FEA458 Business Ethics and Sustainability 7.5 higher education credits Course description Fall 2011 1 (12) FEA458 Business Ethics and Sustainability, 7.5 higher education credits 1. Course content The role of business ethics and sustainability is an increasingly important concern for managers. This advanced course in Business Ethics and Sustainability aims at providing an in depth understanding of the relationship between organizations, society, business ethics and sustainability. The course covers various sub-themes such as globalization, corporate social responsibility, environmental management and ethics among other related issues. There will be a mixture of lectures and seminars providing opportunity for reflection and discussion on the main themes related to course. The participants will present seminar papers in oral and written form using practical examples. The purpose of this course is to make students able to understand and manage stakeholder demands. This skill is central for future managers, since managers increasingly face demands from different stakeholder groups that attempt to influence corporations to alter their policies and practices. 2. Learning outcomes Upon completion of the course the student will be able to 1. critically discuss theories and models related to business ethics and sustainability by using course literature. 2. work independently in the analysis of problems regarding business ethics and sustainability by using course literature and apply it to practical situations in written reports. 3. communicate and present the written seminar papers and take part in the seminar discussions. The qualitative targets for a Master of Science (60 credits) in Business Administration relate to the course’s learning outcomes. Qualitative targets Knowledge and understanding Skills and abilities Judgement and approach Learning outcomes 1+2+3 2+3 1+2 3. Assessment Learning outcome 1 will be assessed through an individual written exam. Learning outcome 2 will be assessed through the written group papers. Learning outcome 3 will be assessed through participation in the seminars and through the oral presentation of group papers. 2 (12) The individual written exam can give a maximum of 30 points. The written group papers can give a maximum of 5 points each, i.e a total of 15 points (Graduate School students do not receive points, just pass or fail). Maximum total points 30p + 15p = 45p. (Graduate School students can receive a maximum point of 30 points). Due to limited resources, learning outcomes 2 and 3 can only be assessed at fixed examination sessions during the course period. 4. Grading scale The grades are Pass with Distinction (väl godkänd, VG), Pass (godkänd, G) or Fail (underkänd, U). For Pass on the course, pass is required on all three learning outcomes. For Pass with Distinction on the course, Pass with Distinction is required on learning outcome one, at least Pass on learning outcomes two and three and a minimum of 75% of the sum of maximum points. 5. Course structure The course is based on lectures and seminars. The following lectures are given: L1: Introduction (MS, NEZ) L2: The business of business is business? (NEZ) L3: Globalization, CSR and Unions (MS) L4: What stakeholders matters? (NEZ) L5: Is it profitable to care? (NEZ) L6: Sleeping with the enemies (NEZ) L7: Who defines what sustainability is? (NEZ) In addition there will be some guest lectures with participants representing different stakeholders. There are three seminars during the course, (S1-S3). Each seminar is coupled to preceding lectures with assigned literature as seen below. 6. Required reading and instructions L1 – Introduction Articles Strand, R. (2008) ‘The Stakeholder Dashboard’, Greener Management International, 54, 23-36. Introduction In this introduction, we highlight the importance of stakeholders for managers. We also introduce the idea of stakeholder theory as an umbrella concept for the readings in this course. There are three perspectives related to stakeholder theory: i) normative, ii) instrumental and iii) descriptive. First, the normative perspective analyzes what status stakeholders have in relation to the company and in relation to each other. We link back to this in the lecture “The business of business is business” where we discuss if companies should care for other stakeholders than solely shareholders. We also link back to this in the lecture “Stakeholders’ moral assumptions and arguments”, where we discuss the moral assumptions and arguments that different stakeholders use. Second, the instrumental perspective analyzes how caring for stakeholders 3 (12) influence companies’ financial performance. We link back to this in the lecture “Is it profitable to care?”, where we discuss how engaging in CSR via stakeholder engagement influence companies’ profits. Third, the descriptive perspective will be dominant the perspective throughout the course (and will be used in most lectures). Central questions in this perspective are: how do managers prioritize different stakeholders, how do managers respond to stakeholders, and how do stakeholders attempt to influence companies. As an easy introduction to the idea of stakeholders, Robert Strand’s (2008) article discusses how managers (or consultants) can identify what stakeholders companies have and what these stakeholders demand from the company. On page 28, Strand (2008) for example provide a list of different type of stakeholders and what methods to use to find information about these stakeholders. L2 – Normative: The business of business is business? Articles & Chapters Friedman, Milton (2006) ‘The social responsibility of business is to increase its profits’, from Perspectives in Business Ethics, Laura P Hartman (ed.). New York: McGraw-Hill. Seglin, Jeffrey (2002) ‘Just because it´s legal, is it ethical?’, from Perspectives in Business Ethics, Laura P Hartman (ed.) New York: McGraw-Hill. Smith, Craig N (2002) ‘Arguments for and against corporate social responsibility’, from Perspectives in Business Ethics, Laura P Hartman (ed.). New York: McGraw-Hill. McAleer, S. (2003) “Friedman's stockholder theory of corporate moral responsibility”, Teaching Business Ethics, 7, 437-451. James, H. and Rassekh, F. (2000) “Smith, Friedman and self-interest in ethical society”, Business Ethics Quarterly, 10(3), 659-674. Introduction What is the role of business in society? Should business engage in sustainability activities? Should business care for other stakeholders than solely shareholders? This classic debate is still very much at the heart of the Business Ethics and Sustainability debate. The starting point is often Milton Friedman’s classic article that we suggest you read first of the assigned texts. Friedman’s idea is simple and powerful, claiming that firms should focus on increasing profits. Smith (2002) presents one of many responses to Friedman challenging his arguments, and provides additional insights by discussing the link between legal compliance and moral soundness. A recent response to Friedman also comes from McAleer (2003) that in a structures way goes through Friedman’s argument. The text by McAleer (2003) is difficult to read and should be used by the students interested in really understanding the debate about shareholders vs. stakeholders. In response to the extensive critique of Friedman’s arguments, James and Rassekh (2000) clarified what Friedman meant with his texts. Note that Milton Friedman himself commented on this paper and helped develop it (see for example footnote 1 and 2). Your task in preparation for this lecture is to (based on what camp you are assigned to in L1) argue that: Camp1: Companies should maximize profits without any constraints 4 (12) Camp2: Companies should maximize profits as long as they follow the law Camp3: Companies should focus both on profits and stakeholder value L3 – Globalization, CSR and Unions Articles & Chapters Werther, William B. Jr & David Chandler (2006), Strategic Corporate Responsibility – Stakeholders in a Global Environment, Ch.2: CSR: Do stakeholders care? London: Sage. (Course compendium) Zorn, Theodore E and Eva Collins (2007) ‘Is Sustainability Sustainable? – Corporate Social Responsibility, Sustainable Business, and Management Fashion’, from The Debate over Corporate Social Responsibility, Steven May, George Cheney & Juliet Roper (eds.). Oxford: Oxford University Press. (Course compendium) Munshi , Debashish & Priya Kurian (2007) ‘The Case of the Subaltern Public – A Post colonial Investigation of Corporate Social Responsibility’s (O) Missions’, from The Debate over Corporate Social Responsibility, Steven May, George Cheney & Juliet Roper (eds.). Oxford: Oxford University Press. (Course compendium) Prieto-Carrón, Maria, Peter Lund-Thomsen, Anita Chan, Ana Muro & AND Chandra Bhushan (2006) ‘Critical perspectives on CSR and development: what we know, what we don’t know, and what we need to know’, International Affairs, 82 (5), 977-987. Preuss, L. (2008) ‘A Reluctant Stakeholder? On the Perception of Corporate Social Responsibility among European Trade Unions’, Business Ethics: A European Review, 17(2), 149-160. Frundt, H.J. (2004) ‘Unions Wrestle with Corporate Codes of Conduct’, WorkingUSA, 7(4), 36-69. Rodríguez-Garavito, C. (2005) ‘Global Governance and Labor Rights: Codes of Conduct and Anti-Sweatshop Struggles in Global Apparel Factories in Mexico and Guatemala’, Politics and Society, 33(2), 203-233. Introduction The lecture begins by giving a background to the theme of globalization and CSR. It also highlights the concept of stakeholders and its relation to globalization as well as a critical perspective on CSR. We then focus on one specific stakeholder: labour unions. Labour unions are central stakeholders in the discussions about CSR. This is so not only because unions