The Study of Business, Government, and Society Chapter 1 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 Copyright © 2009 by 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 1-3

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 1-4

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. 1-5

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

How Institutions Support Markets 1-7

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. 1-8

Four Models of the BGS Relationship: The Market Capitalism Model 1-9

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 1-10

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. 1-11

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. 1-12

Four Models of the BGS Relationship: The Dominance Model 1-13

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. 1-14

Four Models of the BGS Relationship The Countervailing Forces Model 1-15

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. 1-16

Four Models of the BGS Relationship The Stakeholder Model 1-17

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. 1-18

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. 1-19

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