Ethical pros of implementing social responsibility program

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5 CORPORATE RESPONSIBILITIES, CONSUMER STAKEHOLDERS, AND THE ENVIRONMENT

5.1 Corporate Responsibility toward Consumer Stakeholders

5.2 Corporate Responsibility in Advertising Ethical Insight 5.1

5.3 Controversial Issues in Advertising: The Internet, Children, Tobacco, and Alcohol Ethical Insight 5.2

5.4 Managing Product Safety and Liability Responsibly Ethical Insight 5.3

5.5 Corporate Responsibility and the Environment

Chapter Summary

Questions

Exercises

Real-Time Ethical Dilemma

Cases 12. For-Profit Universities: Opportunities, Issues, and Promises 13. Fracking: Drilling for Disaster? 14. Neuromarketing 15. WalMart: Challenges with Gender Discrimination 16. Vioxx, Dodge Ball: Did Merck Try to Avoid the Truth?

Notes

OPENING CASE

U.S. health care spending related to obesity in 2013 was $190 billion. The newly released United Nations (UN) report on global nutrition does not make for very uplifting reading: amid an already floundering global economy, the reality of a fattening planet is dragging down world productivity rates, while increasing health insurance costs to the tune of $3.5 trillion per year —or 5% of global gross domestic product (GDP).1 Obesity in the workforce leads to expensive health care, interruptions in productivity, and days absent from work. Obesity and overall weight gain in the American population changed from a problem to a crisis when it

Weiss, Joseph W.. Business Ethics : A Stakeholder and Issues Management Approach, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2021-06-21 14:52:37.

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was made an issue of public concern by the Food and Drug Administration (FDA) and the National Center for Health Statistics (NCHS). A survey conducted from 2007–2009 indicated that 34.4% of the U.S. adult population was overweight or obese.2 An even more striking statistic is found in the weight increase experienced by children and adolescents in the United States. Current research estimates that 17% of children and adolescents (12.5 million children), ages 2 to 19, are overweight or obese. Higher prevalences of adult obesity were found in the Midwest (29.5%) and the South (29.4%). Lower prevalences were observed in the Northeast (25.3%) and the West (25.1 %).3 Carrying excess weight causes an increased risk for medical conditions, including coronary heart disease, stroke, hypertension, sleep apnea, and some forms of cancer. The rise in obesity comes despite efforts by First Lady Michelle Obama to promote healthy eating, and New York mayor Michael Bloomberg’s size restriction on sugary drinks. The problem has become so profound that the U.S. Health and Human Services Department actually declared obesity a disease affecting the population in 2004. On June 18, 2013, the nation’s largest physicians’ group classified obesity as a medical “disease,” despite the recommendations of a committee of experts who studied the issue for a year.4

In a 2006 survey of 1,000 households, conducted for Medicine & Law Weekly, results showed that 51% of the households would like to see fast food restaurants under the regulation of the government, while only 37% were opposed to such an action.5 Consumers are suggesting that they are looking for more regulations to be placed on the fast food industry to provide them with a wider variety of healthier meal options.

Another reason cited for the overall increase in overweight and obese individuals in the United States is the ease of selecting calorie-packed foods and the high cost associated with eating healthy. The Centers for Disease Control and Prevention has pointed out that the availability of foods that are high in fat, sugar, and calories has made it increasingly more convenient for consumers to select those foods.6 Availability is not the only factor at play. A downward trend in the cost of calories, combined with a downward trend in physical exertion at work, has also contributed significantly to the rise in obesity.7

Fast food chains have reacted to consumers’ demand for healthier menus by making changes to their menus and marketing strategies. McDonald’s has a new “Go Active” campaign, featuring new, healthy menu items, such as salads topped with chicken and a new fruit and walnut salad. Many of these changes have been targeted at children’s nutrition. The “What’s Hot in 2012” survey from the National Restaurant Association revealed the top-10 menu trends for 2012:

1. Locally sourced meats and seafood. 2. Locally grown produce. 3. Healthful kids’ meals. 4. Hyper-local items. 5. Sustainability as a culinary theme. 6. Children’s nutrition as a culinary theme. 7. Gluten-free/food allergy-conscious items.

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8. Locally produced wine and beer. 9. Sustainable seafood. 10. Whole-grain items in kids’ meals.

A report from the Yale University Rudd Center for Food Policy and Obesity noted that approximately 84% of parents with children aged 2 to 11 took their families to a fast food restaurant weekly. Although fast food restaurants are reevaluating their menus to include more healthful options for children, the study showed that of 3,039 kids’ meal combinations possible, only 12 met the nutritional criteria for preschool-age children and only 15 met the criteria for older children.8 Subway leveraged the story of Jared Fogle, the Indiana University student who once weighed 425 pounds. By making Subway’s healthy sandwiches a part of his daily diet, and combining them with regular exercise, Fogle was able to lose 245 pounds in a year. On March 25, 2013, a leaked internal memo showed that McDonald’s believed it would lose 22% of its 18–34-year-old customers to what’s perceived as the healthier option, sandwich chain Subway, without adding the “wrap” onto its menu.9

The FDA has also joined the fight against obesity by initiating programs to “count calories.” Its goals include pressuring fast food companies to provide more detailed and accurate information about nutrition content to their diners as well as educating consumers. With the partnership between the fast food chains and the FDA, consumers stand to be better informed about their options to become and remain healthy. Restaurants and company web sites now provide consumers with nutritional information for menu items. Restaurants have teamed up with nutritionists who can offer helpful suggestions. When presented with healthier options, it’s in the hands of consumers to make the right choices to improve their health.

5.1 Corporate Responsibility toward Consumer Stakeholders As the largest national economy in the world, the United States produced $16.2 trillion worth of goods and services (GDP) in 2012. China’s growing economy earned it the second place slot, with a GDP of 8.2 trillion in 2012.10 Consumer spending in the United States accounts for about two-thirds of total economic activity. Consumers may be the most important stakeholders of a business. If consumers do not buy, commercial businesses cease to exist. The late management guru Peter Drucker stated that the one true purpose of business is to create a customer.11 Consumer confidence and spending are also important indicators of economic activity and business prosperity. Consumer interests should be foremost when businesses are designing, delivering, and servicing products. Unfortunately, this often is not the case. As this chapter’s opening case shows, giving customers what they want may not be what they need; also, not all products are planned, produced, and delivered with consumers’ best health or safety interests in mind. Many companies have manufactured or distributed unreliable products, placing consumers at risk. The effects (and side effects) of some products have been life-threatening, and have even led to deaths, with classic cases being the alleged effects of the Merck drug Vioxx, the Bridgestone/Firestone tires on the Ford Explorer, tobacco products and cigarettes that contain nicotine, the Ford Pinto, lead-painted toys, and numerous other

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examples. At the same time, the majority of products distributed in the United States are safe, and people could not live the lifestyles they choose without products and services. What, then, is the responsibility of corporations toward consumer stakeholders?

Corporate Responsibilities and Consumer Rights Two landmark books that inspired the consumer protection movement in the United States were Upton Sinclair’s The Jungle (1906), which exposed the unsafe conditions at a meat-packing facility, and Ralph Nader’s Unsafe at Any Speed (1965), which created a social expectation regarding safety in automobiles. Then Fast Food Nation: The Dark Side of the All-American Meal (2001) by Eric Schlosser, followed by The Carnivore’s Dilemma (2008) by Tristram Stuart and Robert Kenner’s 2008 documentary Food, Inc., investigated the nature, source, production and distribution of food in the United States in particular. George Ritzer’s The McDonaldization of Society (2011) drew attention to the pervasive influence of fast food restaurants on different sectors of American society, as well as on the rest of the world. In providing “bigger, better, faster” service and questionable food products, McDonald’s has been the leader in creating—or reinforcing—a lifestyle change that, as the opening case shows, contributes to obesity. Morgan Spurlock’s 2004 documentary, Super Size Me, also explored the fast food industry’s corporate influence and encouragement of poor nutrition for profit.

As Steven Fink’s issues evolution framework in Chapter 3 illustrated, a “felt need” arises from books, movies, events, and advocacy groups, and builds to “media coverage.” This then evolves into interest group momentum, from which stakeholders develop policies and later legislation at the local, state, and federal levels. This same process has occurred and continues to occur with consumer rights. The books and documentaries mentioned here have contributed to articulating and mobilizing the issues of obesity, unsafe cars, and quality of life to the public.

The following universal policies were adopted in 1985 by the UN General Assembly to provide a framework for strengthening national consumer protection policies around the world. Consider which policies apply to you as a consumer:

1. The right to safety: to be protected against products, production processes, and services which are hazardous to health or life.

2. The right to be informed: To be given facts needed to make an informed choice, and to be protected against dishonest or misleading advertising and labeling.

3. The right to choose: to be able to select from a range of products and services, offered at competitive prices, with an assurance of satisfactory quality.

4. The right to be heard: to have consumer interests represented in the making and execution of government policy, and in the development of products and services.

5. The right to satisfaction of basic needs: to have access to basic essential goods and services, adequate food, clothing, shelter, health care, education and sanitation.

6. The right to redress: to receive a fair settlement of just claims, including compensation for misrepresentation, shoddy goods or unsatisfactory services.

7. The right to consumer education: to acquire knowledge and skills needed to make informed, confident choices about goods and services while being aware of basic consumer

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rights and responsibilities and how to act on them. 8. The right to a healthy environment: to live and work in an environment which is nonthreatening to the well-being of present and future generations.12

From an ethical perspective, corporations have certain responsibilities and duties toward their customers and consumers in society:

• The duty to inform consumers truthfully and fully of a product or service’s content, purpose, and use.

• The duty not to misrepresent or withhold information about a product or service that would hinder consumers’ free choice.

• The duty not to force or take undue advantage of consumer buying and product selection through fear or stress or by other means that constrain rational choice.

• The duty to take “due care” to prevent any foreseeable injuries or mishaps a product (in its design and production or in its use) may inflict on consumers.13

Although these responsibilities seem reasonable, there are several problems with the last responsibility, known as “due care” theory. First, there is no straightforward method for determining when “due care” has been given. What should a firm do to ensure the safety of its products? How far should it go? A utilitarian principle has been suggested, but problems arise when use of this method adds costs to products. Also, what health risks should be measured and how? How serious must an injury be? The second problem is that “due care” theory assumes that a manufacturer can know its products’ risks before injuries occur. Certainly, testing is done for most high-risk products; but for most products, use generally determines product defects. Who pays the costs for injuries resulting from product defects unknown beforehand by consumer and manufacturer? Should the manufacturer be the party that determines what is safe and unsafe for consumers? Or is this a form of paternalism? In a free market (or at least a mixed economy), who should determine what products will be used at what cost and risk?14

Related to the rights presented above, consumers also have in their implied social contract with corporations (discussed in Chapter 4) the following rights:

• The right to safety: to be protected from harmful commodities. • The right to free and rational choice: to be able to select between alternative products.

• The right to know: to have easy access to truthful information that can help in product selection.

• The right to be heard: to have available a party who will acknowledge and act on reliable complaints about injustices regarding products and business transactions.

• The right to be compensated: to have a means to receive compensation for harm done to a person because of faulty products or for damage done in the business transaction.15

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These rights are also constrained by free-market principles and conditions. For example, “products must be as represented: Producers must live up to the terms of the sales agreement; and advertising and other information about products must not be deceptive. Except for these restrictions, however, producers are free, according to free-market theory, to operate pretty much as they please.”16

“Buyer Beware” and “Seller Take Care” The age-old principle of “let the buyer beware” plays well according to free-market theory, because this doctrine underlies the topic of corporate responsibility in advertising, product safety, and liability. In the 1900s, the concept of “let the seller take care” placed responsibility of product safety on corporations17 (which we discuss later in this chapter under product liability). Several scholars argue that Adam Smith’s “invisible hand” view is not completely oriented toward stockholders.

Consumer Protection Agencies and Law Because of imperfect markets and market failures, consumers are protected to some extent by federal and state laws in the United States. Five goals of government policymakers toward consumers are:

1. Providing consumers with reliable information about purchases. 2. Providing legislation to protect consumers against hazardous products. 3. Providing laws to encourage competitive pricing. 4. Providing laws to promote consumer choice. 5. Protecting consumers’ privacy.18

Some of the most notable U.S. consumer protection agencies include:

1. The Federal Trade Commission (FTC): deals with online privacy, deceptive trade practices, and competitive pricing.

2. The Food and Drug Administration (FDA): regulates and enforces the safety of drugs, foods, and food additives, and sets standards for toxic chemical research.

3. The National Highway Traffic Safety Administration (NHTSA): deals with motor vehicle safety standards.

4. The National Transportation Safety Board (NTSB): handles airline safety. 5. The Consumer Product Safety Commission (CPSC): sets and enforces safety standards for consumer products.

6. The Department of Justice (DOJ): enforces consumer civil rights and fair competition.

Governmental and international agencies also work to protect consumers’ legal rights. The Consumer World web site (http://www.consumerworld.org/pages/agencies.htm) has an extensive list of consumer protection agencies that includes the United States and international countries, including India, Hong Kong, Korea, Mexico, Canada, and Estonia, as well as other

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http://www.consumerworld.org/pages/agencies.htm

European countries. The strategic vision of the EU consumer policy “aims to maximise consumer participation and trust in the market. Built around four main objectives the European Consumer Agenda aims to increase confidence by: reinforcing consumer safety; enhancing knowledge; stepping up enforcement and securing redress; aligning consumer rights and policies to changes in society and in the economy.”19

5.2 Corporate Responsibility in Advertising Advertising is big business. Direct marketing advertising was 54.3% of the total advertising spending in 2009, while 2010 total direct marketing spending was estimated at $153.3 billion.20 Figure 5.1 shows ad dollars spent by the industry in 4th quarter 2012 over 2011, according to Nielsen.

The extent to which advertising is effective is debatable, but because consumers are so frequently exposed to ads, it is an important topic of study in business ethics. The purpose of advertising is to inform customers about products and services and to persuade them to purchase them. Deceptive advertising is against the law. A corporation’s ethical responsibility in advertising is to inform and persuade consumer stakeholders in ways that are not deceitful. This does not always happen, as the tobacco, diet, and fast food industries, for example, have shown.

Figure 5.1 Ad Dollars Spent by Selected Industry and Percentage Change Fourth Quarter 2012 over Fourth Quarter 2011

Source: Adapted from Nielsen. (March 14, 2013). U.S. ad spend increased 2% in 2012 on strong Q3. Nielsen.com. http://www.nielsen.com/us/en/newswire/2013/u-s--ad-spend-increased-2--in-2012-on-strong-3q.html.

Ethics and Advertising At issue, legally and ethically for consumers, is whether advertising is deceptive and creates or contributes to creating harm to consumers. Although advertising is supposed to provide information to consumers, a major aim is to sell products and services. As part of a selling

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http://www.nielsen.com/us/en/newswire/2013/u-s--ad-spend-increased-2--in-2012-on-strong-3q.html

process, both buyer and seller are involved. As discussed earlier, “buyer beware” imparts some responsibility to the buyer for believing and being susceptible to ads. Ethical issues arise whenever corporations target ads in manipulative, untruthful, subliminal, and coercive ways to vulnerable buyers such as children and minorities. Also, inserting harmful chemicals into products without informing the buyer is deceptive advertising. The tobacco industry’s use of nicotine and addictive ingredients in cigarettes was deceptive advertising.

The American Association of Advertising (AAA) has a code of ethics that helps organizations monitor their ads. The code cautions against false, distorted, misleading, and exaggerated claims and statements, as well as pictures that are offensive to the public and minority groups. The following questions can be used by both advertising corporations and consumers to gauge the ethics of ads:

1. Is the consumer being treated as a means to an end or as an end? And what and whose end? 2. Whose rights are being protected or violated intentionally and inadvertently? And at what and whose costs?

3. Are consumers being justly and fairly treated? 4. Are the public welfare and the common good taken into consideration for the effects as well as the intention of advertisements?

5. Has anyone been or will anyone be harmed from using this product or service?

The Federal Trade Commission and Advertising The Federal Trade Commission (FTC) and the Department of Labor (DOL) are the federal agencies in the United States appointed and funded to monitor and eliminate false and misleading advertising when corporate self-regulation is not used or fails. Following is a sample of the FTC’s guidelines:

The FTC Act allows the FTC to act in the interest of all consumers to prevent deceptive and unfair practices. In interpreting Section 5 of the act, the Commission has determined that a representation, omission or practice is deceptive if it is likely to:

• mislead consumers • affect consumers’ behavior or decisions about the product or service

In addition, an act or practice is unfair if the injury it causes, or is likely to cause, is:

• substantial • not outweighed by other benefits • reasonably avoidable

The FTC Act prohibits unfair or deceptive advertising in any medium. A claim can be misleading if relevant information is left out or if the claim implies something that’s not true. For example, a lease advertisement for an automobile that promotes “$0 Down” may be misleading if significant and undisclosed charges are due at lease signing. In addition, claims must be substantiated, especially when they concern health, safety, or performance. The type of evidence may depend on the product, the claims, and what experts believe is necessary. If

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your ad specifies a certain level of support for a claim (e.g., “tests show X”), you must have at least that level of support.

Sellers are responsible for claims they make about their products and services. Third parties—such as advertising agencies or web site designers and catalog marketers—also may be liable for making or disseminating deceptive representations if they participate in the preparation or distribution of the advertising or know about the deceptive claims.21

Pros and Cons of Advertising Advertising is part of doing business, and not all advertising is deceptive or harmful to consumers. The arguments, both for and against advertising, raise awareness that provides information to both companies and consumers in their production and consumption of information and transactions. General ethical arguments for and against advertising are summarized below.

Ethical Insight 5.1

Signs of an Advance-Fee Loan Scam: “Red Flags” from the FTC

• A lender who isn’t interested in your credit history. A lender who doesn’t care about your credit record should give you cause for concern. Ads that say “Bad credit? No problem” or “We don’t care about your past. You deserve a loan” or “Get money fast,” or even “No hassle—guaranteed” often indicate a scam.

• Fees that are not disclosed clearly or prominently. Any up-front fee that the lender wants to collect before granting the loan is a cue to walk away, especially if you’re told it’s for “insurance,” “processing,” or just “paperwork.” Legitimate lenders often charge application, appraisal, or credit report fees. It’s also a warning sign if a lender says they won’t check your credit history, yet asks for your personal information, such as your Social Security number or bank account number.

• A loan that is offered by phone. It is illegal for companies doing business in the United States by phone to promise you a loan and ask you to pay for it before they deliver.

• A lender who uses a copy-cat or wannabe name. Crooks give their companies names that sound like well-known or respected organizations and create web sites that look slick.

• A lender who is not registered in your state. Lenders and loan brokers are required to register in the states where they do business. To check registration, call your state attorney general’s office or your state’s Department of Banking or Financial Regulation.

Source: Federal Trade Commission. (2012). Consumer Information, Advance-Fee Loans. http://www.consumer.ftc.gov/articles/0078-advance-fee-loans.

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http://www.consumer.ftc.gov/articles/0078-advance-fee-loans

Arguments for Advertising Arguments that justify advertising and the tactics of puffery and exaggeration include:

1. Advertising introduces people to, and influences them to buy, goods and services. Without advertising, consumers would be uninformed about products.

2. Advertising enables companies to be competitive with other firms in domestic and international markets. Firms across the globe use advertisements as competitive weapons.

3. Advertising helps a nation maintain a prosperous economy. Advertising increases consumption and spending, which in turn creates economic growth and jobs, which in turn benefits all. “A rising tide lifts all ships.”

4. Advertising helps a nation’s balance of trade and debt payments, especially in large industries, such as the food, automobile, alcoholic beverage, and technology industries, whose exports help the country’s economy.

5. Customers’ lives are enriched by the images and metaphors advertising creates. Customers pay for the illusions as well as the products advertisements promote.

6. Consumers are not ignorant. Buyers know the differences between lying, manipulation, and colorful hyperbole aimed at attracting attention. Consumers have freedom of choice. Ads try to influence desires already present in people’s minds. Companies have a constitutional right to advertise in free and democratic societies.22

Arguments against (Questionable) Advertising Critics of questionable advertising practices argue that advertising can be harmful for the following reasons. First, advertisements often cross that thin line that exists between puffery and deception. For example, unsophisticated buyers, especially youth, are targeted by companies. David Kessler, former commissioner of the FDA, referred to smoking as a pediatric disease, since 90% of lifelong smokers started when they were 18 and half began by the age of 14.23

Another argument is that advertisements tell half-truths, conceal facts, and intentionally deceive with profit, not consumer welfare, in mind. For example, the $300—$400 billion food industry is increasingly being watched by the FDA for printing misleading labels that use terms such as “cholesterol free,” “lite,” and “all natural.” Consumers need understandable information quickly on how much fat (a significant factor in heart disease) is in food, on standard serving sizes, and on the exact nutritional contents of foods. This is increasingly relevant as food-marketing efforts increase. In 2010, for example, $1.24 trillion of food was supplied by food-service and food-retailing operations, which together make up the food- marketing system.24 At stake in the short term for food companies is an outlay of between $100 million and $600 million for relabeling. In the long term, product sales could be at risk.

One of the great paradoxes of Americans today is their obsession with diet and health, while having one of the worst diets in the world. Also noted earlier, more than two-thirds of adults and more than one-third of children in the United States are obese or overweight. Food industry executives say that customers ask for low-fat food but rarely buy it. For many

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Americans, the problem is not just that they are consuming so much fat, it is that they don’t know what they are eating. While government standards for weight and other recommended health-related metrics change, the 2010 government-recommended daily caloric intake of adult men in the United States is between 2,000 and 3,000, depending on age and the level of physical activity; the recommended calories for adult women is 1,600–2,400, also depending on age and level of physical activity. This range is still current in 2014. Many Americans far exceed those recommendations, in part because of their increasing reliance on restaurant food.25

Advertising and Free Speech Because ads are often ambiguous, sometimes misleading, and can omit essential facts, the legal question of “free speech” enters more serious controversies. In commercial speech cases, there is no First Amendment protection if it can be proven that information was false or misleading. In other types of free speech cases, people who file suit must prove either negligence or actual malice.26

Should certain ads by corporations be banned or restricted by courts? For example, should children be protected from accessing pornography ads on the Internet? Should companies that intentionally mislead the public when selling their products be denied protection by the court? 27 The U.S. Supreme Court has differentiated commercial speech from pure speech in the context of the First Amendment. (See Central Hudson Gas and Electric Corporation v. Public Service Commission, 1980, and Posadas de Puerto Rico Associates v. Tourism Company of Puerto Rico, 54 LW 4960). Pure speech is more generalized, relating to political, scientific, and artistic expression in marketplace dealings. Commercial speech refers to language in ads and business dealings. The Supreme Court has balanced these concepts against the general principle that freedom of speech must be weighed against the public’s general welfare. The four-step test developed by Justice Lewis F. Powell Jr. and used to determine whether commercial speech in advertisements can be banned or restricted follows:

1. Is the ad accurate, and does it promote a lawful product? 2. Is the government’s interest in banning or restricting the commercial speech important, nontrivial, and substantial?

3. Does the proposed restriction of commercial speech assist the government in obtaining a public policy goal?

4. Is the proposed restriction of commercial speech limited only to achieving the government’s purpose?28

For example, do you agree or disagree with the conservative plurality on the Supreme Court that has argued in the tobacco smoking controversy to give more free speech rights to tobacco companies? This has been suggested by Lawrence Gostin: “The [Supreme] [C]ourt has held that the FDA lacks jurisdiction to regulate cigarettes. The court observed that Congress, despite having many opportunities, has repeatedly refused to permit agency regulation of the product. Thus, Congress has systematically declined to regulate tobacco but has also

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preempted state regulation. Moreover, the Supreme Court’s recent assertion of free speech rights for corporations prevents both Congress and the states from meaningfully regulating advertising. To the extent that commercial speech becomes assimilated into traditional political and social speech, it could become a potent engine for government deregulation. And, perhaps, that is the agenda of the court’s conservative plurality.”29

The commercial speech doctrine remains controversial. The Supreme Court has turned to the First Amendment to protect commercial speech (which is supposedly based on informational content). Public discourse is protected to ensure the participation and open debate needed to sustain democratic traditions and legitimacy. The Supreme Court has ultimate jurisdiction over decisions regarding the extent to which commercial speech, in particular, ads, and cases meet the previous four standards.

Recent judicial decisions regarding a number of areas, (including consumer privacy, spam, obesity, telemarketing, tobacco ads, casino gambling advertising, and dietary supplement labeling (see Greater New Orleans Broadcasting Association Inc. v. United States and Pearson v. Shalala) have sent the message that “The government’s heretofore generally accepted power to regulate commercial speech in sensitive areas has been restricted.” Regulators have prohibited certain advertisements and product claims based on the government’s authority to protect public safety and the common good. The courts have sent the government (namely, the FDA) “back to the drawing board” to write disclaimers for claims it had argued to be inconclusive. The FDA’s regulatory power has currently been curtailed.30

Paternalism, Manipulation, or Free Choice? Moral responsibility between corporate advertisers and consumers can also be viewed along a continuum. At one end of a spectrum is paternalistic control; that is, “Big Brother” (the government, for example) regulates what consumers can and should hear and see. Too much protection can lead to arbitrary censorship and limit free choice. This is generally not desirable in a democratic market economy. At the other extreme of the continuum is free choice and free speech that are not regulated by any external government controls. Vulnerable groups —children, youth, the poor for example—may be more at risk from predatory advertisements, for example, unregulated pornography and scam advertising. Between these extremes, corporations develop ads to both create and meet consumer demand to buy products and services. The moral and commercial control corporations have in this space can constrain free choice through researched ads that range between puffery, ambiguity, exaggeration, half-truths, and deception to serve corporate interests. Ideally, corporations should seek to inform consumers fully and truthfully while using nonmanipulative, persuasive techniques to sell their products—assuming the products are safe and beneficial to consumer health and safety. Enforcement of advertising can also be viewed along this continuum. Outright bans on ads

can result in court decisions that determine a corporation’s right to free speech under the Constitution. The latest such complaint comes from Columbia Law Professor (and former senior adviser to the Federal Trade Commission) Tim Wu in the New Republic article titled, “The Right to Evade Regulation: How Corporations Hijacked the First Amendment.”

Wu criticizes court decisions protecting commercial speech rights as a return to the

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discredited Lochner era of the early twentieth century, when some judges began interpreting the Due Process Clause as a license that allowed them to overturn economic legislation based on their own economic policy preferences.31 At the other end of the spectrum, when actual harm and damage can be shown to have occurred as a result of and/or related to deceptive advertisements, the legal system intervenes. As moral and legal disputes occur over specific ads on the paternalism versus manipulation continuum, debate also continues as a matter of perception and judgment from different stakeholder views. In the following section, specific controversial issues of advertising online, children and youth as targets of advertising, and tobacco and alcohol ads are discussed.

5.3 Controversial Issues in Advertising: The Internet, Children, Tobacco, and Alcohol

Advertising and the Internet Advertising on the Internet and cell phones presents new opportunities and problems for consumers. The ubiquity of Internet and cell phone communication and advertising is evident from these growing indicators:

• 4.85 billion people worldwide are expected to use mobile phones by 2015. • 37% of consumers access social media on a mobile phone. • 82 million Americans are expected to be using tablets by 2015. • Mobile ad spending is expected to grow to $2.55 billion by 2014. This total includes spending for messaging, display, search, and video formats for mobile advertising.

• Total spending on mobile advertising will soar from roughly $8.5 billion this year to more than $31.1 billion in 2017, while overall online ad spending will grow from $42.3 billion to $61.4 billion during the same period. By 2017, eMarketer expects that about 60% of search ad spending will be devoted to mobile devices.

• Mobile is also forecast to account for a larger share of display dollars, though not quite to the same extent as search. By 2017, 48.4% of online display advertising (including banners, video, rich media, and ads such as Facebook’s Sponsored Stories and Twitter’s Promoted Tweets) will be on mobile devices (including tablets), up from an estimated 21.7% this year.32

In addition, YouTube’s mobile business will generate approximately $800 million in 2013. According to Martin Pyykkonen, an analyst from Wedge Partners, YouTube accounted for about 10% of Google’s $14 billion in sales in last quarter of 2013, with as much as 25% of YouTube revenues coming from mobile.33

The social networking web sites also draw large numbers of unique and returning viewers. For example, according to comScore, Inc.’s Video Metrix service, Google Inc., including YouTube, drew 154 million unique viewers in March 2013 and Facebook Inc. had 64 million unique viewers in the same period. Over 182,000 million unique viewers in the United States

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watched 39.3 billion online videos during this same period. Video ad views totaled 13.2 billion.

Google sites topped the 2012 U.S. unique web visitors list with 191.4 million visitors; while Facebook drew overall viewer engagement with 10.8 percent of online minutes spent. Google, Facebook, Yahoo, Microsoft, AOL, and Amazon were the top six sites on both these metrics during the 2012 year.34

The ubiquity of ads on the Web continues to cause ethical problems, particularly for parents and those who wish to protect youth from a host of mobile media instant access via cell phones and pop-up ads, and exposure to web sites and advertisements dealing with sex, pornography, violence, drinking, and tobacco.

Pop-up and pop-under ads (ads that open up in a separate browser window) are used on some of the most visited web sites. In place of TV commercials that confront consumers with 30-second product introductions, the new “advertainment” shorts (also known as “commission content”) that pop up on different mobile devices present product or service information to the viewer through a story. For example, Madonna starred in a BMW-funded film directed by her husband. “You’re not using a product-based appeal, you’re using an image-based appeal.” It is important to mention that while stars such as Justin Bieber, Miley Cyrus, Lindsay Lohan, Lady Gaga, and Snooki draw attention to large numbers of virtual viewers in ads and infomercials, once their perceived and/or actual reputation is tainted, the attention can also turn.35

The Thin Line between Deceptive Advertising, Spyware, and Spam In addition to undesirable pop-up ads and other aggravating forced online advertising, is the more serious problem of Internet spyware and spam—which problems are now global because of the Internet. The U.S. House of Representatives Judiciary Committee passed the Internet Spyware Prevention Act of 2004, predicting that the problem of spyware would be solved. The act carries penalties of up to five years in prison for using spyware that leads to identity theft. The Department of Justice was given $10 million to find ways to fight spyware and phishing—the act of sending email to a user falsely claiming to be an established legitimate enterprise. There have been other bills introduced by Congress to curb spyware and related Internet crimes.

The debate continues over whether or not congressional legislation and laws can stop Internet spyware and spam. Critics of congressional action alone argue that both industries and government must work to end spam and spyware.36 Europe, also involved in solving cybercrime as well as daily scam-ming, takes a wider stakeholder involvement approach that includes legal enforcement and educating industry representatives and consumers. The European Cybercrime Convention, sponsored by the Council of Europe, provides a treaty for combating global cybercrime. The cybercrime convention was approved by 30 countries, including Canada, Japan, South Africa, and the United States, and has been ratified by eight countries.37 In December 2010, Canada’s government passed the Canadian Anti-Spam Law (CASL), designed to regulate specific areas of electronic commerce, including what are known as commercial electronic messages (CEMs). These encompass SMS messaging, social media messaging, and e-mail communications. Although the enforcement date has not yet been set,

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enforcement is expected to begin in 2014.38 Figure 5.2 shows the seriousness of Internet spam, spyware, and data breach statistics by industry.

The FTC has extensive guidelines for online advertising. For example, this governmental agency offers “Clear and Conspicuous Disclosures in Online Advertisements.” The following is only a sample from the FTC web site.

When it comes to online ads, the basic principles of advertising law apply:

1. Advertising must be truthful and not misleading. 2. Advertisers must have evidence to back up their claims (“substantiation”). 3. Advertisements cannot be unfair.39

Figure 5.2 Internet Spam, Spyware, and Crime

The FTC’s web site states that a particular disclosure is clear and conspicuous under the following conditions:

• the placement of the disclosure in an advertisement and its proximity to the claim it is qualifying;

• the prominence of the disclosure; • whether items in other parts of the advertisement distract attention from the disclosure;

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• whether the advertisement is so lengthy that the disclosure needs to be repeated; • whether disclosures in audio messages are presented in an adequate volume and cadence and visual disclosures appear for a sufficient duration; and

• whether the language of the disclosure is understandable to the intended audience.40

The following section presents specific advertisement issues in the areas of children and youth (as targets) and tobacco and alcohol.

Advertising to Children It is estimated that half of American children have a television in their bedroom, and “one study of third graders put the number at 70%. And a growing body of research shows strong associations between TV in the bedroom and numerous health and educational problems.” With the advent of mobile phones, gaming consoles, tablets, laptops, smart TVs, and e-readers, children are exposed at early ages with access to the Internet. Microsoft asked 1,000 adults who were non-parents and parents, “How old is too young for kids to go online unsupervised?” Eight years old was the average age given that children were allowed independent Internet and device use.41

This is a disturbing number given the unlimited availability of and exposure to explicit sexual, pornographic, and other questionable content on ads and web sites, mixed with carefully crafted entertainment that is enhanced by new technologies. Should children and youth be exposed to the uncontrolled Internet through mobile phones and be able to log on from their computers, or from computers in libraries and cyber cafés, to web sites showing explicit sexual and pornographic pictures and videos? At issue is both how much protection can and should parents and guardians exert over children, and how much government protection through censorship does the public want? Although many telecom providers offer controls for parents, as do private firms through products such as CyberPatrol, CYBERsitter, and WebTrack, the issue also remains one of principle: How much regulation interferes with free speech for all? Moreover, file-sharing technologies and availability of pornography and other questionable content for children provide opportunities not only for users to see explicit material, but to share the content instantly.

Another ethical problem involves companies targeting children at too early an age— between 8 and 9 years old with ads. The phenomenon known as age compression—KGOY (“kids getting older younger”)—refers to “tweens” (between childhood and teenage years). This market is targeted by such companies as Alberto-Culver, Estee Lauder, Procter & Gamble, and Unilever. The tween market was estimated to be between $7 and $8.5 billion in 2012. Marketing strategies include products such as youth hair care, cosmetics, and skincare.42 Children at this age are more vulnerable to persuasive techniques.43 Rosalind Wiseman, the author of Queen Bees and Wannabes, stated her opinion about the lack of responsibility of parents of children who are permitted to buy questionable products for their children’s ages: “Mothers and fathers do really crazy things with the best of intentions. I don’t care how it’s couched, if you’re permitting this [i.e., allowing the purchase of these products] with your daughter, you are hyper-sexualizing her. It’s one thing to have them play around with makeup at

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home within the bubble of the family. But once it shifts to another context, you are taking away the play and creating a consumer, and frankly, you run the risk of having one more person who feels she’s not good enough if she’s not buying the stuff.”44

Protecting Children European, Asian, African, and North American countries are addressing issues on advertising to children. The Children’s Online Privacy Protection Act (COPPA) and the FTC’s implementing rule took effect April 21, 2000. Commercial web sites directed to children younger than 13 years old, or general audience sites that are collecting information from a child, must obtain parental permission before collecting such information. The FTC also launched a special site at http://www.ftc.gov/kidzprivacy to help children, parents, and the operators understand the provisions of COPPA and how the law will affect them.45 In 1974, the Children’s Advertising Review Unit (CARU) of the National Advertising Division of the Council of Better Business Bureaus was created to develop guidelines for self-regulating children’s advertising (see http://www.caru.org/guidelines/guidelines.pdf). CARU approaches companies that violate COPPA. In May 2008, CARU recommended and received approval from the operator of the web site http://www.stardoll.com to “modify the site to assure it is in compliance with CARU’s guidelines and the federal Children’s Online Privacy Protection Act (COPPA).” CARU observed that the Stardoll web site offered “a virtual world where visitors can design fashions for paper dolls and play other dress-up games.” When registering for basic membership on the site, visitors must first select one of the following two options: “12 year [sic] and under” or “13 year [sic] and under.” Potential members who clicked on the “12 year and under” link were asked to enter their gender and a username, password, and e-mail address. Once that information was submitted, the next screen asked for a parent’s e-mail address. After CARU requested changes to the web site, Stardoll decided to implement a neutral age-screening process and tracking mechanism.46

Advertising and media companies are also working with government agencies to change media strategies.47 For example, the Media Monitoring Project (MMP) was created in South Africa because of increasing rates of obesity in children. The European Advertising Standards Alliance (EASA) and the European Sponsorship Association (ESA) joined together in January 2008 to form the Joint Arbitration Panel that will review “and adjudicate on consumer complaints about event sponsorship, an issue that is generally not covered in the ethical codes of most self-regulatory organisations (SROs) in Europe.”48

Tobacco Advertising Critics argue that tobacco and alcohol companies, in particular, continue to promote products that are dangerously unhealthy and that have effects that endanger others. According to the World Health Organization (WHO), cigarettes are “the only legal product that kills half of its regular users when consumed as intended by the manufacturer.”49

Eighteen percent of American adults were cigarette smokers in 2012, according to a report released by the National Center for Health Statistics.50 The tobacco industry spent

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http://www.ftc.gov/kidzprivacy

http://www.caru.org/guidelines/guidelines.pdf

http://www.stardoll.com

approximately $8.2 billion in 1999 on traditional magazine direct-to-consumer advertising. Cigarette companies reportedly are targeting low-income women and minorities in their ads and focusing less on college-educated consumers. Three-thousand new teenagers and youth begin smoking each day. One out of three is predicted to die from tobacco-related illnesses— many when they are middle-aged.51

The Marlboro man, the infamous and now defunct Old Joe Camel, and other cigarette brands linked adventure, fun, social acceptance, being “cool,” and risk-taking to smoking. Several new tobacco products have been produced to entice youth and smokers. “Cigarettes, smokeless tobacco, and cigars have been introduced in an array of candy, fruit, and alcohol flavors. R. J. Reynolds’ Camel cigarettes, for example, have come in more than a dozen flavors, including lime, coconut and pineapple, toffee, and mint. Flavorings mask the harshness of the products and make them appealing to children; new smokeless tobacco products have been marketed as ways to help smokers sustain their addiction in the growing number of places where they cannot smoke. In addition to traditional chewing and spit tobacco, smokeless tobacco now comes in teabag-like pouches and even in dissolvable, candy-like tablets. . . . New products and marketing have been aimed at women, girls and other populations. The most recent example is R. J. Reynolds’ Camel No. 9 cigarettes, a pink-hued version that one newspaper dubbed ‘Barbie Camel’ because of marketing that appealed to girls.”52

Despite the fact that cigarette brand product placement in movies was banned by the 1998 Tobacco Master Settlement Agreement, cigarettes appeared in two out of three top-grossing movies in 2005. More than one-third of the movies were youth-rated films. The number of movies with tobacco-related scenes has gone down since 2005, but in 2010 more than 30% of top-grossing movies rated G, PG, and PG-13 had tobacco scenes. And studies show that young people who see smoking in movies are more likely to start smoking.53

The Tobacco Controversy Continues The tobacco controversy took yet another turn in 2004 when the DOJ brought the largest civil action against the tobacco industry, alleging that the industry defrauded and misled the public for 50 years regarding health risks of cigarette smoking. The DOJ requested $280 billion from the industry to repay its “ill-gotten” profits. A final judgment and opinion was issued in August 2006, finding big tobacco companies guilty of violating racketeering laws and defrauding the public. The U.S. Supreme Court made this ruling final in June 2010 by refusing to hear any further appeals. Tobacco companies are now prohibited from misleading and false advertising and must submit annual marketing data to the government. Ill-gotten profits must be surrendered to the government.54

William Schultz, a former DOJ lawyer who helped develop the case, states that, “What the government will argue is that the tobacco industry had a strategy to create doubt over health risks that made smokers more hesitant to quit, and those not smoking more likely to start. The fraud is that the companies knew about the health risks but created doubt and controversy about them to maintain their sales.”55 The lawsuit “has the potential to significantly transform the industry—forcing it to increase cigarette prices sharply, to change how it markets and promotes its product, and to spend billions for stop-smoking programs.”56

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The Supreme Court ruled unanimously in June 2001 that states have no right to restrict outdoor tobacco advertising near schools and public parks. The ruling, a victory for tobacco companies, followed a Massachusetts case that prohibited tobacco ads within 1,000 feet of public parks, playgrounds, and schools.57 The 2001 ruling raised questions regarding the topic of advertising and free speech, for example: Does a corporation have the same free speech rights under the First Amendment to purchase advertising as people have to air political, social, and artistic views? For most of the nation’s history, the Supreme Court has said that commercial speech (offering a product for sale) does not deserve the same protection as political speech. In a series of cases from the Rehnquist Court, “businesses were given powerful new First Amendment rights to advertise hazardous products.”58 While the battle between antismoking and prosmoking stakeholders continues, the paramount issue for antismoking proponents ranges from a total ban on all tobacco products to this statement by Dan Smith, president of the American Cancer Society Cancer Action Network: “The future is a smoke-free country where in public places, you can go and it’s smoke free. I also think the future is much higher taxes on tobacco products.”59

Alcohol Advertising Alcohol abuse is the third-leading cause of preventable death in the United States.60 The following statistics explain why:

• Percent of adults 18 years of age and over who were current regular drinkers (at least 12 drinks in the past year): 51.5%.

• Percent of adults 18 years of age and over who were current infrequent drinkers (1–11 drinks in the past year): 13.6%.

• Number of alcoholic liver disease deaths: 15,990. • Number of alcohol-induced deaths, excluding accidents and homicides: 25,692. • 79,000 annual deaths attributed to excessive alcohol use.

“Up to 40% of all hospital beds in the United States (except for those being used by maternity and intensive care patients) are being used to treat health conditions that are related to alcohol consumption,” and approximately 15 million of the full-time employed workers in the United States are heavy drinkers of alcohol.61 Almost 3 million children have serious alcohol problems but less than 20% get the needed treatment.

