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Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
Chapter 1
The Study of Business,
Government, and Society
1-2
ExxonMobil Corporation
o Company history
o Main business is discovering, producing, and selling
oil and natural gas
o Descended from the Standard Oil trust
o In 1890 Congress passed the Sherman Antitrust Act to
outlaw its monopoly
o Once had more than a 90% market share of the
American oil market
o The values of its founder, John D. Rockefeller, defined
the company culture
1-3
ExxonMobil Corporation
o The leader
o John D. Rockefeller (Standard Oil)
o Emphasized cost control, efficiency, centralized
organization, and suppression of competitors
o ExxonMobil is no longer the commanding trust of
Rockefeller’s era
o Its power is challenged and limited by economic,
political, and social forces
1-4
ExxonMobil Corporation
o As a corporate citizen ExxonMobil funds worldwide
programs to benefit communities, nature, and the arts
o The story of ExxonMobil raises central questions
about the role of business in society
o When is a corporation socially responsible?
o How can managers know their responsibilities?
1-5
ExxonMobil Corporation
o What actions are ethical or unethical?
o How responsive must a corporation be to its critics?
1-6
What is the Business–Government–
Society Field?
Business Profit-making activity that provides products and services to satisfy human needs
Government Structures and processes in society that authoritatively make and apply policies and rules
Society A network of human relations composed of ideas, institutions, and material things
Idea An intangible object of thought
Value An enduring belief about which fundamental life choices are correct
Ideology A bundle of values that creates a particular view of the world
Institution A formal pattern of relations that links people to accomplish a goal
Material things Tangible artifacts of a society that shape and are shaped by ideas and institutions
1-7
Figure 1.1 - How Institutions Support
Markets
1-8
Why is the BGS Field Important to
Managers?
o To succeed in meetings its objectives a business must
be responsive to both its economic and its
noneconomic environment
o Recognizing that a company operates not only within
markets but within a society is critical
1-9
Why is the BGS Field Important to
Managers?
o A basic agreement or social contract exists between
economic institutions and other networks of power in
a society
o Establishes the general duties that business must fulfill
to retain the support and acquiescence of the others as
it organizes people, exploits nature, and moves
markets
1-10
Figure 1.2 - The Market Capitalism Model
1-11
Four Models of the BGS Relationship: The
Market Capitalism Model
o Depicts business as operating within a market
environment, responding primarily to powerful
economic forces
o The market acts as a buffer between business and
nonmarket forces
o Understanding the history and nature of markets is
important to appreciate this model
1-12
Four Models of the BGS Relationship: The
Market Capitalism Model
o The advent of market economy, reshaped human life
o Market economy: The economy that emerges when
people move beyond subsistence production to
production for trade, and markets take on a more
central role
1-13
Four Models of the BGS Relationship: The
Market Capitalism Model
o Capitalism: An economic ideology with a bundle of
values including private ownership of means of
production, the profit motive, free competition, and
limited government restraint in markets
o Managerial capitalism: A market economy in which
the dominant businesses are large firms run by
salaried managers, not smaller firms run by owner-
entrepreneurs
1-14
Four Models of the BGS Relationship:
The Market Capitalism Model
o Important assumptions
o Government interference in economic life is slight
oLaissez-faire: An economic philosophy that rejects
government intervention in markets
o Individuals can own private property and freely risk
investments
o Consumers are informed about products and prices and
make rational decisions
1-15
Four Models of the BGS Relationship:
The Market Capitalism Model
o Moral restraint accompanies the self-interested
behavior of business
o Basic institutions such as banking and laws exist to
ease commerce
o There are many producers and consumers in
competitive markets
1-16
Four Models of the BGS Relationship:
The Market Capitalism Model
o The BGS relationship according to the market
capitalism model:
o Government regulation should be limited
o Markets will discipline private economic activity to
promote social welfare
o The proper measure of corporate performance is profit
o The ethical duty of management is to promote the
interests of shareholders
1-17
Four Models of the BGS Relationship:
