The Study of Business, Government, and SocietyModule-2

The Study of Business, Government, and SocietyThis chapter provides an overview of the business government society field of study by: Defining basic terms Discussing the fields importance to managers Introducing the four basic models of the business government-society relationship

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 theAmerican oil market The values of its founder, John D. Rockefeller,defined the company culture In 1972 Standard Oil of New Jersey changed itsname to Exxon, and in 1999 it merged withMobil, to form ExxonMobil

Opening Case:ExxonMobil Corporation (continued The leader John D. Rockefeller (Standard Oil) Brilliant strategist and organizer whocrushed competitors Emphasized cost control, efficiency,centralized organization, and suppressionof competitors Although Rockefellers influence is buried inthe passage of time, ExxonMobils actionsremain consistent with his nature

Opening Case:ExxonMobil Corporation (continuedToday 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, 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.

What is the BusinessGovernment 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:IdeasInstitutionsMaterial things1-*

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.

Four Models of the BGS RelationshipThe Market Capitalism Model1-*

Four Models of the BGS RelationshipThe 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 marketsAdam Smith, The Wealth of NationsCapitalismManagerial capitalism

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Four Models of the BGS RelationshipThe 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.1-*

Four Models of the BGS RelationshipThe Market Capitalism Model (continued)Market capitalism model perspective conclusions about the BGS relationship: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.1-*

Four Models of the BGS RelationshipThe Dominance Model1-*

Four Models of the BGS RelationshipThe Dominance Model (continued)Proponents of the dominance model believe that corporations and a powerful elite control a system that enriches 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.

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Four Models of the BGS RelationshipThe Countervailing Forces Model1-*

Four Models of the BGS RelationshipThe 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.1-*

Four Models of the BGS RelationshipThe Stakeholder Model1-*

Four Models of the BGS RelationshipThe Stakeholder ModelStakeholders are those whom the corporation benefits or burdens by its actions and those who benefit or burden the firm with their actions.Primary stakeholdersSecondary stakeholdersDebate 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 RelationshipThe 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.1-*