The Centers for Disease Control and Prevention report that “Alcohol is the most commonly used and abused drug among youth in the United States, more than tobacco and illicit drugs. Although drinking by persons under the age of 21 is illegal, people aged 12 to 20 years drink 11% of all alcohol consumed in the United States. Over 90% of this alcohol is consumed in the form of binge drinking. On average, underage drinkers consume more drinks per drinking occasion than adult drinkers. In 2008, there were approximately 190,000 emergency room visits by persons under age 21 for injuries and other conditions linked to alcohol.”62

Alcohol ads also raise problems for consumers. Critics of alcohol ads argue that youths continue to be targeted as primary customers, enticed by suggestive messages linking drinking

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to popularity and success. Anheuser-Busch has been castigated for advertising its alcohol- heavy Spykes “Liquid Lunchables” which come in a colorful, two-ounce container in “kid- friendly flavors like Spicy Mango, Hot Melons, Spicy Lime, and Hot Chocolate.” As the watchdog consumer nonprofit Center for Science in the Public Interest (CSPI) noted about this drink, “these so-called Spykes aren’t juiceboxes, they’re malt liquor with more than twice the alcohol concentration of beer.”63

Ethical Insight 5.2

Are Minors (Individuals under the Legal Drinking Age) Personally Responsible for Their Voluntary Choices? Should Minors Be Punished as Adults?

On November 13, 2003, Ayman Hakki filed a lawsuit in Washington, DC, against several alcohol producers. The suit claimed that in an effort to create brand loyalty in the young, the defendants had deliberately targeted their television and magazine advertising campaigns at consumers under the legal drinking age for more than two decades.

Hakki asked for damages that included all of the profits the defendants had earned since 1982 from the sale of alcohol to minors. He also sought class-action status for his suit. The plaintiff class consisted of all parents whose underage children had purchased alcohol in the last 21 years.

What is your opinion regarding the following quote? “Suits against tobacco and alcohol companies for targeting youthful purchasers reflect a particular philosophy regarding people under the legal drinking or smoking age: they are too immature to take full responsibility for their actions. This philosophy is in serious tension with the approach that has increasingly come to dominate our society’s approach to juvenile criminal justice: when minors commit crimes, they ought to be held accountable and punished as adults.”

Sources: Colb, S. F. (December 3, 2003). A lawsuit against “big alcohol” for advertising to underage drinkers. FindLaw.com. http://writ.news.findlaw.com/colb/20031203.html, accessed February 25, 2014. Social host liability. (author not identified). FindLaw.com. http://injury.findlaw.com/accident-injury-law/social-host-liability.html, accesssed February 25, 2014.

Product labeling and packaging are also two critical issues that are related to advertising. In a 2008 poll conducted by the Opinion Research Corporation, 1,003 Americans aged 21 and over were asked to identify the information that consumers consider most important on an alcohol label. The following results were reported:

• 77%: labels on products showing the alcohol content. • 73%: the amount of alcohol shown in each serving. • 65%: the calories shown in each serving. • 57%: the carbohydrates in each serving. • 52%: the amount of fat in each serving.

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http://writ.news.findlaw.com/colb/20031203.html

http://injury.findlaw.com/accident-injury-law/social-host-liability.html

It was noted that “These findings reinforce a previous online survey conducted for Shape Up America! in December 2007, which reported that 79 percent of consumers would support alcohol labeling that summarizes the Dietary Guidelines’ advice.”64

5.4 Managing Product Safety and Liability Responsibly Managing product safety should be priority number one for corporations. As a sign in one engineering facility reads, “Get it right the first time or everyone pays!” Product quality, safety, and liability are interrelated topics, especially when products fail in the marketplace. As new technologies are used in product development, risks increase for users.

How Safe Is Safe? The Ethics of Product Safety Each year, thousands of people die and millions are injured from the effects of smoking cigarettes, and using diet drugs, silicone breast implants, and consumer products such as toys, lawn mowers, appliances, power tools, and household chemicals, according to the Consumer Product Safety Commission (CPSC). But how safe is safe? Few, if any, products are 100% safe. Adding the manufacturing costs to the sales price to bolster safety features would, in many instances, discourage price-sensitive consumers. Just as companies use utilitarian principles when developing products for markets, consumers use this logic when shopping. Risks are calculated by both manufacturer and consumer. However, enough serious instances of questionable product quality and lack of manufacturing precautions taken occur to warrant more than a simple utilitarian ethic for preventing and determining product safety for the consuming public. This is especially the case for commercial products such as air-, sea-, and spacecrafts, over which consumers have little, if any, control.

Are cigarettes safe products? “Tobacco is the leading preventable cause of death in the United States. Cigarette smoking causes about one of every five deaths in the United States each year,” about 443,000 deaths annually.65

Are other types of drugs safer than nicotine and additives in cigarettes? A metaanalysis (i.e., “the first comprehensive scientific review of both published studies and unpublished data that pharmaceutical companies have said they own and have the right to withhold”) by the British medical journal, the Lancet, found that “most antidepressants are ineffective and may actually be unsafe for children and adolescents.” This is an interesting finding in light of a recent Mayo Clinic study that found nearly 70% of Americans are on at least one prescription drug and more than half receive at least two prescriptions—many of which are antidepressants.66

The meta-analysis study reported that youth (ages 5–18) should avoid certain antidepressants—Paxil, Zoloft, Effexor, and Celexa—because of the risk of suicidal behavior with no benefit from taking the drug. Prozac was found an effective drug for depressed children and had no increased suicide risk.67 Doctors signed more than 164 million prescriptions for antidepressants in 2008, according to IMS Health, making antidepressants one of the most prescribed drugs in the United States.68 It is interesting to note that, according to the study, the British government recommended against the use of most antidepressants for children, except

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for Prozac. EU regulators have recommended against Paxil being given to children, and the U.S. FDA has requested drug manufacturers warn more strongly on their labels about possible links between the drugs taken by adolescents and “suicidal thoughts and behaviors.”

Consumers also value safety and will pay for safe products up to the point where, in their own estimation, the product’s marginal value equals its marginal cost; that is, people put a price on their lives whether they are rollerblading, sunning, skydiving, drinking, overeating, or driving to work.69

Product Safety Criteria: What Is the Value of a Human Life? The National Commission on Product Safety (NCPS) notes that product risks should be reasonable. Unreasonable risks are those that could be prevented or that consumers would pay to prevent if they had the knowledge and choice, according to the NCPS. Three steps that firms can use to assess product safety from an ethical perspective follow:70

1. How much safety is technically attainable, and how can it be specifically obtained for this product or service?

2. What is the acceptable risk level for society, the consumer, and the government regarding this product?

3. Does the product meet societal and consumer standards?

These steps, of course, do not apply equally to commercial aircraft and tennis shoes. Estimates regarding the monetary value of human life vary. As Ethical Insight 5.3 illustrates,

a recent methodology estimates the value of a human life at $129,000.

Ethical Insight 5.3

What Is the Value of a Human Life? $129,000

Stanford economists Stefanos Zenios and his colleagues at the Stanford Graduate School of Business used kidney dialysis as a benchmark. Every year, dialysis saves the lives of hundreds of thousands of Americans who would otherwise die of renal failure while waiting for an organ transplant. It is also the one procedure that Medicare has covered unconditionally since 1972, despite rapid and sometimes expensive innovations in its administration. To tally the cost-effectiveness of such innovations, Zenios and his colleagues ran a computer analysis of more than half a million patients who underwent dialysis, adding up costs and comparing that data to treatment outcomes. Considering both inflation and new technologies in dialysis, they arrived at $129,000 as a more appropriate threshold for deciding coverage. “That means that if Medicare paid an additional $129,000 to treat a group of patients, on average, group members would get one more quality-adjusted life year,” Zenios says. Based on patient surveys, one “quality-of-life” year is defined as about two years of life on dialysis.

Take the $500,000 death benefit the government pays families when a soldier is killed in

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Iraq or Afghanistan. Or the cost calculations that for-profit health insurers make to determine how much coverage they’ll give customers. In fact, at least some Americans seem at ease with allowing money to play a prominent role in health care decisions.

The study showed that for the sickest patients, the average cost of an additional quality-of- life year was much higher, at $488,000. “It is difficult to justify the burden and expense of dialysis when persons have other serious health conditions such as, for example, advanced dementia or cancer,” says co-author Glenn Chertow, a nephrology professor at the Stanford School of Medicine. “In these settings, dialysis is unlikely to provide any meaningful benefit.” But with organs, including kidneys, for transplant so scarce, is it justifiable to deny these patients a chance to live through dialysis? It is a question, Zenios says, that everyone should approach with trepidation. “What is the true value of a human life? That’s what we’re asking people.” He adds, “I wouldn’t pretend to know.”

Source: Kingsbury, K. The value of a human life: $129,000. (May 20, 2008). Time.com. http://www.time.com/time/health/article/0,8599,1808049,00.html, accessed January 8, 2014.

Regulating Product Safety Because of the number of product-related casualties and injuries annually and because of the growth of the consumer movement in the 1960s and 1970s, Congress passed the 1972 Consumer Product Safety Act, which created the CPSC. This is the federal agency empowered to protect the public from unreasonable risks of injury and death related to consumer product use. The five members of the commission are appointed by the president. The commission has regional offices across the country. It develops uniform safety standards for consumer products; assists industries in developing safety standards; researches possible product hazards; educates consumers about comparative product safety standards; encourages competitive pricing; and works to recall, repair, and ban dangerous products. Each year the commission targets potentially hazardous products and publishes a list with consumer warnings. It recently targeted Cosco for the faulty product design of children’s products. The death of an 11-month-old in July 1988 in a Cosco-designed crib was never reported by the company, even though the company began to redesign the product. Cosco was forced to pay a record $1.3 million in civil penalties to settle charges that it violated federal law by failing to report hundreds of injuries and the death.71

The CPSC is constrained in part by its enormous mission, limited resources, and critics who argue that the costs for maintaining the agency exceed the results and benefits it produces.

Consumer Affairs Departments and Product Recalls Many companies actively and responsibly monitor their customers’ satisfaction and safety concerns. A number of companies are using cell phone text messages to add more interactivity to their ads and consumer support. In addition, increased real-time mobile messaging, social networking services, Web browsing, and personal information management applications are being offered by some companies like Microsoft, to not only keep in touch with its customers but to also provide entertainment for them. Microsoft has teamed with Sony Ericsson Mobile Communications to give consumers more control over digital content.72 Another way that

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http://www.time.com/time/health/article/0,8599,1808049,00.html

companies can help consumers is by recalling their products when defects are noticed. Many companies aggressively and voluntarily recall defective products and parts when they

discover them or are informed about them. Mattel recalled over 700,000 toys in 2007 because of lead-paint issues. When unsafe products are not voluntarily recalled, the Environmental Protection Agency (EPA), National Highway Traffic Safety Administration (NHTSA), FDA, and CPSC have the authority to enforce recalls of known or suspected unsafe products. Recalled products are usually repaired. If not, the product or parts can be replaced or even taken out of service. American autos are frequently recalled for replacement and adjustment of defective parts.

