Foundations of Business EXAM 1 (CH 2, 3, 4)

business ethics

the application of moral standards to business situations

corporate officers

the chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board of directors

merger

the combining of two corporations or other business entities to form one business types: 1. horizontal 2. vertical 3. conglomerate

socioeconomic model of social responsibility

the concept that business should emphasize not only profits but also the impact of its decisions on society VIEWS (IN FAVOR OF): 1. Corporations are creations of society, so if they are not socially responsible then society will demand changes. 2. Being socially responsible is something companies can brag about or be proud of. 3. Many businesspersons believe it is their best interest to take initiative in being socially responsible rather than face legal action if they aren't.

pollution

the contamination of water, air, or land through the actions of people in an industrialized society

green marketing

the process of creating, making, delivering, and promoting products that are environmentally safe -e.g. turning to alternative forms of power generation like solar and wind power

sole proprietorships

What type of ownership has these advantages and disadvantages? PROS: -easy to start up business and shut down -pride of ownership -no special taxes -flexibility of being your own boss CONS: -unlimited liability -lack of continuity -lack of money (lenders unwilling to give loans, one person is responsible for paying for everything) -limited management skills -difficulty in hiring employees

corporations

What type of ownership has these advantages and disadvantages? PROS: -limited liability -easy to raise capital -easy to transfer ownership -perpetual life -specialized management CONS: -difficult and expensive to form -government regulation and paperwork -conflict among managers and/or employees -double taxation -lack of secrecy

strategic alliance

a partnership formed to create competitive advantage on a worldwide basis -e.g. New United Motor Manufacturing, Inc.: partnership between General Motors and Toyota -similar to joint ventures -formed when individual firms lack resources to succeed internationally so they work with other companies that have those resources

joint venture

a partnership in which two or more companies (often from different countries) join to form a business entity to undertake a major project for a specific period of time -partnering with established foreign firm provides immediate market knowledge/access, reduced risk, and control over product attributes -complex and requires a lot of commitment -dissolves after project is completed

general partner

a person who assumes full or shared responsibility for operating a business -unlimited liability for all debts, taxes, and actions of other partner(s) -usually collects management fees and receive percentage of the profits -risks having to use personal assets

limited partner

a person who invests money in a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership -receives portion of profits and tax benefits -only risks their original investment not personal assets

stockholder

a person who owns a corporation's stock

affirmative action program

a plan designed to increase the number of minority employees at all levels within an organization -encompasses human resources management (recruiting, hiring, training, promotion, pay) -main issues: reverse discrimination quotas (hiring only minorities), not all businesspeople are in favor of these programs

minority

a racial, religious, political, national, or other group regarded as different from the larger group of which it is a part and that is often singled out for unfavorable treatment

foreign-exchange control

a restriction on the amount of a particular foreign currency that can be purchased or sold -subsequently limits amount of goods importers can buy with that currency

hostile takeover

a situation in which the management and board of directors of a firm targeted for acquisition disapprove of the merger

revenue tariff

a tariff imposed solely to generate income for government

protective tariff

a tariff imposed to protect domestic industry from competition -makes competing imports more expensive than similar domestic products

tariff

a tax levied on a particular foreign product entering a country -aka IMPORT DUTY TYPES 1. Revenue 2. Protective

syndicate

a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital -formed when no one person/firm is willing to put up the entire amount for undertaking -dissolved when project is completed -usually formed to write large insurance policies, loans, and investments

partnership

a voluntary association of two or more persons to act as co-owners of a business for profit -consists of general and/or limited partners

social responsibility

the recognition that business activities have an impact on society and the consideration of that impact in business decision making -e.g. companies contribute resources, knowledge, products, and money to help others during times of crisis -brings positive associations for brands that can help them stand out in competitive market -people are more likely to want to work for and buy from organizations who partake

currency devaluation

the reduction of the value of a nation's currency relative to the currencies of other countries -increases cost of foreign goods while decreasing cost of domestic goods to foreign firms

stock

the shares of ownership of a corporation TYPES: 1. common 2. preferred

ethics

the study of right and wrong and of the morality of the choices individuals make

board of directors

the top governing body of a corporation, the members of which are elected by the stockholders

