Solution Manual for Understanding Business Ethics 3rd Edition Peter A. Stanwick, Sarah D. Stanwick Chapter 1-13 Chapter 1 The Foundation of Ethical Thought The purpose of this chapter is to give the students a broad overview of the theoretical foundation that supports ethical decision-making. It is from this theoretical grounding that the students can understand how their decisions related to ethical issues can impact not only themselves but others as well. In addition, this chapter introduces the structure of the textbook which allows the instructor to also explain his or her structure for the class.
Key Learning Points There are a number of key learning points which can be accomplished when this chapter is presented to your students. These learning points include: 1. The chapter introduces the student to the concepts of ethics and business ethics. 2. Ethics is a complex concept to describe. Different philosophies have used different theories in order to help explain and guide ethical behavior. 3. Although some of the theories presented in this chapter were developed over two thousand years ago, they are appropriate and applicable to today‟s business environment. 4. This chapter demonstrates that the eight underlying principles presented in the Global Business Standards Codex are interrelated with each other as well as with the major philosophical theories related to ethics. 5. “Panera Cares Community cafes: A Loaf in Every Arm” demonstrates how one company can address the needs of many stakeholders. 6. Sir Nicholas Winton: A True Humanitarian demonstrates that one person can have an impact on many others by doing “the right thing” even at great personal risk. Panera Cares Community Cafes: A Loaf in Every Arm The opening vignette highlights how one company, Panera Bread, has developed an outreach program of providing food for which the customers will pay only what they can. If the customer does not have any money, they can donate 1 hour of volunteer work in exchange for the meal. An interesting fact is that 60 percent of the customers pay the retail value, 20 percent pay below the retail value, and 20 percent pay above the retail value of the meal.
1. Ask the class how many of them have volunteered for a nonprofit organization. Follow up with those who respond positively by asking them why they volunteered. An additional follow-up question would be to ask if those same students would consider volunteering in the future.
2. How does Panera Bread satisfy the demands of the stockholders by potentially “giving away” food and profits? It could be argued that Panera Bread has an enlightened stakeholder perspective to address the needs of its customers. Not only does this program support those in need in the local communities but it sends a message to all of Panera‟s stakeholders that it is interested in serving their needs. Furthermore, the long-term financial benefit of this program could be that as those customers increase their standard of living, they can afford to pay the full price of the meal and will have become brand loyal to Panera Bread due to this program.
3. Would this type of program work for other restaurants? It is expected that this could create a lively discussion in the class. For those who agree that it could be transferred to other restaurants, the argument could be that the underlying philosophy of the program is to support those people in the local community who have food security issues. Therefore, it should be applicable in any type of food service. For those who say no, it could be argued that Panera Bread probably has higher profit margins on its food than other type of quick service restaurants. Therefore, other fast-food restaurants such as McDonalds and Burger King do not have the flexibility to offer their food at “below cost”.
Definition of Ethics and Business Ethics To introduce the concepts of Ethics and Business Ethics to the students in the classroom, a good starting discussion point would be to ask the students what kind of ethical dilemmas they have faced in the past. A follow-up discussion point would be to ask them what type of ethical dilemmas they think they will face in their jobs after they have graduated.
The Role of Morals It is important for students to understand the three components of morals: individual principles, individual character, and the consequences of the actions. Due to the multifaceted nature of morals, the students need to realize that they may have ethical principles but if their character ignores or down plays the significance of the consequences, “ethical” people can do “unethical” actions. Therefore, the Greed is Good example from the movie Wall Street is a good visual example to highlight this potential conflict. Gordon Gekko believes that he has moral principles,
but based on his unethical character and his disregard for the consequences of his actions, he does unethical activities. Is Greed Good? During this discussion, playing the Greed is Good clip from the movie “Wall Street” (https://www.youtube.com/watch?v=6Da1tDKFfno) will enhance this argument. As they are watching the clip, ask the students to observe how the shareholders emotions shift during the speech to no longer supporting management‟s position on the acquisition to supporting Gordon Gekko‟s proposal. This discussion could also address the issue of a charismatic leader. Gordon Gekko is very charismatic and therefore makes his ideas much more convincing whether they are ethical or not. Why is Studying Ethics Important? The 2012 Ernst & Young study highlighted that 15 percent of the respondents reported that they would be willing to pay a bribe in order to close a deal. A follow-up question for the students would be how many of those respondents would also be willing to give a bribe but did not want to admit an illegal activity on the survey. Furthermore, 39 percent of the respondents stated that bribery was common in their industry. The results of this study have demonstrated that employees are consistently being challenged on their ethical beliefs. Since more employees are evaluated on their individual performance, there is a high financial incentive to perform unethical activities in order “to get the job done”. Therefore, the students need to be aware that they will face numerous ethical dilemmas in their careers and they need to understand what the potential consequences of those actions would have on their professional and personal life. The Foundations of Ethical Theory Types of Ethical Examinations
Descriptive—The presentation of facts that relate to a specific set of circumstances related to an ethical issue. Analytical—Using the facts of the ethical situation to try to understand or analyze the actions of the decision-makers as related to the ethical issue. Normative—A prescribed course of action that is recommended to avoid unethical behavior in future. An Example of Ethical Examinations Using Enron Executives Descriptive—Ken Lay and Jeff Skilling were found guilty of fraud based on their actions as top executives at Enron. Analytical—Ken Lay and Jeff Skilling, through their cognitive lens, believed that they were doing nothing wrong. In addition, if they were doing something wrong doing, they were not aware of it and/or did not bother to ask about it. Alternatively, Ken Lay and Jeff Skilling knew
exactly what they were doing in a calculated attempt to defraud Enron‟s stockholders. Furthermore, they actively tried to conceal their behavior in order to try to avoid prosecution by the federal government. Normative—Need to have a code of ethics that creates real consequences if unethical behavior is detected. Try to ensure that power is not concentrated at the CEO level by having a separation of the CEO and the Chairman of the Board. Have the appointment of a Chief Ethics Officer who reports to the Board of Directors and is accountable to ensure the ethical conduct of all the employees within the firm. Revise the selection and reward system for employees to try and ensure that ethical people are selected and rewarded for their positive ethical behavior.
Teleological Frameworks
Ethical Egoism—Each individual‟s own self-interests drive them. On balance, there are more positive than negative results. Utilitarianism—Each individual‟s actions will be based on providing the greatest good to the greatest number of people. Sidgwick‟s Dualism—The middle ground between Ethical Egoism and Utilitarianism. Sidgwick argues that self-interest can be included in determining the greatest good for the greatest number and that the other two theories are not mutually exclusive. After these three theories have been presented, a good leading discussion point would be to discuss what drives a free market system. If it is individual self-interest, is it an Ethical Egoism based system? If this is true, then why are there so many nonprofit organizations? Could Sidgwick‟s Dualism be the answer—that a free market system is driven both by the extrinsic rewards by the accumulation of material goods as well as the intrinsic rewards of helping others? This would support Sidgwick‟s argument that individual actions need to be explained from the rational benevolence aspect of Utilitarianism and the prudence aspect of Ethical Egoism. At this point, you can refer back to the opening vignette on the Panera Cares program. It could be argued that the Panera Cares program would be an example of Sidgwick‟s Dualism. It is an outreach program which serves the needs of the community (utilitarianism) while still focusing on receiving revenues and profits from the program (ethical egoism). Deontological Frameworks Existentialism—The only person who can determine right and wrong is based on the free will of the person making the decisions. As a result, duty is connected with actions—each individual determines the value of his/her actions. Contractarianism (Social Contract Theory)—All individuals agree to social contracts to be members within society. As a member of society, each individual agrees to certain social norms.
corporate culture. A strongly positive employee supportive culture results in higher employee satisfaction and productivity which more than offsets the financial costs of making special accommodations for pregnant women. For example, Patagonia has had onsite child care for its employees for thirty years.5 You could ask the students how Patagonia factors child care costs in its production process and why Patagonia would do this. Again, the goal of any firm is to attract and retain excellent employees. This is one method in which this goal can be accomplished
2. How often do you think pregnancy is part of the decision process when layoffs occur within a firm? While the firm will never admit that pregnancy may be a factor in the decision to lay off employees, it is expected that it certainty would be a consideration in many firms. However, this firm would not only fixate on pregnancy, but may also make lay off decisions based on other discriminatory criteria such as age, religious affiliation, and sexual orientation. It could be argued that if the firm discriminates against one class of employees, it probably also discriminates against other classes of employees. As a result, the firm would need to try and “cover up” this discriminatory decision-making process in order to avoid potential lawsuits.
3. Do you think there are certain industries that would be more like to fire pregnant women? Do you think there are certain industries that would be less likely to fire pregnant women? The answer to both is yes. It could be argued that male-dominated industries such as brokerage firms and investment banking firms may be more likely to fire pregnant women. Industries that have been traditionally more female dominated such as apparel industries may be more likely to accommodate pregnant women. Two articles that describe the potential discriminatory behavior of male-dominated firms are:
“A Colleague Drank My Breast Milk and Other Wall Street Tales”. The New York Times. January 24, 2016
http://www.nytimes.com/2016/01/24/opinion/a-colleague-drank-my-breast-milk-and-other-wallstreet-tales.html
“Zenefits Once Told Employees: No Sex in Stairwells”. The Wall Street Journal. February 22, 2016
http://www.wsj.com/articles/zenefits-once-told-employees-no-sex-in-stairwells-1456183097
5
http://www.patagonia.com/us/product/family-business-30-years-of-innovative-on-site-child-care-hardcoverbook?p=BK760-0
Chapter 8 Ethics and the Environment The purpose of this chapter is to highlight the ethical issues that can pertain to firms when they make decisions impacting the natural environment. The students will be presented material which explains the ethical challenges of addressing natural environment issues. In addition, students will be exposed to how companies can use the natural environment to enhance their competitive advantage and can be directly included in firms‟ performance evaluation as part of the triple bottom line. Furthermore, current environmental issues such as environmental sustainability and climate change will also be addressed in the chapter. The chapter also addresses how firms can use climate change as a strategic option. Key Learning Points There are a number of key learning points which can be accomplished when this chapter is presented to the students. 1. Explain the concept of Tragedy of the Commons and integrate it with environmental ethical issues. 2. Comment on the natural environment as a stakeholder and as a competitive advantage. 3. Identify areas in which firms can be environmentally proactive. 4. Describe the various environmental stakeholders. 5. List some of the major environmental regulations in the United States. 6. Describe some of the benefits of establishing a voluntary partnership with the US Environmental Protection Agency. 7. Explain environmental justice. 8. Describe the importance of a firm‟s carbon footprint. The Intersection of Billboards and Environmental Sustainability: A Peruvian Example (p. 150) This opening vignette highlights how countries and corporations can view improving the natural environment not as a threat, but as an opportunity. In order to help address the need for clean water, billboards were developed which filters the water in the air into a condensed form. A question to ask your students is whether this type of billboard would work in the United States. When they say yes it would, you can follow up with the question as to why these types of billboards are not used in the United States. While the purity of water may not be a concern in the United States, availability of water is a concern. For example, drought areas could benefit from this type of billboard. In addition, major cities would receive benefits from the use of billboards which filter the polluted air into purified air. This example highlights that innovation can occur in any part of the world and could also be transferred to other parts of the world if individuals become aware of the opportunities. The Tragedy of the Commons (p. 151)
The tragedy of the commons highlights the underlying challenge it is to have collective society be protective pertaining to the natural environment. The tragedy of the commons is based on the concept that free access with unrestricted use of any finite resource will ultimately ruin the resource through overexploitation. It is important for students to understand that there is real value in these “free” resources. As a result, there has to be a protection system in place to safeguard the value of these free resources. One question you could ask your students is how much they would be willing to pay for clean air. If you HAD to buy pure oxygen, it would cost approximately $62 for 42 liters based on one medical supply company‟s product. How much is the free air now worth to the students? How much is clean water worth to a student? You can point out that when students buy drinking water in a bottle, if a bottle of drinking water (16 ounces) costs $1 then water would cost $8 per gallon. Now ask them again how much they would be willing to pay for clean water. This example will prove to the students that EVERYONE takes for granted clean air and clean water. If we became a society in which we had to PURCHASE air and water, only the most affluent members of society would be able to survive. A video of Garrett Hardin explaining the tragedy of the commons can be found at http://www.youtube.com/watch?v=L8gAMFTAt2M.
