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Academy o/Management Executive 2004 Vol 18 No 2

usiness ethics ndcustom erstakeholders

O C Ferrell

A common viewof the firm holds that employees,customers, shareholders,and suppliers are keyor-ganizational stakeholders.^ While obligations tothese stakeholdersare sometimes considered tobemotivatedbyorganizational self-interest, the ethi-cal perspective assertstherightnessorwrongnessof specific firm actions independentlyof any socialor stakeholder obligations.^ Customers are keystakeholders that help establish the firm s reputa-tionand identification. Forexample, today Procterand Gamble is considered a textbook market-driven global powerhouse with billion-dollarbrands suchas Bounty, Olay, Tide, Crest, and Folg-ers ^ Understanding customer needs and wantsand providing customers with high-quality prod-uctsare the key to the company s success. Amar-ket orientation focuses on an understanding ofcustomers expressed and latent needs and devel-opmentofsuperior solutions to the needs.* Suchanapproach selects to elevate the interests of onestakeholderthe customerover thoseofothers.

Theethical perspective asserts therightness or wrongness of specific firmactions independently of any social orstakeholder obligations

While market orientation is considered a keystrategic componentofmarketing strategy, the im-portance ofcustomers in the development ofethi-cal programs and social responsibility is not al-ways clear. Although onestudy found the ethicalclimateof the firmto be positively associated withcustomer loyalty, there are many other determi-nantsofcustomer loyalty. As companies engage incompetitive markets, market orientationand a cus-tomer focus have been recognizedas key drivers ofmarketing performance. However, intense compe-tition sometimes breeds unethical behavior evenwhena customer orientationis in play. When Pizza

another in advertising campaigns, each declathat they provided the freshest ingredients. Tmatter was taken tocourt and resolved throucivil litigation. The importance of creating ctomer relationshipsand creating value for the ctomeras a partofmarket orientation should leto increased performance. This article providessights on foundationsfor ethical customer relatiships, contingent knowledge about customersstakeholders, and insights onestablishing a banced stakeholder orientation from a manageperspective.

Foundations forEthical C ustomer StakeholderRelationshipsThe relationship between a customer and a fexists because of mutual expectations builttrust, good faith, and fair dealing in their intertion.Infact, thereis an implied covenant ofgofaith and fair dealing, and performance cansimplybe a matterofthe firm s own discretion. Nonlyis thisan ethical requirementbut it has belegally enforced insome states. The implied conantofgood faithand fair dealing is to enforcecontract or transactionin a manner consistent wthe parties reasonable expectations.^

From this perspective, ethically questionable tions toward consumerscan be addressed inclitigation. Thereforewe do know that ethical jumentsof inappropriate conduct havea foundatfor legal resolution.For example, in arecent yeWal-Mart was involved with roughly twelvelasuitsper day or oneevery two hours. Wal-Marthe most sued organization exceptfor theU S Gernment. The lawsuits stem from every aspectcustomer interactionand theclaim from some ctomers that something wrong has happenedtheir roleas Wal-Mart customers.Ethical responsibilities to consumers have

strong foundation of legal protection. At the feral level, the Federal Trade Commission (FT

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protect consumers against unfair, deceptive, orpractices. In addition to the FTC, other

agencies such as the Food and Drug Ad-

, fraudulent, or damaging conduct. At the

ey issues addressed in consumer protection in-responsibility for the performance of its prod-

Communications that are false or misleadingay at times even be considered fraudulent.

ses in advertising can range from exaggerated

oted the health benefits and low carbohy-f its chicken with the slogan, If

Two pieces of fried chicken (skin removed)being compared to the original Burger King

hopper. Small print at the bottom of the ad noted

sodium, low cholesterol food. The FTC re-

and misleading advertising isa key issue in

communications. Abusesng can range from

claims and concealed factsoutright lying.

Ethical issues that have the support of the gov-ent include various laws and statements

2002 Sarbanes-Oxley Act and the

ties. When organizations communicate to employ-ees that certain issues are important, the intensityof the issues is elevated. The more employees ap-preciate the importance of an issue, the less likelythey are to engage in questionable behavior asso-ciated with the issue. Under the Sarbanes-OxleyAct, boards of directors are required to provideoversight for all auditing activities and are respon-sible for developing ethical leadership. In addi-tion, court decisions related to the Federal Sen-tencing Guidelines for Organizations hold boardmembers responsible for the ethical and legalcompliance programs of the firms they oversee.

In 1962, President John F. Kennedy proclaimed aconsumer bill of rights, which includes the rightsto choose, to safety, to be informed, and to beheard. Kennedy established the Consumer Advi-sory Council to integrate consumer concerns intogovernment regulations and processes. These fourrights established a philosophical basis on whichstate and local consumer protection regulationswere developed. All U.S. presidents since Kennedyhave confirmed the four basic consumer rights andexpanded this philosophical concept, focusing onissues such as healthcare and consumer financialissues, paying particular attention to children,teens,and senior citizens.

Contingent Knowledge About CustomerStakeholdersWhile there has been concern with corporate rep-utation, there is limited research to determine ifcustomers increase their active support based onthe ethical conduct of an organization. Customersdo evaluate the ethical practices of companies,and research in marketing ethics has shown thatsome customers are aware of the importance ofenvironmental issues, level of service quality, andother responsibility issues that impact the pur-chasing and consumption of products. In a Cone-Roper national survey of consumer attitudes, 81per cent of consumers indicated they would belikely to switch to brands associated with a goodcause if price and quality were equal.i Examiningcustomers from the perspective of a stakeholderorientation provides an opportunity to better un-derstand the importance of customers in shapingthe ethical conduct of the firm.

Research has demonstrated that consumersidentify with organizations and may perceive anoverlap between organizational attributes andtheir individual attributes. The concept of organ-izational identification is important because con-sumers often seek organizational images that are

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128 cademy ofManagem ent Executive Mdisidentification may occur when individualsper-ceiveaconflict between their defining attributesand the attributes defining the organization.^^ Thisdisidentification representsa separationof a per-son's self-concept from thatofthe organization andtranslates into negative perceptionsof theorgani-zation. 3 Companies such as Enron, WorldCom,Parmalat, andHealthSouth have been confrontedwith scandal andassumed disidentification fromcustomers,aswellasfrom other stakeholders suchas investors and employees. Overall, business eth-ics practices emergeas auseful instrument to mar-ket theorganization to customers and toavoidcustomer disidentification andsanctions. *

Research has demonstrated thatconsumers identify with organizationsand may perceive an overlap betweenorganizational attributes and theirindividual attributes

Companies with poor reputations with custom-ersor thegeneral publicmaystillberewardedbyinvestorsif thebottom line looks attractive. Whilethe S&P stock index posteda28.7 per cent returnin2003,theso-called Feds index consistingofcom-panies under investigation for wrongdoing in-creased more than twice that, witha59.8percentrise. Theindex developed by theequity depart-ment at Guardian Life Insurance included Tyco,HealthSouth, Owest,andComputer Associates,aswellasother firms introuble. Althoughtheindexwas only developed tocapture themood of themarket and was notall-inclusive of firms underinvestigation,itappears that investorsareforgiv-ing. ^This potentially creates a conflict betweenstakeholders' interests and businesses limitingtheir ethical responsibility initiatives to pleasethemost powerful andvisible stakeholder interests.Ifshareholders reward firms in the short run forearningsorfinancial performance withoutany re-gardforethics, then thismay be asignalto man-agement that ethical behavior is notakey factor insuccess. Customersmay beable towithholdpur-chasing fromanunethical firmbutmay lack infor-mation and coordination ofefforts to systemati-cally influence afirm's performance.

Wal-Marthasexperienced ethicalandlegalal-legations concerning employment issues, includ-ing issues relatedtoforcing employeestowork offthe clock, as well as discrimination againstwomen andminorities inpromotions tomanage-ment positions. Wal-Mart workers generally re-

other retail stores. Becauseof thevast Wal-Mwork forceofover 1.4million, these policies habeen blamedfordriving down retail wages acrAmerica.On theother hand,theWal-Mart philophy squeezes suppliersandhelps directlyordirectly save customers possibly over $100 billiper year.i^ There maybe a bigdifference betwewhatacompanycan do forsuccessandwhatcompany shoulddo forsuccessin thelongrunbalancing theinterestsof allstakeholders.In caseofWal-Mart, customers appear tohave mpower than employees,or at least customersathe preferred stakeholders. Wal-Mart's suppliedonotfeel 'preferred,' communities boycotttopvent Wal-Mart from openingnewstores,and eployee treatment isunder scrutiny.Establishinga alanced Stakeholder OrientatiThere are potential conflicts between customstakeholders andother stakeholders suchas eployees, shareholders, suppliers, and communitconcerned about thenatural environment or enomic development. Some customers maytakself-centered approachandlookforthe best valquality products, and service without regardother stakeholders. While some customer grouengage in organized communication andactrelated to the exchange relationships, consumactions such asboycotts orabstaining frompchasing andusing productsare notwidespreNike,aswellasother contract manufacturers,hbeen boycotted by consumer groups concernabout child labor practices and working conditioin developing countries.Ingeneral, however,ctomer groupsare notorganized and do notspewith onevoice. Therefore, there is a danger tmore powerful stakeholders will influence ethicdecisions to a greater extent andperhaps inmanner notinthe overall best interestsofconsuers Resource-dependent theory states that anganization must attendto thedemandsofthoseits environment that provide resources necessaand important for itscontinued survival. i''Ctomers provide financial resources, loyalty,aenhanced reputation thatcanhelp create positfirm images related t ethics andresponsibilStakeholder groups needtodemonstrate that thcan influence business activities in order topowerful enoughtoinfluence organizational desions.Insome cases, suchasWal-Mart, custommaybepowerful,butshareholders, employeeseven suppliersmayhavetheupper hand inotfirms.The development of organizational ethicsp

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the importance of stakeholder relation-

rm standards of conduct, it will be difficult to

f customers must be built on a foundation of val-

The development of an ethics program should be

r methods to generate data about stakeholderess the firm's effects on theseDistribution of this information throughout

ndethical behavior.

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'*Maignan,I., Ferrell,O. C.2004. Corp orate social responsibilityandmarketing: An integrative framework. Journalof theAcademy of Marketing Science, 32(1):3-19.' McLean, B. 2004. W henbadcompanies go up.Fortune,1February 2004, via http:llwvrw.fortune.comlfortunelsubslprintl0 15935 589385 00.html accessed 24 February 2004.'^ Bianco,A. 2003.IsWal-Marttoopowerful? Business Week6 October 2003: 102-110; Danie ls,C.2003. Women vs. Wal-Mart.Fortune,21 July2003:79-82; Fishman. C.2003.The Wal-Mart youdon't know;Why low prices havea high cost. Fast CompanyDecember 2003;70-80. Pfeffer, J. 1982.Organizations and organiza tionai theory.Marshfield, MA; Pitman; 193.

O C Ferrellischairandprofes-sorofmarketingandco-directoroftheCenter forBusinessEthics and Social Issues at Colo-rado State University. He received his Ph.D. in market ingfrom Louisiana State Univer-sity.His research interestsceter on business ethics, organi-zational compliance programs,and stakeholder orientation.Hhas co-authored numerous arti-cles and three books on thesetopics. Contact; OC.FerreJJ@coJostate.edu.

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