Chapter 1

The Study of Business, Government, and Society
This chapter provides an overview of the business-governmentsociety field of study by:  Defining basic terms  Discussing the field’s importance to managers  Introducing the four basic models of the businessgovernment-society relationship  Explaining the authors’ approach to the subject matter.

John D. to form ExxonMobil 1-2 . Rockefeller. defined the company culture  In 1972 Standard Oil of New Jersey changed its name to Exxon. producing.Opening Case: ExxonMobil Corporation  Company history  Main business is discovering. 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. and in 1999 it merged with Mobil.

efficiency. Rockefeller (Standard Oil)  Brilliant strategist and organizer who crushed competitors  Emphasized cost control. 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 1-3 .Opening Case: ExxonMobil Corporation (continued)  The leader  John D.

and society.  It now controls only 5. far less than it did in the 1950s. The story of ExxonMobil illustrates the importance of interactions between one large corporation. nature. communities.  It has complex relationships with powerful governments. but that power is limited by economic and political forces. health.  It engages in corporate citizenship by funding a variety of programs to benefit education.6% of oil production and holds less than 1% of petroleum reserves. governments. company managers denied that the world is warming.  ExxonMobil’s large size attracts the watchful eye of environmental. civil rights. and consumer groups.Opening Case: ExxonMobil Corporation (continued)  Today ExxonMobil remains a powerful force. and the arts. labor. 1-4 .  For a considerable time.

 Government – refers to structures and processes in society that authoritatively make and apply policies and rules.What is the Business– Government– Society Field?  Business – broad term encompassing a range of actions and institutions.  Society – a network of human relations that includes three interacting elements:  Ideas  Institutions  Material things 1-5 .

How Institutions Support Markets 1-6 .

 Recognizing that a company operates not only within markets but within a society is critical.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.  Managers must respect and adhere to society’s expectations. but these duties are often ambiguous.  A basic agreement or social contract exists between the business institution and society.  This contract defines the broad duties that business must perform to retain society’s support. 1-7 .

Four Models of the BGS Relationship: The Market Capitalism Model 1-8 .

The Wealth of Nations  Capitalism  Managerial capitalism 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.  History and nature of markets  Adam Smith.  The market acts as a buffer between business and nonmarket forces.

 Moral restraint accompanies the self-interested behavior of business.  There are many producers and consumers in competitive markets. 1 .  Individuals can own private property and freely risk investments.  Basic institutions such as banking and laws exist to ease commerce.  Consumers are informed about products and prices and make rational decisions.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).

 The proper measure of corporate performance is profit.11 .  The ethical duty of management is to promote the interests of shareholders.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. 1 .

12 .Four Models of the BGS Relationship: The Dominance Model 1 .

 Populist reform movement opposed the dominance model. 1 . which results in the enrichment of a few at the expense of many.  Most accurate in the 1800s.  Marxism emerged in Europe about the same time.Four Models of the BGS Relationship: The Dominance Model (continued)  Business and government dominate the great mass of people. but is being resurrected due to the fear of transnational corporations in a global context.13 .

14 .Four Models of the BGS Relationship The Countervailing Forces Model 1 .

 Broad public support of business depends on its adjustment to multiple social. institutions. and economic forces.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. and its use of new technologies.  Business is a major initiator of change in society through its interaction with government. 1 . its production and marketing activities.15 . and processes of society.  BGS relationships continuously evolve as changes take place in the main ideas. political.

Four Models of the BGS Relationship The Stakeholder Model 1 .16 .

 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 .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.17 .

 It is the ethical way to manage because stakeholders have moral rights that grow from the way powerful corporations affect them.  Advocacy for the stakeholder model:  A corporation that embraces stakeholders performs better.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. and objective measure to evaluate the combined ethical/economic performance of a firm. clear.  There is no single. 1 .

Text Approach to the Subject Matter  Comprehensive scope  Interdisciplinary approach with a management focus  Use of theory. description.19 . and case studies  Global perspective  Historical perspective 1 .

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