Business and Society Chapter 1

Business and Society Relationship
• Concept of business and society

• Relationship between business and society - A
systems perspective
• Forces shaping business and society relationship
• Changing societal expectations - growing emphasis
on ethical values
• The changing workplace - external factors
influencing the workplace, government intervention
• Women at work
•Corporate efforts to promote diversity
Concept of Business and Society
•What is business?
•What is business?
#noncell
What is business?
• Any organization that is engaged in making product
or providing service to make profit
• One of the most dominant institution of the world as
per government estimates in US there are 6 million
businesses
• Ranges from very small micro enterprise to
corporate world - street vendor to Microsoft
What is business?
Shareholders
Customers
Business
Enterprises
Environment
Employees
Society
What is business?
• Business relates to any activity that creates utility
for either masses or the classes, and to command a
price for these utilities
• Form Utility: converting the input (usually raw
materials) into output by changing the forms
e.g. iron converted into steel
•Place Utility: any good, service, or persons in
transported to different destination
•Knowledge Utility: relates to developments in
the filed of advanced learning, research and
technology growth, innovation etc.
Society
• In broadest sense, refers to human beings and to the
social structures they collectively create
• Refers to segments of humankind, such as members
of particular community, interest group

• A Society is network of human relations that
includes interacting elements
• Ideas: intangible objects of thought includes
values and ideologies – cultural habits and
norms are based on values & ideologies e.g.
democratic, capitalism
•Institutions: formal patterns of relations that
Society
• Material things: includes land, natural
resources, infrastructure and manufactured goods
•Business is part of society and is set activity created
by human beings
•Business is also distinct entity, separated from rest
of
society by clear boundaries
•Business engaged in exchanges with its external
environment
• Business recruit workers, buy supplies, borrow
money, sell products and services, pay taxes and
involve in charity works
• Business and society are highly interdependent
• Business activities impact other activities in society
and actions by various social actors and government
Macro Environment
Segment Focus
Social Demographics, lifestyles, social norms,
values, buying behaviours
Economic Nature and direction of economy in which
business operate – tax rates, fiscal policy
etc.
Political- Formulation of laws, parliament, politics
Legal and government, political parties and
their philosophies
Technological Changes and technological advancement,
adaptation to technology
Factors in social environment
A.Affluence and education
•Society become more affluent and better educated,
higher expectations for its major institutions such as
business is natural
• In Nepal along with improved standards of living
compared to the past there has been growing level of
formal education
•Combination of affluence and education forms the
underpinning for a climate in which societal criticism of
institutions, such as business, naturally arises
B. Awareness through media
•High and growing level of public awareness in our
society
•Media has played vital roles in this - newspapers ,
television , fm radios, online web portals
C. Revolution of rising expectations
•Along with factors like affluences, formal education,
awareness through media , there are other social
development
•From these factors there has been a revolution of rising
expectation
•Attitude or belief that each succeeding generation ought
to have a standard of living higher than that of its
predecessors , business is also part of it
•In Nepal business is criticized today because society`s
expectation of its performance have outpaced business`s
ability to meet the growing expectations
D. Business power
•Ability or capacity to produce an affect or to bring
influence to bear on a situation or people
E. Iron law of responsibility
•In the long run, those who not use power on a manner
society consider responsible will tend to lose it
Relationship between business and society-
A systems perspective
Broad
Conceptual
Level
Intermediate
Level
Practical,
applied
management
level
• Management greatly influenced by general systems
• As per this theory- all living organisms interact with and are
affected by other forces in the host environment
• Key to survival is adaptation and to be responsive to the
changing conditions in the environment
• Systems thinking provided a powerful tool to help managers
appreciate relationships between the companies and rest of
the world
Broad conceptual view
• Systems connection between nation`s economic activity, its
political life and it`s culture
• Every society is mixture of economic, political and cultural
influences each generated by its own system of people,
institutions and ideas
Intermediate level
• Business is composed of many segments, industries sectors,
government involves political life at national, state, local
and international level
• Society composed of many segments, ethnic or other
groups, and stakeholders
• Once it was said that business interacted with society only
through the market place but now it has been replaced by an
understanding that business society have non market
interaction as well
• Business decisions have a social impact e.g. pebble thrown
into a pond creates ever widening ripples
Practical, Applied Management Level
• Practical conceptual level shows the relationship among
corporations, specific government agencies and actors and
stakeholders
• Corporations can be classified as firm X and firm Y, and
stakeholders can be classified as primary and secondary
stakeholders
• There is kind of operating level of relationship exists among
the corporation, government agencies, and stakeholders
• Business do face social demands
• Taxes- set at levels that limit available funds for investment
or encourage relocation
• Environmental regulations- prove too costly, technically
impossible to operate
• Labour unions demand wages, salaries, put forwards
different demands
• Business decisions have positive and negative impact on
society
• Society, actions of society also influences and affect
whether business prosper or failure that is why business and
society taken together, are an interactive social system
• Entwined so completely that an action taken by one will
inevitably affect the other
• Boundary between the two is blurred and indistinct
• With ever expanding global communication use of internet
and technology the connections are closer than before
The Stakeholder Theory of the Firm
• The Ownership Theory of Firm sees firm as property of
its owners. The purpose of the firm is to maximize its stock
in the company
• A contrasting view, called Stakeholder Theory of firm
argues that corporations serve a board public purpose, to
create value for society
• Corporations create other kinds of values as well, such as
professional development for their employees and innovative
new products for their customers
• Corporations have multiple obligations, and all stakeholders
interests must be taken into account
• Supporters of the stakeholder theory of the firm make three
core arguments for their positions – descriptive, instrumental
and normative
•Descriptive argument says that the stakeholder view is more
realistic description of how companies really work; managers
have to pay keen attention, of course, to their quarterly and annual
performance
• Instrumental argument says that stakeholder management is
more effective as a corporate strategy. A wide range of studies
