Business and Society

Chapter 1
 Introduction
• Business:  Any organization that is engaged in
making a product or providing a service for a
profit
• Society:  Human beings and the social
structures they collectively create 
• Business and society are highly
interdependent     
The Business and Society Relationship 
• General Systems Theory (GST)” from Biology to explain
this relationship; first introduced in 1940’s
– Theory posits that organisms cannot be understood in
isolation, even though they have clear boundaries; they can
only be understood in relationship to their surroundings
• Adapted to management theory means that business
firms are embedded in a broader social environment
with which they constantly interact 

– Business and society together form an interactive social

system
 The Stakeholder Theory of the Firm
• Two critical questions:
– What is the purpose of the modern corporation?
– To whom, or what, should the firm be responsible?
• Traditional view: “Ownership Theory of the Firm” 

– Firm is the property of its owners

– Purpose is to maximize returns to shareholders
– Shareholders’ interests are paramount and take precedence
over all others
 The Stakeholder Theory of the Firm
• Contrasting view:   “Stakeholder Theory of the
Firm”
– Argues the corporation serves a broader purpose, to
create value for society 

– Must make profit for owners to survive, however,

creates other kinds of value too 

– Corporations have multiple obligations, all

“stakeholder” groups must be taken into account 
 Stakeholder - Tip
• A stakeholder refers to persons or groups that
affect, or are affected by, an organization’s
decisions, policies, and operations
• A stake is an interest in–or claim on–a
business enterprise 

• Businesses are embedded in networks that

involve many groups with such a stake  
 Stakeholder Tip
• Term stakeholder is NOT the same
as stockholder
• Words sound similar BUT are not the same 

• Stockholders are one of several kinds

of stakeholders 
 Market and Nonmarket Stakeholders 
• Stakeholder groups can be divided into two categories:
– Market stakeholders
– Nonmarket 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
– Sometimes referred to as primary stakeholders
• Nonmarket stakeholders are people or groups who—
although they do not engage in direct economic exchange
with the firm—are affected by or can affect its actions
– Sometimes called secondary stakeholders  
 Ethics and ethical values
• An area of study that deals with ideas about
what is good and bad behavior.
• A branch of philosophy dealing with what is
morally right or wrong
• A belief that something is very important
The Importance of Ethics in Organizations

•  A code of ethics is a set of principles that

guide the organization in its programs, policies
and decisions for the business.
• The ethical philosophy an organization uses to
conduct business can affect the reputation,
productivity and bottom line of the business.
 Leadership Ethics
• The ethics that leaders in an organization use to
manage employees may have an effect on the
morale and loyalty of workers.
• The code of ethics leaders use determines
discipline procedures and the acceptable
behavior for all workers in an organization.
• When leaders have high ethical standards, it
encourages workers in the organization to meet
that same level. 
 Employee ethics
• Ethical behavior among workers in an
organization ensures that employees complete
work with honesty and integrity.
• Employees who use ethics to guide their behavior
adhere to employee policies and rules while
striving to meet the goals of the organization.
• Ethical employees also meet standards for quality
in their work, which can enhance the company’s
reputation for quality products and service.
 Ethical organizational culture
• Leaders and employees adhering to a code of ethics
create an ethical organizational culture.
• The leaders of a business may create an ethical
culture by exhibiting the type of behavior they'd like
to see in employees.
• The organization can reinforce ethical behavior by
rewarding employees who exhibit the values and
integrity that coincides with the company code of
ethics and disciplining those who make the wrong
choices.
 Benefits to the organization
• A positive and healthy corporate culture
improves the morale among workers in the
organization, which may increase productivity
and employee retention; this, in turn, has
financial benefits for the organization.
• Higher levels of productivity improve the
efficiency in the company, while increasing
employee retention reduces the cost of
replacing employees.
 Elements of ethical organization
• Honor
• Integrity
• Respect
• Customer Focus
• Result-Oriented
• Risk Taking
• Passion
• Persistence
• You're the boss in a predominantly male
environment. The presence of a new female
employee stirs up conflict because your company has
not had a chance to conduct sensitivity training.
Some of your male employees make inappropriate
remarks to your new employee. She complains to
you; in response, you sanction those responsible for
the conduct. You also wonder if it would be wise to
move your new female employee to another position
where she would be less likely to draw attention. 
The changing workplace
 Diversity
• The concept of diversity encompasses acceptance and
respect. 
• It means understanding that each individual is unique, 
and recognizing our individual differences. 
• It is the exploration of these differences in a safe,
positive, and nurturing environment. 
• It is about understanding each other and moving
beyond simple tolerance to embracing and celebrating
the rich dimensions of diversity contained within each
individual.
 Our Workforce is More Diverse than Ever
Before
• More women are working than ever before
• The workforce will continue to get older
• Ethnic and racial diversity is increasing
• More diversity yet to been.
 Why is Diversity Important?

