Management Fundamentals: Economic Activity, Corporate Forms, and Stakeholder Relationships

Comprehensive vocabulary flashcards covering basic management concepts, economic activity, legal structures, corporate purpose, and stakeholder analysis based on Chapter 1 and Chapter 2 lecture notes.

Economic Good

A good or service that requires limited resources and creates value for someone.

Economic Activity

The use of scarce resources to produce, exchange, and distribute goods and services.

Management

The set of decisions through which people acquire, allocate, and integrate resources to create value.

Business Firm

A legal entity engaged in the production of economic goods and services that remains distinct from individual contributors.

Non-profit Organization

A private, mission-driven organization that produces goods or services without distributing profits or assets to owners.

State / Public Organization

A public authority that provides public services, regulates markets, protects citizens, and stabilizes economic activity.

Partnership

A business owned and managed by two or more partners that relies on trust and direct control, characterized by unlimited personal liability and shared control.

Corporation

A formal business entity featuring legal personality, limited liability, transferable shares, and centralized management.

Legal Personality

A feature of a corporation allowing it to independently own assets, sign contracts, acquire debts, and exist distinctly from its owners.

Limited Liability

A legal protection in corporations where shareholders risk only their invested capital rather than personal wealth.

Transferable Shares

A corporate feature allowing ownership stakes to move or be sold from one owner to another without disrupting firm operations.

Centralized Management

A corporate structure where professional managers run the firm's operations rather than all individual shareholders.

Business

Any organization that is engaged in making a product or providing a service for profit.

Society

Human beings belonging to a particular community, nation, or interest group and the social structures they collectively create.

Corporate Purpose

A company's fundamental reason for being and animating force for achieving long-term profitability by creating value for its stakeholders.

Stakeholder

Persons and groups that affect, or are affected by, an organization's decisions, policies, and operations.

Stake

An interest in or claim on a business enterprise.

Stockholder

An individual or organization that owns shares of a company's stock; also referred to as a shareholder.

Shareholder Theory of the Firm

An ownership view holding that the firm is the property of its owners, its sole purpose is to maximize profits, and managers owe obligations only to shareholders.

Stakeholder Theory of the Firm

A management framework holding that corporations exist to create multiple kinds of value for all groups that affect or are affected by the business.

Descriptive Argument

An argument for stakeholder theory stating that managers in practice direct their energies toward all stakeholders, not strictly owners.

Instrumental Argument

An argument for stakeholder theory stating that maintaining good stakeholder relationships directly serves as a source of value for the firm.

Normative Argument

A moral argument for stakeholder theory holding that anyone who makes a contribution or takes a risk for a corporation has a claim on its rewards.

Stakeholder Analysis

The process of identifying relevant stakeholders and evaluating both their specific interests and their power to assert those interests.

Market Stakeholders

Entities that engage in direct economic transactions with a business firm, such as employees, shareholders, customers, suppliers, retailers, and creditors.

Nonmarket Stakeholders

Groups that do not engage in direct economic transactions with a firm but affect or are affected by its actions, including communities, NGOs, governments, competitors, and the general public.

Voting Power

A source of stakeholder power belonging to shareholders who possess the legal right to vote on corporate governance issues.

Economic Power

Stakeholder power derived from commercial decisions, such as customers purchasing from competitors or suppliers withholding orders.

Legal Power

Stakeholder power held by government bodies through laws, regulations, permits, licenses, and judicial actions.

Informational Power

Stakeholder power stemming from access to valuable data, research, or public communication channels.

Valeant Pharmaceuticals

A specialty pharmaceutical company known for acquiring existing drugs, cutting R&D spending to 3% of sales, and imposing high price hikes before experiencing significant regulatory and public backlash.