Business’s Role & Responsibility in Society

These flashcards cover key concepts from the lecture on business's role and responsibility in society, focusing on materiality, shareholder vs. stakeholder capitalism, and the implications of negative externalities.

What are negative externalities?

Costs that result from an activity or transaction that affects an uninvolved party who did not choose to incur that cost.

What happens when negative externalities are present in the market?

Market prices do not account for broader societal impacts, leading to overproduction and consumption of goods detrimental to public welfare.

What is the Tragedy of the Commons?

A situation where individual users act independently according to their self-interest and deplete shared resources, leading to collective harm.

What impact does lack of regulation have on common resources?

Without effective regulatory mechanisms, users have little motivation to conserve resources for future generations.

What is the definition of shareholder capitalism according to Milton Friedman?

The only obligation of business is to maximize profits while engaging in free competition and leaving non-economic interests to the political process.

How does society expect more from companies like Nike and Facebook?

Despite legal definitions limiting their responsibility, society expects these companies to consider the impacts of their operations and take responsibility for stakeholder interests.

What is stakeholder capitalism?

An approach where managers assume responsibility to create value along social, ecological, and economic dimensions.

What are the Sustainable Development Goals (SDGs)?

A set of 17 global goals established by the UN to address global challenges including poverty, inequality, and climate change.

What do the Global Reporting Initiative (GRI) and its categories measure?

GRI provides a framework for companies to self-report on their sustainability practices, including various materiality categories relevant to industry.

What do empirical studies suggest about attending to stakeholder interests?

Failing to attend to stakeholder economic and non-economic interests can result in financial loss for firms.