Stakeholder Responsibility and Ethics
Stakeholder responsibility holds that leaders and other employees have obligations to identifi- able groups that are affected by or can affect the achievement of an organization’s goals.62 Various ethical principles are used by different parties as a basis for justifying stakeholder respon- sibility. The organization interests principle suggests that leaders should consider the desires or demands of different stakeholders for the good of the organization. The utili- tarian principle suggests that leaders should act on the basis of the relative harm or good from their decisions on each stakeholder group. The distributive justice and golden rule principles suggest that the leaders’ decisions should strive to be equitable and take into account how each stakeholder group might experience and feel about their decisions.
Stakeholders are individuals or groups that have interests, rights, or ownership in an organization and its activities. Customers, suppliers, employees, and shareholders are examples of primary stakeholder groups. Each has an interest in how an organization acts. These stakeholder groups can benefit from an organization’s successes and can be harmed by its mistakes. Similarly, an organization has an interest in maintaining the general well-being and effectiveness of stakeholder groups. If one or more stakeholder
Learning Goal
4. Explain the nature of stakeholder responsibility and its ethical basis.
raise our standards of performance. This means that we also have to do more than simply follow the law: instead, we have to do the right thing—and we have to do it every day. Ethical conduct is the foundation of any lasting business success. For Verizon to suc- ceed and win in the competitive marketplace, our brand must stand for integrity, trust and solid ethical standards. Each of us contributes to Verizon’s success in unique ways, but we share a collective responsibility to “do the right thing” and behave ethically at all times.
Diversity is viewed as an integral part of Verizon’s business. The extensive discussion of diversity on its website (www.verizon.com) states: “At Verizon, diversity means embracing differences and variety including age, ethnicity, education, sexual orien- tation, work style, race, gender and more. When diversity is a part of a company’s culture, as it is at Verizon, everyone benefits—customers, suppli- ers and employees. Diversity isn’t just a concept at Verizon. It’s an integral part of the business.
Diversity drives everything from workforce development and supplier relationships to eco- nomic development, marketing and philanthropy.
Verizon’s Code of Business Conduct clearly spells out what is expected from employees when it comes to valuing and respecting the diversity of others. The commitment to diversity
begins at the top of the company, and progress is measured like any other business objective.
Executives are accountable for promoting diver- sity within their units. They are rewarded for suc- cesses through a performance incentive linked to their short-term compensation.”
Verizon has an explicit diversity strategy. It is expressed as follows: “The goal of our diversity strategy is to have an aligned and integrated workplace where diversity is transparent, and where Verizon is an inclusive organization that leverages the diversity of employees, customers and supplies for increased productivity, profit- ability and an enhanced reputation.” The compo- nents of the strategy include:
The
• Inclusion Index—Measures employ- ees’ sense of belonging through an index developed by our research team based on responses to our Employee Opinion sur- vey. The survey also measures employee satisfaction.
Diversity Performance Incentive
• —A measure
that tracks the workforce composition in each line of business, as well as the number of hires and promotions of diverse candidates. Each line of business has a unique goal, depending upon their individual unit’s composition.
Supplier Diversity
• —Measure derived from the
procurement opportunities and developing and advocating a diversified supplier base.
To learn more about Verizon, go to www.verizon.com.
groups were to dissolve their relationships with the organization, the organization would suffer.63
For any particular organization, some stakeholder groups may be relatively more important than others. The most important groups—the primary stakeholders—are those whose concerns the organization must address to ensure its own survival. They directly impact the financial resources available to the firm. At colleges and universi- ties, these stakeholders include students, parents, faculty members, staff, and suppliers (e.g., food services, utilities, bookstores). They are directly impacted by various deci- sions of the top leaders of the colleges and universities. Secondary stakeholders are also important because they can take actions that can damage or assist the organization.
Secondary stakeholders often include governments (especially through regulatory agencies), unions, nongovernmental organizations, activists, political action groups, and the media. During the recent economic crisis in the United States, the federal government became a primary stakeholder to a number of financial institutions as a result of providing billions of dollars in financial support to them.64
Stakeholder Pressures
Each stakeholder group has somewhat different expectations of the organization.
Each group cares more about some aspects of an organization’s activities and less about others. Leaders have to assess the relative importance of primary and secondary stakeholders, including identification and assessment of the many pressures and issues that must be considered in their decision making. Table 2.3 provides examples of these general types of pressures. All of these stakeholders are demanding to be treated ethi- cally with renewed expectations and pressures for truthfulness and fairness.65 In some situations, there are trade-offs in addressing the preferences of different stakeholders, such as improved benefits being sought by employees versus higher dividend payouts being sought by shareholders. Ethical dilemmas occur for leaders who strive to imple- ment a stakeholder responsibility approach in their decision.
TABLE 2 . 3 Examples of Types of Pressures from Primary Stakeholders
EMPLOYEES
• Pay and benefits
• Safety and health
• Rights at work/global labor standards
• Fair/ethical treatment in hiring, reviews, promotion, and related areas SHAREHOLDERS
• Demands for efficiency/profitability
• Viability (sustainability)
• Growth of investment
• Ethical disclosure of financial information CUSTOMERS
• Competitive prices
• Quality and safe products
• Respect for customers’ privacy
• Concern for environment
• Truthful/ethical advertising and sales practices SUPPLIERS
• Meet commitments
• Repeat business
• Fair trade practices/ethical treatment
Leaders in the same organization may even differ among themselves with respect to66
the importance they place on various stakeholders,
•
their beliefs as to the positive/negative consequences that different stakeholders
•
will enjoy/suffer, and
their beliefs as to the likelihood that certain consequences will occur.
•
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