You are on page 1of 34

James B.

Duke and the American
Tobacco Company
Opening Case
 1870’s – Duke switched from chewing
tobacco to cigarettes.
 1881 –Used Russian immigrants to roll his
cigarettes and women to market them.
 1883 –Negotiates an exclusive contract for
a cigarette-rolling machine and expands his
sales to China.
 1884 – Embraced Rockefeller’s methods
and formed the American Tobacco trust.
3-3

James B. Duke and the American
Tobacco Company
Opening Case (continued)
 1892 – 2.9 billion cigarettes sold.
 1903 – More than 10 billion cigarettes sold.
 1911 – Duke’s monopoly broken up, but
millions of smokers remain.

Duke’s career illustrates the power of commerce to
change society.
3-4

The Nature of Business
Power
 In past eras, dominant companies
in ascending industries changed
societies by altering all three of
their primary elements:
 Ideas
 Institutions
 Material things

3-5

or sector.  Legitimacy – the rightful use of power.  Social Contract: Underlying agreement between business and society [the institutions of society] on the basic duties and responsibilities business [each of the institutions] must carry out… reflected in laws and 3-6 . industry.  Business power – the force behind an act by a company.What is Power?  Power – the force or strength to act or compel another entity to act.

business power is exercised in spheres corresponding to the seven business environments set forth in Chapter 2. 3-7 . and on each level they create change.Levels and Spheres of Corporate Power  Corporate actions have an impact on society at two levels.  Surface level  Deep level  On both the surface and deep levels.

particularly property. rate.  Political power is the ability to influence governments.  Technological power is the ability to influence the direction. characteristics. activities. 3-8 . and consequences of physical innovations as they develop. and people by virtue of control over resources.  Legal power is the ability to shape the laws of society.Levels and Spheres of Corporate Power (continued)  Economic power is the ability of the corporation to influence events.

 Power over individuals is exercised over:  Employees  Managers  Stockholders  Consumers  Citizens 3-9 . habits.  Environmental power is the impact of a company on nature. and institutions such as family.Levels and Spheres of Corporate Power (continued)  Cultural power is the ability to influence cultural values.

3-10 .  In the mid 1800s.  Later. railroads needed millions in capital to continue expansion. the financial and speculative mechanisms inspired by railroad construction were in place when other industries needed more capital to grow.The Story of the Railroads  Railroads revolutionized transportation due to speed and more direct routes. creating the investment banking industry.  Railroads sold bonds and offered stocks to raise capital.  Railroads transformed capital markets.

The Story of the Railroads (continued)  Railroads spread impersonality and an ethic of commerce.  Trains took away young people from small towns and brought in outsiders. a General Time Convention met in 1882 and standardized the time of day.  For the convenience of the railroads. 3-11 .  Towns reoriented themselves around their train stations.

The Story of the Railroads (continued)  Railroads changed American politics and government.  Imported labor whose descendents remain. division structures. and cost accounting.  Political candidates and issues gained wider exposure.  Railroads changed American society.  Contributed to the Indian wars.  Pioneered professional management teams.  Government subsidized but then later regulated railroads. 3-12 .

Two Perspectives on Business Power  There is considerable disagreement about whether business power is adequately checked and balanced for the public good. 3-13 .  Dominance theory – the basis of the dominance model of the business-governmentsociety relationship discussed in Chapter 1.  Pluralist theory – the basis for the countervailing forces model in Chapter 1.

The Dominance Model McGraw-Hill/Irwin 1-12 © 2006 The McGraw-Hill Companies. All rights reser . Inc.

excessive. because of its control of wealth. Dominance theory The view that business is the most powerful institution in society. This power is held to be inadequately checked and.  The idea that concentration of economic power results in abuse arose in response to the awesome economic growth of the nineteenth century.Two Perspectives on Business Power: Dominance Theory  Business abuses the power its size and wealth confer in many ways. 3-14 .  Corporate asset concentration creates monopoly or oligopoly in markets that reduces competition and harms consumers. therefore.

but the marked rise in asset concentration slowed and leveled off. 3-15 .  Today the number of transnational firms and the scale of their activity has grown.  In the twentieth century. corporations continued to grow in size.Two Perspectives on Business Power: Dominance Theory (continued)  A merger wave between 1895 and 1904 concentrated economic growth.  The public viewed these huge firms as colossal monuments to greed. however the largest global firms do not show signs of concentrating international assets.

 The Power Elite by C. government and the military. Wright Mills is the modern impetus for this theory. control the nation. Power elite A small group of individuals in control of the economy. by virtue of wealth and position. 3-16 .Two Perspectives on Business Power: Dominance Theory (continued)  Elite dominance – belief that there is a small number of individuals who.

All rights reser . Inc.The Countervailing Forces Model McGraw-Hill/Irwin 1-16 © 2006 The McGraw-Hill Companies.

and each may check and balance others  Infused with democratic values  American society encompasses a large population spread over a wide geography and engaged in diverse occupations  The Constitution encourages pluralism Pluralist theory A society with multiple groups and institutions through which power is diffused. 3-17 .Two Perspectives on Business Power: Pluralist Theory  No entity or interest has overriding power.

Government can act forcefully to blunt the exercise of corporate power that harms the public. picket lines. and lobbying for more regulation. Social interest groups represent every segment of society and use many methods to restrain business. Laws channel and regulate operations. lawsuits. including boycotts. 3-19 . media campaigns.Four Boundaries of Managerial Power 1. Governments and laws in all countries regulate business activity. 2.

labour has been the gr3eat antagonist and counterweight to business power. groups form coalitions with other groups.Four Boundaries of Managerial Power  Social interest groups cont’d  Historically. governments and international institutions. but also prominent in recent years are environmental. religious and consumer groups. human rights. 3-19 . Increasingly.

family life. an the small-town decency he saw in his Kansas boyhood. justice. but Walt Disney never did. Managers internalize them in schools and churches. and embedded in the law. E. and piety that can direct a manager’s behaviour as powerfully as laws. No financial incentive could make him forsake his own values about the importance of morality. 3-19 . truth.g in the 1960s shifting generational values gave film studios license to experiment with brazen nudity and violence.Four Boundaries of Managerial Power 4. These include norms of duty. Social values are transmitted across generations. reflected in public opinion.

suppliers. The market also registers the great waves of technological change that can sweep away even the largest corporation. creditors. Markets and economic stakeholders impose strong limits. and competitors influence corporate decisions. Stockholders.Four Boundaries of Managerial Power 5. 3-19 .

 If rule by law and a just economy exist. 3-20 . society will accord it legitimacy.”  If corporate power remains generally accountable to democratic controls.Concluding Observations  In a recent poll. corporate power will broadly and ultimately be directed toward public welfare. 77 percent of Americans felt that “too much power is concentrated in the hands of a few large companies.

truth. and piety. 4-4 . justice.  The strain placed on societies by economic development.Origins of Critical Attitudes Toward Business  Two underlying sources of criticism of business:  The belief that people in business place profit before more worthy values such as honesty. love.

Critics of Business – Reasons for Criticisms • More educated population • Greater awareness of issues via the media • Negative portrayals by media • Greater expectations from society's members • Sense of entitlement • Emphasis on rights .

Value • American Cultural Imperialism • Junk food • Environmental destruction • Animal cruelty . Service • Cleanliness.McDonald’s Corporation • Standardized a formula • Quality.

Free markets do not force them to serve the public interest.Critics of Business Criticisms 1. Governments cannot control them. Like entrenched oligarchs. . They use their wealth to undermine democracy by corrupting politicians . they escape accountability for their selfinterested exercise of power. Corporations have too much power.

In the colonial era in USA. . the state charters that authorized corporations carefully restricted them to ensure that they acted for the common welfare. Corporations have inordinate legal rights.Critics of Business Criticisms 2.

Corporations are inherently immoral. If often staffed by good people. Corporations act to make money. the very logic of the corporation itself. their actions are perverted by an implacable master force.Critics of Business Criticisms 3. short-term financial results and regulatory lenience. They seek market expansion. sales growth. .

Corporations are inherently immoral cont’d Corporations value nature only as a production resource. Strong corporate cultures indicate these values. and human needs only as demand. workers only as costs. turning them into witting or unwitting agents of an antisocial . pressuring and ultimately coercing the wills of even the most ethical employees.

and groups of environmental.  Have a network structure that includes foundations. publications. unions.  Together the network structure creates an organizational symbiosis. human rights. mutual funds pension funds.Critics are  Are highly articulated and specialized. and labour advocates. 4-21 . research institutes.

How the Critics Network Attacks a Corporation 4-22 .

Global Activism  Activists attack corporations using a range of devices:  Consumer boycotts  Shareholder proposals  Harassment  Codes of conduct  Corporate campaign 4-25 .

and some new issues. a condition of improvement for humanity.Concluding Observations  Each era brings new personalities. new targets.  Capitalism.  A broad spectrum of criticism is an important check on business power. but the fundamental language and substance of criticism remains the same. 4-26 .  Industrial capitalism is a historical force for continuous. brings changes that represent progress. turbulent social change. for the most part.

3. Give three criticisms of Jamaican corporations. political. 4. Who do you think have the most power in the BGS relationship in Jamaica? Provide examples to support your answer. 2. Provide examples of corporations (local or international) that have or had economic. legal or cultural power. .Tutorial Activity 1. Can rumours affect a corporation’s activity? Research where rumours has disrupted the operations of a corporation.