represent one of the few stakeholders that practice democratic election and have a powerful position in many Western societies. It is also so because unions are one of the few stakeholders that so far have raised questions and critique against the CSR movement. Hence, to understand the potential pitfalls of CSR, it is useful to understand how labour unions view CSR. Preuss (2008) provides a good and easy to read overview of how European trade unions view CSR. For those of you that are not too familiar with labour unions, the section “National business systems, industrial relations...” provides a short discussion about union strength in different countries. This could be linked to the theme of globalization, and shows that to understand CSR we need to recognize that there are different stakeholders in different countries all over the globe. Preuss (2008) also argues that the CSR trend stems from the U.S. and that this fact has implication for 5 (12) how CSR is received in Europe since countries in Europe traditionally have had more dialogue between labour unions, companies and governments than the U.S. As expected, Preuss (2008) also shows that unions in U.K. (closely linked to the U.S. tradition) are more positive to the “stakeholder” idea than unions in other countries. Preuss (2008) then discuss if trade unions can be seen as stakeholders. Note that in this discussion they discuss the stakeholder status of labour unions from the same three perspectives that we have used in the first part of the course: normative, instrumental and descriptive. On page 153, Preuss (2008) very shortly discusses that industry-level unions and union federations work in different ways. In other words, keep in mind that different hierarchical parts of the union movement can have different views of CSR. Finally, it is worth noting that labour unions see themselves as having a special status vis-à-vis other stakeholders (page 155). This can be linked to the discussion in previous lectures about what stakeholders that have (descriptive) and should have (normative) influence. Frundt (2004) moves us from European labour unions to unions in developing countries. The most interesting part of this article is page 53-60 “Labor’s reservations towards codes of conduct”. The rest of the article can be read as a background as to understand this part. Here, Frundt (2004) discuss critique against codes of conduct (and if you think about it, CSR in general) that local unions raise. In other words, are codes of conduct really helping local unions or maybe even hurting them? You could link this to the literature for the lecture “Globalization”, and think about if CSR is part of the solution to the problems in the world or actually part of the problem. Rodríguez-Garavito (2005) provides a somewhat more optimistic view of how labour unions can use codes of conduct (and CSR more generally) by showing how codes of conduct were central for union recognition in two factories in Mexico and Guatemala. This article is probably the most difficult to read for this lecture, but it is definitely worth while reading. Rodríguez-Garavito (2005) starts by discussing how codes of conduct can be seen as non-state governance that differs from market governance (companies regulating themselves) and state governance (government regulate companies). In this non-state governance of firms, labour unions, NGOs, consumers etc., there is a bias in power with firms having much more power than workers. Rodríguez-Garavito (2005) also shows that when this gap is narrowed by the formation of local labour unions, workers rights are greatly improved (page 227). On page 211, Rodríguez-Garavito (2005) discuss some problems with codes of conduct (and if you think about it CSR in general) as they work today: i) codes are generally too focused on companies often ignoring workers, ii) codes favour Northern actors over Southern actors, and iii) codes risk replacing local laws. Think about how this can be linked to Frundt’s (2004) critique against codes of conduct. RodríguezGaravito (2005) also talk about that labour unions and NGOs need to use combination of adversary and collaboration tactics (page 211 and 219) and this can be linked to the conclusion in van Huijstee and Glasbergen (2010) (in the literature for L8). Finally, Rodríguez-Garavito (2005) discusses how labour unions successfully can collaborate with other actors to use codes of conduct (and CSR more generally) for their purposes. 