The Study of Business, Government, and Society

2. Chapter 1 The Study of Business, Government, and Society This chapter: • Introduces four basic models of the business-government-society relationship. • Defines basic terms and explains the authors’ approach to the subject matter. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

3. Exxon Mobil Corporation Opening Case • The company • Its 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 • In 1972 Standard Oil of New Jersey changed its name to Exxon, and in 1999 it merged with Mobil, to form ExxonMobil 1-3 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

4. Exxon Mobil Corporation Opening Case (continued) • The leaders • John D. Rockefeller (Standard Oil) • Emphasized cost control, efficiency, centralized organization, and suppression of competitors • Lee Raymond • Became CEO after 30 years of apprenticeship in the firm, continuing with Rockefeller’s business philosophies 1-4 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

5. Exxon Mobil Corporation Opening Case (continued) • The questionable actions • 1989 – Intoxicated captain of the Exxon Valdez spilled 11 million gallons of oil into Alaskan waters. • 1997 – Lee Raymond rejected the scientific case for global warming and refused to have the company look into renewable energy sources. • 1999 – Exxon merged with Mobil and revoked Mobil’s policy of domestic partner benefits. • 2001 – ExxonMobile turned a deaf ear to the complaints of villagers in Aceh, Indonesia who suffered violence at the hands of the company guards. The story of ExxonMobil illustrates the importance of interactions between one large corporation, governments, and society. 1-5 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

6. 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 1-6 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7. How Institutions Support Markets Figure 1-1 How Institutions Support Markets 1-7 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8. 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. 1-8 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

9. Four Models of the BGS RelationshipThe Market Capitalism Model 1-9 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10. 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 markets • Adam Smith, The Wealth of Nations • Capitalism • Managerial capitalism 1-10 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

11. 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. 1-11 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

12. 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. 1-12 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

13. Four Models of the BGS RelationshipThe Dominance Model 1-13 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

14. 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. 1-14 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

15. Four Models of the BGS RelationshipThe Countervailing Forces Model 1-15 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

16. 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. 1-16 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

17. Four Models of the BGS RelationshipThe Stakeholder Model 1-17 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

18. Four Models of the BGS RelationshipThe 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. 1-18 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

19. 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. 1-19 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

20. 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 1-20 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.