How Can You Prepare Yourself for A Changing Workplace Discussion Paper

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Today, disruption and change are constants.

Whether it’s a shift in organisational structure, the creation and adoption of new technology, an increased pace of work or developing new strategy after a project set-back, change in the workplace takes on many forms.

As noted by Kerryn Fewster, the founder and director of Change2020 (Links to an external site.)Links to an external site., a collective of change consultants who help organisations develop sustainable strategy and clarity of vision in times of change, resilience is critical for today’s leaders who play a vital role in building and fostering resilience in their teams; “Leaders today must not only build new and different capabilities, but actively manage their capacity for exercising leadership. Developing resilience to handle complexity is not a luxury, but a strategic advantage for both individuals and organisations.”

Managing employees through a period of change takes art, intuition, skill, strong listening, and effective communication. When done correctly, change management can help a leader gain respect and loyalty. Done poorly, it can have adverse effects on the organization and its people.

For this week's memo, please research and discuss how the workplace is changing and what you can do to better prepare yourself for it...both as a manager and employee/individual.

As a primer please read the following. You may also you additional sources for your memo.

https://www.ajoconnor.com/sites/default/files/images/WorkplaceoftheFuture-10ForcesShaping.pdf (Links to an external site.)Links to an external site.

Our nation’s workforce continues to evolve in a workplace transformed by new ideas, products, processes and services—the offspring of our highly productive innovation ecosystem. At the same time, the workforce is affected by increasing globalization and major demographic shifts—including an aging Baby Boomer generation and growing minority and immigrant populations. These changes have created a more competitive economy that affects the substance and conditions of the work we will do across occupations, the participation of underserved groups in the economy, and the ways people prepare for careers.

By 2020, Generation Y or ‘Millennials’ (those born in the 1980s until mid-1990s) and Generation Z (those born from 1995 onwards) will comprise more than half of the workforce. They are digital natives, collaborative, adept at multitasking and their attitudes and expectations will have a major impact on the work environment as they are striving for greater autonomy and flexibility. They expect a genuinely agile work ecosystem, with good internet access, where they can work from basically anywhere – home, client’s office, co-working space, even from a holiday resort. This drive for flexibility will contribute to shifting the status of employees into more and more freelancing and it is expected that 40% of workers in the US will be freelancers by 2020. The movement towards freelancing is also linked with a strong desire to be able to balance professional and private lives (95% of Millennials according to a PwC survey).

The aspiration for personal development is a strong movement within these new generations. Surveys show that a lot of young employees today are motivated to leave their companies, because they feel they do not have enough opportunities to develop their expertise and soft skills within their companies. But it is not only about training. Millennials expect exciting personalized career plans with new fields to explore on a regular basis – much more often than the previous generations. Interestingly, 60% of Millennials surveyed by Deloitte think that 7 months of work means they are ‘loyal’.

In addition to annual progression, Millennials and Generation Z expect regular feedback, even on weekly basis. In order to make this possible, companies have to revise their annual appraisal interview frequency, with it now taking place every quarter or as an ongoing process. Not only do they want regular feedback, but 80% of those surveyed said they want to give performance appraisals to their manager. Also, as digital natives and being social media savvy, they strive for greater collaboration. The same study found that 80% of them said that their ‘team mates’ are the most important people at work. This will have a direct impact on hierarchy. Young, dynamic and agile start-up companies already have horizontal structures in place today and this is likely to be emphasized in future.

With the leaning towards flatter organizations, flexibility and autonomy, entrepreneurship has emerged as a desired career path for Millennials and those of the Generation Z. This is a huge trend not only in the developed but also in the developing world. In a Universum survey of 16,000 Millennials from 42 countries, 70% of respondents viewed themselves as entrepreneurs. In France, a study conducted by OpinionWay and published in February 2017 states that 60% of 18-29 years olds are ready to create their own company. As a result, training, mentorship, coaching and other ‘safety nets’ will be important to give them the tools for success.

There is also a clear shift towards meaningful work. Employees want to feel that they are doing something useful, that their work serves a clear purpose and that what they do produces visible results. For employee satisfaction, companies will have to link this with greater transparency, increased communication and sharing a clear vision - demanding increased leadership skills.

Finally, a strong employer brand is becoming more and more important. Social media already plays an important part in deciding whether to apply for a job or not. The Best Places to Work rankings are likely to increase in importance and workplace reviews will flourish. Glassdoor is a great example of the power shift that is slowly taking place in the digital landscape. This database of anonymously posted information reveals employer ratings, management practices, salaries and job interviews. Highly rated companies offer a great salary, benefits, mentorship, career advancement opportunities, good work-life balance and a culture that promotes employee engagement. LinkedIn has also launched a feature tackling salary transparency by showing how salaries for a given role vary by company, education level and geographical location.

Global comparisons will naturally lead to global talent pools. Talented people will become ‘global nomads’; they are likely to change country, continent and culture with remarkable ease. This will also be expected; 71% of the millennial generation says that they expect an overseas assignment during their career. From the employer perspective, fiercer global competition puts pressure on companies to find the right talent, wherever he/she may be located and companies will turn the world upside down for the right talent. That is, if they still decide to hire. Companies will increasingly connect to skills and resources on demand rather than owning them as a key part of their talent strategy. They will reach and use talent through online crowd sourcing and freelance platforms. This ‘just-in-time labor’ will help them remain competitive.

This will contribute to a more volatile and demanding workforce, with which future managers and executives will have to juggle. Because of the pressure from younger generations, companies will be forced to adapt. They will have no choice; otherwise they will lack the talent they need to win the battle for survival. As the degree of digitalization increases, the workplace will become even more agile. It will be common to manage virtual teams, connecting to work anytime, from anywhere and on any device. This will create new challenges for managers who will have to manage and keep a widely distributed workforce motivated, productive and satisfied. Organizational cultures will be harder to maintain. HR processes, compensation and training models will need revamping.

Different theories exist in terms of which trends will prevail in future, but I believe the world will be divided in two: fragmented and branded. Half of the global companies will be small, agile, relying heavily on suppliers and a contingent global workforce (the ‘New Economy’) working in a spirit of collaboration. The other half will be the Corporate world, where big companies with strong brands invest heavily on talent management, training and employee satisfaction to counterbalance the pressure and the hectic pace of work. In both cases, global leaders will need to be able to operate in a world with multiple stakeholders, different values and diverse attitudes, all in an increasingly volatile economic context. In addition, they will have to be comfortable with data and analytics, harness new technologies and drive innovation and change management. This type of leader will also need to be able to develop and nurture high potentials and future leaders with the right skills and adaptability to match the organizational needs in the ever-changing work environment. Clearly, the global managers of tomorrow will need to review and reinforce their skill set!

According to annual Global CEO Survey from PwC, the following skills are needed for tomorrow’s leaders to succeed:

  1. An ability to see around corners- Identify trends early and stay ahead of the fast-moving competitive landscape.
  2. Tolerance for ambiguity– Tomorrow’s leaders need a constant readiness for changing business dynamics and an ability to work towards unclear goals and outcomes.
  3. Agility in decision-making– Be flexible-minded and a curious life-long learner who is open to testing and measuring new ways of doing things.
  4. Adaptability in execution– Drive nearly constant renewal inside their organization.
  5. At ease with technology– Embrace technology both as an accelerator of change, and as the key tool to remain agile, to adapt to changing circumstances, and to stay close to consumers and influencers.
  6. Surrounded by a great team– Attract great people and cultivate a positive culture with a happy workforce, centered around trust with staff, to compete in the marketplace.
  7. Humility–Maintain a modest opinion of your own importance and be open to listening and learning from all that’s happening in the global environment.

There are a great number of other hard and soft skills required from a global leader, such as financial analysis and budgeting, data and analytics, risk management and control, contract negotiation, customer service metrics and new business development. Further on the softer side we can add handling diversity, conflict management, ability to solve problems, team spirit building, communication, persuasion and delegation skills, diplomacy, leading by example, bird’s eye view, change management, public speaking...

How can the manager of tomorrow learn all these skills?

The motto of HEC Paris is ‘The more you know, the more you dare’. Our Executive MBA program is providing talented and selected professionals with knowledge, skills and an outstanding understanding of the current business world, preparing them for unlimited career opportunities in complex international environments.

As the work landscape continues to evolve, one thought stands out for me as I think about the year ahead: In the workplace, the voice of the individual continues to gain strength—perhaps because of our increasingly intertwined work and personal lives, and the climate we operate in today.

People are a company’s most valuable resource, and in this tight talent market, there is even more responsibility on organizations to create a culture where workers can have meaningful experiences and bring their best selves to work. Business leaders everywhere, particularly CHROs, are recognizing why this is so important: it’s better for all employees and it’s better for business.

A positive employee experience can impact the level of trust workers have and, ultimately, improve performance and retention. This, in turn, impacts the customer experience and helps increase a company’s bottom line. Focusing on a few areas in particular, including diversity, digitalization, and an employee-first culture, can help meet workers where they are as their needs continue to shift.

Diversity Means Difference

We’ve been focused on diversity since our inception at Workday, but as social issues continue to take center stage in the world, we’ve been reexamining and broadening what the term means to us. Diversity, in our view, really means difference.

Our chief diversity officer, Carin Taylor (Links to an external site.)Links to an external site., explains that diversity is a blend of unique attributes in each of us, including our differences in background, perspective, race, gender, sexual orientation, physical ability, nationality, location, function, and more. We strive to look at diversity with a wider lens, and to understand that the diversity issues that we grapple with in the San Francisco Bay Area might not be the same as the issues in other parts of the globe.

To support our goals with action, we took our Belonging and Diversity program to the next level with VIBE, an acronym for valuing inclusion, belonging, and equity for all. This year, we’re dedicating a week in June to VIBE—five days of global awareness across the company to continue our journey of creating a culture of belonging and inclusion.

We’re continuing to leverage data from our weekly global employee surveys to understand employee sentiment, and this year we’re placing an increased focus on examining diversity trends. We are analyzing the data to find out if our employees are having a similar experience at our company across gender, race, age, geography, years at Workday, and so on. This enables us to think about diversity in new ways, and we’ll discover where we’re living up to our expectations and where we can improve.

The Digitalization Imperative

Shifts in the nature of work, new technologies, and the needs of new generations are driving the digitalization of HR, which organizations must embrace to create modern people practices. These shifts often bring uncertainty, but this is an incredibly exciting time to be in HR. We can help guide companies as they navigate these changes, helping them determine what to automate so that they can elevate the many tasks that are uniquely human, and free up time for teams to tackle this higher-order work, such as figuring out the right approach to a particular strategy.

