Exam 1 - The Purpose of Business

Partnership

- A business in which two or more persons combine their assets and skills - High risk, but spread across a few people - most commonly seen in firms (medecine, law, etc.)

According to Freeman, what is the 'So What?' of the emerging story about business?

- Business is about purpose - Get the purpose right profits will follow - Business is about working together to create value together - Create value for stakeholders without making tradeoffs

Primary social stakeholders

- Shareholders and investors - Employees and managers - Customers - local communities - Suppliers and other business partners

What characterizes stakeholders?

- They are vital to the survival and success of the corporation - Their relationship with the corporation enables them to be benefited by the corporation's actions and operations - This relationship also makes it possible for the corporation to harm them or to violate their rights

What was the purpose of Business Roundtable's Statement on the purpose of a corporation?

- To move away from shareholder primacy - to include commitment to all stakeholders - to place shareholder interests on the same level as those of customers, employees, suppliers and communities

Sustainable business practices should produce results which are

- Viable - Equitable - Sustainable - Bearable

Sole Proprietorship

- a business owned and managed by a single individual - High personal risk/all assets exposed

Business Roundtable's Statement on the purpose of a corporation

- delivering value to our customers - investing in our employees - dealing fairly and ethically with our suppliers - supporting the communities in which we work - generating long-term value for shareholders

Key business leadership principles

- focus on creating and retaining customers - focus on continued innovation

The top 4 (of 17) SDG priorities for US businesses are

- gender equality - decent work & economic growth - responsible consumption and production - climate action

The broad types of stakeholders

- government - employees - community - owners - consumers

Secondary social stakeholders

- government regulators - civic institutions - social pressure groups - media and academic commentators - trade bodies - competitors

Concerns of CSR

- greenwashing - giving businesses too much power - dilutes business purpose

Stakeholder type 4

- high threat, high cooperation - "mixed blessing" - strategy: collaborate

Stakeholder type 3

- high threat, low cooperation - "non-supportive" - strategy: defend

Types of stakes

- interest - a right (legal and/or moral) - ownership

Companies often make supply chain decisions based on

- labor costs - labor regulations - environmental standards - tax laws

Stakeholder type 1

- low threat, high cooperation - "supportive" - strategy: involve

Stakeholder type 2

- low threat, low cooperation - "marginal" - strategy: monitor

How to create shared value

- redefine productivity in the value chain (improve resource efficiency and reduce cost of operations and its impact) - enable local cluster development (activate supply chain to enable growth and productivity) - recreate products and markets (grow revenue through new or improved products and services to address social issues)

Cases in support of CSR

- win customers/improve retention - enhance relationship with customers, suppliers, network - attract, retain, maintain satisfied workforce - save money on energy/operating costs - differentiate from competition - improve business reputation - provide access to investment, funding on opportunities

Edward Freeman's 3 flaws in the story of the purpose of business

1- People are not simple beings about self interest 2- Business and ethics are contradictions 3- Money is the purpose

5 steps of stakeholder management

1- Who are the firm's STAKEHOLDERS? 2- What are the stakeholders' STAKES? 3- What OPPORTUNITIES and CHALLENGES do stakeholders present? 4- What RESPONSIBILITIES does the firm have toward its stakeholders? 5- What STRATEGY or ACTIONS should the firm take to best address stakeholders?

components of CSR

1- economic responsibilities (keep the company thriving) 2- legal responsibilities (following the law) 3- ethical responsibilities (creating a fair atmosphere) 4- philanthropic responsibilities (i.e. donating_

What percentage of companies are impacted by SDGs?

100%

The SDG compass is

A guide to help companies measure and manage their contribution to SDG's

What does the "stake" in stakeholder mean?

A person who has interest, right or ownership position in something

What do secondary social stakeholders do?

Advocate for people

What is a stake?

An interest or a share in an undertaking

What is a stakeholder?

