Question

just quetion 8,9

Chapter 4 7 Explain fully the difference between Ethical & Legal behavior. 8 Discuss moral idealism and utilitarianism. 9 Explain fully what is meant by social responsibility. Identify and explain the 3 Concepts of Social Responsibility 10 What is a social audit and the 5 steps? 11 What role does sustainable development play in Starbucks'approach to social responsibility (SR)? Discuss the concepts of social responsibility as it applies to Starbucks.

Answer 1

Answer 7: Law is defined as a legal system that comprises of rules and principles set by the ruling authority to govern over the affairs of the community. While, ethics are defined as moral guidelines set, put forth and followed by an individual.

In general, ethics are moral philosophy where a person makes a specific moral choice and sticks to it, whereas law is a system that comprises of rules and principles to govern a society. Though, ethics are based on the goodwill of law, ethics completely differ in their foundation, basis and purpose. Thus, to further understand the difference, we define the terms law and ethics.

There is no universal definition for the term ‘law’, but is it often defined as a system that enforces set of rules and guidelines to govern social behavior. Law is also defined as regulations established by a governing power. These rules describe the way in which people are required to act with each other in a society. They are requirements to act in an established manner in a society. Though, under authority, these laws are widely published, generally accepted and usually forced.

Ethics, on the other hand, is a branch of philosophy that is the study of value or quality. It encompasses the analysis of concepts such as right, wrong, good, evil, justice and responsibility. It attempts to define what is good for the society and the individual. It also seeks to establish a set of duties that a person owes to himself and the others. Ethics is derived from the Greek word ‘ethos’ that means ‘arising from habit’. These values too come from within a person’s moral sense and desire to preserve his self respect.

Ethics concerns itself with why and how one ought to act. It is derived from expansive theories of right and wrong, which gave rise to the rules of conduct. These rules set the standard of behavior of a person with his society. Based on this, law too derived a set of rules to stabilize the society. Though, law is a derivative of ethics, law does not focus on promoting social ideas, it merely promotes the convention of a good society.

Laws help shape politics, economics and society in numerous ways and serves as a social mediator of relationships between people. Ethics, being about actions and decisions, helps to shape an individual’s conscience and character. It consists of learning what is right and what is wrong and doing the right thing. Also, it is interesting to know the various consequences, outcomes, alternatives and personal implications of ethical decision.
Ethics and laws are therefore necessary to provide guidance and stability to people and society as a whole. Though, ethics and law go hand-in-hand, it is a complicated relationship between the two terms. The connection between law and ethics depends on perception, because often what is perceived as unethical is usually considered illegal. Though, such is not the case.

Law does not prohibit many acts that would widely be condemned as unethical. For example, lying or betraying the confidence of a friend is not illegal, but most people would consider it unethical. Also, speeding is illegal, but many people may not have any ethical conflict with exceeding the speed limit. So, law is more than simply codifying ethical norms.

Comparison between Law and Ethics:

	Law	Ethics
Definition	It is defined as a system that enforces set of rules and guidelines to govern social behavior.	It is defined as moral guidelines set, put forth and followed by an individual towards his society.
Codes	These are ethic codes that people are required to obey.	These are moral codes that everyone must conform too.
Rules	These are rules stated by the government to balance the society.	These are rules of conduct of an individual.
Enforce	It is enforced on the people.	It comes from within an individual.
Decision	It directly states of what is right and what is wrong.	Here, a person decides to what is right and what is wrong.
Characteristics	It is enforced. It needs to be published. It is consistent. It needs to be obeyed.	It cannot be enforced. It need not be published. It may or may not be consistent. It is not necessary to obey.
Punishment	There is valid punishment for breaking the law.	There is no punishment for defying one’s ethics.
Judging	Law is judged by judicial standards.	Ethical behavior is judged by moral standards.
Made	These are made by using ethics as a guiding principal.	These come from within a person by his moral values.
Application	Laws depend on the country, state and the place of the crime.	Ethics are universal and can be applied anywhere, all over the world.

Answer 8: Moral idealism : Personal moral philosophy that considers certain individual rights or duties as universal, regardless of the outcome.

