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
