeholders. Anne Mulcahy, chairman of Xerox, reflects this perspective in commenting: “Sustainable development is a proven catalyst for Xerox innovation. Repeated recognition by independent groups affirms both the economic and social value of our long-standing commitment to corporate sustainability.”71
Sustainable development is a pattern of resource use that strives to meet current human needs without compromising the ability of future generations to meet their own needs.72 The issues addressed under the umbrella of sustainable development are wide rang- ing. For example, the United Nations Division for Sustainable Development identi- fies 96 core indicators of sustainable development within a framework that contains 14 themes. A few of these themes include atmosphere, consumption and production patterns, land, freshwater, oceans, seas, and coasts, economic development, and natural hazards.73 Sustainable development is an area of major interest and increasing com- mitment by organizations—both private and public. Businesses often make reference to sustainability rather than sustainable development, a term that dominates the public and academic sectors.74
free to make suggestions and complaints.
There must be equal opportunity for employ- ment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical.
We are responsible to the communi- ties in which we live and work and to the world community as well. We must be good citizens—support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources.
Our final responsibility is to our stock- holders. Business must make a sound profit. We must experiment with new ideas.
Research must be carried on, innovative pro- grams developed and mistakes paid for. New equipment must be purchased, new facili- ties provided and new products launched.
Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return.
To learn more about Johnson & Johnson, go to www.jnj.com.
AP PHOTO
Robert Wood Johnson, author of Johnson &
Johnson credo.
The ethical rationales used for pursuing sustainability are many and often vary among business firms and their stakeholders. As one might expect, business firms are attracted to sustainability initiatives when top management comes to recognize that these are good for the organization. Sustainability initiatives often require capital investments with possible positive financial returns in the long run, but until recent years, were often perceived by top executives as costs incurred at the expense of cur- rent profits. At McDonald’s, one of the driving forces for sustainability is increased energy efficiency. McDonald’s spends more than $1.5 billion a year around the world to power its restaurants. About 80 percent of an average restaurant’s energy use is devoted to heating and cooling systems and running cooking appliances. Lighting is another significant draw. Robert Langert, McDonald’s vice president for corpo- rate responsibility, comments: “Energy is really our No. 1 issue. When you look at the dollars we spend, and the impact we have on the environment, and the progress we can make to do better, and use our size and influence to make a difference, it’s energy.”75 A few of the sustainability initiatives for addressing energy management at McDonald’s include76:
Pilot projects with a handful of recently built green restaurants. The one com-
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pleted in Chicago in 2008 has a green roof, a permeable parking lot, a 20,000- gallon underground cistern to capture runoff water, LED lighting outside and a daylight harvesting system inside. Elsewhere green stores are planned for Brazil, France, Canada, and Germany.
Internally, it provides employee education and operates an Energy All-Star recog-
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nition program that showcases innovations, best practices and outstanding efforts on the part of workers.
Externally, the company requires its suppliers to join McDonald’s in working to
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improve any aspect of their business operation that affects the environment. The company does not mandate goals, but does require suppliers to provide annual measurements to McDonald’s in four environmental areas: energy use, water consumption, waste and recycling, and air pollution.
Organizations that actively address sustainability issues benefit in a variety of ways.
Most obviously, it often benefits their long-term profitability and, thus, shareholder interests. They build reputations for being responsible with multiple stakeholders. But they also develop new and valuable organizational capabilities. They learn to integrate the concerns of multiple stakeholders when planning and making key decisions. These organizations further develop abilities to innovate and learn. This is not to suggest that the leaders of business firms will always perceive sustainability initiatives and their relative merits as do other stakeholders.77 Yet, the opportunities for win–win relationships between stakeholders, especially shareholders and others, are increas- ingly evident in new organizational initiatives.
For example, DuPont seeks to increase its financial prosperity through strategies that simultaneously produce reductions in the organization’s environmental footprint.
Its strategies for sustainable development include integrated science and knowledge intensity. DuPont integrated the scientific fields of chemistry and bioengineering to produce a new line of polymers, called Sorona. This material has most of the desir- able characteristics of older materials such as nylon, Dacron, and Lycra. However, unlike its predecessors, Sorona is produced using fermented corn sugar, a renewable resource, rather than the petrochemical-derived materials it replaces. Knowledge intensity is increased by initiatives including the creation of Simplyengineering, which generates revenue from selling copyrighted engineering guidelines, calculations, and models, as well as SafeReturns, a DuPont consultancy that helped Texas Instruments reduce its workplace injuries by 65 percent.
