Mid Terms Notes.pdf - CHAPTER 1 Business in Society...

This preview shows page 1 - 2 out of 6 pages.

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. Interactive social system. Each needs the other, and each influences the other. They are entwined so completely that any action taken by one will surely affect the other. They are both separate and connected. In Ownership Theory of the firm , firm is the property of its owners. The purpose of the firm is to maximize its long-term market value, that is, to make the most money it can for shareholders who own stock in the company. Managers and boards of directors are agents of shareholders and have no obligations to others, other than those directly specified by law. In this view, owners’ interests are paramount and take precedence over the interests of others. A contrasting view, called the stakeholder theory of the firm, argues that corporations serve a broad public purpose: to create value for society. All companies must make a profit for their owners; indeed, if they did not, they would not long survive. However, corporations create many other kinds of value as well, such as professional development for their employees and innovative new products for their customers. In this view, corporations have multiple obligations, and all stakeholders’ interests must be considered. Stakeholder theoryof the firm make three core arguments for their position: descriptive, instrumental, and normative. The descriptive argument says that the stakeholder view is simply a more realistic description of how companies really work. Managers must pay keen attention, of course, to their quarterly and annual financial performance. To produce consistent results, managers have to be concerned with producing high-quality and innovative products and services for their customers, attracting and retaining talented employees, and complying with a plethora of complex government regulations. As a practical matter, managers direct their energies toward all stakeholders, not just owners. The 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 toward multiple stakeholder groups perform better financially, over the long run, than those that do not. Attention to stakeholders’ rights and concerns can help produce motivated employees, satisfied customers, committed suppliers, and supportive communities, all good for the company’s bottom line.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture