GMU BUS 100 MIDTERM

Ownership Theory

the firm is property of the

owners; purpose is to maximize market value in

the long term and make money for owners

Stakeholder Theory

corporation serves a higher

purpose- to provide value for society

3 Arguments for Stakeholder Theory

1. Descriptive: stakeholder view is most realistic

2. Instrumental: stakeholder management is more efficient

3. Normative: stakeholder management is the right thing to do

Market Stakeholders

Those who engage economically with the firm such as marketing, advertising, and sales

Non-market Stakeholders

Those who DO NOT engage economically with the firm such as political and social forces that may hold influence over them

Internal Stakeholders

Employed by the firm

External Stakeholders

NOT employed by the firm

Internal - Market Stakeholders

- Employees

- Managers

- Executives

Internal - Non-Market Stakeholders

None

External - Market Stakeholders

- Stockholders

- Employees

- Customers

- Suppliers

External - Non-Market Stakeholders

- Government

- Public Communities

- Media

- Competition

What does Stakeholder Power mean?

Ability to use resources to

make an event happen or see a desired outcome

5 Stakeholder Powers

1. Voting

2. Economic

3. Political

4. Legal

5. Informational

Stakeholder Salience

Combination of Stakeholder:

Power - power to influence the firm

Legitimacy - appropriateness

as viewed by society

Urgency - timeliness of

need or claim

Stakeholder Coalitions

A group of stakeholders working together to support policies they believe in

Focal Organization

Firm from whose perspective the analysis is conducted

4 Key Questions of Stakeholder Analysis

1. Who are the relevant stakeholders?

2. What are the interest of each stakeholder?

3. What is the power of each stakeholder?

4. How are coalitions likely to form?

Public Issues

Performance-Expectations Gap

Gap between how the firm performs versus what the stakeholders expect

Businesses struggle with Stakeholder Management due to?

Performance-Expectations Gap:

- Unrealistic/misaligned stakeholder expectations

- Poor operational performance

- Miscommunication that leads to the perception of

a mismatch between these two factors

Environmental Analysis

Gathering information

about external factors to understand

environment

Environmental Intelligence

Information gathered from environmental analysis

8 Strategic Radar Screens

1. Customer

2. Social

3. Competitor

4. Political

5. Economic

6. Legal

7. Technological

8. Geophysical

Competitive Analysis

Analysis of competitive landscape

Stakeholder Materiality

Describes prioritization of stakeholders relevance and

their issues with respect to the company

Priority Matrix

Graphic representation of importance of issues to both stakeholders and the firm itself

Issue Management

1. Identify Issue

2. Analyze Issue

3. Generate Options

4. Take Action

5. Evaluate Results

6. Adjust actions (Only if above not successful)

3 Qualities needed to navigate public issues

1. Contextual understanding

2. Ability to deal with complexity

3. Connectedness - ability to deal with external

stakeholders

Stakeholder Engagement

build ongoing relationships- includes dialogue and networking

4 Stages of Engagement

1. Inactive (ignore)

2. Reactive (defensive),

3. Proactive (anticipate)

4. Interactive (ongoing relationship)

The role of big business and its responsible use of corporate power in a democratic society.

Corporate power is what the corporations wield and it refers to the capability of corporations to influence government, the economy, and society.

Iron Law of Responsibility

Those who do not use power in ways that society deems responsibly will tend to lose it.

Ex: Spiderman: "With great power comes great responsibility"

Corporate Social Responsibility (CSR)

The 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

Enlightened Self Interest

The view that holds it is in a business' self interest in the long run to provide true value to its stakeholders and behave responsible as a global corporate citizen.

Long term benefits of Enlightened Interest

Short term benefits of Enlightened Interest

Arguments FOR CSR

- Balances corporate power with responsibility

- Discourages gov't regulation

- Promotes long term profit for business

- Improves stakeholder relationships

- Enhances business reputation

Arguments AGAINST CSR

- Lowers economic efficiency and profits

- Imposes unequal costs among competitors

- Imposes hidden costs passed on to stakeholders

- Requires skills business may lack

- Places responsibility on business rather than individuals

5 Stages of Global Corporate Citizenship

5. Transforming - visionary/ahead of pack (social change)

4. Integrated - champion/ in front of it (value proposition)

3. Innovative - steward/ on top of it (business case)

2. Engaged - supporter/in the loop (license to operate)

1. Elementary - out of touch (legal compliance)

Social Enterprise

A business that adopts social benefit as its core mission and uses its resources to improve human and environmental well-being

Source of people's ethical beliefs

- Authority

- Culture/Religion

- Morality

- Intution

- Reason

Source of business ethics

Application of general ethical ideas to business behavior

Why is business ethics important?

- Enhances business performance

- Comply with the law

- Prevent or minimize harm

- Meet demands of business stakeholders

- Promote personal morality

4 Types of ethical issues and conflicts

1. Personal Self Interest - "ethical egoist"

2. Competitive Pressure on Profit - "bottom line"

3. Conflicts of Interest - "me vs. we"

4. Cultural Differences - "It's legal here..."

Sarbanes-Oxley Act

Legal requirement that seeks to ensure that firms maintain high ethical standards in how they conduct and monitor business operations.