have shown that companies that behave responsibly towards
multiple stakeholders groups perform better financially over the
long run than those that do not
• Normative argument says that stakeholder management is
simply the right thing to do. All stakeholders, not just owners,
contribute something of the value to the corporation
•Stakeholder refers to persons and groups that affect, or are
affected by, an organization's decisions, policies, and
operations
•Those with a stake in the firm`s action includes diverse groups as
customers, employees, stockholders, the media, government,
professional and trade associations, social activists, and INGOs /
NGOs
• Business organisations are embedded in networks involving many
participants and they do have relationship with the firms
•Managers make good decisions when they pay attention to the
effects of their decisions on stakeholders, as well as stakeholder's
effects on the company
•On positive side, strong relationships between a corporation and its
stakeholders are an assets and add value
•On negative side, disregarding stakeholder's interests often proven
costly to the company
•Stakeholders theory has evolved to address problems of
• Understanding and managing business in the world of
21st century
• Question of ethics, responsibility, and sustainability with
usual economic view of capitalism
• Understanding what to teach managers and students
about it takes to be success in current business world
Market (Primary ) Stakeholders
Employees
Wholesalers (Unions)
Retailers
Stockholder
s
Competitors Business
Firm
Creditors
Customers Suppliers
Market (Primary ) Stakeholders
•Market stakeholders are those that engage in economic
transactions with the company as it carries out its primary
purpose of providing society with goods and services ( For
this reasons, market stakeholders are also sometimes called
Primary Stakeholders)
•Business primary involvements with society include all the
direct relationships necessary for it to perform its major
mission of producing goods and services for customers
• Primary involvements shape a company's strategy and the
policy decisions of its managers and reveal the importance of
its Primary Stakeholders
• These include those critical to the company`s existence and
activities, includes customers, suppliers, employees and
investors
Non Market (Secondary) Stakeholders
Federal,
State and
The Local
General Govenrm-
Public ents Foreign
Governme-
nts
Local
Communities Business
Firm
Social
Activist
Groups
Business
Support Media
Groups
•Nonmarket stakeholders by contrast, are people and groups
who although they do not engage in direct economic exchange
with the firm-are nonetheless affected by or can affect its
actions (also called secondary stakeholders by some theorist)
•Business relationship go beyond primary involvements to
others in society. Secondary interactions and involvements
occur when other groups express interest in or concern about
the organization's activities
•Include general public, various level of government, social
activists groups etc.
•Classification of government as nonmarket or secondary
stakeholders has been controversial-cause it does not normally
conduct any direct market exchanges but money flows from
business to government (taxes, fees) and vice versa (subsidies,
incentives)
• While some businesses- defense contractors sell directly to
government and receive payment for goods and services
rendered
•Calling these involvements and stakeholders secondary
does not mean that they are less important than business`s
primary relationships with society
•Occur as a consequences of the normal activities of
conducting business
• Some theorist have suggested that a more accurate way to
visualize the relationship is to show the business firm
embedded in complex network of stakeholders, many of
which have independent relationship with each other like
shown in figure (next slide)
A Stakeholder Network
Stakeholder
Business Stakeholder
Firm
Stakeholder Stakeholder
Stakeholder Interests and Power
•Different variety of stakeholders that exists in many forms,
some well organised, others less so make it more difficult for
company's managers to understand and respond to their
concerns
•Different variety of stakeholders that exists in many forms,
some well organised, others less so make it more difficult for
company's managers to understand and respond to their
concerns
•Each stakeholder has unique connection with the organisation
•Stockholders have ownership interest on organisation
&interested in realizing return on their investment
•Customers, suppliers and retailers have their own interests
interested in gaining fair value in exchange of goods and
money
Stakeholder Interests and Power
•Different stakeholders also have different types and degrees of
power
•Voting power means that the stakeholder has the legitimate right
to cast a vote
•Customers, suppliers and retailers have economic power with the
company
•Government exercises a political power through legislation,
regulations or lawsuits
• Issues that are most salient at one point in time may be replaced
by other issues at another time
• Groups are always changing relationships to one another in
society
•Coalitions of stakeholders have become increasingly
internationalized as well. Sophisticated information technology
has enabled like minded people to communicate quickly
Factors shaping business and society
relationship
A. Changing societal expectation
• Society`s expectation of business are changing
• People expect business to be more responsible, pay more
attention to social issues and act as good citizens in
society
• Business facing daunting task of balancing social, legal
and economic obligations meet its commitment to
multiple stakeholders
• Modern business increasingly exploring opportunities to
act as social entrepreneurs focusing at the bottom of
pyramid
relationship
B. Growing emphasis on ethical reasoning and actions
• Public expects business to be ethical
• Wants corporate managers apply ethnical principles and
values
• Fair employment practices, concern for consumer safety,
contribution of welfare to community, human right
protection
C. Globalisation
• Economy integrated and characterized by free movement
of goods, services and capital across national boundaries
• Products, services people buy in US, Canada come from
Indonesia, China etc.
• Financial crisis in Wall Street impact economies around
the world
relationship
• Societal issues race to find cure for HIV/AIDS, movement
of women's equity is all around the world
• Environmental issues- ozone depletion, species extinct
affect all communities
• Challenge business to integrate financial, social and
environmental performance
Globalization
A Nepalese (Naturalized American) IT expert my drive in a
Toyota car that was desinged in Japan, steel supplied by Arceloer -
Mittal and rubber imported from Indonesia and assembled in China
to his office WIPRO. On the way he may pick up a Starbucks
coffee in outlet run by a Korean and on the way make a calls (using
a headset) to a company in Nepal from iPhone designed in
California assembled in China to know about the status of software
development that was outsourced. He may have filled a car in
gasoline station of Shell with oil drilled from Nigeria and shipped
in US using Greek shipping line. He may turn on a radio made in
Malaysia of Sony that broadcasted a news on recession in USA
that might remind him to call his Indian real estate agent to get
update on his house buy (selling all remaining assets in
Kathmandu, Nepal) as it are cheaper over there than in Kathmandu
(cause of recession) . On international economic news broadcaster
informs about the demonstration against the globalizations during
World Economic Forum meeting in Geneva.
Globalization
relationship
D. Evolving government regulations and business

