Emerging Issues in Management (Mgmt 440)

1. Emerging Issues in Management (Mgmt 440) Business Power (Chapter 3) Professor Charles H. Smith Summer 2011

2. Case Study – James B. Duke and the American Tobacco Company • Read this case study on pages 53-55 on your own before class and discuss it with small groups in class. • Questions • Duke was an innovator of what popular trend? • What were some basic principles Duke employed to achieve his success? • How could you apply the same principles as a student, employee or businessowner to improve your chances for success?

3. Introduction to Business or Corporate Power • Power – one’s ability to act or to compel another to act in accordance with one’s wishes. • Business power – this ability in the context of business. • Business power is “legitimate” when used for the common good, which can be different in different societies and at different times; examples of power used for the common good include • Slavery – permitted in U.S. until 1865; still exists in parts of the world. • Minimum wage – has risen over time; states are free to set own minimum wage higher than federal minimum wage. • Student examples.

4. Levels of Business or Corporate Power • Surface level – power is direct cause of visible, immediate changes. • Deep level – power is shapes society over time through aggregate changes of industrial growth; may be unpredictable and slow to emerge but are more significant. • Examples of these levels being exercised in spheres corresponding to the seven business environments described in Chapter 2 (see following slides).

5. Levels of Business or Corporate Power cont. • Economic power – company’s ability to influence due to control over resources/property • Surface – investors may gain if company opens factory (and lose if factory closes). • Deep – companies have created wealth over time so as to dramatically raise standard of living in industrialized countries. • Student examples.

6. Levels of Business or Corporate Power cont. • Legal power – company’s ability to influence laws of society • Surface – big companies can outspend opponents in order to win a lawsuit or get other favorable outcome in a dispute. • Deep – laws developed in accordance with big companies’ needs and desires. • Student examples. • Also – technological power, political power, cultural power, environmental power, and power over individuals.

7. Story of the Railroads • The story of the development of the railroads and its impact on the U.S. is set forth on pages 59-62. • Examples of the railroads’ impact on the U.S. include • Creation of uniform time zones to replace hodgepodge of time zones throughout U.S. • Observance of Christian Sabbath diminished due to need to use railroad equipment seven days per week (return on investment).

8. Two Perspectives on Business Power • Dominance theory. • Pluralist theory.

9. Dominance Theory • Based on the dominance model stated in Chapter 1 (pages 11-14) • Business, due to control of wealth, is preeminent in U.S. society. • Business power is excessive and inadequately checked and thus acts in own interest which harms society.

10. Dominance Theory cont. • Corporate asset concentration • As 19th Century turned into 20th Century – many mergers led to concentration of assets in few hands. • Development of railroads made transportation more efficient and motivated companies to grow from regional to national. • Sherman Antitrust Act of 1890 used to break up some huge companies such as Standard Oil and American Tobacco Company. • As 20th Century went on, less asset concentration – but will this trend continue as more companies “go global” in 21st Century?

11. Dominance Theory cont. • Elite dominance • Small number of individuals with wealth and position – acting together in undemocratic ways – control the U.S. • Modern label of “power elite” (Mills) – U.S. society has three levels • Small number of elite people in charge of economic, political and military arenas. • Lieutenants (e.g., most high corporate management and politicians) who carry out elite’s policies. • Masses.

12. Dominance Theory cont. • Elite dominance cont. • “National institutional elite” (Dye) refers to leaders of society’s 10 sectors • Industrial corporations, banking, insurance, investments, mass media, law, education, foundations, civic and cultural organizations, and government. • In any event, elite largely comprised of people who are male, white and “Christian” (largely mainstream Protestant).

13. Dominance Theory cont. • Case study – “The Rise and Decline of Powerful Corporations” on page 66. • Case study – “J.P. Morgan and the Panic of 1907” on page 69. • Student examples of dominance theory in action.

14. Pluralist Theory • Based on the countervailing forces model stated in Chapter 1 (pages 14-15) • Business power is disciplined since it is subject to checks by markets, government, unions, special interest groups, and public opinion. • Business can benefit society.

15. Pluralist Theory cont. • Power in society is diffused due to influence of many groups and institutions – no one has overriding power and thus each can check and balance the others. • Business can have great influence in many situations but, on the other hand, may have little or not influence in some situations.

16. Pluralist Theory cont. • U.S. is amenable to pluralism since • History of democratic values due to no history of feudalism or authoritarian government; in fact, many in U.S. fled other countries to escape these. • Large population in vast geographic area engaged in many occupations (diversity).

17. Pluralist Theory cont. • U.S. is amenable to pluralism since cont. • Constitution encourages pluralism; e.g., guarantees of free speech and association, due process and equal protection under the law. • Market constrained by need to make decisions founded in quests for cost reduction and consumer satisfaction.

18. Pluralist Theory cont. • See Figure 3.2 on page 71 and related “boundaries on managerial power” described on pages 71-72 • Governments and laws regulate business. • Special interest groups can restrain business using many methods. • Social values go from generation to generation, are reflected in public opinion, and become the law. • Markets and economic stakeholders impose strong limits on business.

19. Case Study – John D. Rockefeller • Read “John D. Rockefeller and the Standard Oil Trust” on pages 72-79 on your own before class and then discuss the questions on page 79 with small groups in class.