Amitai Etzioni, a noted business ethicist, argues that “There is, of course, no precise way of measuring how much more the public is willing to pay for a safer, healthier life via higher prices or taxes, or by indirect drag on economic growth and loss of jobs. In part this is because most Americans prefer to deal with these matters one at a time rather than get entangled with highly complex, emotion-laden general guidelines. In part it is also because the answer depends on changing economic conditions. Obviously, people are willing to buy more safety in prosperity than in recession.”73

Product Liability Doctrines Who should pay for the effects of unsafe products, and how much should they pay? Who determines who is liable? What are the punitive and compensatory limits of product liability? The payout in 2001 in litigation and settlements in diet-pill cases alone totaled $7 billion. Merck settled its Vioxx case with a $4.85 billion payout to settle approximately 50,000 lawsuits, with payouts beginning in August 2008. An additional $950 million was paid along with a guilty plea made to a criminal misdemeanor charge of illegally marketing Vioxx in November 2011. The $950 million includes a “$321.6 million criminal fine and $628.3 million to resolve civil claims that Merck sold Vioxx for unapproved uses and made false statements about its cardiovascular safety.” In 2013 Merck agreed to pay $23 million to settle claims it duped consumers into buying the drug.74

Sixty companies have filed for bankruptcy court protection, and defendant companies and insurers have spent approximately $54 billion to date to settle asbestos liability-related lawsuits from products used in the 1970s. More than 600,000 asbestos-related suits have been filed, and many are still being resolved to this day. In February of 2012, for example, a $19.5 million settlement was offered as a part of the suit against W. R. Grace & Co. for the victims of asbestos exposure from its vermiculite plant located in Libby, Montana. A $43 million settlement was previously approved in 2011 for 1,128 victims of asbestos, approximately 400 of whom were killed.75

The doctrine of product liability has evolved in the court system since the early twentieth century, when the dominant principle of privity was used. Until the decision in MacPherson v. Buick Motor Company (1916), consumers injured by faulty products could sue and receive damages from a manufacturer if the manufacturer was judged to be negligent. Manufacturers were not held responsible if consumers purchased a hazardous product from a retailer or wholesaler.76 In MacPherson, the defendant was ruled liable for harm done to Mr.

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MacPherson. A wheel on the car had cracked. Although MacPherson had bought the car from a retailer and although Buick had bought the wheel from a different manufacturer, Buick was charged with negligence. Even though Buick did not intend to deceive the client, the court ruled the company responsible for the finished product (the car) because—the jury claimed—it should have tested its component parts.77 The doctrine of negligence in the area of product liability was thus established. The negligence doctrine means that all parties, including the manufacturer, wholesaler, distributor, and sales professionals, can be held liable if reasonable care is not observed in producing and selling a product.

The doctrine of strict liability is an extension of the negligence standard. Strict liability holds that the manufacturer is liable for a person’s injury or death if a product with a known or knowable defect goes to market. A consumer has to prove three things to win the suit: (1) an injury happened; (2) the injury resulted from a product defect; and (3) the defective product was delivered by the manufacturer being sued.78 Absolute liability is a further extension of the strict liability doctrine. Absolute liability

was used in Beshada v. Johns Manville Corporation (1982). Employees sued Johns Manville for exposure to asbestos. The court ruled that the manufacturer was liable for not warning of product danger, even though the danger was scientifically unknown at the time of the production and sale of the product.79 Medical and chemical companies, in particular, whose products could produce harmful but unknowable side effects years later, would be held liable under this doctrine.

Legal and Moral Limits of Product Liability Product liability lawsuits have two broad purposes. First, they provide a level of compensation for injured parties, and second, they act to deter large corporations from negligently marketing dangerous products.80 A California jury awarded Richard Boeken, a smoker who had lung cancer, a record $3 billion in a suit filed against Philip Morris in 2001. In 2007, a Los Angeles judge ruled for Boeken’s 15-year-old son on an issue related to his lawsuit against Philip Morris, which he argued was liable for the death of his father. The $3 billion suit awarded earlier had been reduced to $55 million. Boeken (age 57) died in January 2002, seven months after the verdict. The disease had spread to his spine and brain.81 The legal and moral limits of product liability suits evolve historically and are, to a large degree, determined by political as well as legal stakeholder negotiations and settlements. Consumer advocates and stakeholders (for example, the Consumer Federation of America, the National Conference of State Legislators, the Conference of State Supreme Court Justices, and activist groups) lobby for strong liability doctrines and laws to protect consumers against powerful firms that seek profits over consumer safety. In contrast, advocates of product liability law reform (for example, corporate stockholders, Washington lobbyists for businesses and manufacturers, and the President’s Council on Competitiveness) argue that liability laws in the United States have become too costly, routine, and arbitrary. They claim liability laws can inhibit companies’ competitiveness and willingness to innovate. Also, insurance companies claim that all insurance-paying citizens are hurt by excessive liability laws that allow juries to award hundreds of millions of dollars in punitive damages because insurance rates rise as a

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result. However, a two-year study of product liability cases concluded that punitive damages are

rarely awarded, more rarely paid, and often reduced after the trial.82 The study, partly funded by the Roscoe Pound Foundation in Washington, DC, is the most comprehensive effort to date to show the patterns of punitive damages awards in product liability cases over the past 25 years. The results of the study are as follows:

1. Only 355 punitive damages verdicts were handed down by state and federal court juries during this period. One-fourth of those awards involved a single product—asbestos.

2. In the majority of the 276 cases with complete posttrial information available, punitive damages awards were abandoned or reduced by the judge or the appeals court.

3. The median punitive damages award for all product liability cases paid since 1965 was $625,000—a little above the median compensatory damages award of $500,100. Punitive damages awards were significantly larger than compensatory damages awards in only 25% of the cases.

4. The factors that led to significant awards—those that lawyers most frequently cited when interviewed or surveyed—were failure to reduce risk of a known danger and failure to warn consumers of those risks.

A Cornell study reported similar findings.83 Furthermore, an earlier federal study of product liability suits in five states showed that

plaintiffs won less than 50% of the cases; a Rand Corporation study that surveyed 26,000 households nationwide found that only 1 in 10 of an estimated 23 million people injured each year thinks about suing; and the National Center for State Courts surveyed 13 state court systems from 1984 to 1989 and found that the 1991 increase in civil caseloads was for real- property rights cases, not suits involving accidents and injuries.84

Contrary to some expectations, another study found that “judges are more than three times as likely as juries to award punitive damages in the cases they hear.” Plaintiffs’ lawyers apparently mistakenly believe that juries are a soft touch, and “they route their worst cases to juries. But in the end, plaintiffs do no better before juries than they would have before a judge.” The study also found that the median punitive damages award made by judges ($75,000) was nearly three times the median award made by juries ($27,000).85

Product Safety and the Road Ahead As outsourcing practices continue and new technologies are increasingly used in products, problems for both corporations and consumers will persist. Corporations face issues of cutting costs and increasing quality to remain competitive, while at the same time sacrificing some control over their manufacturing processes through outsourcing. Consumers must trust corporations’ ability to deliver safe and healthy products, including food, drugs, toys, automobiles, and medical products. Consumer stakeholders must rely on government agencies such as the FDA and the CPSC to monitor and discipline corporations that violate basic safety standards and practices. Consumers can also use the many watchdog nonprofit groups that

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monitor and advise on the quality of different projects. Consumer Reports (http://www.ConsumerReports.org) is one such organization. Corporations must rely on state- of-the-art monitoring and safety programs in their respective industries—such as Six Sigma (http://www.6-sigma.com), ISO 9000 (a quality assurance program), and other Total Quality Management (TQM) programs.

5.5 Corporate Responsibility and the Environment There was a time when corporations used the environment as a free and unlimited resource. That time is ending, in terms of international public awareness and increasing legislative control. The magnitude of environmental abuse, not only by industries but also by human activities and nature’s processes, has awakened an international awareness of the need to protect the environment. At risk is the most valuable stakeholder, the earth itself. The depletion and destruction of air, water, and land are at stake. Consider the destruction of the rain forests in Brazil; the thinning of the ozone layer; climatic warming changes from carbon dioxide (CO2) accumulations; the smog in Mexico City, Los Angeles, and New York City; the pollution of the seas, lakes, rivers, and groundwater as a result of toxic dumping; and the destruction of Florida’s Everglades National Park. At the human level, environmental pollution and damage cause heart and respiratory diseases and skin cancer. The top environmental concerns include climate change; energy, water, biodiversity, and land use; chemicals (toxics and heavy metals); air pollution; waste management; and ozone layer depletion.86

We will preview and summarize some of the issues to indicate the ethical implications. The purpose here is not to present in great detail either the scientific evidence or all the arguments for these problems. Rather, our aim is to highlight some issues and suggest the significance for key constituencies from a stakeholder and issues management approach and related ethical implications and concerns.

The Most Significant Environmental Problems

Toxic Air Pollution More people are killed, it is estimated, by air pollution (automobile exhaust and smokestack emissions) than by traffic crashes. The so-called greenhouse gases are composed of the pollutants carbon monoxide, ozone, and ultrafine particles called particulates. These pollutants are produced by the combustion of coal, gasoline, and fossil fuels in cars. A 2013 American Lung Association report noted that “Still, over 131.8 million people—42 percent of the nation —live where pollution levels are too often dangerous to breathe,” and “roughly half the people (50.3%) in the United States live in counties that have unhealthful levels of either ozone or particle pollution.” The top five most polluted cities 2013 by ozone levels are: Los Angeles, CA; Bakersfield, CA; Visalia, CA; Fresno, CA; and Sacramento, CA. The five most polluted cities at the time of writing by year-round particle pollution are: Bakersfield, CA; Visalia, CA; Phoenix, AZ; Los Angeles, CA; and Hanford, CA.87 Figure 5.3 shows America’s Top Five Global Warming Polluters.

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http://www.ConsumerReports.org

http://www.6-sigma.com

Air pollution and greenhouse gases are linked to global warming, as evidenced in:

• The five-degree increase in Arctic air temperatures, as the earth becomes warmer today than at any time in the past 125,000 years.

• The snowmelt in northern Alaska, which comes 40 days earlier than it did 40 years ago.

• The sea-level rise, which, coupled with the increased frequency and intensity of storms, could inundate coastal areas, raising groundwater salinity.