response
• Role of government dramatically in many nations
• Government around the world have enacted a series of
new policies
• Government regulations on business change from time to
time; periodically becomes tighter, then looser, much as
pendulum
• Dynamic nature of force, business has developed various
strategies to influence officials and government
regulations
• Business manager understand opportunities and threats
that may arise from participation in political process
relationship
D. Evolving government regulations and business
response
• Government plays an important role in encouragement
and coercion
• Legislation necessary to ensure business comply with their
ethical obligations and public does not suffer as a result of
dishonest business practices
• Supervisory role
• Encourage ethical behaviour
E. Dynamic natural environment
• Interaction between business and society occur with finite
natural ecosystem
• Many of resources are non renewable e.g. coal, oil, gas
while some are renewable e.g. water, timber
relationship
• Climate change threatens the countries around the world
• State of earth`s resources and changing attitudes about the
natural environment impact business society relationship
F. Explosion of new technology and innovation
• Technology most dramatic and powerful forces affecting
business and society
• New technological innovations harness human imagination
• In recent years of pace and technological change has
increased enormously ; generally from modified foods to
social networking via internet; from nanotechnology to
wireless
• Pace of technological change, innovation pose massive
challenges for business and sometimes government
(especially on intellectual property rights cases)
relationship
G. Workforce diversity
• Workforce continues to see increased participation of
females, physically challenged persons, and persons of
many different cultures as well as rise in mean age of
workers
• To capitalize on ethical and economic benefits, businesses
are promoting increased diversity in workplace
• Diversity among employees is the most common focus for
CSR work in diversity
• An effective workplace diversity strategy therefore
requires a workplace environment that is free from
discriminating, hostility, harassment with respect to
gender, color, national origin, religion, age, disability
relationship
H. Workforce diversity
Women at work
• One of the most significant change in the past half-century
has been the growing labour force participation of women
• Women face social and cultural barriers to economic
equality with men, but these are wearing way now, but
slowly
• Women participate in paid job lower than men
• In the past, all women in the workplace were
automatically assigned temporary or part time or low
responsibility jobs
• Today women are not generally seen as inferior to men
• Even in male dominated society like Nepal, the things are
changing for better
relationship
Women at work
• Women in workforce are drastically increasing
• Economic empowerment of women across the rich world is one of
the most remarkable revolutions in past 50 years
• Women now make up half of American workers (49.9% in 2016)
• The presence of so many mother at work creates pressure to modify
workplaces and forces millions of women to balance motherhood
with job demands
• Areas of work life in which women are treated differently than men
& these are:
• Occupational segregation: Women are more likely to work in
some jobs than others, within corporations and in the economy
& traditionally female jobs generally are lower in status and pay
than male jobs
relationship
Women at work
• Subtle discrimination: Women face discriminatory male attitudes and many
workplaces are based on masculine values
• Compensation: Women are paid less than men; in one study of all men and
women holding degrees in 130 major fields, women are paid equally with or
made more than men in only 11 fields employing just 2% of women & in all
remaining fields, women averaged just 73% of men`s pay
• Top level promotions: Women have great difficulty reaching top
management. In 1988, women were 10.6% of officers in a survey of Fortune
500 companies, recently it has been increasing
• Gender attitudes at work: Historically, men and women have been
socialized into distinct sex roles- men were traditionally thought to be
aggressive, forceful, logical, self-reliant and dominant and women were
expected to be kind, helpful, submissive and emotional
• Sexual harassment: Many women experience sexual harassment at some
time in their careers. Various forms of harassment exists, including women
harassing men and same-sex harassment; however, major workplace problem
is sexual harassment of women by men
The Changing Workplace
A. External factors influencing workplace
• Demographic change
- Workforce continue to become more diverse in gender and ethnicity
- Population dynamics slowly but continuously alter labour forces
• Technological change
(covered earlier too) some additional are
-Affects the number and types of jobs available e.g. inventions of airplane created
jobs like flight attendant, pilot; web masters; jobs like social media campaigner,
you tube content creators, drone operators, Uber drivers were not there 10 years
ago
-Automation has turbulent impact on jobs and employment
• Structural change
-Impact of structural changes normally observed in the context of developed
countries
-Long term action of structural changes of American economy dramatically
reshapes job landscape
- Agriculture sector has declined from prominence to near insignificant as
an occupation
The Changing Workplace
A. External factors influencing workplace
• Structural change (cont`d)
- Employment in the goods producing sector has decided for many decades
- There is explosive growth in the service sectors
• Competitive pressure
- Competition has always been strong in US economy as well as other economies
- Customers demand higher quality, better service and faster new product
development
- Pressure has resulted in sub contracting, manufacturing is cheap labour
destinations
• Globalization (already discussed)
• Dynamic natural resources (already discussed)
B. Government interventions ( Already covered in - Evolving
government regulations and business response )
C. Women at work (Already covered)