Utilitarianism: A personal philosophy that focuses on the greatest good for the greatest number. If the benefits exceed the costs, it's ethical. If not, then not.

Concisely stated, moral idealism deals with the idea of an absolute morality. A company can focus on a particular ethical ideal (do no harm) and focus on it to enth degree. This applies regardless of a cost benefit analysis. The ethical standards supersede this thinking.

The main difference between moral idealism and utilitarianism is that, in moral idealism, no matter what the costs are, it must protect individual rights regardless of the outcome. On the other hand, utilitarianism puts costs and benefits into perspective, viewing each situation almost as a business decision as to what is ethical and what is not based on the costs v.s. benefit of each situation. Utilitarianism goes by the motto of “the greatest good for the greatest number” which presents a downfall of leaving a portion of the population being treated unfairly. On the other hand, moral idealism presents a downfall in the high costs of presenting equal individual rights as its ethical values.

Answer 9 : Social Responsibility is defined as the idea that organizations are part of a larger society and are accountable to that society for their actions. There are three concepts of social responsibility: 1 Profit Responsibility, 2 Stake Holder responsibility 3. Societal responsibility.

Profit responsibility is related to societal responsibility through the idea that there is profit that could be made through societal responsibility. By using resources and engaging in activities that support the preservation of the ecological environment and support responsible efforts on behalf of the general public. Green marketing and cause marketing are two ways an organization can incorporate all three concepts of social responsibility as well as enhance corporate sales and profits. A good example of this is when American Express pioneered in cause marketing through its sponsorship of the renovation of the statue of liberty, which shows that consumers will switch brands for a cause. Green marketing is defined as marketing efforts to produce, promote and reclaim environmentally sensitive product. Cause marketing is defined as trying the charitable contributions of a firm directly to sales produced through the promotion of one of its products. Social responsibility of business implies the obligations of the management of a business enterprise to protect the interests of the society.

According to the concept of social responsibility the objective of managers for taking business decisions is not merely to maximize profits or sharehold­ers’ value but also to serve and protect the interests of other members of a society such as workers, consumers and the community as a whole.

Thus, Sachar Committee on Companies and MRTP Acts appointed by Government of India states, “In the development of corporate ethics we have reached a stage where the question of social responsibility of business to the community can no longer be scoffed at or taken lightly. In the environment of modern corporate economic development, the corporate sector no longer functions in isolation. If the plea of the companies that they are perform­ing a social purpose is to be accepted, it can only be judged by the test of social responsiveness shown to the needs of the society”.

It may be noted that some Indian sociologists and economists relate the idea of social responsibility of business of the Gandhian concept of trusteeship. According to Mahatma Gandhi, capitalist class owns wealth or capital as trustees of the society. The resources and capital they use for production of goods and services, according to him, should be used not to maximize profits for them but for the larger benefit of the society.

However, in our view, it will be too idealistic to expect that business enterprises will be purely guided by the benefits they confer on the society by their activities. The concept of social responsibility as used in management science is that businesses should maximise their profits subject to their working in a socially responsible manner to promote the interests of the society.

Their business activities should not harm other groups such as consumers, workers, and public at large. Mr. N.R. Narayana, Chairman of Infosys makes the idea of social responsibility of business quite clear when in a conference on corporate social responsibility he said, “Corporate’s foremost social responsibility is to create maximum shareholders’ value working in a way which is fair to all its stakeholders — workers, consumers, the community, government and the environment He further points out.”

Working in harmony with the community and environment around us and not cheating our customers and workers we might not gain anything in the short run but in the long term it means greater profits and shareholders’ value’ Social Responsibility of Business and Social Contract:

It is evident from above, the social responsibility of business implies that a corporate enterprise has to serve interests other than that of common shareholders who, of course, expect that their rate of return, value or wealth should be maximised.

But in today’s world the interest of other stakehold­ers, community and environment must be protected and promoted. Social responsibility of business enterprises to the various stakeholders and society in general is considered to be the result of a social Fig. 3.1. Responsibility of Business Enterprises towards Stakeholders and Society in General contract.

Share holders Consumers Business Enterprise Environment Employees Society Fig. 3.1. Responsibility of Business Enterprises towards Stakeholders and Society in General

Social contract is a set of rules that defines the agreed interrelationship between various elements of a society. The social contract often involves a quid pro quo (i.e. something given in exchange for another). In the social contract, one party to the contract gives something and expects a certain thing or behaviour pattern from the other.

In the present context the social contract is concerned with the relationship of a business enterprise with various stakeholders such as shareholders, employees, consumers, government and society in general. The business enterprises happen to have resources because society consisting of various stakeholders has given them this right and therefore it expects from them to use them to for serving the interests of all of them.

Though all stakehold­ers including the society in general are affected by the business activities of a corporate enterprise, managers may not acknowledge responsibility to them. Social responsibility of business implies that corporate managers must promote the interests of all stakeholders not merely of shareholders who happen to be the so called owners of the business enterprises.

1. Responsibility to Shareholders:

In the context of good corporate governance, a corporate enterprise must recognise the rights of shareholders and protect their interests. It should respect shareholders’ right to information and respect their right to submit proposals to vote and to ask questions at the annual general body meeting.

The corporate enterprise should observe the best code of conduct in its dealings with the shareholders. However, the corporate Board and management try to increase profits or shareholders’ value but in pursuing this objective, they should protect the interests of employees, consumers and other stakeholders. Its special responsibility is that in its efforts to increase profits or shareholders’ value it should not pollute the environment.

2. Responsibility to Employees:

The success of a business enterprise depends to a large extent on the morale of its employees. Employees make valuable contribution to the activities of a business organisation. The corporate enterprise should have good and fair employment practices and industrial relations to enhance its productivity. It must recognise the rights of workers or employees to freedom of association and free collective bargaining. Besides, it should not discriminate between various employees.

The most important responsibility of a corporate enterprise towards employees is the payment of fair wages to them and provide healthy and good working conditions. The business enterprises should recognise the need for providing essential labour welfare activities to their employees, especially they should take care of women workers. Besides, the enterprises should make arrange­ments for proper training and education of the workers to enhance their skills.

However, it may be noted that very few companies in India follow many of the above good practices. While the captains of Indian industries generally complain about low productivity of their employees, little has been done to address their problems. Ajith Nivard Cabraal rightly writes, “It should perhaps be realised that corporations can only be as effective and efficient as its employees and therefore steps should be taken to implement such reforms in a pro-active manner, rather than merely attempting to comply with many labour laws that prevail in the country. This is probably one area where good governance practices could make a significant impact on the country’s business environment.”

3. Responsibility to Consumers:

Some economists think that consumer is a king who directs the business enterprises to produce goods and services to satisfy his wants. However, in the modern times this may not be strictly true but the companies must acknowledge their responsibilities to protect their interests in undertaking their productive activities.

Invoking the notion of social contract, the management expert Peter Drucker observes, “The customer is the foundation of a business and keeps it in existence. He alone gives employment. To meet the wants and needs of a consumer, the society entrusts wealth-producing resources to the business enterprise”. In view of above, the business enterprises should recognise the rights of consumers and under­stand their needs and wants and produce goods or services accordingly.

4. Obligation towards the Environment:

The foremost responsibility of business enterprises is to ensure that they should not damage the environment and for this purpose they should reduce as much as possible air and water pollution by their productive activities. They should not dump their toxic waste products in rivers and streams to avoid their pollution. Pollution of environment poses a great health hazard for the people and is a cause of several respiratory and skin diseases.

In economic theory pollution of environment is regarded as social cost that must be minimised. There is now a growing awareness towards reduction in environment pollution. According to the recent findings the climate change is occurring due to greater emission of carbon dioxide and other pollutants.

Therefore, the corporate enterprises should adopt high standards of environmental protection and ensure that they are implemented regardless of enforcement of any environment laws passed by the government. Many countries including India have passed laws to protect the environment but they are not properly and strictly enforced.

Business enterprises in their attempt to maximise profits recklessly and negligently pollute the environment. Therefore, it is required that government should take tough measures and enforce environment laws strictly if environment is to be protected.

5. Responsibility to Society in General:

Business enterprises function by public consent with the basic objective of producing goods and services to meet the needs of the society and provide employment to the people. The traditional view is that in performing this function businesses maximise profits or shareholders’ value and doing so they do not behave in any socially irresponsible way.

According to Adam Smith whose invisible hand theorem is often quoted that while maximising their profits, businessmen are led by an invisible hand to promote the interests of the society. To quote him, “An individual or business generally, indeed neither intends to promote the public interest, nor knows how much he is promoting it…. He intends only his own gains, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention,…… By pursuing his own interest he frequently promotes that of the society more effectively than when he really intends to promote it”.

In the present world where there are monopolies, oligopolies in product and factor markets and also there are externalities, especially detrimental externalities such as environment pollution by the activities of business enterprises maximisation of private profits does not always lead to the maximisation of social benefit.

In fact in such imperfect market conditions, consumers are exploited by raising of prices much above the cost of production, workers are exploited as they are not paid fair wages equal to the value of their marginal product. Besides, there are harmful external effects to which are not given due considerations by private enterprises in making their business decisions. Therefore, there is urgent need to make business enterprises behave in a socially responsible manner and to work for promoting social interests.

In view of the above in the context of modern developments, it is hard to agree with Milton Friedman, a winner of Nobel Prize in economics, who called the idea of corporate social responsi­bility as a “fundamentally subversive doctrine”. Friedman writes, “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.

However, few economists and rational thinkers will subscribe to Friedman’s views like that of Adam Smith. Thus, authors of a noted textbook on management write, “It is true that Friedman sets a rather high standard when he suggests that businesses should operate within the ‘rules of the game’, practicing neither deception nor fraud. The rules of the game obviously include accepted ethical practices, in addition to international, national and other laws. How many corporations are willing to tell the absolute truth in the advertisements and to engage in open and fair competition avoiding collusion, price fixing and so forth. The fact is that few subscribe to Friedman s hard-line views today”.

Expressing the same sentiments, Dr. Manmohan Singh, who has been instrumental in initiating economic reforms promoting liberalisation and privatization, in his recent speech while inaugurating the campus of Institute for Studies in Industrial Development on May 1, 2007 said, “I was struck by a comment in the media that most of the billionaires among India’s top business leaders operate in oligopolistic markets and in sectors where the government has conferred special privileges on a few. This sounds like a crony capitalism……. Are we doing enough to protect consumers and small businesses from the consequences of modern capitalism in our country” Later, on May 24, 2007, while giving inaugural address at the Annual Session of CII he urged the captains of Indian industry to break cartels and abstain from greed in their quest for profit maximisation.

To quote him, “The operation of cartels by groups of companies to keep prices high must end. It is unacceptable to obstruct the forces of competition from having free play. It is even more distressing in a country where the poor are severely affected by rising commodity prices. Cartels are a crime and go against the grain of an open economy”. More importantly, he further adds, “Maximisation of profits should be within the bounds of decency and greed”.

Answer 10: A social audit is an official evaluation of an organization's involvement in social responsibility projects or endeavors. For example, a local family store makes a clothing donation to a local church that has a homeless shelter for women and children. The store makes a similar donation three times a year. This is something that a social audit might uncover. Factors examined by a social audit include records of charitable contributions, volunteer events, efficient utilization of energy, transparency, work environment, and employees' wages.

Steps of social audit

• Preparing and using social accounts
• Defining audit boundaries and identifying stakeholders .
• Social accounting and book-keeping
• Social audit and dissemination
• Monitoring social accounting activities
• Feedback and institutionalization of social audit

Answer : 11 Starbucks Coffee Company’s stakeholder management approaches are based on different programs for corporate social responsibility (CSR). The company is an advocate of CSR movements, especially those pertaining to sustainability in business. In the context of corporate social responsibility, Starbucks needs to account for the demands or interests of stakeholders, because the company is viewed not just as an organization for profit, but also as a citizen of society. Thus, the firm must contribute to the improvement of society. Starbucks has already implemented various corporate social responsibility programs for its stakeholders. The current strong brand and corporate image of Starbucks indicates the firm’s efforts to include stakeholders in its strategies and success.

Starbucks is effective in its corporate social responsibility efforts, although more effort is needed with regard to the stakeholder group of coffee farmers, as well as the issues of youth rates and tax avoidance in some regions.

