The Study of Business, Government, and Society

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Chapter 1

• The Study of Business, Government, and Society

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Chapter Outline

• Aristotles Art of Rhetoric
• Two Approaches to Decision Making
• The Deontological Approach
• The Teleological Approach
• Ethical Paradigms
• Exxon Mobil Case
• Business- Government- Society Field
• Four Models of the BGS Relationship
• The Market Capitalism Model
• The Dominance Model
• The Countervailing Forces Model
• The Stakeholder Model

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Aristotles Art of Rhetoric

• Rhetoric
• Art of persuasion through use of spoken language
• From the Greek meaning orator, teacher
• Ethos
• Influence based on character credibility of
  speaker
• Logos
• Influence based on reasoning
• Pathos
• Influence based on emotion

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Aristotles Art of Rhetoric

• Ethics comes from the ethos rhetoric
• What makes a speaker credible?
• Intelligence
• Virtuous character
• Good will

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Two Approaches to Decision Making

• Deontological Approach
• Act is judged according to its own merits
• The Law is the Law
• Immanuel Kant, Foundations of the Metaphysics of
  Morals
• Teleological Approach
• Act is judged according to outcome
• The end justifies the means
• Machiavelli, The Prince
• John Stuart Mill, Utilitarianism

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Ethical Paradigms

• Ethical
• Conforming to moral standards
• Standard of conduct
• Paradigm
• Example or pattern
• Philosophical and theoretical framework to
  understand an issue
• Ethical paradigm
• Philosophical and theoretical framework to
  understand an ethical issue

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Ethical Paradigms

• Phrased in terms of 2 positives values in
  conflict with each other
• Efficient operations vs. product quality
• Material well-being vs. healthy environment
• Increased profits vs. safety
• Increase objectivity in ethical issue analysis by
  examining both sides
• Nonjudgmental manner
• Comprehensive analysis

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ExxonMobil Case

• Questionable Actions
• 1989 intoxicated captain of Exxon Valdez spilled
  11 million gallons of oil into Alaskan waters
• 1997 Raymond (CEO) rejected scientific case of
  global warming and calls renewable energy a
  complete waste of money
• 2001 ExxonMobil accepts protection from
  Indonesian troops accused of violence against
  local villagers

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ExxonMobil Case

• Historical Influences
• John D. Rockefeller
• Standard Oil trust incorporated in 1882
• Brilliant strategist who destroyed competitors
• Believed imposing order on young disorganized
  industry justified ruthless tactics
• Controlled 90 of American oil industry
• 1890 Congress passed the Sherman Antitrust Act
• 1911 the trust is broken into 39 separate
  companies
• Rockefeller also known as great philanthropist

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ExxonMobil Case

• Implications
• Effective values become embedded
• Cost control, efficiency, centralized
  organization, and suppression of competitors
• ExxonMobil 2nd largest corporation and 1st in
  profits
• One organization, yet interaction with government
  and society produces long-lasting and significant
  influences
• ExxonMobil must be responsive to both economic
  and noneconomic environment
• 2003 reported losing less than 1 teaspoon/million
  gallons

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Business-Government-Society Field

• Business
• Fundamental purpose is to make a profit by
  providing services that satisfy human needs
• Government
• Economic regulatory powers affecting business
• Society
• Ideas, institutions, material things

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How Institutions Support Markets
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Business-Government-Society Field

• Social Contract
• Between business institution and society
• Defines broad duties that business must perform
  to retain societys support
• Partly expressed in law
• Also resides in social values
• Complex and ambiguous
• Can meeting social expectation conflict with
  maximizing profits?

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Four Models of the BGS Relationship

• The Market Capitalism Model
• The Dominance Model
• The Countervailing Forces Model
• The Stakeholder Model
• Model in use determines
• scope of business power,
• criteria for managerial decisions,
• extent of corporate responsibility,
• ethical duties of managers,
• need for regulation

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The Market Capitalism Model

• Business operates within a market environment
• Primarily responding to economic forces
• Sheltered from direct impact of social and
  political forces

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The Market Capitalism Model

• Model Origins
• Historically people produced for subsistence
• 1700s people start to produce for trade
• Market Economy reshaped human life
• Emerges when people move beyond subsistence
  production to production
• for trade

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The Market Capitalism Model

• Model Origins
• Adam Smiths, The Wealth of Nations
• Capitalism and the invisible hand
• Markets pricing mechanism reconciled supply
  demand making commodities cheaper, better, and
  more available
• Greater good for society when businesses compete
  freely
• Managerial Capitalism (early 1900s)
• Market economy in which dominant businesses are
  large firms run by salaried managers, not smaller
  firms run by owners

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The Market Capitalism Model

• Model Assumptions
• Government interference is slight or
  laissez-faire
• Government, not business, should correct social
  problems
• Managers focus on profit and efficiency
• Individuals can own property and freely risk
  investments
• Markets convert selfish competition into broad
  social benefits
• Informed consumers making rational decisions
• Moral restraint of business
• Many producers and consumers

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The Market Capitalism Model

• Market Capitalism Model Perspective Conclusions
• Government regulation should be limited
• Markets discipline private economic activity to
  promote social welfare
• Proper measure of corporate performance is profit
• Ethical duty of management is to promote the
  interests of shareholders

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The Market Capitalism Model

• Model Critics
• Creates prosperity only at cost of rising
  inequality
• Markets erode virtue
• Greed
• Ruthlessness
• Profit motive encourages plundering of the earth

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The Dominance Model

• Perspective of business critics
• Business and government dominate the great mass
  of people
• Few powerful elite control system that enriches a
  few at expense of many
• Undemocratic
• Ideal is to turn it upside down

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The Dominance Model

• Began in 1870s
• Resulted in reform movement of Populism
• President, Union Pacific could buy Congress
• Railroad magnate, Vanderbilt The public be
  damned!
• Rise of unionization of railroads and added
  government regulation

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The Countervailing Forces Model

• Flow of interactions among major elements of
  society
• Multiple forces, none dominant
• Industrialized nations with democratic traditions
• Differs from market capitalism model
• Business is directly influenced by nonmarket
  forces

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The Countervailing Forces Model

• Model Conclusions
• Business must respond to economic and noneconomic
  forces
• Business is a major initiator of change in
  society
• Public support of business depends on its
  adjustment to multiple social, political, and
  economic forces
• BGS relationships continuously evolve as changes
  take place in society

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The Stakeholder Model

• Duty toward multiple constituents
• More than just shareholders
• Reorders priorities of management away from those
  of market capitalism model
• Primary Stakeholder
• Impact is immediate, continuous, and powerful
• Secondary Stakeholder
• Less immediacy, benefit, burden, or power
• Debate over identifying stakeholders
• Vague guidelines to measure success

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