The Market Capitalism Model
o Criticism
o Increased prosperity comes at the cost of increased
inequality
o Results in base values being energized and virtue
being eroded
1-18
Figure 1.3 - The Dominance Model
1-19
Four Models of the BGS Relationship: The
Dominance Model
o Represents the perspective of business critics
o Business and government dominate the great mass of
people
o Those who subscribe to the model believe that
corporations and a powerful elite control a system
that enriches a few at the expense of the many
1-20
Four Models of the BGS Relationship: The
Dominance Model
o Proponents of the dominance model focus on the
defects and inefficiencies of capitalism
o Populism: A political pattern, recurrent in world
history, in which common people who feel oppressed
or disadvantaged seek to take power from a ruling
elite seen as thwarting fulfillment of the collective
welfare
1-21
Four Models of the BGS Relationship: The
Dominance Model
o Populist reform movement opposed the dominance
model
o Marxism: An ideology holding that workers should
revolt against property owning capitalists who exploit
them, replacing economic and political domination
with more equal and democratic socialist institutions
1-22
Figure 1.4 - The Countervailing Forces
Model
1-23
Four Models of the BGS Relationship: The
Countervailing Forces Model
o Suggests exchanges of power among them,
attributing constant dominance to none
o This is a model of multiple forces
o It differs from the dominance model in rejecting an
absolute primacy of business and crediting more
power to a combination of forces and interactions
rendered paltry by the dominance model
1-24
Four Models of the BGS Relationship: The
Countervailing Forces Model
o Conclusions:
o Business is deeply integrated into an open society and
must respond to many forces, both economic and
noneconomic
o Business is a major force acting on government, the
public, and environmental factors
1-25
Four Models of the BGS Relationship: The
Countervailing Forces Model
o To maintain broad public support, business must adjust
to social, political, and economic forces it can
influence but not control
o BGS relationships evolve as changes take place in the
ideas, institutions, and processes of society
1-26
Figure 1.5 - The Stakeholder Model
1-27
Four Models of the BGS Relationship: The
Stakeholder Model
o Stakeholder: An entity that is benefitted or burdened
by the actions of a corporation or whose actions may
benefit or burden the corporation
o The corporation has an ethical duty toward these
entities
1-28
Four Models of the BGS Relationship: The
Stakeholder Model
o Primary stakeholders: Entities in a relationship with
the corporation in which they, the corporation, or both
are affected immediately, continuously, and
powerfully
o Secondary stakeholders: Entities in a relationship
with the corporation in which the effects on them, the
corporation, or both are less significant and pressing
1-29
Four Models of the BGS Relationship: The
Stakeholder Model
o Exponents of the stakeholder model debate how to
identify who or what is a stakeholder
o The stakeholder model reorders the priorities of
management away from those in the market
capitalism model
1-30
Four Models of the BGS Relationship: The
Stakeholder Model
o Criticism
o It is an unrealistic assessment of the power
relationships between the corporation and other
entities
o It sets up too vague a guideline to substitute for the
yardstick of pure profit
o There is no single, clear, and objective measure to
evaluate the combined ethical/economic performance
of a firm
1-31
Four Models of the BGS Relationship: The
Stakeholder Model
o The interests of stakeholders vary that they conflict
with shareholders and with one another
o Most fanatical pursuit of profit creates greater lasting
good for society than pursuit of profit tempered by
compassion
1-32
Four Models of the BGS Relationship: The
Stakeholder Model
o Advocacy for the stakeholder model:
o A corporation that embraces stakeholders performs
better
o It is the ethical way to manage because stakeholders
have moral rights that grow from the way powerful
corporations affect them
1-33
Our Approach to the Subject Matter
o Comprehensive scope
o Interdisciplinary approach with a management focus
o Strategic management: Actions taken by managers to
adapt a company to changes in its market and
sociopolitical environments
1-34
Our Approach to the Subject Matter
o Use of theory, description, and case studies
o Theory: A statement or vision that creates insight by
describing patterns or relationships in a diffuse subject
matter
oA good theory is concise and simplifies complex
phenomena
1-35
Our Approach to the Subject Matter
o Global perspective
o Historical perspective
o History: The study of phenomena moving through
time