Starbucks Coffee’s Stakeholder Groups

Starbucks continues to improve its corporate social responsibility practices to address the concerns of different stakeholder groups. The following are the main stakeholders in Starbucks Coffee’s business:

1. Employees (baristas, partners)
2. Customers
3. Suppliers (supply firms, coffee farmers)
4. Environment
5. Investors
6. Governments
   1. Employees. Starbucks prioritizes employees in its corporate social responsibility efforts. As stakeholders, employees typically demand for better working conditions, job security and higher wages. Starbucks’ organizational culture emphasizes the employees-first attitude. Employees are also given wages above the legally mandated minimum wage. In 2014, Starbucks boosted its CSR performance for this stakeholder group by giving scholarships to employees based on a partnership with Arizona State University. In this partnership, Starbucks pays for 56% of tuition fees for employees’ junior and senior years at the University. However, the company’s performance in addressing employees as stakeholders has room for improvement. In some countries like New Zealand, Starbucks gives very low wages to juvenile workers (youth rates). These youth rates are often criticized. The firm can improve its corporate social responsibility performance by addressing such issue in this stakeholder group.
   2. Customers. Starbucks considers customers as among its top stakeholders. The interests of this stakeholder group are high quality service and products, such as coffee and related beverages. As the world’s most popular specialty coffeehouse chain, Starbucks effectively addresses this interest. The company also includes customers as major stakeholders by extending the Starbucks culture to customers at its cafés. For example, warm and friendly relations are emphasized within the company and in how baristas interact with customers. Thus, Starbucks Coffee’s corporate social responsibility efforts fulfill the interests of this stakeholder group.
   3. Suppliers. Starbucks suppliers are composed of wholesale supply firms and coffee farmers. The main interest of this stakeholder group is compensation and a growing demand from Starbucks. Farmers aim to increase coffee yield to generate more revenues. Starbucks addresses the interests of these stakeholders through a number of corporate social responsibility programs. For example, the firm’s supplier diversity program ensures that more suppliers from around the world are included in the supply chain. In addition, Starbucks’ Coffee and Farmer Equity (CAFE) program requires transparency among wholesale suppliers to ensure that coffee farmers are properly paid. Thus, Starbucks’ corporate social responsibility efforts comprehensively address the interests of this stakeholder group.
   4. Environment. Starbucks has corporate social responsibility programs for environmentally sound business. The company’s CAFE program has led to higher biodiversity and shade quality in certified coffee farms. Currently, 90% of Starbucks’ supply is from CAFE-certified farms. This significant figure shows that Starbucks is effective in addressing its corporate social responsibility to this stakeholder group, although there is room for improvement.
   5. Investors. As in any business, Starbucks must address investors as stakeholders. Investors have interests in high financial performance of the company. Starbucks’ global expansion and continued dominance in the coffeehouse industry indicates high financial performance. Even though it suffered considerable decline in 2007, Starbucks has recovered and is on a growth path once more. Thus, the firm satisfies this stakeholder group’s interests.
   6. Governments. Starbucks must address the interests of numerous governments as stakeholders, considering the company’s global presence. In general, Starbucks complies with rules and regulations. However, the company has been criticized for tax evasion in Europe. Starbucks uses a network of locations in different European countries to exploit tax advantages. At present, much of this system remains, with Starbucks paying unexpectedly low taxes in the U.K. Thus, the company’s comprehensive corporate social responsibility efforts can be improved to address this stakeholder group.

Analysis of Starbucks’ CSR Performance for Stakeholders

Starbucks has high corporate social responsibility performance in addressing the interests of most of its stakeholders. The company satisfies most of the concerns of stakeholder groups like customers, employees, suppliers, the environment, and investors. However, Starbucks needs to improve its CSR performance to reach a 100% CAFE-certified supply chain to maximize environmental benefits. Starbucks can also improve its CSR performance in addressing governments around the world by improving its tax compliance. In addition, the firm can improve youth rates/wages to ensure satisfaction of youth workers in some markets like New Zealand. These are the three main areas where Starbucks can change to boost its corporate social responsibility performance to satisfy stakeholders.