Bringing a consumer-like experience to enterprise software is another aspect of digitalization that is at the heart of our DNA at Workday. In our personal lives, many of us use Alexa, Google, and Siri—technologies that are fun, innovative, and easy. I expect digital tools in my work life to have the same attributes, and I know workers feel the same way. We focus on being mobile first, and we want employees’ digital experiences to echo their consumer experiences.

We are analyzing the data to find out if our employees are having a similar experience at our company across gender, race, age, geography, years at Workday, and so on.

This year we offered open enrollment for Workday benefits on mobile phones. If a team member didn’t complete the process on one device, they could finish up on another. We also bring a consumer-like approach to learning (Links to an external site.)Links to an external site., with interactive media and peer-generated content that is available on-demand and all in one place, with features similar to those we see in our consumer lives, including the ability to recommend videos, create a playlist, and bookmark links.

People Come First

According to a study (Links to an external site.)Links to an external site. from Accenture, “The parallels between a superior customer experience and employee experience are striking. An optimized customer experience generates loyalty and additional sales. A stellar employee experience attracts talent and boosts workforce engagement, productivity, and retention. This, in turn, directly improves a business’ financial performance.” More simply, happy employees lead to happy customers, so at Workday, employees must come first.

In a blog post last fall, I highlighted (Links to an external site.)Links to an external site. a number of programs and activities that help us create meaningful employee experiences, from encouraging an agile career to supporting wellbeing. Employees and individual contributors are the ones on the frontlines doing the work, so they deserve to have great leaders; we invest in our people leaders with a variety of training sessions throughout the year. I particularly enjoy our two-day People Leadership Summit. We fly our new managers from around the world to San Francisco, California, where our senior leadership team talks about culture and what it means to be a people leader at Workday. We wouldn’t expect our customer service team to know how to handle customer challenges without training; so similarly, annual training opportunities are investments in our people, who deserve to have a strong, steady hand supporting them and helping them develop their skills.

The Happiness Quotient

There’s another benefit to happy employees: Happiness is important for productivity. For years research has told us (Links to an external site.)Links to an external site. that when our teams are happier and more fulfilled, they are more productive. And just as customer feedback helps us inform our focus for new product features and improvements, our employee feedback helps us think about how we structure people programs and experiences that will contribute to positive employee sentiment.

Employees and customer service are two of our core values (Links to an external site.)Links to an external site. at Workday, and I’m humbled that Fortune recently ranked us #4 on its 100 Best Companies to Work For list (Links to an external site.)Links to an external site., #2 on its 2019 50 Best Workplaces in Technology list (Links to an external site.)Links to an external site., and that we currently have a customer satisfaction rating of 98 percent (Links to an external site.)Links to an external site.. There is a strong connection between these two areas, and when we apply the same principles to both experiences, we see positive outcomes.

But most importantly, like much of what we do here at Workday, creating meaningful employee experiences isn’t just the right thing to do because of business value; it’s the right thing to do because, well, it’s simply the right thing to do. As we continue to innovate ethically, make people’s working lives easier and more productive, and put employees first, I look forward to sharing more about our journey.

Types Of Changes

I want to start by defining exactly what “changes” I’m referring to. There are dozens of possible changes to cover here, but they tend to fall into one of three main categories:

Factors For Acceleration

So why are we seeing such acceleration with these changes?

  • Communication possibilities. The incredibly fast rate of workplace changes is in part due to better and more efficient communication methods. Thanks to the connective potential of the internet, workers can communicate across vast distances with email, instant messages, texts, and even streaming video. This technology is making it possible to find perfect job candidates, even if they live across the country, and is forcing businesses to move at a faster pace.
  • International diversity. With more countries emerging as major powers, increasingly positive international relationships, and more potential for international communication, globalization is having a substantial effect (Links to an external site.)Links to an external site. on this acceleration. Globalization leads to greater levels of workplace diversity, and a more diverse range of potential business partners, both of which open the doors to faster, more impactful cultural changes. Globalization also gives workplaces access to more resources, which in turn increases their potential for driving change.
  • Automation and machine learning. Automation has been gradually taking over jobs for decades, but the advent of machine learning is opening the door to exponential technological growth (Links to an external site.)Links to an external site.. Our algorithms and tech products are getting so advanced they can improve themselves, which means human jobs will soon start getting replaced at a faster and faster rate.
  • Pace expectations. It’s also worth noting that the mere fact that business owners expect fast culture change is leading to faster and faster culture changes. Managers anticipate an environment that demands fast, reactive changes, so they push harder to make changes of their own.

Actions To Take In Your Career

Understanding that workplace changes are accelerating is one thing, but what can you actively do to protect yourself from this acceleration?

  • Keep an eye on the news. Don’t let a new change catch you off-guard; stay plugged in to multiple news outlets, including those specific to your industry. The better informed you are, the more you can prepare for coming changes, and the further in advance you can plan.
  • Be open to new opportunities. When changes begin to manifest, don’t shy away from them; be open to changes in your career, including cultural changes and new responsibilities. The most successful employees will be the ones willing to change with the times.
  • Make yourself irreplaceable. Acquire new skills to set yourself apart from your contemporaries, and work hard to build your reputation. You don’t want to be the first person on the chopping block when a sweeping change affects your department.