Natural Environment as a Stakeholder (p. 151) As the textbook states, the natural environment could be considered a stakeholder without a voice. By definition, the natural environment should be considered a stakeholder since it has a vested interest in the operations of the firm. Even though it cannot “think” the natural environment reacts both favorably and unfavorably when actions are taken by the firm that have a direct impact. The natural environment “rewards” proactive environmental strategies by providing clean natural resources. Alternatively, the natural environment punishes firms that are “reactive” by having the firms address clean-up and other additional associated costs of production when the natural environment is polluted. Following the axiom “it‟s not nice to fool Mother Nature”, a proactive environmental commitment heightens the ability of the firm to survive in the long term based on environmental sustainability. Alternatively, those firms that view the environment as a “common” may be able to make short term financial gains, but will result in negative impacts in the long term. Since the natural environment does not have a voice by itself (its proxy is environmental NGOs), decision-makers may not value it as a stakeholder. However, as is stated in the textbook, when a firm impacts the natural environment there is also potential impact for other stakeholders. The section concludes with the argument that traditional ethical theory such as utilitarian and Kantian ethics do not include consideration for the natural environment since it is not a human being. It is, therefore, argued that what should be done is redefine a stakeholder, if a stakeholder is a living being then utilitarian and Kant‟s ethics would include the natural environment by considering the greatest good for the greatest number of living beings and it should be a human‟s duty to consider the impact on all living things. Natural Environment as A Competitive Advantage (p. 152)
This section is valuable to the students since it demonstrates the positive value added of considering the natural environment if it is integrated into the strategic focus of the firm. By focusing on the four strategic options, students will understand that there are many financial benefits of considering the natural environment to be a strategic stakeholder. Strategy 1: Eco-efficiency focuses on the design process and the re-evaluation of the design of the product. By considering all by-products in the manufacturing process as a “waste” product, designers can look at more ecofriendly ways to design and manufacture new products. The net competitive result of implementing an eco-efficiency strategy is that it lowers the overall cost structure of the firm, resulting in higher profit margins. Strategy 2: Beyond Compliance Leadership—This strategy gives empirical proof to the firm‟s stakeholders of their environmental commitment. Through the use of an environmental management system (EMS) or certification by the International Standards Organization (ISO 14000), firms are able to generate documentation that shows how they have integrated the natural environment in the manufacturing process. The competitive advantage of implementing a formal EMS and/or being ISO 14000 certified is that it allows the firm to differentiate its products and services based on these systems. The large caveat with this strategic focus is the underlying assumption that consumers acknowledge that there is value added by having the firms implementing these control systems. If the customers do not care whether the firms have an EMS in place or if the firm is ISO 14000 certified, then the customer would not be willing to pay a premium for goods and services that are produced by the firm. Another issue is to ensure that there is consistency in the monitoring of the environmental systems. As was demonstrated in the textbook, Shell Oil faced a large negative backlash when it dumped the Brent Spar oil rig in the North Sea. If the firm uses the natural environment to differentiate its products, it must ensure that the news is always positive as it relates to environmental issues. Strategy 3: Eco-branding is based on the concept that firms use their overall corporate environmental commitment to help brand their products as eco-friendly from a firm that is ecofriendly. It is through this branding that firms would be able to help differentiate their products from their competitors. As was the case with strategy 2—beyond compliance leadership, ecobranding will only succeed if the customers put a premium value on the products and services based on their environmental commitment. The Timberland nutrition label highlights the amount of energy used to make a pair of shoes. This “out of the box” thinking brings interest and positive press reports for Timberland and again can be used to help enhance their competitive advantage. Strategy 4: Environmental Cost Leadership is based on the belief that the reduction of manufacturing costs related to environmental pro-activeness can be converted into lower prices for products and services. Although similar to strategy 1—eco-efficiency, the difference is that environmental cost leadership uses the cost savings in the manufacturing process not to increase the profit margin per unit, but to lower the price of the goods and services. The net result is a lower profit margin per unit, but the assumption is that this will be more than compensated by the volume increase in the number of units sold. Voluntary Environmental Compliance (p. 155)
Voluntary environmental compliance is adopted by firms that want to show the “evidence” to their stakeholders that they are in compliance but do not want to go through a formal process such as the ISO certification. The thirteen recommendations presented by Ramus are traditional areas in which firms could focus initially on environmental issues. From developing an annual environmental report to training the employees on environmental issues, voluntary environmental compliance gives the firms the freedom to pick and choose which areas they would like to focus on to support their environmental commitment. This “buffet” approach gives the firms the flexibility to adopt a combination of activities which best matches the environmental vision of the top management within the firm. How to Adopt Sustainable Strategies using Firm Transformation (p. 155) The six-step process to incorporate sustainable strategies highlights the challenges and opportunities of top-level managers to make a significant transformation impact on the firm. As was the case with Ray Anderson of Interface (Case 11), a CEO can be a driving force in order to fundamentally change the environmental focus of a firm. The top levels must be champions and fully committed to the process in order for the transformation to succeed. Since the process can be challenging, both financially and time consuming, the path of least resistance for many firms in not to attempt this transformation process.
Employees as Environmental Stakeholders (p. 157) Catherine Ramus states that a major reason that proactive environmental initiatives fail is the lack of commitment by the employees. Her remedy is to include employees in the development of the environmental strategy of the firm. 1. Initiatives that decrease the environmental impact of the company through the policies of reuse and recycling. This can be called the first easy baby step of getting employees‟ commitment. This is a simple task to complete, yet the employees will be the first to see the results of their efforts. Furthermore, this task will instill pride in the employees by being able to claim to their friends and family that they have started a reuse and recycling program. 2. Initiatives that solve an environmental problem such as hazardous substance use reduction. This second level of initiatives is more complex and time consuming than the first initiative. However, the employees will further enhance their commitment to environmental issues AND their commitment to the firm because their ideas have moved beyond simple recycling strategies to become actively involved in the design and manufacturing process of the product. It is through the design and manufacturing that the reduction and substitution of hazardous material can take place. 3. Initiatives that develop a more eco-efficient product or service that uses fewer resources and/or less energy. This initiative extends the commitment and the ideas presented in initiative 2. Instead of making incremental adjustments in the design and the manufacturing process which occurs in initiative 2, initiative 3 makes a quantum leap in the process. By actively being involved at the origin stage of the design and manufacturing process, the employees are now the
driving force of innovation and research and development of the firm. As a result, participation in these initiatives allows the ideas of the employees to help drive the future environmental direction of the firm. NGOs as Environmental Stakeholders (p. 158) Nongovernmental Organizations (NGOs) have played a significant role in increasing the level of awareness of environmental issues. The Keep America Beautiful campaign is a classic example of how the environment moved into the forefront of people‟s consciousness. The pinnacle of the campaign was the Public Service Announcement in 1971 which featured Chief Iron Eyes Cody. Here is the clip from YouTube (http://www.youtube.com/watch?v=X3QKvEy0AIk) that can allow your students to evaluate the effects of this Public Service Announcement Greenpeace Greenpeace is one of the best known environmental NGOs. It is active in forty countries and does not rely on donations from governments or corporations. Although some view that Greenpeace is an “extreme” environmental group using tactics like blocking fishing boats and strapping themselves to old forest trees, the impact of Greenpeace‟s message resonates around the world. It believes that these tactics are necessary in order to get its message across. A good way to evaluate Greenpeace‟s image is to do a word association game with your students. Tell them to tell you the first thoughts that come to their minds when you mention Greenpeace. The words used and the description of Greenpeace‟s actions would be a good starting point for a lively discussion. Sierra Club Again, use word association with Sierra Club and the students will probably give you a different type of description. While Greenpeace may be described as “radical” and “extreme”, Sierra Club is probably viewed more of a mainstream NGO that tries to make change within the rules of society. As a result, the image of Sierra Club reinforces the conventional and traditional NGO. Environmental Defense Fund The Environmental Defense Fund is an NGO that was created by a small group of scientists who were motivated to resolve environmental issues after Rachel Carson‟s book Silent Spring was published. In the book, Carson warned that the overuse of pesticides and other chemicals would have such a negative impact on plants and wildlife that the eventual result will be a time when there will no longer be any songbirds to sing in the spring. From this foundation, the Environmental Defense Fund has continued with its mandate to use science and advanced technology to resolve current environmental issues. Friends of the Earth Friends of the Earth could be considered to be the middle ground between Greenpeace and the Sierra Club. While it continues to challenge the status quo and social norms, it tries to make
