Corporate Responsibility toward Consumer Stakeholders

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.. <i>Business Ethics : A Stakeholder and Issues Management Approach</i>, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-15 17:18:23.

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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.

Weiss, Joseph W.. <i>Business Ethics : A Stakeholder and Issues Management Approach</i>, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-15 17:18:23.

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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

Weiss, Joseph W.. <i>Business Ethics : A Stakeholder and Issues Management Approach</i>, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-15 17:18:23.

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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

Weiss, Joseph W.. <i>Business Ethics : A Stakeholder and Issues Management Approach</i>, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-15 17:18:23.

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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

Weiss, Joseph W.. <i>Business Ethics : A Stakeholder and Issues Management Approach</i>, Berrett-Koehler Publishers, Incorporated, 2014. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1565988. Created from apus on 2019-06-15 17:18:23.

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