• The atmospheric CO2 levels, which are 31% higher than preindustrial levels 250 years ago.88

Nationally, carbon dioxide emissions are a major source of air pollution. America’s top five warming polluters (by CO2 emissions from company-owned or -operated power plants) are listed in Figure 5.3. These companies had estimated annual CO2 emissions of 70 million tons and reported 2003 revenues of $4.4 billion.89 Internationally, greenhouse gas emission statistics show that Spain had the largest increase in emissions, followed by Ireland, the United States, Japan, the Netherlands, Italy, and Denmark. The EU, Britain, and Germany had emission decreases during this period (see Figure 5.4).

Figure 5.3 America’s Top Five Global Warming Polluters

Figure 5.4 Global Non-CO2 Percent Emissions Change in 6 Regions

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To stabilize the climate, global carbon emissions must be cut in half, from the current 6 billion tons a year to under 3 billion tons a year. This reduction can be accomplished by producing more efficient cars and power plants, using mass transit and alternative energy, and improving building and appliance standards. These changes would also help alleviate energy crises as well as global warming and air pollution.90

Water Pollution and the Threat of Scarcity Approximately 1 billion people worldwide lack access to improved water sources. This lack of access comes with a heavy price. Some 2 million deaths a year worldwide are attributable to unsafe water and to poor sanitation and hygiene, mainly through infectious diarrhea. Cholera is still reported to the World Health Organization (WHO) by more than 50 countries, and about 260 million people are infected with schistosomiasis. Unsafe levels of arsenic and fluoride in water supplies have exposed millions to cancer and tooth damage. The “increasing use of wastewater in agriculture is important for livelihood opportunities, but also associated with serious public health risks. 4% of the global disease burden could be prevented by improving water supply, sanitation, and hygiene.”91

Water pollution is a result of industrial waste dumping, sewage drainage, and runoff of agricultural chemicals. The combined effects of global water pollution are causing a noticeable scarcity. Water reserves in major aquifers are decreasing by an estimated 200 trillion cubic meters each year. The problem stems from the depletion and pollution of the world’s groundwater. “In Bangladesh, for instance, perhaps half the country’s population is drinking groundwater containing unsafe levels of arsenic. By inadvertently poisoning groundwater, we may turn what is essentially a renewable resource into one that cannot be recharged or purified within human scales, rendering it unusable.”92 It is estimated that the United States will have to spend $1 trillion over the next 30 years to begin to purify thousands of sites of polluted groundwater. An EPA report estimated that it could cost between $900

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million and $4.3 billion annually to implement one of the tools under the Clean Water Act for cleaning up the nation’s waters.93 It will require an integrated global effort of public and private groups, of individuals and corporations, to begin planning and implementing massive recycling, including agricultural, chemical, and other pollution controls to address water protection and control. Many companies have already begun conservation efforts. Xerox has halved its use of dichloromethane, a solvent used to make photoreceptors. The firm also reuses 97% of the solvent and will replace it with a non-toxic solvent. The Netherlands has a national goal of cutting wastes between 70% and 90%.

Causes of Environmental Pollution Some of the most pervasive factors that have contributed to the depletion of resources and damage to the environment include:

1. Consumer affluence. Increased wealth—as measured by personal per capita income—has led to increased spending, consumption, and waste.

2. Materialistic cultural values. Values have evolved to emphasize consumption over conservation—a mentality that believes in “bigger is better,” “me first,” and a throwaway ethic.

3. Urbanization. Concentrations of people in cities increase pollution, as illustrated by Los Angeles, New York City, Mexico City, Sao Paulo, and Santiago, to name a few.

4. Population explosion. Population growth means more industrialization, product use, waste, and pollution.

5. New and uncontrolled technologies. Technologies are produced by firms that prioritize profits, convenience, and consumption over environmental protection. Although this belief system is changing, the environmental protection viewpoint is still not mainstream.

6. Industrial activities. Industrial activities that, as stated earlier, have emphasized depletion of natural resources and destructive uses of the environment for economic reasons have caused significant environmental decay.94

Enforcement of Environmental Laws A number of governmental regulatory agencies have been created to develop and enforce policies and laws to protect the general and workplace environments. The Occupational Safety and Health Administration (OSHA), CPSC, EPA, and the Council on Environmental Quality (CEQ) are among the more active agencies that regulate environmental standards. The EPA, in particular, has been a leading organization in regulating environmental abuses by industrial firms.

In the 1970s, the EPA’s mission and activities concentrated on controlling and decreasing toxic substances, radiation, air pollution, water pollution, solid waste (trash), and pesticides. The EPA has since used its regulatory powers to enforce several important environmental laws such as:

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• The Clean Air Act of 1970, 1977, 1989, and 1990: The latest revision of this law includes provisions for regulating urban smog, greenhouse gas emissions, and acid rain, and for slowing ozone reduction. Alternative fuels were promoted and companies were authorized to sell or transfer their right to pollute within same-state boundaries—before, pollution rights could be bought, sold, managed, and brokered like securities.

• The Federal Water Pollution Control Act of 1972: Revised in 1977, this law controls the discharge of toxic pollutants into the water.

• The Safe Drinking Water Act of 1974 and 1996: Established national standards for drinking water.

• The Toxic Substances Control Act of 1976: Created a national policy on regulating, controlling, and banning toxic chemicals where necessary.

• The Resource Conservation and Recovery Act (RCRA) of 1976: This legislation provides guidelines for the identification, control, and regulation of hazardous wastes by companies and state governments. The $1.6 billion Superfund was created by Congress in 1980. It provides for the cleanup of chemical spills and toxic waste dumps. Chemical, petroleum, and oil firms’ taxes help keep the Superfund going, along with U.S. Treasury funds and fees collected from pollution control. One in four U.S. residents lives within four miles of a Superfund site. It is estimated that 10,000 sites still need cleaning, and it may cost $1 trillion and take 50 years to complete this work.95

• Chemical Safety Information, Site Security, and Fuels Regulatory Relief Act of 1999: Created standards for storing flammable fuels and chemicals.

The Ethics of Ecology Advocates of a new environmentalism argue that when the stakes approach the damage of the earth itself and human health and survival, the utilitarian ethic alone is an insufficient logic to justify continuing negligence and abuse of the earth. For example, Mark Sagoff argues that cost- benefit analysis can measure only desires, not beliefs. In support of corporate environmental policies, he asks, “Why should we think economic efficiency is an important goal? Why should we take wants and preferences more seriously than beliefs and opinions? Why should we base public policy on the model of a market transaction rather than the model of a political debate? Economists as a rule do not recognize one other value, namely, justice or equality, and they speak, therefore, of a ‘trade-off’ between efficiency and our aesthetic and moral values. What about the trade-off between efficiency and dignity, efficiency and self-respect, efficiency and the magnificence of our natural heritage, efficiency, and the quality of life?”96

This line of reasoning raises questions such as these: What is a “fair market” price or replacement value for Lake Erie? The Atlantic Ocean? The Brazilian rainforest? The stratosphere?

Five arguments from those who advocate corporate social responsibility from an ecology- based organizational ethic include the following:

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1. Organizations’ responsibilities go beyond the production of goods and services at a profit. 2. These responsibilities involve helping to solve important social problems, especially those they have helped create.

3. Corporations have a broader constituency than stockholders alone. 4. Corporations have impacts that go beyond simple marketplace transactions. 5. Corporations serve a wider range of human values than just economics.97

Although these guidelines serve as an ethical basis for understanding corporate responsibility for the environment, utilitarian logic and cost-benefit methods will continue to play key roles in corporate decisions regarding their uses of the environment. Also, judges, courts, and juries will use cost-benefit analysis in trying to decide who should pay and how much when settling case-by-case environmental disputes. Some experts and industry spokespersons argue that the costs of further controlling pollutants such as smog outweigh the benefits. For example, it is estimated that the cost of controlling pollution in the United States has exceeded $160 billion. It costs the EPA $7 billion a year to regulate air pollution, and the benefits range from $19 billion to $167 billion.98 A WHO study has estimated that air pollution will cause 8 million deaths worldwide by 2020. How many lives would justify spending $160 billion annually? Although some benefits of controlling pollution have been identified, such as the drop in emissions, improvement of air and water quality, cleanup of many waste sites, and growth of industries and jobs related to pollution control (environmental products, tourism, fishing, and boating), it is not clear whether these benefits outweigh the costs.99 One question sometimes asked regarding this issue is: Would the environment be better off without the environmental laws and protection agencies paid by tax dollars?

Green Marketing, Environmental Justice, and Industrial Ecology An innovative trend in new ecology ethical thinking is linking the concepts of green marketing, environmental justice, and industrial ecology.100 Green marketing is the practice of “adopting resource conserving and environmentally-friendly strategies in all stages of the value chain.”101 The green market was estimated at 52 million households in the United States in 1995. One study identified trends among consumers who would switch products to green brands: 88% of consumers surveyed in Germany said they would switch, as would 84% in Italy, and 82% in Spain. Nearly 70% of respondents across the globe said they were somewhat to very willing to spend more on a green product, compared to the same product without green features. Only 11% of respondents were not willing at all to spend more money for green features. In open-ended comments, many analysts noted that the recession heavily influences their buying decisions at the current time, and cutting costs seems more important to the average consumer than purchasing green products. Respondents would, however, buy green products if the price were not significantly higher.

In write-in responses, some respondents expressed concern that green products are not necessarily healthier or better for the environment, even though they claim to be. According to one respondent from the EU, “It’s sometimes hard to know how much of that is just marketing and how sustainable green products are in the longer term rather than just being good to

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someone’s conscience.”102 Companies are adopting green marketing as a competitive advantage and are also using green marketing in their operations. For example, packaging materials that are recyclable, pollution-free production processes, pesticide-free farming, and natural fertilizers.

Environmental justice is “the pursuit without discrimination based on race, ethnicity, and/or socioeconomic status concerning both the enforcement of existing environmental laws and regulations and the reformation of public health policy.”103 Linking environmental justice to green marketing involves identifying companies that would qualify for visible, prestigious awards—such as the Edison Award—for producing the best green products. To win the award, companies need to demonstrate that they had, for example, (1) produced new products and product extensions that represented an important achievement in reducing environmental impact, (2) indicated where and how they had disposed of industrial and toxic materials, and (3) incorporated recycling and use of less toxic materials in their strategies and processes.

The green marketing and environmental justice link to industrial ecology is made in the long-range vision and practice of companies’ integrating environmental justice into sustainable operational practices on an industrywide basis. Industrial ecology is based on the principle of operating within nature’s domain—that is, nothing is wasted; everything is recycled.

