BUS 100 notes 1 - Business and Society

Introduction to Business in Society

• Relevance of Business: Understanding business is crucial for anyone involved in starting or working in the business world.

• Stakeholder Network: Businesses operate within a stakeholder network including customers, employees, and investors. The demands from these stakeholders influence business practices and societal expectations.

• Business Roundtable Statement (August 2019): A shift in corporate purpose from focusing solely on shareholders to addressing the interests of all stakeholders, including customers, employees, suppliers, and communities.

Societal Expectations of Business

• Business Contributions: Businesses have historically created wealth, reduced poverty, and generated opportunities.

• Growing Expectations: There is an evolving expectation for businesses to tackle social issues such as income inequality, product safety, climate change, human rights, and diversity.

• Engagement with Communities: Business leaders are increasingly focusing on social responsibility and community engagement.

The Debate on Business Responsibility

• Historical Context: A perceived lack of corporate accountability, exacerbated by scandals leading to the 2008 financial crisis, sparked debates about the role of business in society.

• Shareholder Theory: Dominant narrative until recently focused on the economic and legal responsibilities of business to maximize long-term market value for shareholders.

  • Example: Michael Pearson of Valiant Pharmaceuticals emphasized shareholder primacy in a controversial drug price increase.

• Stakeholder Theory: Contrasts with shareholder theory, advocating for creating value for the wider public. Example quote from George W. Merck highlighting the importance of serving people, not just profits.

Economic Theories and Key Contributors

• Milton Friedman:

  • Advocated shareholder primacy for public companies for 50 years.

  • Promoted the idea that the primary social responsibility of business is to increase profits, advising against government intervention in the economy.

• Keynesian Economics:

  • Proposed by John Maynard Keynes, who believed in short-term government intervention during economic downturns to protect capitalism.

  • Accurately criticized the assumptions of neoclassical economics regarding market self-regulation.

  • Inspired FDR's New Deal to address unemployment and prevent depression.

Adam Smith and Classical Economics

• Adam Smith: Acknowledged as the father of economics; authored The Wealth of Nations and coined the term "invisible hand" to describe self-regulating markets.

  • Emphasized mutual benefits and the importance of non-ruthless self-interest for societal good.

  • Theory of Moral Sentiments: Discussed the moral imperative to contribute to the common good, contrasting with Friedman's view.

Evolution of Economic Thought

• No Objective Truth: Economic theories must evolve with societal changes and reflect real-world struggles, particularly in political contexts.

• Impact of Current Events: The coronavirus crisis illustrates how economic policy can change dramatically in response to global challenges.

• Future Exploration: Upcoming lectures will delve deeper into stakeholders and their roles in the business and society connection.