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Business and Society Chapter 1
Business and Society Chapter 1
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Concept of Business and Society
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
Concept of Business and Society
What is business?
Shareholders
Customers
Business
Enterprises
Environment
Employees
Society
Concept of Business and 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.
Concept of Business and Society
Society
• In broadest sense, refers to human beings and to the
social structures they collectively create
• Refers to segments of humankind, such as members
Intermediate
Level
Practical,
applied
management
level
Relationship between business and society-
A systems perspective
• 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
Relationship between business and society-
A systems perspective
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
Relationship between business and society-
A systems perspective
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
Relationship between business and society-
A systems perspective
• 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
Relationship between business and society-
A systems perspective
• 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
The Stakeholder Theory of the Firm
•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
The Stakeholder Theory of the Firm
•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
The Stakeholder Theory of the Firm
•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
Non Market (Secondary) Stakeholders
•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)
Non Market (Secondary) Stakeholders
• 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
Factors shaping business and society
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
Factors shaping business and society
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
Factors shaping business and society
relationship