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

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

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

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

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

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

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

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

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

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

11. 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

12. 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 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 Those who do not use power in a manner society considers responsible will tend to lose it … or do they?

13. 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 14 th Amendment (giving citizen rights to freed slaves) Came about in 1886 by judicial decree citing 14 th Amendment (giving citizen rights to freed slaves) 1893 assured 5 th Amendment right due process 1893 assured 5 th Amendment right due process 1904 given 4 th Amendment right of protection against search and seizure 1904 given 4 th Amendment right of protection against search and seizure 1925 awarded 5 th Amendment rights of freedom of the press and speech 1925 awarded 5 th Amendment rights of freedom of the press and speech 1976 money was deemed equal to speech 1976 money was deemed equal to speech … more on this later in the term

14. 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 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 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? Who defines the boundaries of the system?

15. 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 Economic model – the “invisible hand” of the marketplace protected societal interest Is it valid in today’s environment? Legal model – laws protected societal interests Legal model – laws protected societal interests What about special interest group influence?

16. Portland State University School of Business Administration 16 Corporate Social Responsibility (CSR) Historical Perspective What was the main motivation? What was the main motivation? To keep government at arms length To keep government at arms length 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/ http://www.bsr.org/

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

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

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

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

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

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

23. Portland State University School of Business Administration 23 Social & Financial Performance Is 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

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

25. Portland State University School of Business Administration 25 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. Business Community Consumers Owners Government Employees

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

27. 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 an interest a right (either legal or moral) a right (either legal or moral) ownership ownership

28. 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…

29. 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…?

30. 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 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 Your money goes to the previous stock holder, typically through a stock broker or brokerage firm The Online Investor, June 22, 2001 The Online Investor, June 22, 2001 How might trading affect a company ?

31. 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 ‘85‘90‘95‘01 CEO: +866% S&P 500 : +443% Workers: +63% New York Times News Service

32. Portland State University School of Business Administration 32 Three who take a different path… Costco: CEO Jim Sinegal earns $350,000 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 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 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 Wall Street Journal April 29, 2001

33. Portland State University School of Business Administration 33 Key Questions In Stakeholder Management 1. Who are our stakeholders? 2. What are our stakeholders’ stakes? 3. What opportunities and challenges do the stakes and stakeholders present? 4. What economic, legal, ethical, and philanthropic responsibilities does our firm have? 5. What strategies or actions should our firm take to best manage stakeholder challenges and opportunities?

34. 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 nature/legitimacy of a group’s stakes Determine the power of a group’s stakes Determine the power of a group’s stakes Determine specific groups within generic groups Determine specific groups within generic groups

35. 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 deal directly or indirectly with stakeholders? Should we take the offense or the defense in dealing 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 accommodate, negotiate, manipulate or resist stakeholder overtures? Should we employ a combination of the above strategies or pursue a singular course of action? Should we employ a combination of the above strategies or pursue a singular course of action?

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

37. 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?

38. Portland State University School of Business Administration 38 Some web links that will be useful: 1.Oregon Natural Step www.ortns.orgwww.ortns.org 2.Natural Step US www.naturalstep.orgwww.naturalstep.org 3.Conservation Economy www.conservationeconomy.net www.conservationeconomy.net 4.International Institute for Sustainable Development www.iisd.cawww.iisd.ca 5.Hands on Portland (for volunteer possibilities): www.handsonportland.org www.handsonportland.org 6.Regarding our access to information, check www.cjr.org/owners for a list of major media companies and their holdings. www.cjr.org/owners