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| mixture of economic, political, social, and cultural influences |
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| all living organisms (systems) interact with, and are affected by, other forces in their host environment |
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| to be responsive to the changing conditions of an environment |
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| 3 main themes of the course |
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1. Ethics and CSR
2. How much government regulation of business is necessary
3. The relationship between businesses and: other businesses, managers and owners, employees, consumers, the environment |
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| people usually want to engage in good behavior but also tend to act in their own self-interest. Tod thinks about 5% engage in ethically suspect behavior |
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| Tod's hierarchy of "bad" things |
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1. Violate laws
2. Expose business to lawsuits, loses
3. Expose business to costly litigation, wins
4. Violations of industry ethics norms resulting in sanctions or disbarred
All lead to bad PR |
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| Elie Wiesel and Bernie Madoff |
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| Wiesel wrote "Night." Madoff stole money from all his clients and lost them more than 50 bil. |
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| (1) Establish Justice; (2) insure domestic Tranquility; (3) provide for the common defense; (4) promote the general welfare. |
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| legal rules that apply to businesses |
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| Americans and regulations |
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| Americans want less government and fewer regulations since it allows individuals and businesses more freedom |
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| Costs of complying with regulations |
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| result in: (1) lower profits for owners; (2) higher costs for consumers; and/or (3) less competitive goods & services in a global marketplace (with different regulatory schemes in different markets). |
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| an expense or cost, incurred in production, distribution or use of a product or service, which is not born by the business or consumer, but by the general public. |
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1. Whats good for a business is not always best for society/govnt
2. Businesses may not adequately address issues of public safety
3. Regulations used to deter businesses from engaging in unethical conduct, make examples.. |
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| federal judge (Robert Lasnik) in Seattle blocked enforcement of a state law that banned the sale of certain violent video games to minors. He questioned the law's constitutionality |
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| Quotes on Economic crisis of 2009 |
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Definition
Obama in inauguration address- “[o]ur economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices…” “this crisis has reminded us that without a watchful eye, the market can spin out of control”
Thomas Friedman- “this financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics. So many people were in on it:" |
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| The Three Major Economic Systems |
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1. Socialism
2. Communism
3. Capitalism |
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| Individuals have exclusive rights to personal property they purchase, but limited rights to own companies and “public resources”, such as lands and other natural resources, which are considered to be owned by society. |
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| Tendencies of Socialism systems |
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income tax rates on individuals are high
public assistance to the poor is high |
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-, individuals voluntarily chose to be subservient to the collective society, and were motivated by their desire to contribute to the public interest.
Marx: “From each according to his abilities, to each according to his needs.”
Consumerism yes, but no individual ownership of property
Only communist country today is Cuba |
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Competition rewards the efficient producer, and thereby delivers to the consumer a product at the most efficient price. Individuals hold government-protected property rights, including those used in production, natural resources, and their own labor. Within the legal framework, individuals can use their skill and labor however they wish. Profit is the incentive.
Adam Smith "The Wealth of Nations" |
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1. Obscene profits are targeted with higher taxes
2.Sometimes the government maintains a monopoly, or takes a business “public”, while at other times the government may sell off public property, or a public function |
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| Government can take property from person but must give fair compensation |
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1. The Market Capitalism model
2. The Dominance Model
3. The Stakeholder Model |
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| The Market Capitalism model |
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Government interference should be minimal.
Laissez-faire.
Competition will keep profits to a minimum.
People should have freedom to pursue their own self-interest
Managers should define company interest narrowly: the bottom line. |
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means Let do or Let it be.
the idea that markets should determine everything and be free from state interventions |
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| conclusions of the market capitalism model |
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- There should be limited government regulations
- Corporations are in business only to make profits
- Managers’ duty is only to make profits. |
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Put forward by business critics.
A small elite within business and government dominate society, and
work to perpetuate wealth for the few. This is undemocratic.
This model does not view regulations as being capable of achieving results.
Model gained a following during the time period of large trusts.
Many parts of world fit this model even today: Asia (Japan) for
instance, has government in close cooperation with industry. |
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| conclusions of the dominance model |
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Definition
1. A business can keep prices high, if it can keep competitors out.
Anti-trust violations.
2. Can influence the law through lobbying and contributions (see Washington State Supreme Court races, 2006).
3. A business may influence how its employees behave, even off the job.
Smoking off the job?
4. Businesses may affect the environment.
Example: Externalities. |
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Term
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| Stakeholders are any entity that it benefitted, or burdened, by the actions of a business or corporation. Primary stakeholders are entities who are in a relationship with the firm in which they, the firm, or both are affected immediately, continuously, and powerfully. Suppliers, employees and the environment are all considered stakeholders in an average company. |
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| Modern view of stakeholder model |
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Definition
corporations exist within society and have a "social contract" with the society.
Reasons:
1.Companies only exist because the society and government have given them the right to exist, by creating the rules.
2.As companies have gained more power, society expects more of them. |
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those who are critical to the company’s survival and success:
Investors (equity)
Creditors (debt)
Employees
Suppliers
Wholesale distributors and retailers
Customers |
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Definition
other groups that have an interest in the corporation.
