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6-18 Ethics & Social Responsibility [CH 6

purchase a less expensive concentrate for one of its best-selling products, apple juice
for babies. Several of the company’s quality scientists advised against the
reformulation and purchase change, arguing the concentrate was likely artificial,
whereas Beech-Nut was advertising a 100 percent natural product. When its supplier
was shown to be selling adulterated apple juice, Beech-Nut canceled its contracts but
continued to sell juice made from the adulterated concentrate. The Justice Department
became involved and prosecuted, generating bad publicity for Beech-Nut. The firm's
market share dropped by 20 percent, and the company posted record losses for a time.
This Beech-Nut case shows that when industry fails to respond to the ethical
standards in society, the public need is typically enforced through government
intervention, which is expensive and in the case of Beech-Nut a decline in market
share and financial loss. In this particular case it was false advertising.
American International Group (AIG), a global insurance giant conceded that it had
misled New York State insurance regulators about transactions with reinsurance
companies. These transactions were used to improperly bolster the insurance titan’s
financial standing through bid-rigging and price fixing. Being investigated by the
Securities and Exchange Commission and the New York Attorney General’s office led
to the dismissal of four executives who entered guilty pleas and the removal of the
Chief Executive Officer. How much did the CEO enjoy seeing his name in the press,
or his wife and children?
Everybody has a tendency to require that government step in and solve the
problem, “there ought to be a law.” When firms and individuals comply with the
standards, self-regulation can be an effective way to foster social responsibility. When
business behaves on the assumption that if it is not illegal then it is ethical, state and
federal legislatures eventually respond with a plethora of laws and regulations.

Social Responsibility and Community Support
Business firms in the United States endeavoring to be good neighbors, provide
good service, and meet community needs, recognizing that business decisions have a
major impact on the daily lives of everyone in their community. They support a wide
variety of activities designed to improve their communities by sponsoring the arts,
donating equipment and employee time to schools, building parks and generally
improving the social atmosphere of a community. They engage in programs to inform
the public how they use the natural resources that contribute to our standards of living
and still leave the environment in a pristine condition.
Smoking is an example of a current social responsibility issue. Fewer than 30
percent of Americans smoke, and governmental intrusion on smokers is common place
because nonsmokers are increasingly intolerant of smokers; in the workplace,
restaurants and at public events. Though smoking remains legal, this puts businesses in

Smoking as a social responsibility
issue extends beyond the
workplace. For 35 years, Hasbro
Inc.'s popular Mr. Potato Head had
a pipe. But in 1988, the toy maker
began marketing the toy without a
pipe so children would not make
any association with smoking.

Smoking is a hazard to your
health. Is Hasbro being socially
responsible in their decision to nor
include the smoking pipe?

Photo Source: Courtesy of Playskool, Inc.

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