BUS101

what are some business responsibilities? (3)

Economic responsibilities Social responsibilities Legal responsibilities

Different Kinds of Stakeholders

Market stakeholders Nonmarket stakeholders

Class Action Fairness Act

- Most class-action lawsuits moved from state to federal courts - Attorneys in some kinds of cases were paid based on how much plaintiffs actually received, or how much time the attorney spent on the case

arguments for executive compensation

- being rewarded for being talented -incentive do be innovative and risk -not many people capable of running complex corporations

General Systems Theory (GST)

- defines a system as an entitiy that is mantained by the mutual interactions of its component -business firms are embedded in a broader social environment with which they constantly interact

Reasons for Consumer Movement

-Services, as well as products, have become more specialized and difficult to judge -When businesses try to sell both products and services through advertising, claims may be inflated or they may appeal to emotions - Technology has permitted businesses to learn more than ever about their customers—potentially violating their privacy - Some businesses have ignored product safety

Do socially responsible companies sacrifice profits by promoting the social good?

-Studies comparing CSR with firm performance shows there is a moderately positive association between the two factors -Corporate social and environmental responsibility is likely to pay off

Ownership Theory of the Firm

-a theory that holds that the purpose of the firm is to maximize the long-term return for its shareholders - to make the most money it can for shareholders

arguments for CSR

-balances power -discourages government regulation -promotes long term profits for business -improves stakeholder relationships -enhances business relationships

arguments against executive compensation

-cause resentment in low payed employees -still gets payed a lot for failures as well as successes -Inflated executive compensation hurts US ability to complete with foreign rivals

Solution to consumer privacy and technology

-consumer self help -industry self regulation -privacy legislation

Types of Stockholders

-individual= people who directly own shares of stock issued by companies -Institutions, such as pension funds, mutual funds, insurance companies, and university endowments

arguments against CSR

-lowers profit and efficiency -imposes unequal costs among competitors -imposes hidden costs passed on to stakeholders -requires skills business might lack -places responsibility on business rather than individual

Major Legal Rights of Stockholders

-receive dividends -vote on: -member of board, major mergers and acquisitions, charter bylaw changes, proposal by stockholders -receive financial reports on company -shareholder suits -to sell there shares or stocks to others

Rights of Consumers

-right to be informed -the right to safety -right to choose -right to be heard -right to privacy

postitive response to consumerism

-rise in quality -Voluntary industry codes of conduct: how they treat customers -Consumer affairs departments: specifically for customer questions and needs -product recall

The Social Enterprise

A business that adopts social benefits as its core mission. An organization that uses business strategies for the purpose of improving human and environmental well-being. Its primary purpose is not to maximize returns to shareholders

Corporate Social Responsibility

A corporation should act in a way that enhances society and its inhabitants and be held accountable for any of its actions that affect people, their communities, and their environment. harm to people and society should be acknowledged and corrected if at all possible.

The Stakeholder

A stakeholder refers to persons or groups that affect, or are affected by, an organization's decisions, policies, and operations.

Board of directors

An elected group of individuals who have a legal duty to establish corporate objectives, develop broad policies, and select top-level personnel to carry out these objectives and policies. Vary in size, composition, and structure to best serve the interests of the corporation and shareholders. Average board size was 12 members (10 or 11 of these are outside directors). Elected by shareholders. CEO and chairman pick candidates.

Advocacy for Consumer Interests

As long as business has existed—consumers have tried to protect their interests when they go to the marketplace to buy goods and services.

Serving the Bottom of the Pyramid

Business can carry out its responsibility to society by bringing products and services to these underserved people

Corporate Power

Corporate power refers to the capability of corporations to influence government, the economy, and society, based on their organizational resources. can be both positive and negative

Phases of Corporate Social Responsibility (4 phases)

Corporate social stewardship, 1950s - 1960s Corporate social responsiveness, 1960s - 1970s Corporate/business ethics, 1980s - 1990s Corporate/global citizenship, 1990s - 2000s

Core Arguments for Stakeholder Theory of the Firm? (3)

Descriptive: More realistic description of how companies really work Instrumental: More effective corporate strategy Normative: Stakeholder management is the right thing to do

Executive Compensation

Executive compensation is a key Board function. An important mechanism for aligning the interests of the corporation and its stockholders with those of its top managers. May be so extensive especially in america

Securities and Exchange Commission (SEC)

Government agency charged with protection of stockholder interests. Mission is to protect stockholders' rights by making sure that the stock markets are run fairly and that investment information if fully disclose.

Executive Compensation Reform

Has been the subject of shareholder pressure Some companies have changed the way they structure executive pay, e.g., by tying pay more directly to company performance Small number of companies set multiple of executive pay versus others workers---> can only be payed 5 x as much as employees Government regulations - disclose top 5 executive pays and rationale for it -shareholder votes on executive pay every 3 years

Shareholder Lawsuits

If owners think they or their company have been damaged by actions of company officers or director, they have right to bring lawsuits

Stakeholder Salience

Managers can use the salience concept to develop a stakeholder map - a graphical representation of the relationship of stakeholder salience to a particular issue. To managers when they have power, legitimacy, and urgency

Market Stakeholders

Market stakeholders are those that engage in economic transactions with the company as it carries out its primary purpose of providing society with goods and services

different ways to settles argument between consumer and company

Mediation: a voluntary process to settle disputes using a third party neutral Arbitration: the use of an impartial individual to hear and decide a case outside of the judicial system

Nonmarket Stakeholders

Nonmarket stakeholders are people or groups who—although they do not engage in direct economic exchange with the firm—are affected by or can affect its actions

Insider trading

Occurs when a person gains access to confidential information about a company's financial condition and then uses that information, before it becomes public knowledge,to buy or sell the company's stock

Enlightened Self-Interest

People who act to further the interests of others (or the interests of the group or groups to which they belong), ultimately serve their own self-interest.

consumers privacy and technology

Rapidly evolving information technologies in the early 21st century have given new urgency to the issue of consumer privacy.

Corporate Governance

Refers to the process by which a company is controlled, or governed

Shareholder Activism -Social Investment

Refers to the use of stock ownership as a strategy for promoting social objectives; also called social responsibility investment

social screening

Some stock purchasers choose stocks based on social or environmental criteria.

Stockholders

The legal owners of business corporations

Product Liability

The legal responsibility of a firm for injuries caused by something it made or sold. In U.S. and some other countries, consumers have right to sue and collect damages if harmed by unsafe products.

Objectives of Stock Ownership

To produce a return greater than they could receive from alternative investments. Stockholders make money when the price of the stock rises (capital appreciation) and when they receive their share of the company's earnings (called dividends).

How does the board do work? what committees?

Typical committees: Compensation, Executive, Nominating, Audit.

There are 5 types of stakeholder power

Voting power Economic power Political power Legal power Informational power

Social Entrepreneurship

When a person or group of people identify a social need and use their entrepreneurial skills to address this need

corporation

a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.

The B Corporation (benefit corporation)

a new type of corporation that seeks to blend its social objectives with financial goals. A B Corporation must prove its socially responsible by meeting the B Lab standards.

External stakeholders

although they may have important transactions with the firm—are not directly employed by it

partnerships

business owned and operated by two or more principals for the purpose of making a profit. Jointly provide capital and labor in exchange for shared profit or loss. No govt permission is required for a partnership, business affairs do not have to be shared beyond partners., as a business form is not required to pay income taxes. Disadvantages: unstable, hard to dissolve if one partner is found to be incompetent.

sole proprietorships

businesses owned and operated by one individual; the most common form of business organization in the United States.

Boundary-spanning departments

departments or offices within an organization that reach across the dividing line that separates the company from groups and people in society

Strict liability

doctrine under which the U.S. courts have held that manufacturers are responsible for injuries resulting from use of their products, whether or not they were negligent or breached a warranty. GET IN TROUBLE EVEN IF YOU LABEL IT

Stakeholder Theory of the Firm

firms have broad public purpose...create value for society is their purpose. Corporations have multiple obligations, all "stakeholder" groups must be taken into account.

bear markets

in which share prices fall overall

Bull markets

in which share prices rise overall

Iron law of responsibility

those who do not use power in ways that society considers responsible will tend to lose it. social system expect business to take great care in wielding its power responsibly for the betterment of society.

Internal stakeholders

those, such as employees and managers, who are employed by the firm