Week 1 notes

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Chapter 1

The Study of Business,

Government, and Society

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ExxonMobil Corporation

o Company history

o Main business is discovering, producing, and selling

oil and natural gas

o Descended from the Standard Oil trust

o In 1890 Congress passed the Sherman Antitrust Act to

outlaw its monopoly

o Once had more than a 90% market share of the

American oil market

o The values of its founder, John D. Rockefeller, defined

the company culture

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ExxonMobil Corporation

o The leader

o John D. Rockefeller (Standard Oil)

o Emphasized cost control, efficiency, centralized

organization, and suppression of competitors

o ExxonMobil is no longer the commanding trust of

Rockefeller’s era

o Its power is challenged and limited by economic,

political, and social forces

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ExxonMobil Corporation

o As a corporate citizen ExxonMobil funds worldwide

programs to benefit communities, nature, and the arts

o The story of ExxonMobil raises central questions

about the role of business in society

o When is a corporation socially responsible?

o How can managers know their responsibilities?

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ExxonMobil Corporation

o What actions are ethical or unethical?

o How responsive must a corporation be to its critics?

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What is the Business–Government–

Society Field?

Business Profit-making activity that provides products and services to satisfy human needs

Government Structures and processes in society that authoritatively make and apply policies and rules

Society A network of human relations composed of ideas, institutions, and material things

Idea An intangible object of thought

Value An enduring belief about which fundamental life choices are correct

Ideology A bundle of values that creates a particular view of the world

Institution A formal pattern of relations that links people to accomplish a goal

Material things Tangible artifacts of a society that shape and are shaped by ideas and institutions

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Figure 1.1 - How Institutions Support

Markets

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Why is the BGS Field Important to

Managers?

o To succeed in meetings its objectives a business must

be responsive to both its economic and its

noneconomic environment

o Recognizing that a company operates not only within

markets but within a society is critical

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Why is the BGS Field Important to

Managers?

o A basic agreement or social contract exists between

economic institutions and other networks of power in

a society

o Establishes the general duties that business must fulfill

to retain the support and acquiescence of the others as

it organizes people, exploits nature, and moves

markets

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Figure 1.2 - The Market Capitalism Model

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Four Models of the BGS Relationship: The

Market Capitalism Model

o Depicts business as operating within a market

environment, responding primarily to powerful

economic forces

o The market acts as a buffer between business and

nonmarket forces

o Understanding the history and nature of markets is

important to appreciate this model

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Four Models of the BGS Relationship: The

Market Capitalism Model

o The advent of market economy, reshaped human life

o Market economy: The economy that emerges when

people move beyond subsistence production to

production for trade, and markets take on a more

central role

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Four Models of the BGS Relationship: The

Market Capitalism Model

o Capitalism: An economic ideology with a bundle of

values including private ownership of means of

production, the profit motive, free competition, and

limited government restraint in markets

o Managerial capitalism: A market economy in which

the dominant businesses are large firms run by

salaried managers, not smaller firms run by owner-

entrepreneurs

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Four Models of the BGS Relationship:

The Market Capitalism Model

o Important assumptions

o Government interference in economic life is slight

oLaissez-faire: An economic philosophy that rejects

government intervention in markets

o Individuals can own private property and freely risk

investments

o Consumers are informed about products and prices and

make rational decisions

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Four Models of the BGS Relationship:

The Market Capitalism Model

o Moral restraint accompanies the self-interested

behavior of business

o Basic institutions such as banking and laws exist to

ease commerce

o There are many producers and consumers in

competitive markets

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Four Models of the BGS Relationship:

The Market Capitalism Model

o The BGS relationship according to the market

capitalism model:

o Government regulation should be limited

o Markets will discipline private economic activity to

promote social welfare

o The proper measure of corporate performance is profit

o The ethical duty of management is to promote the

interests of shareholders

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Four Models of the BGS Relationship:

The Market Capitalism Model

o Criticism

o Increased prosperity comes at the cost of increased

inequality

o Results in base values being energized and virtue

being eroded

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Figure 1.3 - The Dominance Model

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Four Models of the BGS Relationship: The

Dominance Model

o Represents the perspective of business critics

o Business and government dominate the great mass of

people

o Those who subscribe to the model believe that

corporations and a powerful elite control a system

that enriches a few at the expense of the many

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Four Models of the BGS Relationship: The

Dominance Model

o Proponents of the dominance model focus on the

defects and inefficiencies of capitalism

o Populism: A political pattern, recurrent in world

history, in which common people who feel oppressed

or disadvantaged seek to take power from a ruling

elite seen as thwarting fulfillment of the collective

welfare

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Four Models of the BGS Relationship: The

Dominance Model

o Populist reform movement opposed the dominance

model

o Marxism: An ideology holding that workers should

revolt against property owning capitalists who exploit

them, replacing economic and political domination

with more equal and democratic socialist institutions

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Figure 1.4 - The Countervailing Forces

Model

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Four Models of the BGS Relationship: The

Countervailing Forces Model

o Suggests exchanges of power among them,

attributing constant dominance to none

o This is a model of multiple forces

o It differs from the dominance model in rejecting an

absolute primacy of business and crediting more

power to a combination of forces and interactions

rendered paltry by the dominance model

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Four Models of the BGS Relationship: The

Countervailing Forces Model

o Conclusions:

o Business is deeply integrated into an open society and

must respond to many forces, both economic and

noneconomic

o Business is a major force acting on government, the

public, and environmental factors

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Four Models of the BGS Relationship: The

Countervailing Forces Model

o To maintain broad public support, business must adjust

to social, political, and economic forces it can

influence but not control

o BGS relationships evolve as changes take place in the

ideas, institutions, and processes of society

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Figure 1.5 - The Stakeholder Model

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Four Models of the BGS Relationship: The

Stakeholder Model

o Stakeholder: An entity that is benefitted or burdened

by the actions of a corporation or whose actions may

benefit or burden the corporation

o The corporation has an ethical duty toward these

entities

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Four Models of the BGS Relationship: The

Stakeholder Model

o Primary stakeholders: Entities in a relationship with

the corporation in which they, the corporation, or both

are affected immediately, continuously, and

powerfully

o Secondary stakeholders: Entities in a relationship

with the corporation in which the effects on them, the

corporation, or both are less significant and pressing

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Four Models of the BGS Relationship: The

Stakeholder Model

o Exponents of the stakeholder model debate how to

identify who or what is a stakeholder

o The stakeholder model reorders the priorities of

management away from those in the market

capitalism model

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Four Models of the BGS Relationship: The

Stakeholder Model

o Criticism

o It is an unrealistic assessment of the power

relationships between the corporation and other

entities

o It sets up too vague a guideline to substitute for the

yardstick of pure profit

o There is no single, clear, and objective measure to

evaluate the combined ethical/economic performance

of a firm

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Four Models of the BGS Relationship: The

Stakeholder Model

o The interests of stakeholders vary that they conflict

with shareholders and with one another

o Most fanatical pursuit of profit creates greater lasting

good for society than pursuit of profit tempered by

compassion

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Four Models of the BGS Relationship: The

Stakeholder Model

o Advocacy for the stakeholder model:

o A corporation that embraces stakeholders performs

better

o It is the ethical way to manage because stakeholders

have moral rights that grow from the way powerful

corporations affect them

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Our Approach to the Subject Matter

o Comprehensive scope

o Interdisciplinary approach with a management focus

o Strategic management: Actions taken by managers to

adapt a company to changes in its market and

sociopolitical environments

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Our Approach to the Subject Matter

o Use of theory, description, and case studies

o Theory: A statement or vision that creates insight by

describing patterns or relationships in a diffuse subject

matter

oA good theory is concise and simplifies complex

phenomena

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Our Approach to the Subject Matter

o Global perspective

o Historical perspective

o History: The study of phenomena moving through

time