changes within the system by using current laws to aid its cause. The example in the textbook highlights Friends of the Earth examining the financial statements of publicly traded companies to see how it accounts for environmental investments as well as resolving environmental issues. Communicating the Firm’s Environmental Commitment to Its Stakeholders (p. 159) Stanwick and Stanwick empirically examined the relationship between the firm‟s environmental disclosures and its financial performance. They found that firms that had both an environmental policy and a detailed description of their environmental commitment had higher levels of financial performance than low-performing firms. Two conclusions can be inferred from these results. The first is that there appears to be proof that firms that are environmentally proactive are rewarded with higher financial performance. The second conclusion is that communicating environmental information to stakeholders enhances the firm‟s financial performance. The second conclusion could be due to the fact that stakeholders have a strong positive communication channel with the firm which addresses not only environmental issues but also other firm issues. As a result, the firm enhances the trust of the stakeholders and is also able to make adjustments to its strategy based on the feedback from its stakeholders. The results of the study also showed that firms that had a medium level of financial performance had the highest incidence of environmental policies and description pertaining to their environmental commitment. This result also supports the belief that firms use the natural environment as a way to enhance their competitive advantage and for firms that want to move into the high financial performance category, they believe that being proactive pertaining to the environment can help the firm achieve that goal. US Government Regulations (p. 160) The summary of US environmental regulations highlights that even though people assumed that the government began to become involved in monitoring environmental issues in the 1970s the origin dates back to the 1930s. The variety of government regulations over the past seventy years shows not only how the type of government regulations evolved over time, but so did the types of environmental issues which the regulations were designed to address. Environmental Accounting Issues (p. 160) The financial accounting aspect of environmental issues highlights the gray area in which firms interpret the impact of an environmental issue. If the firm does believe that the environmental issues have a “material” impact of the financial statements of the firm, it will not report with the same rigor as an issue that is considered material. The critical component of this type of reporting is a potential subjective evaluation by the firm and the firm‟s external auditor. If the materiality of the issue is open to interpretation, the firm will probably want to classify the issue as not material. Environmental Justice (p. 161) Environmental justice can be defined as the systematic equal allocation of environmental benefits and burdens. The underlying premise is that certain demographic areas within US cities
were receiving a disproportional negative environmental impact without any positive impact to counterbalance the relationships. For example, incinerators, waste treatment facilities, and heavy polluting manufacturing plants would be located in urban areas that were primarily represented by a certain ethnic group and/or by a certain income level. In addition, there would be no effort in these areas for funding to improve the natural environment in the surrounding community. The NIMBY or Not In My BackYard philosophy continues to hold true where certain communities will continue to battle to block any environmental activity that would negatively impact the local community.
Environmental Sustainability (p. 161) Environmental sustainability is the ability of an organization or a country to protect the use of future resources by properly maintaining and protecting the resources that are currently being used. Sustainability can be defined based on three major components: 1. A system to ensure sustainable management of the earth‟s natural resources. 2. The development of social and institutional structures that would support the sustainable management of the natural resources. 3. Changes in the economic framework so it would support the sustainable management of the earth‟s natural resources. Therefore, it can be concluded that the viability of all firms and the natural environment in the “long-term” is based on being a steward of sustainability. As Hart argues, the approaches to sustainability can vary significantly from country to country. The Major Challenges to Sustainability (Table 8-3; p. 162) presents alternative approaches to sustainability based on financial strength of the country and three critical sustainability issues: pollution, depletion, and poverty. As is shown in the table, many countries in the world (survival and emerging economies) cannot afford to make the same type of financial investments as developed economies to enhance their level of sustainability. Ethics and Climate Change (p. 162) Climate change continues to be a discussion topic in both the economic and political arena. It is important to ask your students whether they believe that greenhouse gas (GHG) emissions are responsible for climate change. You will probably have students supporting both sides of this question. For those who do not believe that GHG emissions are impacting the earth‟s climate, you can comment that even if humanity does not know for certain, would it not be better to take action to reduce GHG emissions instead of ignoring the issue. It would be beneficial to mankind if decision makers took the perspective that the benefits of reducing GHG emissions if it does impact climate change outweigh the costs in the reduction of GHG emissions. Table 8.4 (p. 163) highlights the projected impact GHG emissions will have on the earth‟s climate by 2050. GHG emissions are a global problem which requires global solutions.