Any individual or group who can affect or is affected by the actions, decisions, policies, practices, or goals of the organization

Drucker believed in

Balancing a professional education with humanities/liberal arts

Why Businesses Exist?

Businesses exist because they are formed by entrepreneurs who seek to address an opportunity or problem in the market. Most businesses exist in order to earn a financial return for the owners/shareholders. While the potential for profit is a key motive for entrepreneurial activity and venture funding, passion and drive to make an impact in the world is usually what motivates the successful entrepreneurs. Peter Drucker's simpler term: To create a customer (aka creating a market)

Secondary nonsocial stakeholders

Environmental interest groups, animal welfare organizations

ESG

Environmental, Social, Governance

Friedman vs Freeman

Friedman: The only group that has a moral claim on the corporation is the people who own shares of the stock (The shareholders) Freeman: Many groups have a moral claim on the corporation because the corporation has the potential to harm or benefit them (The stakeholders)

Primary stakeholders

Have a direct stake in the organization and its success.

Secondary stakeholders

Have a public or special interest stake in the organization that is more indirect.

Why do governments around the world support limiting the liability of business people?

It supports entrepreneurship, risk-taking and innovation, which in turn fuels growth and wealth for society.

According to Drucker, which of the following is the single largest reason for the decline of existing organizations

Lack of innovation

What are the basic ingredients needed for a business?

Land, labor, capital, entrepreneurship, knowledge

According to Drucker, what are the two basic functions of business?

Marketing and innovation

Business Round table's recent affirmed

Maximizing social impact is the purpose of a corporation

According to Drucker, the one valid definition of business purpose is to create a customer. According to Drucker, which of the following best described what customers value?

Maximizing the utility that the product provides them with

Generating economic value by in a way that also produces value for society by addressing its challenges would be advocated by which thinker?

Michael Porter

"The only group that has a more claim on the corporation is the people who own shares of the stocks" can be best attributed to

Milton Friedman

What are platform businesses?

Multisided platforms (MSPs) are technologies, products or services that create value primarily by enabling direct interactions between two or more customers or participant group (i.e. ebay, grubhub, uber, etc.)

Profit motive

No apparent social activities beyond the maximization of shareholder wealth.

Governance structure of of corporations

Owners/stockholders ---> Board of directors --> officers --> managers --> employees

Marish Manwani (Unilever) advocated for a program that did what?

Provided soap for hand-washing

What is greenwashing?

Seeking to convey the image of CSR when it is not true

Creating Shared Value (CSV) / Sustainable Development Goals (SDGs)

Social activities are embedded and integrated within the rest of the activities of the business. Both are main priorities of the business.

Corporate Social Responsibility (CSR)

Social activities are mainly disconnected from the core business activities. Core business activities are the dominant priority.

What are the basic forms of business?

Sole proprietorship, partnership, corporation

SDG

Sustainable Development Goals

What attributes of stakeholders determine whether managers pay attention to them?

Urgency, legitimacy and power

Which is the first and most crucial question to be asked in defining the purpose and mission of a business?

Who is our customer?

Nonsocial stakeholders

animals, the environment and generations of people who haven't yet been born

CSR

corporate social responsibility

What responsibility does a firm have to stakeholders?

economic, legal, ethical, philanthropic

The big 3 (out of the 10) leadership principles at walmart are

exceed your customers expectation, control your expenses better than your competition, swim upstream

According to Drucker, which of the following is most responsible for the sacrifice of long-range wealth-producing capacity to short-term gains?

hostile takeovers

The emergence of management has converted this from a social ornament and luxury into the true capital of any economy

knowledge

two basic competitive strategies

lower cost, differentiation

MNC

multinational corporation

Primary nonsocial stakeholders

natural environment, future generations, nonhuman species

NGO

non-governmental organization

Social stakeholders

people and organizations involved in your business

Triple bottom line

people, planet, profit

According to Drucker, which of the following allowed low-wage countries to become efficient enough to compete with higher-wage countries?

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