The Study of Business, Government, and Society Chapter 1 The Study of Business, Government, and Society This chapter provides an overview of the business-government-society field of study by: Defining basic terms Discussing the field’s importance to managers Introducing the four basic models of the business-government-society relationship Explaining the authors’ approach to the subject matter. McGraw-Hill/Irwin © 2008 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 McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

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 Rockefeller’s influence is buried in the passage of time, ExxonMobil’s actions remain consistent with his nature McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

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. ExxonMobil’s large size attracts the watchful eye of environmental, civil rights, labor, 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. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

What is the Business–Government– Society 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 McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

How Institutions Support Markets McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

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 society’s expectations. This contract defines the broad duties that business must perform to retain society’s support, but these duties are often ambiguous. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

Four Models of the BGS Relationship: The Market Capitalism Model McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

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 Managerial capitalism McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

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 behavior of business. Basic institutions such as banking and laws exist to ease commerce. There are many producers and consumers in competitive markets. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

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 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. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

Four Models of the BGS Relationship: The Dominance Model McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

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. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

Four Models of the BGS Relationship The Countervailing Forces Model McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

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. 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. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

Four Models of the BGS Relationship The Stakeholder Model McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

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. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

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. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved

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 McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved