The Study of Business, Government, and SocietyThe Study of Business,

Government, and Society

ChapterChapter 1

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This chapter:

Introduces four basic models of the business-government-society relationship.

Defines basic terms and explains the authors’ approach to the subject matter.

What is the Business–Government– Society Field?

Business – broad term encompassing a range of actions and institutions.

Government – refers to structures and processes in society that authoritatively make and apply policies and rules.

Society – a network of human relations that includes three interacting elements: Ideas Institutions Material things

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Why is the BGS Field Important to Managers?

To succeed in meetings its objectives a business must be responsive to both its economic and its noneconomic environment.

Recognizing that a company operates not only within markets but within a society is critical.

A basic agreement or social contract exists between the business institution and society. Managers must respect and adhere to society’s

expectations.

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Four Models of the BGS RelationshipThe Market Capitalism Model

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Four Models of the BGS RelationshipThe Market Capitalism Model

(continued) The market capitalism model depicts business

as operating within a market environment, responding primarily to powerful economic forces.

The market acts as a buffer between business and nonmarket forces.

History and nature of markets Adam Smith, The Wealth of Nations Capitalism Managerial capitalism

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Four Models of the BGS RelationshipThe Market Capitalism Model

(continued) Important assumptions of the market capitalism model:

Government interference in economic life is slight (laissez-faire).

Individuals can own private property and freely risk investments.

Consumers are informed about products and prices and make rational decisions.

Moral restraint accompanies the self-interested behavior of business.

Basic institutions such as banking and laws exist to ease commerce.

There are many producers and consumers in competitive markets.

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Four Models of the BGS RelationshipThe Market Capitalism Model

(continued) Market capitalism model perspective

conclusions about the BGS relationship: Government regulation should be limited. Markets discipline private economic activity

to promote social welfare. The proper measure of corporate

performance is profit. The ethical duty of management is to

promote the interests of shareholders.

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Four Models of the BGS RelationshipThe Dominance Model

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Four Models of the BGS RelationshipThe Dominance Model (continued)

Proponents of the dominance model believe that corporations and a powerful elite control a system that enriches a few at the expense of many.

Populist reform movement opposed the dominance model. Marxism emerged in Europe about the same

time. Most accurate in the 1800s, but is being

resurrected due to the fear of transnational corporations in a global context.

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Four Models of the BGS RelationshipThe Countervailing Forces Model

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Four Models of the BGS RelationshipThe Countervailing Forces Model

(continued) Countervailing forces model conclusions:

Business is deeply integrated into an open society and must respond to many forces, both economic and noneconomic.

Business is a major initiator of change in society through its interaction with government, its production and marketing activities, and its use of new technologies.

Broad public support of business depends on its adjustment to multiple social, political, and economic forces.

BGS relationships continuously evolve as changes take place in the main ideas, institutions, and processes of society.

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Four Models of the BGS RelationshipThe Stakeholder Model

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Four Models of the BGS RelationshipThe Stakeholder Model

Stakeholders are those whom the corporation benefits or burdens by its actions and those who benefit or burden the firm with their actions. Primary stakeholders Secondary stakeholders

Debate about how to identify who or what is a stakeholder.

Stakeholder model is an ethical theory of management in which the welfare of each stakeholder must be considered as an end.

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Four Models of the BGS RelationshipThe Stakeholder Model (continued)

Criticism of the stakeholder model: It is not a realistic assessment of the power

relationships between the corporation and other entities.

There is no single, clear, and objective measure to evaluate the combined ethical/economic performance of a firm.

Advocacy for the stakeholder model: A corporation that embraces stakeholders

performs better. It is the ethical way to manage because

stakeholders have moral rights that grow from the way powerful corporations affect them.

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Text Approach to the Subject Matter

Comprehensive scope Interdisciplinary approach with a

management focus Use of theory, description, and case

studies Global perspective Historical perspective

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