There isn’t much you can do to slow the rate of acceleration in today’s workplaces, nor would you want to slow it if you could; change is, for the most part, a good thing, even when it’s intimidating or ill-timed. If you’re new to the workforce, this is your chance to adapt yourself to a new environment, and if you’re years into your career, this is your chance to take advantage of those coming changes for your own benefit.

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The thirteenth edition continues a long effort to tell the story of how forces in business, government, and society shape our world. In addition, an emphasis on management issues and processes allows students to apply the principles they learn to real-world situations. 13E As always, a stream of events dictated the need for extensive revision. Accordingly, the authors have updated the chapters to include new ideas, events, personalities, and publications, while continuing the work of building insight into basic underlying principles, institutions, and forces. Business, Government, and Society A Managerial Perspective Text and Cases Steiner Steiner To learn more, visit this book’s Online Learning Center at www.mhhe.com/steiner13e ISBN 978-0-07-811267-6 MHID 0-07-811267-2 90000 EAN 9 780078 112676 www.mhhe.com John F. Steiner George A. Steiner MD DALIM #1142568 5/3/11 CYAN MAG YELO BLK Business, Government, and Society Text and Cases An expanded discussion of white collar crime and criminal prosecution of both managers and corporations in Chapter 7, “Business Ethics.” A new section on the neural basis of ethical decisions in Chapter 8, “Making Ethical Decisions in Business.” An expanded discussion of lobbying ethics as well as a revised discussion of corporate money in elections and recent changes in election law in Chapter 9, “Business in Politics.” A new fifth wave, “terrorism and financial crisis,” has been added to the four historical waves of regulatory growth in Chapter 10, “Regulating Business.” A new discussion of globalization, including the rise of the modern trading system and coverage of various trade organizations, such as the IMF and World Bank, in Chapter 12, “Globalization, Trade, and Corruption.” New sections in Chapter 15, “Consumerism,” including Thoreau’s rejection of materialism, arguments defending consumerism, and a description of the consumer protection activities of the Federal Trade Commission. Added emphasis on the nature and significance of diversity management programs in corporations in Chapter 17, “Civil Rights, Women, and Diversity.” New coverage of the story of the Lehman Brothers bankruptcy and of the new governance reforms in the wake of the recent financial crisis in Chapter 18, “Corporate Governance.” A Managerial Perspective Highlights of the Thirteenth Edition include: Thirteenth Edition ste12672_fm_i-xvi.indd Page i 5/2/11 9:51 PM user-f497 /Volumes/DATA-DISK/Tempwork/2011/April 2011/29:04:11/MHDQ283:Hirt:202 Business, Government, and Society A Managerial Perspective, Text and Cases Thirteenth Edition John F. Steiner Professor of Management, Emeritus California State University, Los Angeles George A. Steiner Harry and Elsa Kunin Professor of Business and Society and Professor of Management, Emeritus, UCLA ste12672_fm_i-xvi.indd Page ii 5/2/11 9:51 PM user-f497 /Volumes/DATA-DISK/Tempwork/2011/April 2011/29:04:11/MHDQ283:Hirt:202 BUSINESS, GOVERNMENT, AND SOCIETY: A MANAGERIAL PERSPECTIVE, TEXT AND CASES Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020. Copyright © 2012, 2009, 2006, 2003, 2000, 1997, 1994, 1991, 1988, 1985, 1980 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 DOC/DOC 1 0 9 8 7 6 5 4 3 2 1 ISBN 978-0-07-811267-6 MHID 0-07-811267-2 Vice president and editor-in-chief: Brent Gordon Editorial director: Paul Ducham Executive director of development: Ann Torbert Managing development editor: Laura Hurst Spell Editorial coordinator: Jonathan Thornton Vice president and director of marketing: Robin J. Zwettler Marketing director: Amee Mosley Market development specialist: Jaime Halteman Vice president of editing, design, and production: Sesha Bolisetty Lead project manager: Christine A. Vaughan Buyer II: Debra R. Sylvester Design coordinator: Joanne Mennemeier Senior photo research coordinator: Keri Johnson Media project manager: Suresh Babu, Hurix Systems Pvt. Ltd. Cover images: © Ingram Publishing; © Skip Nall/Getty Images; © Royalty-Free/CORBIS; © Hisham F. Ibrahim/Getty Images; © Getty Images/Digital Vision; © U.S. Navy photo by Mass Communication Specialist 1st Class Demetrius Kennon Typeface: 10/12 Palatino Compositor: Aptara®, Inc. Printer: R. R. Donnelley Library of Congress Cataloging-in-Publication Data Steiner, John F. Business, government, and society : a managerial perspective: text and cases / John F. Steiner, George A. Steiner.—13th ed. p. cm. Includes index. ISBN-13: 978-0-07-811267-6 (alk. paper) ISBN-10: 0-07-811267-2 (alk. paper) 1. Industries—Social aspects—United States. 2. Industrial policy—United States. 