• The service economy

– Interactions between people are key
– Customer base is more diverse
– Similarities between people ease process
• Globalization of business
– Doing business with people from around world
• The changing labor market
• Company mergers and buy-outs
 Types of Diversity

• Gender Diversity
• Age Diversity
• Cultural Diversity
• Sexual Orientation
• Family Situations
• Physical and Psychological Disabilities
• Political Views
• Personal Idiosyncrasies
 Gender Diversity: Nonstandard work

• More women in workforce today than ever

– Better educated than ever
• Most “nonstandard” workers (those who do not
hold regular, full-time jobs) are women
– 55% of workers paid by temporary agencies are
women
– 70% of part-time workers are women
• Stereotypes still remain
– Glass ceiling, etc.
 Challenges of Diversity

• Availability Challenge
– In past employers could control diversity
• More people than jobs
– Qualified employees have become scarce
• Employers must become more flexible
• Realize “Different does not mean deficient”
• Fairness challenge
– In past, typically viewed as equal treatment
• Equal Employment Opportunity
– Now employers must embrace new diversity
• Essentially focus on “differences”
 Challenges of Diversity

• Synergy challenge
– More and more group-based work
– Diversity can create positive and negative
conflict
• Can facilitate creative problem-solving
• Can close down communication
• Can derail group processes
– Group leaders must minimize destructive
conflict and maximize diversity of input
Strategies for Managing Diversity

• Articulate a clear diversity mission, set objectives,

and hold managers accountable.
• Spread a wide net in recruitment to find the most
diverse possible pool of qualified candidates.
• Identify promising women and minorities and
provide them with mentors and other kinds of
support.
• Set up diversity councils to monitor the company’s
goals and progress toward them.
Programs for Managing Diversity: Diversity
Training

• Providing managers with training

– How to recruit/hire diverse employees
– How to orient/integrate new employees
• Providing all employees with training
– Realizing the differences that exist
– Learning how differences affect working
environment
– How to maximize productivity without ignoring
employee differences
 Life Without Diversity
Close your eyes and imagine that everyone in the
room is the same. Exactly the same! Same hair, eye
color, height, weight, gender, race, language.
Everyone dresses the same and sounds the same.

Now open your eyes, look to your left and your

right.
What do you see?
ONE MIND, ONE RACE
 Characteristics of Business
• Pride, Hughes and Kapoor (2017) have defined business as
“ Business is the organized effort of individuals to produce
and sell, for a profit, the goods and services that satisfy
society’s needs”
• Business are categorized on the basis of their size and all
bear similar characteristics:
– Production and/or Exchange of Goods and Services
– Organized Effort
– Customer Satisfaction
– Profit Making
– Social Responsibility
 Characteristics of Society
• Carroll and Buchholtz (2015) defined society as “ Society may be
defined as a community, a nation, or a broad grouping of people
with common traditions, values, institutions and collective activities
and interests.”
• The relation between business and society may be between
business and the local community and others. In all the cases,
society related to business will have similar characters they are:
• Likeness
• Differences
• Communication and Interaction
• Integral culture
• Dynamics
 Relationship Between Business and society-
System Perspective
• A modern theory which views business organizations beyond the
traditional management style to open system having input-
process-output components.
• Businesses are not self-sufficient and they need to interact with
the external environment/society to get input, and dispose output
in order to survive and grow.
• Organizations change their way of doing things in accordance to
changing environment.
• If the customers are not satisfied by the product the producer
needs to bring about change and offer it to the customers. Eg:
Pfizer, Toyota
• Monetary Policy 2017, Industrial Enterprise Act 2017 BFIs 1% CSR
 Contd…
• Business and society are interdependent.
• Organizations cannot perform in corrupt
societies and society cannot take benefit from
the irresponsible and poorly performing
business.
 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
Factors shaping business and society relationship
B. Government intervention
• 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
C. Growing emphasis on ethical reasoning and actions
• Public expects business to be ethical
• Wants corporate managers apply ethical principles and
values
• Fair employment practices, concern for consumer safety,
contribution of welfare to community, human right
protection
 Factors shaping business and society relationship
D. 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
• 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 may drive in a
Toyota car that was designed 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 dropping economy
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 is cheaper over there than in Kathmandu.
On international economic news broadcaster informs about the
demonstration against the globalizations during World Economic
Forum meeting in Geneva.
Globalization
Factors shaping business and society relationship
E. 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
Factors shaping business and society relationship
F. 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
• Climate change threatens the countries around the world
• State of earth`s resources and changing attitudes about
the natural environment impact business society
relationship
Factors shaping business and society relationship
G. 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)
• H. 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
Factors shaping business and society relationship
H. Workforce diversity
Women at work
• 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
• 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)
Changing Nature of Today’s Workplace

• Spatially differentiated Organizations: low cost

location
• Portable devices and Social Networking: fb,
cloud, robots
• Shortage of Skilled workers: CAN
• Demand for more work flexibility
• Pressure for More sustainable workplaces
• Increased workforce diversity
Factors influencing Changing Workplace
• External
– Globalization
– Technological Advancement: 50 billion by 2020/7.6 billion
– The Knowledge Economy
– Increasing Popularity of CSR
– Socio-political transformation process
– Government Intervention
• Internal
– Increase in size and complexity of Business
– Changing management philosophy
– Changing attitude and value of employees
– Gain competitive advantage and avoid risks
 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
 Corporate efforts to promote diversity
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
 Corporate efforts to promote diversity
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
 Corporate efforts to promote diversity
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
 Corporate efforts to promote 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