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2013 C&S Course Outline - 4557 - Moffatt

2013 C&S Course Outline - 4557 - Moffatt

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Published by MikePMoffatt
Course Outline for 4557 - Corporations and Society.
Course Outline for 4557 - Corporations and Society.

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Published by: MikePMoffatt on Oct 19, 2013
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Business, Government and Globalization
Business 4557Professor Mike P. Moffatt
Office: 3325; E-mail: mmoffatt@ivey.caAssistant: Kyla BrooksE-mail: kbrooks@ivey.uwo.caFall 2013
This course explores the relationship between corporations and society, and the ways inwhich governments, corporations and civil society manage issues where the pursuit of  private goals is deemed inconsistent with the public interest. There are two modules to thecourse: the first, which is common across all HBA2 Corporations and Society designatedcourses, examines these issues in the context of the natural environment and the socialenvironment. The second module, which is specific to course 4557, considers how firmscan active
ly manage their external, or ‘non
market’, business environment
, with a focus on political and regulatory risk.
 Module 1: Corporations and Society
Corporations are the modern engines of economic growth providing employment and incomefor individuals, goods and services for consumers, and taxation revenues for governments.Corporations are also important sources of new technology, innovation and entrepreneurship.In many ways, corporations underpin the high standards of living achieved in developedcountries and improving standards in emerging parts of the world. Political philosophers andeconomists from Adam Smith to Milton Friedman have lauded the benefits of competitivemarkets and private enterprise.Yet unchecked actions by private corporations can have detrimental consequences too:companies with a dominant position in their industry may raise prices above competitivelevels, harming consumers; manufacturing companies may cut corners on workplace or  product safety standards, risking the welfare of workers and consumers. In other cases,corporate actions affect stakeholders outside the scope of their market-based interactions as
when polluting firms harm the health of a population or the natural environment. Profit-motivated corporate sector actions thus need not necessarily align with broader societal or  public interests.The traditional role of government has been to regulate the excesses of corporate behavior and to strike a balance between private and public interests that improves overall societal
welfare. NGOs and activists have adopted “private politics” strategies that also seek to shape
and regulate corporate actions. Managers must thus wrestle with a variety of external pressures that can significantly affect financial performance, and make choices on how to best integrate these dimensions in business models and management systems. There is the potential for competitive advantage to be increasingly rooted in new capabilities such as pollution prevention, design for environment, social responsiveness, and stakeholder management. These capabilities draw on a number of functional areas, including marketing,human resources, operations, finance and strategy, to list several.In the first module of this course we will focus on the interactions between corporations andsociety, and between corporations and the natural environment. The first five classes examinein detail the relationship between corporations and the natural environment. An in-classsimulation exercise,
‘Fish Banks’
, illustrates how a failure in fundamental market conditions
the ‘tragedy of the commons’ – 
generates non-optimal outcomes from an environmental perspective. In this case, when private property rights are not allocated or are unenforceable,a natural resource such as a fish population is exhausted through unfettered private sector actions.After that we consider how government regulation can mitigate market failure and limit suchenvironmental degradation by the private sector, for instance through the creation of carbonmarkets and the allocation of tradable emissions permits. The class will investigate themechanics of how carbon markets work, their impact on businesses in different industries,and their pros and cons relative to alternative policy instruments.The subsequent five classes of the first module explore some of the major tensions that canarise between corporations and societal interests when corporations pursue profit-maximizingstrategiesTwo conceptual themes run throughout. The first is whether competitive, well-functioningmarkets produce outcomes that are perceived by society as being fair or equitable. This issuearises in various contexts, for instance in the public debates around corporate off-shoring andoutsourcing strategies
which have provoked claims of “unfair” domestic job losses, biasedcompetition from developing countries, and “exploitation” of foreign workers
. Another issueconcerns the impact of intellectual property rights on the ability of individuals to accessaffordable health care and pharmaceutical products.The second conceptual theme is why some markets fail to function in a regular competitivemanner and thus do not produce efficient outcomes
thereby motivating government
intervention to correct ‘market failure’. Negative externalities (resulting in over 
-pollution andenvironmental degradation) are just one example of a cause of market failure. We will useseveral cases to explore other causes of failure, specifically the presence of asymmetricinformation between buyers and sellers (e.g. in the financial services sector), and the
 purposive creation of dominant market positions through industry consolidation (mergers andacquisitions). In each of the case studies we use we will explore these issues from two perspectives, that of the corporation and that of society at large.
 Module 2: Political and Regulatory Risk 
The second module is an advanced strategy mini-course that focuses on how firms canactively manage political and regulatory pressures outside their market place
i.e. in the
market’ business environment – 
rather than simply take them for granted. The modulethus builds on the first module by asking how firms can productively manage their relationships with governments, activists, NGOs and other stakeholders.
While a firm’s
competitive advantage is created in large part through developing and exploiting difficult-to-imitate capabilities and resources in the market environment, the non-market environment inwhich the firm operates also presents important risks and opportunities for business leaders.The non-market environment consists of the laws, regulations, norms and institutions thatshape the nature of competition within markets. Governments, regulators, courts, the media,non-governmental institutions, international treaties and cultural norms all affect how firmscompete and which capabilities are valuable. For instance, barriers to entry, new productintroduction, global competition, and operating practices can all be enhanced or constrained
 by the formal and informal “rules of the game”. This is true for many industries, from energy
to mining to retail. Yet these rules are not simply exogenously given. They are instead theoutcome of competition between businesses and other organized groups within policy-making arenas. In many industries, corporate activity in the policy making process is a keyelement in creating or maintaining a
company’s competitive advantage.
 The challenge for managers is to determine how to lead the company to success in themarketplace as well as in the non-market environment. However, the problems that managersface in the non-market environment are different in nature from the problems faced inmarkets. First, policy issues can arise unexpectedly, creating uncertainty in political and
regulatory environments about the evolving direction of “rules of the game”. Second, policy
-markets and policy-making institutions typically behave differently and have differentobjectives from consumers, suppliers and competitors. Third, firms that compete in themarketplace may cooperate as allies in policy arenas, and vice-versa. Firms can also confrontentirely new opposition in the non-market environment from stakeholders not directly
involved in the firm’s product or service markets.
 The focus of this module is political risk. We analyze the risks and rewards both in stableand political unstable countries, and the relationship between risk and reward. We develop atoolkit and use it to examine seven broad themes of political risk.

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