6 (12) S1 – Globalization, Unions and CSR Assignment 1 – Try to find an example of the relation between unions and CSR from your own country. How is the general opinion? Positive or negative standpoints? In what way do the unions act in relation to CSR programs and organizations? Is it a controversial issue? Write an analysis in your essay by using the literature for L3 and other material. L4 – Descriptive: What stakeholders matter? Articles Mitchell, R.K., Agle, B.R. and D.J. Wood (1997) ‘Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts’, Academy of Management Review, 22(4), 853-886. Eesley, C. and M.J. Lenox (2006) “Firm Responses to Secondary Stakeholder Action”, Strategic Management Journal, 27, 765-781. The article by Mitchell et al (1997) is a classic in stakeholder theory. The authors develop a theory for what type of stakeholders managers are likely to prioritize. They argue that three stakeholder attributes are important: power, legitimacy and urgency. Figure 1 on page 872 summarizes this well. Mitchell et al (1997) also argues that the more of these attributes a stakeholder possesses the more influential it will be. You should skip the section “Stakeholder theory – state of the art” (page 855-864), read extensively the sections from “Defining stakeholder attributes” (page 865-872). Table 3 on page 869 provides a good summary of the authors’ definitions of central concepts. Read carefully page 872-882 since this is the key part of the article. Eesley and Lenox (2006) further develop Mitchell et al (1997) by for example discussing modification in all three attributes of power, urgency and legitimacy. They also provide empirical support for all aspects of Mitchell’s et al (1997) theory except for the urgency attribute. Skip section “Analysis and results” (page 773-777), and skip section “Robustness and limitations” (page 778-779). In essence, these two articles deal with how managers respond to stakeholder actions. It is thus a similar focus as the article by Spar and LaMure (2003) for L8/S2. It will be interesting for you to return to Mitchell et al (1997) and Eesley and Lenox (2006) when reading Spar and LaMure (2003) and think about the similarities and differences between these articles. Are they interested in the same questions? Do the support or contradict each other? And so on... L5 – Instrumental: Is it profitable to care? Articles Hart, S. and M. Milstein (2003) “Creating Sustainable Value”, Academy of Management Executive, 17(2), 56-69. Hart, S. and S. Sharma (2004) ‘Engaging Fringe Stakeholders for Competitive Imagination’, Academy of Management Executive, 18(1), 17Rowley, T. and S. Berman (2000) ‘A Brand New Brand of Corporate Social Performance’, Business and Society, 39(4), 397-418. 7 (12) Peloza, J. and L. Papania (2008) ‘The Missing Link between Corporate Social Responsibility and Financial Performance: Stakeholder Salience and Identification’, Corporate Reputational Review, 11(2), 169-181. Introduction This lecture will focus on how engaging in sustainability and stakeholder management can influence companies’ profitability. Hart and Milstein (2003) “Creating Sustainable Value” provides an overview of different ways in which engaging in sustainability can improve profitability. This article is somewhat black-and-white arguing generally for a win-win relationship between CSR and profitability. The article by Hart and Sharma (2004) provides a more nuanced picture and focuses on how to leverage stakeholders to achieve innovation. Hart and Sharma (2004) can therefore be said to discuss the two upper quadrants “Innovation” and “Growth Trajectory” of the Hart and Milstein (2003) model, and in doing this relating these two upper quadrants to stakeholder management. The article by Rowley and Berman (2000) challenges the assumption in Hart and Milstein (2003) that there is a general positive relationship between engaging in sustainability and profitability. Rowley and Berman (2000) use the term corporate social performance (CSP) to describe companies’ sustainability performance. They argue that the assumption of a general relationship between CSP and FP (financial performance) is a big mistake that quickly must be abandoned. Instead they argue that we need more developed models for capturing how and when CSP and FP will be related. Rowley and Berman (2000:409) propose that we need to understand “when stakeholders take action to sanction – reward or punish – a firm’s action in an attempt to change or reinforce that behavior”. Only when we understand this aspect of stakeholder theory will we understand the link between CSP and FP. The authors then develop a model of when stakeholders will act in relation to companies (see page 411). When developing this model they use much of the literature that you will later read for this course (e.g. Mitchell et al (1997) and Frooman (1999)). You ONLY need to read page 408-416 in this article. Skip the rest! Peloza and Papania (2008) is a continuation of Rowley and Berman (2000). You see this for example in the fact that Peloza and Papania (2008) frequently cite Rowley and Berman (2000). Peloza and Papania (2008) do two things in their article. First, they discuss what CSR is and how this changes over time and in different contexts. Second, they discuss when stakeholders will act in a positive and negative way towards a company (and how this will influence firms’ profitability). Figure 1 on page 171 summarizes the authors’ argument in the article. While the article by Rowley and Berman (2000) mainly focus on stakeholder actions that damage firms’ profitability, Peloza and Papania (2008) discuss both negative and positive actions. The focus in both Rowley and Berman (2000) and Peloza and Papania (2008) is on when stakeholders will act. This is similar to the focus of Hendry (2006) that you will for L8/S2. It is thus worth returning to Rowley and Berman (2000) and Peloza and Papania (2008) once you have read Hendry (2006) and think about how these articles relate to each other. When doing this, you should also notice the close link between descriptive research and instrumental research. Hendry (2006) is not interested in the financial effects of stakeholder action, but still do not these three articles look very 8 (12) similar? Maybe we then can solve the question of the link between CSR and financial performance by simply having an elaborate understanding of when stakeholders will act and how these actions will influence firms’ financial performance? It is also worth noting that the article by Hart and Sharma (2004) seems to be interested in how managers should prioritize stakeholders to improve innovations (as compared to Mitchell et al., 1997 that focus on how managers actually prioritize stakeholders). In that sense, Hart and Sharma (2004) is similar to the literature discussed in lecture “The business of business is business?” with one key difference. In the literature for “The business of business is business?” focus is on should in terms of moral obligations, while Hart and Sharma (2004) talks about should as to improve profits. L6 – Sleeping with the enemies Articles Frooman, J. (1999) “Stakeholder influence strategies”, Academy of Management Review, 24(2), 191-205. Hendry, J.R. (2006) “Taking Aim at Business: What Factors Lead Environmental Non-Governmental Organizations to Target Particular Firms?”, Business & Society, 45(1), 47-86. Van Huijstee, M. and P. Glasbergen (2010) “NGOs Moving Business: An Analysis of Contrasting Strategies”, Business & Society (in press). Spar, D.L. and La Mure, L.T. (2003) “The Power of Activism: Assessing the Impact of NGOs on Global Business”, California Management Review, 45(3), 78-101. Introduction A central part of the firm-stakeholder negotiations discussed in many of the articles in this course is the negotiations between firms and non-governmental organizations (NGOs). In L8/S2, we focus specifically on this interaction. First, you will learn more about how NGOs develop strategies to influence firms. Frooman (1999) use resource dependence theory to develop propositions about how stakeholders attempt to influence firms based on whether or not the firm is dependent on the stakeholder and whether the stakeholder is dependent on the firm. See Table 1 (page 199) and Table 2 (page 200) for a good summary of Frooman’s (1999) argument. Hendry (2006) also discuss how stakeholders attempt to influence firms (focusing more directly on NGOs than Frooman (1999)). Hendy (2006) build on Frooman (1999) and extend his argument. Hendry (2006) is particularly interested in how NGOs select what firms to target. Pages 54-57 are central to understanding Hendry’s (2006) argument. The section “Method” (page 57-62) can be skipped or read extensively. In the section “Findings” you can read most of it extensively, but you need to read the parts starting with “Conclusions regarding…” to understand if the study supported the developed propositions. The sections “Limitations” and “Future research” (81-83) can be skipped. Figure 2 on page 80 provides a good summary of Hendry’s (2006) argument. Van Huijstee and Glasbergen (2010) add to Frooman (1999) and Hendry (2006) by analyzing the influence of two different NGO strategies – support (symbolic gain) or 9 (12) critique (symbolic damage) – both independently and in interaction with each other. Wan Huijstee and Glasbergen (2010) show that different NGOs have different things to offer companies, that NGO-firm dependence and relations change over time (see page 22 for an extension of Frooman’s (1999) argument), and that sometimes multiple NGO strategies are needed to gain influence (both “the carrot” and “the stick”). Note that while Rowley and Berman (2000), Peloza and Papania (2008) and Hendry (2006) talk about when stakeholders will act. Frooman (1999) and Van Huijstee and Glasbergen (2010) mainly talk about how stakeholders will act (i.e. what influence strategies they will use). Second, we move from NGO strategies to corporate responses and you will learn about how firms respond to NGO pressures. Spar and La Mure (2003) focus on explaining why companies choose different responses to NGO pressures. Specifically, they focus on preemption, capitulation or resistance responses. The authors show that firms’ responses both depends on financial considerations and top managers’ personal motives. This links back to the focus in the articles by Mitchell et al (1997) and Eesley and Lenox (2006). S2 – PETA and KFC Assignment 2 – Short introduction to PETA and KFC Introduction There is an ongoing conflict between People for the Ethical Treatment of Animals (PETA) and Kentucky Fried Chicken (KFC) that has resulted in the campaign Kentucky Fried Cruelty. Numerous celebrities such as Pamela Anderson, Sir Paul McCartney and His Holiness the Dalai Lama have expressed support for PETA’s campaign against KFC. It is your task to gather information about the PETA-KFC relation and analyze it using the articles for L8 (and if you want other relevant course literature). Hence, you have to create your own twist to your hand-in providing me with an interesting story about how we can understand the PETA-KFC interaction. More information about your task is presented in the text “Case 2” posted on the web. L7 – Who defines what sustainability is? Article Bartley, T. (2007) “Institutional Emergence in an Era of Globalization: The Rise of Transnational Private Regulation of Labor and Environmental Conditions”, American Journal of Sociology, 113(2), 297-351. Ingenbleek, P.T.M. and V.M. Immink (2010) ‘Managing Conflicting Stakeholder Interests: An Exploratory Case Analysis of the Formulation of Corporate Social Responsibility Standards in the Netherlands’, Journal of Public Policy & Marketing, 29(1), 52-65. Introduction In this lecture, we attempt to combine many parts of the course literature to discuss how multiple stakeholders simultaneously are involved in the creation of 10 (12) sustainability policies and standards. In other words, how do definitions of “sustainability” arise and what stakeholders have the power to define what “sustainability” is? Bartley (2007) “Institutional Emergence in an era of Globalization” describes how and why global systems for defining and regulating sustainability have emerged. He also shows that the processes of developing policies and standards are highly political and that actors other than companies (such as NGOs, governments and labour unions) are highly influential in these processes. Bartley’s (2007) article clearly shows that in reality “managing” sustainability is a highly complex for corporate managers and that managers’ decision options could greatly be restricted by outside actors. It is worth keeping in mind that Bartley’s (2007) article shows how stakeholder negotiations are embedded in a neoliberal globalization process. Hence, you may leverage what you have learned about stakeholders and globalization so far in the course to help develop an elaborate understanding of Bartley’s (2007) article. Read particularly 306-312 and 336-341 for an understanding of Bartley’s arguments. This article is difficult to read, but you will use it in S3 so you have some extra time to really understand the strength of Bartley’s (2007) paper. Ingenbleek and Immink (2010) also discuss how CSR standards and definitions emerge. They build a typology of different types of roles stakeholders can have in these processes based on Mitchell et al (1997) (se Figure 1 on page 55). If you think about it, the Y-axel in Figure 1 is really based on the same argument as Frooman (1999) about power. In other words, Figure 1 can be seen as an expansion of Frooman (1999) by adding the dimension “urgency” introduced by Mitchell et al (1997). Figure 3 (page 62) and the section “Case comparison” provide a very good summary of the main messages of the article. Please note that proposition P4 (page 62) really is saying exactly the same thing that Mitchell et al (1997) is saying, i.e. that stakeholders with the characteristics power and urgency have more influence than stakeholders without these characteristics. In comparison to Bartley (2007), Ingenbleek and Immink (2010) have a more narrow focus. You could read it as adding nuances to Bartley’s (2007) general ideas. You will have time in the task for S3 to really think about the link between Bartley (2007) and Ingenbleek and Immink (2010). S3 – Swedish garment retailers’ supplier responsibility Assignment 3 – Swedish garment retailers’ supplier responsibility Introduction The case describes a similar situation as the one described by Bartley (2007) and Ingenbleek and Immink (2010). Your task is to analyze the case using the articles for L7 (and if you want other relevant course literature). More information about your task is presented in the text “Assignment 3” posted on the web. 7. Group formation At the introduction there will be a group formation process. The whole course will be divided in two big groups, Group 1 and 2, and inside each of these groups you will 11 (12) form work groups of a maximum of five persons. The five person groups will write the group papers together and take part in the seminar activities. 12 (12)