Rights of Future Generations and Right to a Livable Environment The ethical principles of rights and duties regarding the treatment of the environment and multiple stakeholders are (1) the rights of future generations and (2) the right to a livable environment. These rights are based on the responsibility that the present generation should bear regarding the preservation of the environment for future generations. In other words, how much of the environment can a present generation use or destroy to advance its own economic welfare? According to ethicist John Rawls, “Justice requires that we hand over to our immediate successors a world that is not in worse condition than the one we received from our ancestors.”104

The right to a livable environment is an issue advanced by William T. Blackstone.105 The logic is that each human being has a moral and legal right to a decent, livable environment. This “environmental right” supersedes individuals’ legal property rights and is based on the belief that human life is not possible without a livable environment. Therefore, laws must enforce the protection of the environment based on human survival. Several landmark laws have been passed, as noted earlier, that are based more on the logic related to Blackstone’s “environmental right” than on a utilitarian ethic.

Recommendations to Managers Boards of directors, business leaders, managers, and professionals should ask four questions regarding their actual operations and responsibility toward the environment:

1. How much is your company really worth? (This question refers to the contingent liability a firm may have to assume depending on its practices.)

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2. Have you made environmental risk analysis an integral part of your strategic planning process?

3. Does your information system “look out for” environmental problems? 4. Have you made it clear to your officers and employees that strict adherence to environmental safeguarding and sustainability requirements are a fundamental tenet of company policy?106

Using the answers to these questions, an organization can determine its stage on the corporate environmental responsibility profile. The stages range from Beginner (who show no involvement and minimal resource commitment to responsible environmental management) to Proactivist (who is actively committed and involved in funding environmental management).

Finally, managers and professionals can determine whether their company’s environmental values are reflected in the following ethical principles presented in R. Edward Freeman and Joel Reichart’s article, “Toward a Life Centered Ethic for Business.”107 The Principle of Connectedness. Human life is biologically dependent on other forms of

life, and on ecosystems as a whole, including the nonliving aspects of ecosystems. Therefore, humans must establish some connection with life and respect that it exists because living things exist in some state of cooperation and coexistence. The Principle of Ecologizing Values. Life exists in part because of the ecologizing values

of linkage, diversity, homeostatic succession, and community. There is a presumption that these values are primary goods to be conserved. The Principle of Limited Competition. “You may compete [with other living beings] to the

full extent of your abilities, but you may not hunt down your competitors or destroy their food or deny them access to food. You may compete but may not wage war.” (We would add to the last sentence, “without just cause.”)108

Chapter Summary The ethical principles related to corporate responsibility toward consumers include: (1) the duty to inform consumers truthfully; (2) the duty not to misrepresent or withhold information; (3) the duty not to unreasonably force consumer choice or take undue advantage of consumers through fear or stress; and (4) the duty to take “due care” to prevent any foreseeable injuries. The use of a utilitarian ethic was discussed to show the problems in holding corporations accountable for product risks and injuries beyond their control. These principles continue to apply in contemporary advertising online, through cell phones, and media.

Businesses have legal and moral obligations to provide their consumers with safe products without using false advertising and without doing harm to the environment. The complexities and controversies with respect to this obligation stem from attempts to define “safety,” “truth in advertising,” and levels of “harm” caused to the environment. The Federal Trade Commission’s guidelines for online marketing show that this agency has considerable power and legitimacy in informing the public about ads; it also serves as a useful watchdog on corporate advertising and product regulation. Arguments for and against advertising were

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presented, with problematic examples of false advertising from the food and tobacco industries highlighted.

Product safety and liability were discussed through the doctrines of negligence, strict liability, and absolute liability. The legal and moral limits of product liability were summarized. States are now moving to limit punitive damages in product liability cases, and tort reform is predicted to change the direction of product liability litigation toward more protection for manufacturers than for injured consumers.

Corporate responsibility toward the environment was presented by showing how air, water, and land pollution is a serious, long-term problem. Federal laws aimed at protecting the environment were summarized. Increasing concern over the destruction of the ozone layer, the destruction of the rain forests, and other environmental issues has presented firms with another area where economic and social responsibilities must be balanced. Innovative concepts and corporate attitude changes were discussed. Green marketing, environmental justice, and industrial ecology principles are being practiced by a growing number of corporations, particularly in Europe—especially since green products and clean manufacturing processes (and certifications) offer a competitive advantage. An innovative move by some corporations is to include environmental safety practices in the strategic, enterprise, and supply-chain dimensions of industrial activities and practices. A diagnostic enables a company to identify its stage of social responsibility toward the environment.

Questions 1. What advertisements—and where do these appear (TV, Internet, print)—do you find “unethical” but legal? Explain.

2. What ethical principles of advertising apply to consumers in all cultures and countries? Explain.

3. Identify some problems associated with the free-market theory of corporate responsibility (discussed in Chapter 4) for consumers? Compare this view with the social contract and stakeholder perspectives (also discussed in Chapter 4) of corporate social responsibility.

4. Where does the liability of a company end and the responsibility of consumers begin for products? Explain your answer as you define this question more specifically.

5. What constitutes “unreasonable risk” concerning the safety of a product? Identify considerations that define the safety of a product from an ethical perspective.

6. Do you believe the environment is in trouble from climate change and global warming, or do you believe this is “hype” from the press and scientists? Explain.

7. Evaluate and comment on this statement: “North American and European countries have created waste, pollution, and environmental devastation for decades, even centuries. Is it fair that countries like China and India should have the same sanctions now regarding their use of technologies, fuels, and other polluting devices as North America and Europe?”

Exercises

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1. Identify a recent example of a corporation accused of false or deceitful advertising. How did it justify the claims made in its ad? Do you agree or disagree with the claims? Explain.

2. In a paragraph, explain your opinion of whether the advertising industry requires regulation. 3. Can you think of an instance when you or someone you know was affected by corporate negligence in terms of product safety standards? If so, did you or the person communicate the problem to the company? Was any action taken regarding the defective product? Explain.

4. Do you believe cigarette, cigar, and pipe smoking should be banned from all public places where passive smoking can affect nonsmokers? Explain. Use the following (or other) web sites to argue your position: http://www.cdc.gov; http://www.tobacco.org; http://www.thetruth.com; http://www.trytostop.org; http://www.cancer.org; http://www.getoutraged.com.

5. Find a recent article discussing the environmental damage caused by a corporation’s activities. Recommend methods the firm in the article should employ to reduce harmful effects on the environment.

6. Find a recent article discussing an innovative way in which a corporation is helping the environment. Explain why the method is innovative and whether you believe the method will really help the environment or will only help the company promote its image as a good citizen.

Real-Time Ethical Dilemma

Questionable Conflict of Interest I am a project manager who supports corporate-citizenship-funded programs for our large insurance company. I am responsible for helping choose proposals to support for environmental, community education, and alumni related projects. Last year, the division in which I work facilitated 120 sponsorships, engaged 100 employees, and provided nearly 25 speakers to various programs.

We have a set of criteria to guide our decision-making process and to help proposals that demonstrate real need. This focus aligns with the mission of the company. Still, there are many organizations with proposals that are high profile, legacy, and/or ones also supported by executives at our firm. These executive-backed requests sometimes receive preferential treatment over the requests that do meet our needs criteria. Several individuals and groups in the company who are aware of these exceptions either shrug it off or feel comfortably conflicted.

Executives form close ties with some of the groups who receive funding without going through our formal process. A dilemma our group faced last year occurred when one executive pressured us to fund a nonprofit that his sister founded. It was a small nonprofit with an environmental focus in an unassigned area and community in which our Program operates. Since this is not the only time executives have bypassed our company policy, it is one that smacked of nepotism!

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http://www.cdc.gov

http://www.tobacco.org

http://www.thetruth.com

http://www.trytostop.org

http://www.cancer.org

http://www.getoutraged.com

While I hesitate to judge whether or not this particular executive was right or wrong, I continue to have issues with the assumed power and authority that executives in our firm take to trump our mandated mission and decisions with regard to funding needy programs. What more should I have done (should I do) to stand up for my personal and professional beliefs?

My reasoning to execute the sponsorship of that particular program was because I was afraid of the backlash if I did not act. The organization has created a culture where this is acceptable and even though I am not comfortable with this part of our culture, I cannot do much to change it at this point. I cringe at this particular situation and others since I was raised with an ethic of fairness and acting justly toward others. If all people cannot act in a certain way, then no one should act that way. It is difficult managing this process in the real world because people and organizations inevitably have competing interests, stakes, and power in the hierarchy of a company.

Questions 1. What exactly is the conflict of interest here? 2. Is this a serious conflict of interest or just a “business as usual” situation? Explain. 3. What would you have done in this situation before the executive took a decision to fund the sister’s program if you had been this project manager? Explain.

4. Describe the ethical principles (or reasoning) you used in your answer to question 3.

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Cases

Case 12 For-Profit Universities: Opportunities, Issues, and Promises

Background For-profit colleges and universities, compared to their public institutional counterparts, are governed and operated by private corporations. Enrollment in for-profit institutions over the past 20 years has increased 225%, taking in approximately 12% of all postsecondary students —2.4 million as of the 2010–2011 academic year. Estimates for 2013 indicate that the top 50 for-profit colleges and universities headcount totals over 1,260,000. Because public community colleges, or many private universities, cannot meet this level of demand from primarily working adults, part-time students, and working parents with students, for-profit institutions provide an option for those who would otherwise not be able to receive a college education.

Competitive advantages of for-profit institutions include “flexible scheduling with year- round enrollment, online options, small class sizes and convenient locations.” These characteristics attract a large and growing student population entering the education market. It seems the entrepreneurial wave of for-profits has and continues to serve a niche that traditional universities and institutions of higher learning have not served, and perhaps cannot serve, at least to date.

Trouble in Paradise For-profit higher education universities and colleges have entered the eye of the storm on Capitol Hill over the last few years with regard to questionable recruiting practices and use of taxpayer funds that have not resulted in gainful employment and promised results for many students. Although for-profit universities have garnered the favor of Wall Street investors and have formed a powerful lobbying group to promote for-profit interests, questions continue to surface as the boundaries between traditional academia and the business of higher education blur.

Congressional Investigation The 2012 report of a two-year investigation into for-profit colleges by the U.S. Senate’s Health, Education, Labor, and Pensions Committee, comprised primarily of Democratic Party legislators, revealed staggering statistics that have resulted in intense scrutiny by the federal government, creating a call to action for regulation to monitor for-profit institutions. According to other recent investigations, currently “more than $30 billion in taxpayer funds flow to the [for-profit] schools each year” and “about 60% of for-profit colleges receive over 70% of their revenue from U.S. government programs.” These statistics, combined with some for- profit student testimonies about the “dishonest” and “fraudulent” practices of their educational institutions, have resulted in lawsuits. One such lawsuit reached settlement on July 26, 2013,

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