1. Explain the relationship between business and society and the ways in which they are part of the interactive system.
A business is any organization that is engaged in making a product or providing a service for a profit. A society is human beings and the social structure they collectively create. Both business and society are highly interdependent. We borrow “General Systems Theory” from biology to explain this relationship between business and society, which was first introduced in the 1940s. The theory posits that organisms cannot be understood in isolation, even though they have clear boundaries, they can only be understood in relationship to their surroundings. Adapted to management theory means that business firms are embedded in a broader social environment with which they constantly interact. Business and society together, form an interactive social system. Each needs the other, and each influences the other. They are entwined so completely that any action taken by one will surely affect the other. Business is part of society, and society penetrates far and often into business decisions.
2. What is the purpose of the modern corporation?
In the ownership theory of the firm, the firm is seen as the property of its owners. The purpose of the firm is to maximize its long-term market value, that is, to make the most money it can for shareholders who own stock in the company. Managers and boards of directors are agents of shareholders and have no obligations to others, other than those directly specified by law. In this view, owners’ interests are paramount and take precedence over the interest of others. A contrasting view, called the stakeholder theory of the firm, argues that corporations serve a broad public purpose: to create value for society. All companies must have a profit for their owners. However, corporations create many other kinds of value as well, such as professional development for their employees and innovative new products for their customers. In this view, corporations have multiple obligations, and all stakeholders’ interests’ must be taken into account.
3. Define a stakeholder and who a corporation’s market and non-market stakeholders are.
A stakeholder refers to persons or groups that affect, or are affected by, an organization’s decisions, policies, and operations. A stake is an interest in, or claim, on a business enterprise. Businesses are embedded in networks that involve many groups with such a stake. Stakeholder groups can be divided into two categories: Market stakeholders, and Non market stakeholders. Market stakeholders are those who engage in economic transactions with the company as it carries out its primary purpose of providing society with goods and services. Non market stakeholders are people or groups who, although they do not engage in direct economic exchange with the firm, are affected by or can affect its actions.
4. Analyze the forces of change that continually reshape the business and society relationship.
The external environment of business is dynamic and ever changing. The purpose of the firm is not simply to make a profit, but to create value for all of its stakeholders- a successful business must meet both its economic and social objectives. Six dynamic forces powerfully shape the business and society relationship. These forces are: 1. Changing society expectations
2. Growing emphasis on ethical reasoning and actions
4. Evolving government regulations and business response
5. Dynamic natural environment
6. Explosion of new technology and innovation
5. Evaluate public issues and their significance to the modern corporation.
A public issue is any issue that is of mutual concern to an organization and one or more of its stakeholders. The stakeholder expectations are a mixture of people’s opinions, attitudes, and beliefs about what constitutes reasonable business behavior. Public issues is the...
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