3. Social responsibility of business—United States. I. Steiner, George Albert, 1912- II. Title. HD60.5.U5S8 2012 658.4—dc22 2011007905 www.mhhe.com ste12672_fm_i-xvi.indd Page iii 5/2/11 9:51 PM user-f497 /Volumes/DATA-DISK/Tempwork/2011/April 2011/29:04:11/MHDQ283:Hirt:202 We dedicate this book to the memory of Jean Wood Steiner. ste12672_fm_i-xvi.indd Page iv 5/2/11 9:51 PM user-f497 /Volumes/DATA-DISK/Tempwork/2011/April 2011/29:04:11/MHDQ283:Hirt:202 Brief Table of Contents Preface PART FIVE Multinational Corporations and Globalization xi PART ONE A Framework for Studying Business, Government, and Society 1 The Study of Business, Government, and Society 1 2 The Dynamic Environment 3 Business Power 22 55 4 Critics of Business 83 PART TWO The Nature and Management of Corporate Responsibility 5 Corporate Social Responsibility 121 PART THREE Managing Ethics 8 Making Ethical Decisions in Business 238 PART FOUR Business and Government 10 Regulating Business iv 12 Globalization, Trade, and Corruption 395 PART SIX Corporations and the Natural Environment 13 Industrial Pollution and Environmental Regulation 436 14 Managing Environmental Quality 476 PART SEVEN Consumerism 15 Consumerism 512 16 The Changing Workplace 549 17 Civil Rights, Women, and Diversity 585 PART NINE Corporate Governance 194 9 Business in Politics 352 PART EIGHT Human Resources 6 Implementing Corporate Social Responsibility 157 7 Business Ethics 11 Multinational Corporations 271 316 18 Corporate Governance 630 ste12672_fm_i-xvi.indd Page v 5/4/11 11:07 AM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles Table of Contents Preface xi PART ONE A Framework for Studying Business, Government, and Society Chapter 1 The Study of Business, Government, and Society 1 ExxonMobil Corporation 1 What Is the Business–Government–Society Field? 4 Why Is the BGS Field Important to Managers? 7 Four Models of the BGS Relationship 8 The Market Capitalism Model 9 The Dominance Model 12 The Countervailing Forces Model 15 The Stakeholder Model 16 Our Approach to the Subject Matter 20 Comprehensive Scope 20 Interdisciplinary Approach with a Management Focus 20 Use of Theory, Description, and Case Studies 20 Global Perspective 21 Historical Perspective 21 Chapter 2 The Dynamic Environment Royal Dutch Shell PLC 22 Deep Historical Forces at Work The Industrial Revolution Inequality 25 Population Growth 28 Technology 30 Globalization 32 Nation-States 33 25 22 24 Dominant Ideologies 34 Great Leadership 35 Chance 35 Six External Environments of Business 36 The Economic Environment 36 The Technological Environment 38 The Cultural Environment 39 The Government Environment 41 The Legal Environment 42 The Natural Environment 43 The Internal Environment 44 Concluding Observations 45 Case Study: The American Fur Company 47 Chapter 3 Business Power 55 James B. Duke and The American Tobacco Company 55 The Nature of Business Power 58 What Is Power? 58 Levels and Spheres of Corporate Power 59 The Story of the Railroads 61 Two Perspectives on Business Power 64 The Dominance Theory Pluralist Theory 71 65 Concluding Observations 75 Case Study: John D. Rockefeller and the Standard Oil Trust 75 Chapter 4 Critics of Business 83 Mary “Mother” Jones 83 Origins of Critical Attitudes Toward Business 86 The Greeks and Romans 86 The Medieval World 88 The Modern World 88 v ste12672_fm_i-xvi.indd Page vi 5/11/11 3:23 PM user-f494 /208/MHBR238/mcc21034_disk1of1/0071221034/mcc21034_pagefiles vi Table of Contents The American Critique of Business 89 Global Corporate Responsibility The Colonial Era 89 The Young Nation 90 1800–1865 91 Populists and Progressives 93 Socialists 95 The Great Depression and World War II 99 The Collapse of Confidence 100 The New Progressives 102 Global Critics Assessing the Evolving Global CSR System 146 Concluding Observations 146 Case Study: Jack Welch at General Electric 147 103 The Story of Liberalism 104 The Rise of Neoliberalism 105 Agenda of the Global Justice Movement 106 Global Activism 108 Chapter 6 Implementing Corporate Social Responsibility 157 Concluding Observations 110 Case Study: A Campaign against KFC Corporation 112 The Bill & Melinda Gates Foundation 157 Managing the Responsive Corporation 160 Leadership and Business Models 160 A Model of CSR Implementation 162 PART TWO The Nature and Management of Corporate Responsibility Chapter 5 Corporate Social Responsibility 138 Development of Norms and Principles 138 Codes of Conduct 140 Reporting and Verification Standards 142 Certification and Labeling Schemes 142 Management Standards 143 Social Investment and Lending 144 Government Actions 144 Civil Society Vigilance 145 121 Merck & Co., Inc. 121 The Evolving Idea of Corporate Social Responsibility 123 Social Responsibility in Classical Economic Theory 125 The Early Charitable Impulse 125 Social Responsibility in the Late Nineteenth and Early Twentieth Centuries 127 1950 to the Present 129 Basic Elements of Social Responsibility 131 General Principles 133 Are Social and Financial Performance Related? 134 Corporate Social Responsibility in a Global Context 135 The Problem of Cross-Border Corporate Power 136 The Rise of New Global Values 137 CSR Review 163 CSR Strategy 167 Implementation of CSR Strategy 168 Reporting and Verification 171 How Effectively Is CSR Implemented? Corporate Philanthropy 175 Patterns of Corporate Giving 175 Strategic Philanthropy 177 Cause Marketing 179 New Forms of Philanthropy 181 Concluding Observations 183 Case Study: Marc Kasky versus Nike 183 PART THREE Managing Ethics Chapter 7 Business Ethics 194 Bernard Ebbers 194 What Are Business Ethics? 