Welcome to BA 385 Business Environment: A critical analysis of the role of business

1. Welcome to BA 385 Business Environment: A critical analysis of the role of business with special reference to the interrelationships of legal, technological, economic, political, & social forces Because of the critical analysis aspect of this course, it is important to “Question Authority!” Portland State University School of Business Administration 1

2. A foundational premise Business activity has inputs that influence cost Land Labor Capital Portland State University School of Business Administration

3. Inputs to business Land • = Natural Resources • Water • Air quality • Oil & Gas • Timber • Minerals Labor Capital Portland State University School of Business Administration

4. Inputs to business Land • = Human Resources • Employees • Customers • Suppliers • Distributors • Community Labor Capital Portland State University School of Business Administration

5. Inputs to business • = Financial Resources • Venture capital • Partners • Investors • Vendors • Contracts Land Labor Capital Portland State University School of Business Administration

6. Inputs to business Land Enduring businesses care for resources Resource Mgmt Labor Interaction w/Humans Capital Risk Mgmt Portland State University School of Business Administration

7. Society as the Macroenvironment Is composed of several segments: • Social environment • Economic environment • Political environment • Technological environment • Ecological environment Portland State University School of Business Administration

8. Strengths Prevents concentration of power Maximizes freedom of expression Disperses individual allegiances Creates diversified set of loyalties Provides checks and balances Weaknesses Pursuit of self-interest Proliferates organizations and groups with overlapping goals Forces conflicts to center stage Promotes inefficiency Pluralistic Society’s Power Diffusion How pluralistic is the US? Portland State University School of Business Administration

9. Special-Interest Society • Adds complexity for business • Number in the tens of thousands • Each pursue their own limited agenda • Are often active, intense, diverse & focused • Attract a significant following that increases their revenue & power Identifying the power behind the interest… Portland State University School of Business Administration

10. Society’s Expectations versusActual Social Performance Society’s Expectations of Business Performance Social Problem Social Performance: Expected and Actual Social Problem Business’s Actual Social Performance 1960s Timeline 1990s …what changed over the years? Portland State University School of Business Administration

11. Criticism of Business : Power The 100 largest corporations have more economic power than 80% of the world. Paul Hawken, The Ecology of Commerce Portland State University School of Business Administration

12. Criticism of Business: Power Use and abuse of power • The ability or capacity to produce an effect or to bring an influence to bear on a situation or people Iron Law of Social Responsibility • Those who do not use power in a manner society considers responsible will tend to lose it … or do they? Portland State University School of Business Administration

13. Business Criticism: Power Corporate Personhood via the Supreme Court • Came about in 1886 by judicial decree citing 14th Amendment (giving citizen rights to freed slaves) • 1893 assured 5th Amendment right due process • 1904 given 4th Amendment right of protection against search and seizure • 1925 awarded 5th Amendment rights of freedom of the press and speech • 1976 money was deemed equal to speech … more on this later in the term Portland State University School of Business Administration

14. Corporate Social Responsibility (CSR) Preliminary definitions of CSR • The impact of a company’s actions on society • Requires consideration of management acts in terms of a whole social system, with responsibility for the effects of said acts anywhere in that system Who defines the boundaries of the system? Portland State University School of Business Administration

15. Corporate Social Responsibility (CSR) Historical Perspective • Economic model – the “invisible hand” of the marketplace protected societal interest Is it valid in today’s environment? • Legal model – laws protected societal interests What about special interest group influence? Portland State University School of Business Administration

16. Search the Web One leading business organization that companies can join is Business for Social Responsibility. To learn more about BSR, visit their web site at:http://www.bsr.org/ Corporate Social Responsibility (CSR) Historical Perspective • What was the main motivation? • To keep government at arms length Portland State University School of Business Administration

17. Pyramid of CSR Philanthropic ResponsibilitiesBe a good corporate citizen. Ethical ResponsibilitiesBe ethical. Legal ResponsibilitiesObey the law. Economic ResponsibilitiesBe profitable. Portland State University School of Business Administration

18. Restricts the free market goal of profit maximization Business is not equipped to handle social activities Dilutes the primary aim of business Increases business power Limits the ability to compete in a global marketplace Corporate Social Responsibility (CSR)Arguments Against Mechanistic thinking… Portland State University School of Business Administration

19. Maximizing any object in nature always makes it toxic. Nature optimizes, mankind maximizes. Corporate Social Responsibility (CSR)Some words on maximization H. Tom Johnson, Profit Beyond Measure Portland State University School of Business Administration

20. Dow Chemical discovered $10,000 and $100,000 bills lying all over its factory floors. Corporate Social Responsibility (CSR)An example of optimization von Weizäcker, Lovins, & Lovins, Factor Four Portland State University School of Business Administration

21. Addresses social issues business caused and allows business to be part of the solution Protects business self-interest Improves the environment for everyone Limits future government intervention Addresses issues by using business resources and expertise Addresses issues by being proactive Corporate Social Responsibility (CSR)Arguments For Portland State University School of Business Administration

22. Social & Financial Performance Perspective 1: CSP Drives the Relationship Good CorporateSocial Performance Good Corporate Financial Performance Good CorporateReputation Perspective 2: CFP Drives the Relationship Good CorporateFinancialPerformance Good CorporateSocial Performance Good CorporateReputation Perspective 3: Interactive Relationship Among CSP, CFP, and CR Good CorporateSocial Performance Good CorporateFinancialPerformance Good CorporateReputation Portland State University School of Business Administration