Corporate efforts to promote diversity
• Workplace diversity makes good business sense
• Understanding differences between people from a
broad spectrum of background can help
companies find ways of appealing to a boarder
range of customers and employees
A. Establish task forces
• Diversity task force can be created to eliminate
discrimination, and each task force focusing on
particular area, as disability, gender, age, sexual
orientation
• Gather views from employees to make company
divers in each area
A. Establish task forces
• Task forces can also focus on ways of reaching
more diverse customers
• E.g. IBM in late 90`s women task force
developed idea of providing specialized support
to small and medium sized businesses, that were
likely to be owned by women and minorities, this
strategy increased the service revenue by $290
million in 3 years
B. Diversify policies
• Providing flexible working hours and on site baby
care may attract more young women in the workforce
B. Diversify policies
• Allowing employees to take day off on variety of
religious holidays/ events make attract religiously
divers workforce
• Making office usable by differently able people
may attract much talented people
• Such policies may attract new customers that
support or in favour of such policies adopted by
company
C. Hiring and Promotion
• Incorporate diversity into the hiring and promotion
policies of the company
(At present Nepal government and also in private
companies it is followed – quota system like 33%
women, special seat for janajati etc.)
• Set standards for hiring and promotion those are
based on merit not quotas
• Policies must be transparent, so all employees and
potential know that hiring and promotion was based
on merit
• Promote company that it is diverse in its literature
and advertising so all job applicants know your
company supports and encourages diversity
D. Communicate effectively
• Effective communication is an important part of
promoting diversity
• Management should clearly describe in language
understood by all regarding diversity programmes
and goals
• Management lay down clear guidelines for
disciplines engaging in activities like workforce
bullying and teasing, that discourages diversity
• Managers should be willing to listen to workers
who feel they are not treated in proper manner or
equitably cause of gender, disability, age,
ethnicity or other factors and address it

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Business and Society Relationship

• Concept of business and society

of particular community, interest group

D. Evolving government regulations and business

C. Women at work (Already covered)

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