Local communities (local, secondary businesses; home values)
Federal, State and Local Governments (tax base)
The Public (CSR – supporting local charities, etc.)
Social Activist groups (environmental groups) |
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| Forces of Change in the Business Environment |
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Definition
1. The Industrial Revolution
2. Dominant ideologies in America
3. Inequality in the Distribution of wealth
4. Science and Technology
5. Natural Resources/ Populations
6. Chance
7. Commerce and Communications
8. The evolving goals of business |
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| The Industrial Revolution |
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Definition
A. invention of new manufacturing techniques
B. breakup of small, agrarian farms, in favor of city w/ready labor forces;
C. combination of capital and labor
D. creation of new consumer markets |
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| Dominant Ideologies in America |
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Definition
1. Capitalism
2. Private Property
3. Constitutional Democracy
4. Independent Judiciary able to enforce contracts
5. Political philosophers (other card) |
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| Prominent American Political Philosophers |
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Definition
Adam Smith: Free markets create wealth; potential profit
motivates us; while the fear of loss makes us careful.
B.Darwin: The strong will survive via natural selection.
C.Herbert Spencer: Social Darwinism – The most resourceful people will survive. Charity perverts this process. |
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| Inequality in the Distribution of Wealth |
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| One of the basic political conflicts in every nation is the result of economic antagonism between the rich and the poor. Is the unequal distribution of wealth a problem? |
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| Scientific advances have fueled commerce and business. Business has utilized new discoveries to more efficiently convert basic resources into new products. The invention of the microchip has changed virtually every form of business. |
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| Natural Resources/ Populations |
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The finite nature of the earth’s resources w/cause problems: oil!
High populations with low incomes = ready labor supply = companies relocating where labor is less expensive = significant impact on domestic jobs.
Think: China + other developing nations. |
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Chance and Luck can cause great shifts in wealth.
Think IBM story |
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In the mid-1970s, IBM was the largest computer manufacturer in the world, but it had one problem: the US government was suing it for being a monopoly (it had too much of the market).
called a "vertical monopoly"
In response, IBM was hesitant to own every aspect of its new PC.
The IBM chairman at the time was on the Board of Directions of United Way, which also happened to have a Seattleite on the board. The woman’s name was Mary… |
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| Commerce and Communications (Thomas Friedman) |
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Definition
Thomas Friedman wrote "The World is Flat"
Commerce 1.0 (The Nation State engaged in trade: Think England.) 1482-1800
Commerce 2.0 (The rise of the corporation.) 1800-2000
Commerce 3.0 (Communications empowers the individual) (Individuals and small groups globalizing) 2000-present |
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| The Evolving Goals of Business |
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Definition
1.Historic view: Profit for the owners. End of story.
2.Modern View continues to be profit for owners, but also considers stakeholders, e.g.
A.Employees
B.Local/national communities
C.Environment
D.Etc. |
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| How Government Exerts Power Over Business |
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Definition
1. The Economic Environment- Gov't sets min. wage. Federal Reserve Bank sets monetary policy. Executive and Legislative branches set tax policy
2. Government set rules regarding Employment
3. The politics of regulations- degree of gov't regulation is the product of politics, think Polar Bear endangered species and Global Warming.
4. Environmental Considerations- a. Federalism and environment issues: Federal-EPA, State- Growth Management Act, Local-Seattle Regulations
b. Enforcement of Regulations
5. Regulate how businesses relate to and interact with other businesses- This is Anti-Trust Law |
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| Relationship between culture and business |
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Business affects our cultural environment, just as cultures affect business.
Culture = System of values, beliefs, customs, attitudes manners and rituals.
Business must understand the cultural environment of the country that it is doing business in, as well as its home country: |
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| Examples of Business exerting power over Govt and Society |
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Definition
Ex. Businesses and their employees pay taxes, which keep government, and other businesses going. That’s real power…
Ex. In choosing where to locate a new factory, with the jobs it will provide, businesses often try to extract concessions from communities, and may play different communities against each other. Example: Boeing.
Ex. The law considers a corporation a “person”, so the corporation can hire lobbyists, and provide campaign contributions, within limits. |
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Definition
1. primary interest is making a profit
2. have voting power to elect the Board of Directors. B of D selects officers who set policy and hire employees |
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| Stakeholder Power (owners, customers, govt) |
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Definition
Owner-stakeholders have voting power (to elect the Board of Directors, who in turn select the officers, who in turn set policy and hire employees).
Customers, suppliers, and retailers have economic power: they can withhold supplies, raise prices, or refuse to fill orders if contractual obligations are ignored, and consumers may choose to purchase goods from other sellers.
Government (the people) exercise political power, and through passing laws may regulate a business, or erect laws that make conducting business more burdensome, or less burdensome (think employee-employer laws). |
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| 3 ways stakeholders can influence a corporation |
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Definition
1.formal- Government regulations; stockholder voting
2.economic- consumer boycotts, protests
3.political -(Microsoft’s customer then employees – Washington’s gay rights legislation. |
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