197 Two Theories of Business Ethics 198 174 ste12672_fm_i-xvi.indd Page vii 5/2/11 9:51 PM user-f497 /Volumes/DATA-DISK/Tempwork/2011/April 2011/29:04:11/MHDQ283:Hirt:202 Table of Contents vii Major Sources of Ethical Values in Business 200 Religion 201 Philosophy 202 Cultural Experience Law 206 204 Factors That Influence Managerial Ethics 212 Leadership 212 Strategies and Policies 214 Corporate Culture 215 Individual Characteristics 218 How Corporations Manage Ethics 220 Ethics and Compliance Programs: An Assessment 227 Concluding Observations 228 Case Study: The Trial of Martha Stewart 229 Chapter 8 Making Ethical Decisions in Business 238 David Geffen 238 Principles of Ethical Conduct 241 The Categorical Imperative 241 The Conventionalist Ethic 242 The Disclosure Rule 243 The Doctrine of the Mean 244 The Ends–Means Ethic 244 The Golden Rule 245 The Intuition Ethic 246 The Might-Equals-Right Ethic 246 The Organization Ethic 247 The Principle of Equal Freedom 248 The Proportionality Ethic 248 The Rights Ethic 249 The Theory of Justice 249 The Utilitarian Ethic 251 Reasoning with Principles 251 Character Development 253 The Neural Basis of Ethical Decisions 253 Probing Ethical Decisions 254 Emotions and Intuition 256 Practical Suggestions for Making Ethical Decisions 257 Concluding Observations 259 Case Studies: Short Incidents for Ethical Reasoning 260 Tangled Webs 264 PART FOUR Business and Government Chapter 9 Business in Politics 271 Paul Magliocchetti and Associates 271 The Open Structure of American Government 275 A History of Political Dominance by Business 277 Laying the Groundwork 277 Ascendance, Corruption, and Reform 278 Business Falls Back under the New Deal 280 Postwar Politics and Winds of Change 281 The Rise of Antagonistic Groups 282 Diffusion of Power in Government 283 The Universe of Organized Business Interests 284 Lobbying 287 Lobbying Methods 288 Power and Limits 290 Regulation of Lobbyists 291 The Corporate Role in Elections 293 Efforts to Limit Corporate Influence 294 The Federal Election Campaign Act 295 Political Action Committees 296 Soft Money and Issue Advertising 298 Reform Legislation in 2002 299 How Business Dollars Enter Elections 301 Concluding Observations 303 Case Study: Citizens United v. Federal Election Commission 304 Chapter 10 Regulating Business 316 The Federal Aviation Administration 316 ste12672_fm_i-xvi.indd Page viii 5/11/11 3:24 PM user-f494 /208/MHBR238/mcc21034_disk1of1/0071221034/mcc21034_pagefiles viii Table of Contents Why Government Regulates Business Flaws in the Market 319 Social and Political Reasons for Regulation Waves of Growth 319 Criticism of the Global Compact 320 320 327 Ascent and Inertia 337 The Regulatory Burden 337 Benefits of Regulations 339 Regulation in Other Nations 340 Concluding Observations 342 Case Study: Good and Evil on the Rails 342 Chapter 11 Multinational Corporations The Coca-Cola Company 352 The Multinational Corporation 395 400 402 The Rise and Fall of Trade 402 A New Postwar Order 404 Success and Evolution 404 The World Trade Organization 406 Regional Trade Agreements 409 Free Trade versus Protectionism PART FIVE Multinational Corporations and Globalization 352 354 A Statistical Perspective 356 How Transnational Is a Corporation? 358 Breaking the Bonds of Country: Weatherford International 359 362 381 Chapter 12 Globalization, Trade, and Corruption 395 Trade Costs and Benefits of Regulation FDI in Developing Economies 379 Concluding Observations 383 Case Study: Union Carbide Corporation and Bhopal 384 McDonald's Corporation Globalization 397 Regulatory Statutes 327 Rulemaking 329 Presidential Oversight 332 Congressional Oversight 334 Challenges in the Courts 335 Foreign Direct Investment The Alien Tort Claims Act 411 Why Free Trade? 411 Why Protectionism? 412 The Politics of Protectionism 413 Free Trade Responses to Protectionism 415 U.S. Deviation from Free Trade Policy 416 Tariff Barriers in Other Countries 416 Corruption 417 A Spectrum of Corruption 418 The Fight Against Corruption 420 The Foreign Corrupt Practices Act 422 Corporate Actions to Fight Corruption 425 Concluding Observations 426 Case Study: David and Goliath at the WTO 427 PART SIX Corporations and the Natural Environment 364 International Codes of Conduct 367 The OECD Guidelines for Multinational Enterprises 369 How the OECD Guidelines Work Vedanta Resources 371 369 375 378 The Drummond Company on Trial Wave 1: The Young Nation 321 Wave 2: Confronting Railroads and Trusts 322 Wave 3: The New Deal 323 Wave 4: Administering the Social Revolution 324 Wave 5: Terrorism and Financial Crisis 325 War Blips 327 How Regulations Are Made The United Nations Global Compact Chapter 13 Industrial Pollution and Environmental Regulation The Majestic Hudson River 436 436 ste12672_fm_i-xvi.indd Page ix 5/11/11 3:24 PM user-f494 /208/MHBR238/mcc21034_disk1of1/0071221034/mcc21034_pagefiles Table of Contents ix Pollution 438 Consumerism Human Health 439 The Biosphere 440 Industrial Activity and Sustainability Ideas Shape Attitudes Toward the Environment 444 New Ideas Challenge the Old 442 In Defense of Consumerism 445 The Consumer’s Protective Shield 447 Principal Areas of Environmental Policy Air 448 Water 458 Land 459 Concluding Observations 463 Case Study: A World Melting Away 464 The Commerce Railyards 476 Regulating Environmental Risk 479 Analyzing Human Health Risks 479 Risk Assessment 480 Risk Management 486 487 491 Command-and-Control