balance of payments

the total flow of money into a country minus the total flow of money out of that country over some period of time

balance of trade

the total value of a nation's exports minus the total value of its imports over some period of time

economic model of social responsibility

the view that society will benefit most when business is left alone to produce and market profitable products that society needs -originated in 18th century -belief that social responsibility would be fulfilled through firms' taxes, so it should be government's focus

conflict of interest

when a businessperson takes advantage of a situation for his or her own personal interest rather than for the employer's interest e.g. employee with divided loyalties, manager dating subordinate, employee with relative working for competitor, purchasing manager doing business with another firm in which he has an investor, firm advising client on products they have relationships with, bribing

hard-core unemployed

workers with little education or vocational training and a long history of unemployment

multinational enterprise

a firm that operates on a worldwide scale without ties to any specific nation or region -highest level of involvement in international business -organized by laws of home country

limited-liability company

a form of business ownership that combines the benefits of a corporation and a partnership while avoiding some of the restrictions and disadvantages of those forms of ownership

Equal Employment Opportunity Commission

a government agency with the power to investigate complaints of employment discrimination and the power to sue firms that practice it

code of ethics

a guide to acceptable and ethical behavior as defined by the organization

unlimited liability

a legal concept that holds a business owner personally responsible for all the debts of the business

proxy

a legal form listing issues to be decided at a stockholders' meeting and enabling stockholders to transfer their voting rights to some other individual or individuals

import quota

a limit on the amount of a particular good that may be imported into a country during a given period of time -limit can be set based on quantity or individual products from specific countries

conglomerate merger

a merger between firms in completely different industries e.g. Berkshire Hathaway (Financial Conglomerate) and Precision Castparts (Complex Metal Components)

trade deficit

a negative balance of trade -when a country imports more than it exports -having a continual deficit causes other nations to lose confidence in that nation's economy

nontariff barrier

a nontax measure imposed by a government to favor domestic over foreign suppliers INCLUDES: -import quota -embargo -foreign-exchange control -currency devaluation

pros of social responsibility

"____ of Social Responsibility" 1. Business is part of society, so it can't ignore social issues 2. Business has technical, financial, and managerial resources needed to tackle social issues 3. Business can create more stable environment for long-term profitability by helping resolve social issues 4. Socially responsible decision making can prevent increased government intervention

cons of social responsibility

"____ of Social Responsibility" 1. Business managers are responsible mainly to stockholders, so management must be concerned with providing return on owners' investments 2. Corporate time, money, and talent should be used to maximize profits not solve social issues 3. Social problems affect generally everyone so why should businesses be the ones to fix them? 4. Social issues are the responsibility of government officials since they are elected for that purpose

guidelines for making ethical decisions

1. Listen and learn (recognize problem) 2. Identify the ethical issues (how you and others are affected, understanding viewpoints and consequences) 3. Create and analyze options (decide on which option increases your self-respect, determine best long-term options for you and company) 4. Identify the best option from your POV (test option based on respect, understanding, caring, fairness, honesty, and openness) 5. Explain your decisions and resolve any differences (reconsider or exchange written proposals, seek neutral arbitration from trusted manager)

basic rights of consumers

1. RIGHT TO SAFETY (products are safe for intended use with thorough instructions) 2. RIGHT TO BE INFORMED (consumers have access to complete info about product before buying) 3. RIGHT TO CHOOSE (consumers have choice of products) 4. RIGHT TO BE HEARD (someone will listen and take action when customers complain) 5. RIGHT TO SERVICE (consumers entitled to convenience, courtesy, and responsiveness from sellers)

International Monetary Fund

An international bank that makes short-term loans to countries experiencing problems with their balance of trade

roles in encouraging ethics

GOVERNMENT'S ROLE: -enacting stringent regulations (Sarbanes-Oxley Act) TRADE ASSOCIATIONS' ROLE: -exerting pressure on members to stop engaging in questionable business practices -ensuring their codes do not contain provisions that may run afoul of antitrust laws INDIVIDUAL COMPANIES' ROLE: -having a code of ethics outlining uniform policies, standards, and punishments for violations -creating an environment in which employees recognize the importance of communication -modeling and encouraging ethical decision making -training employees to make ethical decisions -setting up anonymous hotlines to handle ethically questionable situations

factors affecting ethical behavior

INDIVIDUAL FACTORS: -how much an individual knows about an issue -moral values and central value related attitudes -types of personal goals one aspires to accomplish -manner in which personal goals are pursued SOCIAL FACTORS: -cultural norms -actions and decisions of co-workers -values and attitudes of significant others -Internet use OPPORTUNITY: -amount of freedom an organization affords an employee to behave unethically if he or she makes that choice -codes of ethics and other policies -degree of enforcement of company policies, procedures, and ethical codes

reasons against trade restrictions

REASONS (AGAINST) -higher prices for consumers -restriction of consumers' choices -misallocation of international resources -loss of jobs

reasons for trade restrictions

REASONS (FOR) -equalize nation's balance of payments -protect new or weak industries -protect national security -protect health of citizens -retaliate for another nation's trade restrictions -protect domestic jobs

partnerships

What type of ownership has these advantages and disadvantages? PROS: -easy start-up -availability of capital and credit -personal interest -combined business skills and knowledge -retention of profits -no special taxes CONS: -unlimited liability -management disagreements -lack of continuity -frozen investment (difficulty deciding which partners should buy shares of a retiring partner)

limited liability

a feature of corporate ownership that limits each owner's financial liability to the amount of money that he or she has paid for the corporation's stock

leveraged buyout

a financing method that uses borrowed money to pay for the company that is being taken over -buyer acquiring a company borrows money and uses assets of that company as collateral for a loan, which is repaid by profits

Great Depression

What historical event in 1929 (leading to Franklin D. Roosevelt's presidency) prompted public pressure to increase government involvement about the economy and worsening social conditions? -government began passing laws to correct monopolistic abuses of big businesses -increased people's awareness of social responsibility -both gov regulation and public awareness are external forces that increased social responsibility

caveat emptor

a Latin phrase meaning "let the buyer beware" -prior to 1930s people believed competition and the action of the marketplace would correct abuses over time -no consumer groups or agencies existed to hold sellers accountable

sole proprietorship

a business that is owned (and usually operated) by one person -account for 72% of the country's business firms, more popular than partnerships and corporations but have least amount of sales revenues

embargo

a complete halt to trading with a particular nation or in a particular product -often used as a political weapon

social audit

a comprehensive report of what an organization has done and is doing with regard to social issues that affect it -subject areas: human resources, community involvement, quality/safety of products, business practices, efforts to reduce pollution -prepared by social responsibility program director

articles of incorporation

a contract between the corporation and the state in which the state recognizes the formation of the artificial person that is the corporation -aka corporate charter includes: -firm's name and address -incorporators' names and addresses -purpose of corporation -max amount of stock and stock types issued -rights and privileges of stockholders -how long corporations exists for

licensing

a contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation PROS -good for small manufacturers to launch well-known domestic brand internationally - simple method to go into foreign market with no investment CONS -if you don't maintain licensor's product standards, your image will be damaged -does not give you foreign marketing experience/knowledge

alien corporation

a corporation chartered by a foreign government and conducting business in the United States

foreign corporation

a corporation in any state in which it does business except the one in which it is incorporated

domestic corporation

a corporation in the state in which it is incorporated

not-for-profit corporation

a corporation organized to provide a social, educational, religious, or other service rather than to earn a profit

S corporation

a corporation that is taxed as though it were a partnership -used to avoid double taxation, so taxes only come from personal income of stockholders criteria: 1. no more than 100 stockholders 2. stockholders must be individuals, estates, or certain trusts 3. does not have nonresident, alien shareholders 4. can only be one class of outstanding stock 5. firm must be domestic corporation eligible to file for this status 6. all stockholders must agree to to form this type of corporation

open corporation

a corporation whose stock can be bought and sold by any individual

closed corporation

a corporation whose stock is owned by relatively few people and is not sold to the general public

dividend

a distribution of earnings to the stockholders of a corporation

corporate citizenship

adopting a strategic approach to fulfilling economic, ethical, environmental, and social responsibilities

false advertising

advertising that is misleading in some important way, including the failure to reveal facts about possible results from using the advertised products e.g. "Red Bull gives you wings"

consumerism

all activities undertaken to protect the rights of consumers

international business

all business activities that involve exchanges across national boundaries

articles of partnership

an agreement listing and explaining the terms of the partnership INCLUDES: -who will make final decisions -what each partner's duties will be -the investment each partner will make -how much profit or loss each partner is responsible for -what happens if a partner wants to dissolve partnership

corporation

an artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts

Export-Import Bank of the United States

an independent agency of the U.S. government whose function is to assist in financing the exports of American firms -guarantees credit to overseas buyers of American goods and services, guarantees short-term financing for exports

export-import agent

an independent firm that arranges the sale of the products to foreign intermediaries for a commission or fee -alternative method of exporting

countertrade

an international barter transaction -occurs when there are major restrictions on converting domestic currency to foreign currency

General Agreement on Tariffs and Trade

an international organization of nations dedicated to reducing or eliminating tariffs and other barriers to world trade -includes Kennedy, Tokyo, and Uruguay Rounds

multilateral development bank

an internationally supported bank that provides loans to developing countries to help them grow -loans and grants help supply safe drinking water, build schools, increase agricultural productivity, etc

economic community

an organization of nations formed to promote the free movement of resources and products among its members and to create common economic policies

recycling

converting used materials into new products or components for new products in order to prevent their unnecessary disposal

bill of lading

document issued by a transport carrier to an exporter to prove that merchandise has been shipped -second step in exporting -sent over to exporter's bank with letter of credit in order to issue a draft

dumping

exportation of large quantities of a product at a price lower than that of the same product in the home market -lowers price of domestic products

bribes

gifts, favors, or payments offered with the intent of influencing an outcome (illegal for American businesspersons to do in US or abroad)

whistle-blowing

informing the press or government officials about unethical practices within one's organization -federal employees protected under Whistleblower Protection Act of 1989 -permitted to sue companies believed to have defrauded the government under False Claims Act

letter of credit

issued by a bank on request of an importer stating that the bank will pay an amount of money to a stated beneficiary -first step in exporting -forwarded to exporter's bank in order to approve shipment -usually part of lending agreement between importer and its bank

draft

issued by the exporter's bank, ordering the importer's bank to pay for the merchandise, thus guaranteeing payment once accepted by the importer's bank -third step in exporting -exporter's bank assumes risk of collecting funds from foreign bank

plagiarism

knowingly taking someone else's words, ideas, or other original material without acknowledging the source

comparative advantage

the ability to produce a specific product more efficiently than any other PRODUCT

World Trade Organization

powerful successor to GATT that incorporates trade in goods, services, and ideas

totally owned facilities

production and marketing facilities developed by a firm in one or more foreign nations -a direct investment with more control over operations -riskier than joint ventures -method 1: a firm builds/purchases facilities in foreign country to produce its own products and market them in that foreign country -method 2: purchases an existing firm in foreign country under arrangement allowing it to operate independently of that parent company

trading company

provides a link between buyers and sellers in different countries -buys products in one country at lowest price consistent with quality, then sells to buyers in another country

Sarbanes-Oxley Act of 2002

provides sweeping new legal protection for employees who report corporate misconduct -deals with corporate responsibility, conflicts of interest, and corporate accountability -protects whistle-blowers who report corporate misconduct

importing

purchasing raw materials or products in other nations and bringing them into one's own country -US's best partners for this are Canada and China

exporting

selling and shipping raw materials or products to other nations -US's best partners for this are Canada and Mexico

common stock

stock owned by individuals or firms who may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others -paid after preferred-stock owners

preferred stock

stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common-stock owners

corporate structure

structure by which share holders elect a board of directors who appoints officers that then hire employees

absolute advantage

the ability to produce a specific product more efficiently than any other NATION