Business ethics and the US. sentencing guidelines

Come into play when an employee of a business has been found guilty of criminal wrongdoing and the firm is facing sentencing for the criminal act.

The benefits of ethical behavior in business

- Build customer loyalty

- Retain good employees

- Positive work environment

- Avoid legal problems

4 Methods of ethical reasoning in business

1 Virtues - values and character

2. Utilitarian - comparing benefits and costs

3. Rights - respecting entitlements

4. Justice - distributing fair shares

Corporate Ethical Performance

A company doing things that are ethically just

General principles of various codes of ethics for different professions; general social benefit of ethical practice by professionals.

- Integrity

- Objectivity

- Competence

- Fairness

- Confidentiality

- Professionalism

- Diligence.

Corporate Ethical Culture

A blend of ideas, customs, traditional practices, company values, and shared meanings that help define normal behavior for everyone who works in a company

Corporate Ethical Climate

The unspoken understanding among employees of what is and is not acceptable behavior. Multiple climates (or subclimates) can exist within one organization

The role of leadership in maintaining corporate ethical integrity

Setting the standard for ethics in the business and leading by example.

Employee Rights

- Collect and organize

- Safe work place (OSHA)

- Secure job

- Privacy

- Blow the whistle

- Equal employment opportunity

- To be treated with respect for fundamental human rights

- Right to fair and decent wages

Conflict of Interest

A situation in which a person or organization is involved in multiple interests, financial interest, or otherwise, one of which could possibly corrupt the motivation of the individual or organization.

To what extent do employees have a legally protected right to privacy in a private workplace?

an employee of a governmental employer may have a constitutionally protected reasonable expectation of privacy arising out of the Fourth Amendment. The Fourth Amendment doesn't apply to a private employer's property, on the other hand, when it comes to the relationship between employer and employee. However, there are still common law bases for a privacy interest, such as the common law claim for intrusion on seclusion.

To what extent are workers' human rights violated when businesses monitor employee communications, police romance in the office, test for drugs or alcohol, or subject employees to honesty tests?

The company has the right to do these things, but within reason.

Doctrine of "employment at will"?

A common law doctrine that holds that any contract of employment without a defined end date for the employment relationship may be terminated by either the employer or employee for any reason.

What is the role of "blowing-the-whistle"?

When society's interests override those of the individual business, employee may feel the need to speak out or "blow the whistle"

Do employees really have "free speech" at work?

U.S. Constitution protects free speech; however, does not specifically protect freedom of expression in the workplace

Employees are not generally allowed to speak out against their employers, due to legitimate interests of the business

Ethical challenges for social networking sites

Spam and phishing

How does technological change benefit society?

- Helps us communicate with others around the world

- Provides new opportunites for businesses to promote their activities

- Improves our quality of life

Phases in the development of Technology

1. Nomadic-agrarian - harvesting

2. Agrarian - planting and harvesting

3. Industrial - building material goods

4. Service - providing services

5. Information - thinking and designing

6. Semantic - relevance and context

How do hackers and others invade private computer systems?

- Phishing scams

- Trojan horse

- Drive-by downloads Bypassing passwords

- Using open wifi

Chief Information Officer

Manager who has been entrusted with responsibility to manage the organization's technology with its many privacy and security issues

Hacktivists

Individual or group that invades a secure computer network and releases the information stored there to embarrass or gain leverage against the organization

Intellectual Property

Ideas, concepts, and other symbolic creations of the human mind

Protection of Intellectual Property

- Copyright

- Patent

- Trademark

- Laws

Role of Stockholders

They invest in a business through purchasing stock thus also becoming partial owners of the business

Rights of Stockholders

- To receive dividends, if declared

- To vote on

'Members of board of directors

'Major mergers and acquisitions

'Charter and bylaw changes

'Proposals by stockholders

- To receive annual reports on the company's financial condition

- To bring shareholder suits against the company and officers

- To sell their own shares of stock to others

Stockholder Activism

A person who attempts to use his or her rights as a shareholder of a publicly-traded corporation to bring about social change. Some of the issues most often addressed by shareholder activists are related to the environment, investments in politically sensitive parts of the world and workers' rights.

Argument FOR limits on executive pay

- Inflated executive pay hurts the ability of U.S. firms to compete with foreign rivals

- Executive pay doesn't have an impact

Arguments AGAINST limits on executive pay

- High salary provides an incentive for innovation and risk taking

- Shortage in labor (Not anyone has the skills and experience to command business)

Securities and Exchange Commission (SEC) concerns

- Information transparency

- Information disclosure

- Insider trading

Roles and responsibilities of the Board of Directors

It is the role of the board of directors to hire the CEO or general manager of the business and assess the overall direction and strategy of the business

2 Ways stockholders make a profit

1) Appreciation - stock value rises

2) Dividends - business earnings paid to owners (not all companies pay dividends)

Principles of Good Goverance

- Independent from the firm itself

- Open elections

- Non-executive lead director/chairman (chairman is NOT the CEO)

- Align compensation with performance

- Evaluate performance regularly

Types of gov't regulation

- Advertising

- Employment and labor

- Environmental

- Privacy

- Health and safety

* Economic regulation

* Antitrust

* Social

Justifications for gov't regulations on business

- Avoid market failure

- Prevent negative externalities

- Prevent natural monopolies

- Prevent ethical arguments