Reference no: EM132870595

Foundations for Ethical Customer Stakeholder Relationships

The relationship between a customer and a firm exists because of mutual expectations built on trust, good faith, and fair dealing in their interaction. In fact, there is an implied covenant of good faith and fair dealing, and performance cannot simply be a matter of the firm's own discretion. Not only is this an ethical requirement but it has been legally enforced in some states. The implied covenant of good faith and fair dealing is to enforce the contract or transaction in a manner consistent with the parties' reasonable expectations. From this perspective, ethically questionable actions toward consumers can be addressed in civil litigation. Therefore, we do know that ethical judgments of inappropriate conduct have a foundation for legal resolution. For example, in a recent year, Wal-Mart was involved with roughly twelve lawsuits per day or one every two hours. Wal-Mart is the most sued organization except for the U.S. Government. The

lawsuits stem from every aspect of customer interaction and the claim from some customers that something wrong has happened in their role as Wal-Mart customers. Ethical responsibilities to consumers have a strong foundation of legal protection. At the federal level, the Federal Trade Commission (FTC) enforces consumer protection laws. Within this agency, the Bureau of Consumer Protection works to protect consumers against unfair, deceptive, or fraudulent practices. In addition to the FTC, other federal agencies such as the Food and Drug Administration, the Consumer Product Safety Commission, and the Federal Communications Commission try to assist consumers in addressing deceptive, fraudulent, or damaging conduct. At the state level, consumer protection statutes exist, and deceptive trade practices laws exist in most states. Key issues addressed in consumer protection include product liability, which refers to a business' legal responsibility for the performance of its products. Communications that are false or misleading can destroy stakeholders' trust in an organization and may at times even be considered fraudulent. False and misleading advertising is increasingly a key issue in organizational communications. Abuses in advertising can range from exaggerated claims and concealed facts to outright lying. Such abuses range from the unethical, which they clearly are, to the illegal, which they may be. The Federal Trade Commission stepped in when KFC promoted the health benefits and low carbohydrate content of its chicken with the slogan, "If you're watching carbs and going high-protein, go KFC." Two pieces of fried chicken (skin removed) were being compared to the original Burger King Whopper. Small print at the bottom of the ad noted "a balanced diet and exercise are necessary for good health and that KFC chicken is not a low fat, low sodium, low cholesterol food." The FTC required KFC to stop running the advertising, indicating the deceptive nature of the advertisement. False and misleading advertising is increasingly a key issue in organizational communications. Abuses in advertising can range from, exaggerated claims and concealed facts to outright lying. Ethical issues that have the support of the government include various laws and statements made to encourage ethical behaviour. New federal regulations that hold both organizations and their employees responsible for misconduct require organizations to assess areas of ethical and legal risk and develop programs to manage those risks. Based on both the 2002 Sarbanes-Oxley Act and the United States Sentencing Commission guidelines, there are strong directives to encourage ethical leadership. If ethical leadership fails, especially in corporate governance, there are significant penalties. When organizations communicate to employees that certain issues are important, the intensity of the issues is elevated. The more employees appreciate the importance of an issue, the less likely they are to engage in questionable behaviour associated with the issue. Under the Sarbanes-Oxley Act, boards of directors are required to provide oversight for all auditing activities and are responsible for developing ethical leadership. In addition, court decisions related to the Federal Sentencing Guidelines for Organizations hold board members responsible for the ethical and legal compliance programs of the firms they oversee. In 1962, President John F. Kennedy proclaimed a consumer bill of rights, which includes the rights to choose, to safety, to be informed, and to be heard. Kennedy established the Consumer Advisory Council to integrate consumer concerns into government regulations and processes. These four rights established a philosophical basis on which state and local consumer protection regulations were developed. All U.S. presidents since Kennedy have confirmed the four basic consumer rights and expanded this philosophical concept, focusing on issues such as healthcare and consumer financial issues, paying particular attention to children, teens, and senior citizens.

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