Unformatted text preview: AEM220, Introduction to Business Management
Monday 1/28 Business and the Business Environment What is business? Profits, risk and business Corporate social responsibility What is business?
Activity seeking profit Provides goods/services Satisfy standard of living- quality of life Objectives of Business Survival Growth Profit Social Responsibility Why Profit?
As long as people are free to engage with each other in voluntary economic transaction, the selfinterest of people (and companies) results in public benefit; Greed and self interest are two different things! Monopolies also hurt economic freedom; Distorted prices may result in net impoverishment. The Five Factors of Production Profit and Risk
Revenue Expense = Profit (Loss); The higher the risk, the higher the probability of losing a large amount of money; Investment of factors/resources/capital will occur only if there is a equally large or larger probability of winning a large amount of money. Risk vs. Uncertainty
Risk Known likelyhood of losing a large amount of money; Known unknown Uncertainty Unknown likelyhood of losing a large amount of money; Unknown unknown Forms of Participation in a Business Enterprise
Entrepreneurship An entrepreneur is a person who risks time and money to start and manage a business Personal Institutional Ownership Employment Others Customer Supplier Government Business Stakeholders
Stockholders Bankers Suppliers Government Employees Dealers and retailers Activists and environmentalists Community Customers Etc, etc, etc Key Distinctions between Shareholder and Stakeholder Firms
Attibute Goals Shareholder Firm Stakeholder firm Maximize shareholder wealth Pursue multiple objectives of parties with different interests Managers are agents of shareholders; control is the key task. Shareholder value sufficient to maintain investor commitment. Shareholders Investors / owners Coordination, cooperation, conflict resolution are key tasks. Fair distribution of value created to maintain commitment of multiple stakeholders. All stakeholders All stakeholders Governance structures and key processes Performance metrics Residual risk holders Stakeholder influence Sustainability
Meeting the needs of the present generation without compromising the ability of future generations to meet their own needs. Brundtland Commission, 1987. Corporate social responsibility
Refers to the comprehensive approach that a corporation takes to meet or exceed stakeholder expectations beyond measures of revenue, profit and legal obligation. community investment, human rights and employee relations, environmental practices ethical conduct. Profits Environmental sustainability Social responsibility But, can it all be measured? And is the economy really so static? The Triple Bottom Line The Stakeholder Corporation and CSR: a critique
There is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.
Milton Friedman Nobel laureate Some References
The Economist, "Survey on Corporate Social Responsibility", January 22, 2005 Kochan and Rubinstein, "Towards a Stakeholder Theory of the Firm: The Saturn Partnership", Organization Science, 11(4):367-386, 2000 Take-aways
Businesses are organizations oriented towards offering products and services with the objectives of surviving, growing, and serving the public while making a profit; The main difference in resource utilization and modes of participation in business activities is the level of risk associated with the business; Business obtains resources and legitimacy from society, and it is therefore responsible to it. ...
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- Spring '07
- Management, Corporate social responsibility, Shareholder and Stakeholder Firms