23. Social & Financial PerformanceIs there a positive correlation? • A few comments about Merck: • Fortune 500: #24 in Revenue, #11 in profit • Fortune Most Admired List: #1 1987-1993; in top ten 15 times over the last 20 years • Fortune Magazine 2002 • Core Ideology: We are in the business of preserving and improving human life. All of our actions must be measured by our success in achieving this goal. • Collins & Porras, Built To Last Portland State University School of Business Administration

24. Socially Conscious or Ethical Investing • Social screening is a technique used to screen firms for investment purposes • Over $2.3 trillion investedin 230 mutual funds that rose by 36% from 1999-2001 • Growth rate >1.5 times higher than all funds • Retaining investors at more than 2x the rate 2001 Report on Socially Responsible Investing Trends in the United States Portland State University School of Business Administration

25. Community Government Business Owners Employees Consumers Business & Society Relationship Business is the collection of private, profit-oriented organizations ranging in size from sole proprietorships to corporate “giants.” Should our expectations differ based on size? Society is a broad group of people and other organizations, interest groups, a community, a nation. Business and society interrelate in a macroenvironment as stakeholders. Portland State University School of Business Administration

26. Community Government Business Owners Employees Consumers Business & Selected Stakeholder Relationships Students New immigrants Local County State Environmental Groups Indigenous groups Regional Federal General Public Unions Corporate Older Employees Private Citizens Women Those with little voice Students Institutional Investors Civil Liberties Activists Students Consumer Activists Product Liability Threats Students Portland State University School of Business Administration

27. Origins of the Stakeholder Concept What is a stake? An interest or a share in an undertaking and can be categorized as one or more of the following: • an interest • a right (either legal or moral) • ownership Portland State University School of Business Administration

28. Attempting to Define Stakeholders Stakeholders: Individuals and groups with a multitude of interests, expectations, and demands as to what business should provide to society If the corporation is the institutional centerpiece of a complex society… Who do companies belong to and in whose interests should they be run? There are interdependencies whereby some stakeholders may be unknowing and/or unwilling participants… Portland State University School of Business Administration

29. One Stakeholder’s View “I think I finally see the big picture picture. US workers are being told not to depend on Social Security but to be responsible for our own retirement. We are encouraged to invest in stocks and bonds via 401(k)s. The corporate leaders then use that money to pay themselves fantastic salaries, pay off politicians to keep the system going, and use the remaining money to build plants overseas to exploit low-wage workers.” Editorial page, The Oregonian, June 29, 2002 What are the implications of this perspective…? Portland State University School of Business Administration

30. Where Your Money Goes When You Buy Stock “…the company does not see a dime of it.” • After the initial public offering (IPO) stock is traded between investors • Your money goes to the previous stock holder, typically through a stock broker or brokerage firm The Online Investor, June 22, 2001 How might trading affect a company? Portland State University School of Business Administration

31. What About Executive Pay? “CEOs of large corporations last year made 411 times as much as the average factory worker. In the past decade, as rank and file wages increased 36%, CEO pay climbed 340% to $11 million.” BusinessWeek Online May 6, 2002 • An annual survey of 50 big companies between 1985 and 2001 showed relative increases in CEO and worker pay. CEOs greatly outpaced the S&P 500 stock index: 1000 800 600 400 200 0 CEO: +866% S&P 500 : +443% Workers: +63% ‘85 ‘90 ‘95 ‘01 New York Times News Service Portland State University School of Business Administration

32. Three who take a different path… • Costco: CEO Jim Sinegal earns $350,000 ABC News, December 2005 • Ethyl: CEO Bruce Gottwald asked for no increase to his $770,000 annual pay • PepsiCo: CEO Roger Enrico gets $1 base pay, at his request, for the past three years; diverts rest of $900,000 salary to fund scholarships for children of high-performing, lower paid employees Wall Street Journal April 29, 2001 Portland State University School of Business Administration

33. Key Questions In Stakeholder Management • Who are our stakeholders? • What are our stakeholders’ stakes? • What opportunities and challenges do the stakes and stakeholders present? • What economic, legal, ethical, and philanthropic responsibilitiesdoes our firm have? • What strategies or actionsshould our firm take to best manage stakeholder challenges and opportunities? Portland State University School of Business Administration

34. Key Questions In Stakeholder Management What are our stakeholders’ stakes? • Determine the nature/legitimacy of a group’s stakes • Determine the power of a group’s stakes • Determine specific groups within generic groups Portland State University School of Business Administration

35. Key Questions In Stakeholder Management What strategies or actions should our firm take to best manage stakeholder challenges and opportunities? • Should we deal directly or indirectly with stakeholders? • Should we take the offense or the defense in dealing with stakeholders? • Should we accommodate, negotiate, manipulate or resist stakeholder overtures? • Should we employ a combination of the above strategies or pursue a singular course of action? Portland State University School of Business Administration

36. Stakeholder’s Potential for Threat to Organization Stakeholder Type 4Mixed Blessing Strategy:Collaborate High Stakeholder Type 1Supportive Strategy:Involve Low High Stakeholder’sPotential forCooperationWith Organization ? Stakeholder Type 3Nonsupportive Strategy:Defend Stakeholder Type 2Marginal Strategy:Monitor Low Key Questions In Stakeholder Management Portland State University School of Business Administration

37. Principles of Stakeholder Management A simple guiding ethic: We are borrowing the Earth from our children. Are they going to be well-served by what we consume, produce, and leave behind? Portland State University School of Business Administration

38. Some web links that will be useful: • Oregon Natural Step www.ortns.org • Natural Step US www.naturalstep.org • Conservation Economy www.conservationeconomy.net • International Institute for Sustainable Development www.iisd.ca • Hands on Portland (for volunteer possibilities): www.handsonportland.org • Regarding our access to information, check www.cjr.org/owners for a list of major media companies and their holdings. Portland State University School of Business Administration