The environmental sustainability attained by DuPont’s integrated science and knowledge intensity strategies is assessed with a customized metric called the “share- holder value added per pound of production” (SVB/lb). This metric helps DuPont
focus on shareholder value creation through increased productivity, waste reduction, and the development of new services and other sources of revenue generation. At the same time, it assists DuPont in meeting its goals for decreasing energy consumption and toxic emissions—all essentially by producing “more value and less stuff.”78
Assessing Responsibility to Stakeholders
With heightened interest in stakeholder responsibility, many organizations are discov- ering that they can’t avoid having others assess how well they perform in this respect.
Business sources, such as Fortune, Forbes, and the Dow Jones Sustainability Index, rate various aspects of organizational and stakeholder achievements annually. Many stake- holders are pressuring business leaders to abandon the practice of placing their sole emphasis on short-term shareholder profits and to instead contribute more actively to other stakeholders. One approach to assessing an organization’s stakeholder and ethical responsibility is to consider whether it merely reacts to ethical pressures as they arise or anticipates and addresses ethical concerns proactively. Several themes found in firms with a proactive commitment to assessing its stakeholder ethics and responsibility are discussed next.79
Disclosure
The firm is transparent, providing comprehensive stakeholder environmental informa- tion to the public. The firm produces reports annually that review its stakeholder and environmental policies, goals, and achievements as well as financial performance. The firm often provides stakeholder and environmental information on its company website or in other published materials, as with McDonald’s, Xerox, and Johnson & Johnson.
A strong corporate responsibility report might use the Global Reporting Initiative (GRI) guidelines as a framework for reporting. The GRI is a not-for-profit organization located in Amsterdam, The Netherlands. It suggests global standards that improve the consistency and comparability of reports. Some companies are now producing “In Accordance with GRI” reports. This is the highest level of disclosure recognized by the GRI. The organization also provides disclosure of goals and per- formance for key stakeholder and environmental metrics, such as workplace diversity data, workplace safety data, and energy consumption data.80
Communication and Engagement
The firm actively seeks to communicate with various groups about its environmental performance. This allows the organization to present progress made and to learn from the groups about what future expectations may be. In some cases, such as AT&T, Xerox, and Walmart, the firm will have established a “road show” through which it meets with various groups about stakeholder and environmental performance or development areas of concern. The firm uses advisory committees to solicit regular input on key issues. Communication is a precursor to action. The firm takes what it learns from the interaction with stakeholders and strives to ensure that business prac- tices adapt to meet changing needs.
Proactive Management
The firm is committed to going beyond minimum compliance requirements and integrating stakeholder responsibility into board governance, executive compensa- tion, and management policies. Compliance is no longer enough—if indeed it ever was. The leaders integrate stakeholder and environmental issues into both day-to-day operations and into its managerial, executive, and fiduciary governance. This can mean creating a stand-alone corporate responsibility department and a cross-functional executive committee. At the board level, the firm has a corporate stakeholder respon- sibility committee to regularly evaluate and oversee social and environmental issues. It
has a formal chain of command to handle these issues—from the board through line employees—to ensure that progress is not driven solely by crises.
The organization recognizes that these issues will not be led properly unless they are included in management compensation incentives and reviews. There are ways to measure stakeholder and environmental progress, determining the proper metrics and setting up systems to collect relevant data, such as air and water pollution levels, workforce diversity, employee turnover, employee safety, energy consumption, and product safety.
Creating Shareholder Value
The organization views stakeholder responsibility as central to its long-term efforts to create shareholder value. It looks at how stakeholder and environmental issues can affect sales, costs, and reputation. For example, on the sales side, the firm recognizes that future sales depend on delivering products that are kinder to the environment, such as fuel-efficient cars or energy-efficient computers. The well-managed company recognizes the need for diverse workforces, managers, and boards to relate to the increasing diversity of its consumer base. From a cost perspective, it recognizes that proactive leadership of environmental and stakeholder risks can substantially lessen the uncertainties and liabilities created by changing regulatory requirements and new knowledge of emerging risks. Top leaders recognize that costs can be reduced through environmental initiatives, such as reducing energy intensity or minimizing waste. There is a recognition that its customers, suppliers, employees, and others would rather do business with a company that is mindful of its power and its ability to affect people’s lives.
Xerox’s Self Assessment
Xerox is a firm that mirrors these four themes. The 58-page Xerox document titled Our Commitment to Global Citizenship: The 2008 Report illustrates our point. A few of the comments by Anne Mulcahy, the chairman of Xerox, suggests the firm’s sense of stakeholder and environmental responsibility and ethics. She comments81:
Our people take great pride in the culture they have created—a culture that val- ues Xerox both as a profit-making enterprise and as an institution that strives to be a positive force in the world around us. You will see that philosophy running throughout this report. It’s organized around five themes that capture the essence of our citizenship efforts.
Conducting our business with integrity and transparency builds credibility
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and attracts investors.
Aligning our resources around customer need provides the revenue stream
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that enables investment in innovation and future growth.
Nurturing a greener world through sustainable innovation and development
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saves money, creates value and helps develop new markets.
Creating a great workplace for our people strengthens our competitiveness.
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Leveraging our resources to make our world better improves the quality of
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life for our people and the economic climate for our customers.
A number of specific measures (data) and discussions are presented for each of these themes. Consider this one example. Xerox is well on the way to achieving the goal of a 25 percent reduction in greenhouse gas emissions by 2012. In the five years between 2002 and 2007, it cut energy consumption by 19 percent and greenhouse gas emissions worldwide by 21 percent. And in support of customer climate protection goals, 80 percent of new products introduced in 2007 met the U.S. Environmental Protection Agency’s tougher ENERGY STAR requirements.
Stages of moral development are stages through which individuals evolve, ranging from the lowest stage (obedience and punishment orientation) to the highest stage (universal ethical principles). These personal phases of moral development focus on the ethical reasoning used to justify choices in decision situations. The higher stage of moral development is used by some as an indicator of moral intelligence—the mental capacity to determine how universal ethical principles that cut across the globe should be applied to personal values, goals, and actions.
Ethical misconduct in the workplace continues to be demonstrated by some indi- viduals from the top through the lowest levels of the organization. The creation of a strong ethical culture by leaders makes a major difference in the frequency and severity of ethical misconduct. Severity of misconduct is illustrated through the six factors that comprise ethical intensity—the degree of moral importance given to an issue. Numerous principles and rules have been suggested to provide an ethical justification for a person’s and organization’s decisions and actions. We highlighted three self-serving principles, three balancing interests principles, and three con- cern-for-others principles. The complexity of applying these principles and rules is often played out in decision-making situations in which the parties assess their rela- tive concern for the affected individuals, the benefits and costs of alternative courses of action, and determination of who has what rights. The parties’ satisfaction with how these thorny ethical issues are resolved depends somewhat on the presence of procedural justice—the perceived fairness of the rules and guidelines used to make decisions—and interactional justice.
Diversity must be accompanied by an ethical foundation to be meaningful. The imple- mentation of diversity initiatives is typically anchored in one or more of the balancing interests principles and concern-for-others principles. Positive diversity is very much influenced by the presence of an ethical culture. We reviewed a profile of organiza- tional characteristics that foster an effective diversity environment. We reviewed the four broad categories of generation diversity and how each of these generations tends to view the ethical standards of those in their own generation and those in other gen- erations. Harassment and sexual harassment, in particular, was discussed as an ongoing challenge in organizations. The legal, ethical, preventive, and corrective dimensions of sexual harassment were reviewed.
Stakeholder responsibility holds that leaders and other employees have obligations to identifiable groups that are affected by or can affect the achievement of an organiza- tion’s goals. Various stakeholder groups use various ethical principles as a basis for justifying stakeholder responsibility. Each stakeholder group typically has somewhat different expectations of the organization. Leaders of organizations are increas- ingly challenged by stakeholder pressures, each with its own configuration of ethical justifications, to make decisions and pursue goals consistent with its own interests.
Sustainable development was presented as a domain with ethical underpinnings and one in which stakeholders may find common grounds for action. Leading for-profit organizations are increasingly embracing the need to accept and assess responsibility to multiple stakeholders—not just their shareholders. However, shareholders con- tinue to be the dominant stakeholder group for top executives. Effective means of accepting responsibility to stakeholders include indicators of (1) disclosure, (2) com- munication and engagement, (3) proactive management, and (4) creating long-term shareholder value.
1. Describe the stages of moral and ethical development.
2. Explain and apply the core concepts used by individuals and organizations to make ethical decisions.
3. Describe some ethics-based initiatives for fostering diversity in organizations.
4. Explain the nature of stakeholder responsibility and its ethical basis.