Climate Change as a Strategic Option (p. 164) As with many environmental issues, climate change can be considered both a threat and an opportunity. It is a threat for those industries which depend on weather conditions and locations near the ocean and becomes an opportunity for those firms that view climate change as an avenue in order to improve the financial performance of the firm. By focusing on product and process opportunities, firms had not only decreased GHG emissions, but also can improve the competitive position of the firm relative to its competitors. The Effects of Climate Change on the Firm (p. 165) It is important to tell your students that regardless of their beliefs, firms are already adjusting their strategic focus in order to adjust to climate change. For example, shipping companies are focusing on the opportunities of sailing through the Arctic Circle since it is expected that large areas will eventually be free of ice. As a result, industries that are directly impacted by climate change are moving forward to capitalize on new opportunities that were not available in the past. A Firm’s Carbon Footprint (p. 166) In the future, it is expected that firms will be more accountable in calculating and reporting their carbon footprint based on their global operations. Publications such as the Carbon Disclosure Project 2010 Global 500 Report highlight that stakeholders want information related to the environmental impact of a firm. As a result, stakeholders will continue to evolve in their needs relative to information pertaining to the environmental performance of the firm. Questions for Thought 1. The opening vignette is an inspiring example of social entrepreneurship. Why do you think there are not more examples of intertwining social commitment and entrepreneurship? There could be a number of reasons why more entrepreneurs do not become social entrepreneurs. Most entrepreneurs may perceive the vision of their company solely from a financial performance perspective so social issues do not become part of their strategic vision. In addition, some entrepreneurs may find it more difficult to start a business where there are market “limitations” for their product. Thirdly, entrepreneurs may believe that focusing on social issues distracts them from focusing on establishing and maintaining a competitive advantage. Of course, the rebuttal to these arguments is that addressing social issues can still lead to global markets and social responsibility can enhance the competitive advantage of the firm.
2. What role should businesses take in climate change? What should government‟s role be in climate change? There should be a balance between business and government guidance on how firms should address climate change. From a business perspective, firms can establish voluntary commitments to reduce GHG emissions and as was mentioned previously using climate change as an
opportunity to enhance the firm‟s competitive advantage. Different countries have different viewpoints about the importance of the reduction of GHG emissions. However, GHG emissions are a global issue and global accords such as the Kyoto Treaty are good starting points to address the global issues related to climate change.
3. Do you believe that a business‟s carbon footprint will be an important competitive issue in the future? Yes, as was mentioned previously, it appears that firms will become more accountable for their carbon footprints. As the global impact of climate change continues to evolve, it is expected that both governments and business will need to be much more proactive in their responses to GHG emissions. Therefore, it is in the firm‟s best interests to be proactive related to reducing its carbon footprint before it is mandated by its government to comply with new government regulations.
Real-Life Ethical Dilemma Exercise Bhopal Disaster Questions 1. Why has the US government not extradited former Union Carbide Chairman Warren Anderson to face his charges in India? There is not a clear reason for this lack of action by the US government. However, whether it is not considered a high priority for the US government, or certain decision makers and the power/authority to block an extradition, the net result is that the belief from the people who were exposed in Bhopal that justice had not been served. Warren Anderson died on September 29, 2014, and never returned to Bhopal.
2. How would Union Carbide‟s reaction to the gas leak be different if the plant was located in the United States? The reaction by both Union Carbide and the local community would be dramatically different. Union Carbide would be expected to resolve the crisis quickly since the health of thousands of citizens could be at risk. If Union Carbide did not act quickly enough, there would be enormous pressure from its stakeholders to resolve the issue. The consequences of not reacting quickly enough can be seen by BP in the Deepwater Horizon disaster (Case 25). Furthermore, as was the case of the Deepwater Horizon disaster, Union Carbide would probably face millions of dollars in government fines and billions of dollars settling class action lawsuits filed by injured parties of the disaster.
3. Do you think a payment of $550 is fair for the victims of the disaster? What do you think the payment would be if the disaster occurred in the United States?