CHAPTER 1: Business in Society Ownership Theory of Firm 1)Firm is the property of its owner 2)Sole purpose to maximise long term market value: Make the most money for shareholders 3)Managers and Directors are agent of shareholders, only obligations are to them as limited by laws 4)Owner’s interests are paramount and take precedence over any other interests Stakeholder Theory of Firm 1)Corporations serve a broad public purpose: To create value for society 2)All must make a profit for owners to survive in the long term 3)Value varies: Employee professional development, New innovative products 4)Corporations have multiple obligations and all stakeholder’s interests must be considered Consist of 3 core arguments: Descriptive, Instrumental & Normative 1)Descriptive: It a more realistic description of how companies work. Creating value for stakeholders contribute to financial performance and production of consistent results. 2)Instrumental: It is a more effective corporate strategy. Companies behaving responsibly towards stakeholders perform better financially over time. All better for company’s bottom line. 3)Normative: It is the right thing to do. Corporations have great power and control resources, bringing along a duty towards all those affected by their actions. Stakeholders also contribute value. Stockholders Individuals or organisations owning shares of a company’s stock Stakeholders Groups or persons that affect or are affected by organisation’s decisions, policies and operations. Market: Engage in economic transactions with company for the purpose to provide goods and services. (Stockholders, Creditors, Employees and Suppliers) Nonmarket: No direct economic exchange with firm but affect by its actions. (Community, Competitors, NGO) Internal: Employed by firm External: Not directly employed Stakeholders have five different kinds of power: voting power, economic power, political power, legal power, and informational power. Stakeholder Coalitions : Temporary alliances formed by stakeholders with coinciding interestsSalience(Something is salient when it stands out from a background, is seen as important, or draws attention.)
CHAPTER 1: Business in Society Business today is arguably the most dominant institution in the world. The term business refers here to any organization that is engaged in making a product or providing a service for a profit. Society, refer to segments of humankind, such as members of a particular community, nation, or interest group. As a set of organizations created by humans, business is clearly a part of society. General systems theory, first introduced in the 1940s, argues that all organisms are open to, and interact with, their external environments. Although most organisms have clear boundaries, they cannot be understood in isolation, but only in relationship to their surroundings.