Chapter 1

The Study of Business, Government, and Society

This chapter provides an overview of the business-governmentsociety field of study by:  Defining basic terms  Discussing the fields importance to managers  Introducing the four basic models of the businessgovernment-society relationship  Explaining the authors approach to the subject matter.
McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 1

The Study of Business, Government, and Society

Future Generations will have a more complex environment to deal with Sustainability, a declining resource base, climate change, environmental management, potential epidemics Aging work force and declining fertility rates Leadership, ethics and corporate governance Globalization Entrepreneurship
McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Opening Case: ExxonMobil Corporation

 Company history
 Main business is discovering, producing, and selling oil and natural gas  Descended from the Standard Oil trust
 In 1890 Congress passed the Sherman Antitrust Act to outlaw its monopoly

 Once had more than a 90% market share of the American oil market  The values of its founder, John D. Rockefeller, defined the company culture  In 1972 Standard Oil of New Jersey changed its name to Exxon, and in 1999 it merged with Mobil, to form ExxonMobil

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Opening Case: ExxonMobil Corporation (continued)  The leader

 John D. Rockefeller (Standard Oil)
 Brilliant strategist and organizer who crushed competitors  Emphasized cost control, efficiency, centralized organization, and suppression of competitors  Although Rockefellers influence is buried in the passage of time, ExxonMobils actions remain consistent with his nature (except his philanthropy)  Air Canada*

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Opening Case: ExxonMobil Corporation (continued)

 Today ExxonMobil remains a powerful force, but that power is limited by economic and political forces.  It now controls only 5.6% of oil production and holds less than 1% of petroleum reserves, far less than it did in the 1950s.  It has complex relationships with powerful governments.  For a considerable time, company managers denied that the world is warming.  ExxonMobils large size attracts the watchful eye of environmental, civil rights, labour, and consumer groups.  It engages in corporate citizenship by funding a variety of programs to benefit education, communities, health, nature, and the arts. The story of ExxonMobil illustrates the importance of interactions between one large corporation, governments, and society.
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Opening Case: ExxonMobil Corporation (continued)

     Exxon Valdez** $100B taxes, Employs 10s of thousands Millions in csr programs $140m p.3 200 federal agencies impose rules and standards (more employees) Supplies energy critical (primary driver) to economic activity and one of the largest industries Q: only one not making investments in renewable energy? Should they be forced to change their policy?

 

The story of ExxonMobil illustrates the importance of interactions between one large corporation, governments, and society.
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Opening Case: ExxonMobil Corporation (continued)

     Exxon Valdez** $100B taxes, Employs 10s of thousands Millions in csr programs $140m p.3 200 federal agencies impose rules and standards (more employees) Supplies energy critical (primary driver) of economic activity and largest industry Q: only one not making investments in renewable energy? Should they be forced to change their policy?

 

The story of ExxonMobil illustrates the importance of interactions between one large corporation, governments, and society.
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Opening Case: ExxonMobil Corporation (continued)

 Critical Questions?  Role of business in Society  When is a company socially responsible, how do we measure it and how does it or its absence impact the firm?  Current HBS study which looks as stock prices as a reflection of analyst that view csr initiatives favourably. Don't believe any link with csr and financial performance but certainly gaining indirectly in its importance in marketing. The story of ExxonMobil illustrates the importance of interactions between one large corporation, governments, and society.
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Opening Case: ExxonMobil Corporation (continued)

 Critical Questions?  Should there be any requirements for csr?  What are the responsibilities of managers?  On the other side:  What actions are ethical and unethical, particularly in international business where rules and norms are different?  And  How responsive do firms need to be to their critics? The story of ExxonMobil illustrates the importance of interactions between one large corporation, governments, and society.
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What is the Business GovernmentSociety Field?

 Business broad term encompassing a range of actions and institutions.  Government refers to structures and processes in society that authoritatively make and apply policies and rules.  Society a network of human relations that includes three interacting elements:  Ideas  Institutions  Material things
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How Institutions Support Markets

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Why is the BGS Field Important to Managers?

 To succeed in meetings its objectives a business must be responsive to both its economic and its noneconomic environment.  Recognizing that a company operates not only within markets but within a society is critical.  A basic agreement or social contract exists between the business institution and society.  Managers must respect and adhere to societys expectations.  This contract defines the broad duties that business must perform to retain societys support, but these duties are often ambiguous.
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Four Models of the BGS Relationship: The Market Capitalism Model

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Four Models of the BGS Relationship: The Market Capitalism Model (continued)
 The market capitalism model depicts business as operating within a market environment, responding primarily to powerful economic forces.  The market acts as a buffer between business and nonmarket forces.  History and nature of markets  Adam Smith, The Wealth of Nations  Capitalism, Milton Friedman  Managerial capitalism
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Four Models of the BGS Relationship: The Market Capitalism Model (continued)
 Important assumptions of the market capitalism model:
 Government interference in economic life is slight (laissez-faire).  Individuals can own private property and freely risk investments.  Consumers are informed about products and prices and make rational decisions.  Moral restraint accompanies the self-interested behaviour of business. oops  Basic institutions such as banking and laws exist to ease support commerce. (banks are self interested)  There are many producers and consumers in competitive markets. key
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Four Models of the BGS Relationship The Market Capitalism Model (continued)
 Critiques of the Market Capitalism Model:  Increased prosperity comes at the cost of increased inequality. (how do we divide the pie?)  Results in base values being energized and virtue being eroded.  The BGS relationship according to the Market Capitalism Model:  Government regulation should be limited.  Markets discipline private economic activity to promote social welfare.  The proper measure of corporate performance is profit.  The ethical duty of management is to promote the interests of shareholders.
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Four Models of the BGS Relationship: The Dominance Model

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Four Models of the BGS Relationship: The Dominance Model (continued)

 Business and government dominate the great mass of people, which results in the enrichment of a few at the expense of many.  Populist reform movement opposed the dominance model.  Marxism emerged in Europe about the same time.  Most accurate in the 1800s, but is being resurrected due to the fear of transnational corporations in a global context. Venezuela, Mexico, other Latin countries, global, ME,

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Four Models of the BGS Relationship The Countervailing Forces Model

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Four Models of the BGS Relationship The Countervailing Forces Model (continued)
 Countervailing forces model conclusions:  Business is deeply integrated into an open society and must respond to many forces, both economic and noneconomic. Eg. Climate change  Business is a major initiator of change in society through its interaction with government, its production and marketing activities, and its use of new technologies.  Broad public support of business depends on its adjustment to multiple social, political, and economic forces.  BGS relationships continuously evolve as changes take place in the main ideas, institutions, and processes of society.
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Four Models of the BGS Relationship The Stakeholder Model

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Four Models of the BGS Relationship The Stakeholder Model

 Stakeholders are those whom the corporation benefits or burdens by its actions and those who benefit or burden the firm with their actions.  Primary stakeholders  Secondary stakeholders  Debate about how to identify who or what is a stakeholder.  Stakeholder model is an ethical theory of management in which the welfare of each stakeholder must be considered as an end.

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Four Models of the BGS Relationship The Stakeholder Model (continued)

 Criticism of the stakeholder model:  It is not a realistic assessment of the power relationships between the corporation and other entities.  There is no single, clear, and objective measure to evaluate the combined ethical/economic performance of a firm.  Advocacy for the stakeholder model:  A corporation that embraces stakeholders performs better.  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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Text Approach to the Subject Matter

 Comprehensive scope  Interdisciplinary approach with a management focus  Use of theory, description, and case studies  Global perspective  Historical perspective

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