Regulation 491 Market Incentive Regulation 492 Voluntary Regulation 498 Managing Environmental Quality Environmental Management Systems A Range of Actions 501 Product Liability 534 Concluding Observations 538 Case Study: Alcohol Advertising 499 500 537 538 PART EIGHT Human Resources Chapter 16 The Changing Workplace Advantages 488 Criticisms 489 Control Options 448 524 525 The Food and Drug Administration (FDA) 526 The Federal Trade Commission (FTC) 527 The Consumer Product Safety Commission (CPSC) 529 The National Highway Traffic Safety Administration (NHTSA) 530 Consumer Protection by Other Agencies 532 Negligence 534 Warranty 535 Strict Liability 536 Costs and Benefits of the Tort System Chapter 14 Managing Environmental Quality 476 Cost–Benefit Analysis 523 Consumerism as a Protective Movement Environmental Regulation in the United States 447 The Environmental Protection Agency 515 Consumerism as an Ideology 515 Consumerism Rises in America 516 Consumerism in Perspective 518 The Global Rise of Consumerism 522 549 Ford Motor Company 549 External Forces Shaping the Workplace 552 Demographic Change 553 Technological Change 555 Structural Change 556 Competitive Pressures 558 Reorganization of Work 560 Concluding Observations 503 Case Study: Harvesting Risk 503 Government Intervention PART SEVEN Consumerism Work and Worker Protection in Japan and Europe 569 Chapter 15 Consumerism Harvey W. Wiley 562 Development of Labor Regulation in the United States 562 Japan 569 Europe 570 512 512 Labor Regulation in Perspective 572 Concluding Observations 572 Case Study: A Tale of Two Raids 575 ste12672_fm_i-xvi.indd Page x 5/2/11 9:51 PM user-f497 /Volumes/DATA-DISK/Tempwork/2011/April 2011/29:04:11/MHDQ283:Hirt:202 x Table of Contents Chapter 17 Civil Rights, Women, and Diversity 585 PART NINE Corporate Governance The Employment Non-Discrimination Act A Short History of Workplace Civil Rights 587 585 Affirmative Action 598 The Supreme Court Changes Title VII The Affirmative Action Debate 601 602 639 Enron Corp. 640 Other Failures of Governance 644 The Sarbanes-Oxley Act 645 Lehman Brothers 646 The Dodd-Frank Act 650 Boards of Directors 651 Executive Compensation 655 Components of Executive Compensation 655 Problems with CEO Compensation 659 614 Elements of Diversity Programs 599 639 Federal Regulation of Governance Duties of Directors 652 Board Composition 652 Board Dynamics 653 Gender Attitudes at Work 604 Subtle Discrimination 605 Sexual Harassment 607 Occupational Segregation 610 Compensation 612 Diversity 595 597 Executive Order 11246 Women at Work Stockholders 636 Shareholder Resolutions 638 Assessing Shareholder Influence 594 Disparate Treatment and Disparate Impact The Griggs Case 596 630 Mark Hurd 630 What Is Corporate Governance? 633 The Corporate Charter 634 Power in Corporate Governance: Theory and Reality 636 The Colonial Era 588 Civil War and Reconstruction 589 Other Groups Face Employment Discrimination 590 The Civil Rights Cases 591 Plessy v. Ferguson 592 Long Years of Discrimination 593 The Civil Rights Act of 1964 Chapter 18 Corporate Governance 616 Concluding Observations 618 Case Study: Adarand v. Peña 619 Concluding Observations 663 Case Study: High Noon at HewlettPackard 664 ste12672_fm_i-xvi.indd Page xi 5/2/11 9:51 PM user-f497 /Volumes/DATA-DISK/Tempwork/2011/April 2011/29:04:11/MHDQ283:Hirt:202 Preface This 13th edition continues a long effort to tell the story of how forces in business, government, and society shape our world. As always, a stream of events dictated the need for extensive revision. In particular, a major financial crisis and a new presidential administration altered parts of the subject matter in important ways. Accordingly, we have updated the chapters to include new ideas, events, personalities, and publications. While current events move rapidly over the surface of our world, its underlying dynamics are largely undisturbed. As with every revision, we adapt to the flow of events, but we also continue the work of building insight into basic principles, institutions, and forces. So, while new events will doubtless erode the currency of the discussions, we believe that certain insights about the relationships between business, government, and society should endure. In what follows, we summarize new elements in this edition. THE CHAPTERS Key revisions and additions in the chapters include these. • Chapter 4, “Critics of Business,” has a new discussion of the rise of free market ideas that came to be called the Chicago School and their interaction with, first, Keynesian thinkers and, later, progressive thinkers. • Chapter 7, “Business Ethics,” contains an expanded discussion of white-collar crime and criminal prosecution of both managers and corporations, including the growing use of deferred- and nonprosecution agreements. The chapter also has a new discussion of inner psychological processes interact that generate unethical behavior. • Chapter 8, “Making Ethical Decisions in Business,” adds a new section on the neural basis of ethical decisions. Studies of the brain using magnetic resonance imaging suggest that ethical decisions are fast, unconscious, and automatic processes. Their findings illuminate how individuals do (and should) make ethical decisions. • Chapter 9, “Business in Politics,” includes an expanded discussion of lobbying ethics, including a more thorough discussion of the nature of bribery and incidents to illustrate its boundaries. The section on corporate money in elections is revised to explain changes in election law following the Citizens United v. Federal Election Commission decision. The chapter case study is now the story of Citizens United. • Chapter 10, “Regulating Business,” adds a new fifth wave, “terrorism and financial crisis,” to the four historical waves of regulatory growth. This new wave covers the federal government’s aggressive expansion of regulation and changes in regulatory philosophy in the Barack Obama administration. • Chapter 11, “Multinational Corporations,” has a new discussion of the Organisation for Economic Co-Operation and Development’s Guidelines for Multinational xi ste12672_fm_i-xvi.indd Page xii 5/2/11 9:51 PM user-f497 /Volumes/DATA-DISK/Tempwork/2011/April 2011/29:04:11/MHDQ283:Hirt:202 xii Preface • • • • Enterprises. It tells a story about how the guidelines were applied to a mining company that sought to develop a sacred tribal land in India. Chapter 12, “Globalization, Trade, and Corruption,” introduces a new discussion of globalization. The section on trade now explains the rise of the modern trading system, including discussions of Bretton Woods, the International Monetary Fund, the World Bank, the General Agreement on Tariffs and Trade, and the World Trade Organization. The section on international corruption is revised to accommodate recent, more vigorous anti-bribery enforcement. It now relates more incidents and stories about bribery. Chapter 15, “Consumerism,” has several new sections including a discussion of Henry David Thoreau and his principled rejection of materialism, a presentation of arguments defending consumerism, and a description of the consumer protection activities of the Federal Trade Commission. Chapter 17, “Civil Rights, Women, and Diversity,” contains added emphasis on the nature and significance of diversity management programs in corporations. Chapter 18, “Corporate Governance,” now tells the story of the Lehman Brothers bankruptcy that resulted from, among other factors, the lack of oversight by a poorly structured board of directors. It explains new governance reforms in the wake of the recent financial crisis. CHAPTER-OPENING STORIES As in past editions, we begin each chapter with a true story about a company, a biographical figure, or a government action. Five new stories appear in this edition. • “David Geffen” is the story of a brash young man willing to compromise the truth to make his fortune. His career invites a timeless discussion of whether actions are always right and wrong in themselves, or whether their consequences should be considered. • “Paul Magliocchetti and Associates” is the story of a bright young man who went to Washington, D.C., worked for a member of Congress, and set up a lobbying firm. He specialized in getting earmarks for corporations. His story reveals the hidden influence that characterizes politics in the nation’s capital. • “The Federal Aviation Administration” focuses on how this agency issues a license before each launch of a space vehicle by a private company. The story tells how the FAA goes about assessing risks to the public with each launch. The agency’s actions are a small window into the work of a massive regulatory presence. • “The Majestic Hudson River” reveals the details of the huge project to remove polychlorinated biphenyls from this waterway. More than half a century ago General Electric released the chemicals. Now it will pay as much as $2 billion to clean them out even as it protests that they do less harm if left undisturbed. • “Mark Hurd” is about a former Hewlett-Packard CEO accused of sexual harassment. The board investigated, but found no violation of the company’s sexual harassment policy. Still, when questioned by directors he had shaded the ste12672_fm_i-xvi.indd Page xiii 5/2/11 9:51 PM user-f497 /Volumes/DATA-DISK/Tempwork/2011/April 2011/29:04:11/MHDQ283:Hirt:202 Preface xiii truth about his friendship with a woman. The board lost confidence in his integrity. He was forced to resign. THE CASE STUDIES Every chapter, except Chapter 1, ends with a case study. The cases illustrate one or more central themes in the chapter. Five new cases appear in this edition. • “Tangled Webs” is a story of temptation and transgression. A man and a woman meet on a Web site for adulterers and begin a fated game of insider trading. The case invites discussion of the business model used by the Web site and of the psychology of lying and ethical transgression. • “Citizens United v. FEC” is the story of the Supreme Court decision that allowed corporations to contribute independently to federal political candidates. In a close five-to-four decision the Court’s more conservative justices decided that parts of America’s election law violated the First Amendment’s guarantee of free speech. • “Good and Evil on the Rails” invites debate about the benefits and costs of regulation. After a train crash in California killed 24 passengers, Congress passed a law mandating $13.3 billion of computerized controls to make trains safer. Unfortunately, the benefits, including the value of statistical lives saved, were less than $1 billion. Is the money well spent? • “A World Melting Away” is the story of the polar bear endangered by warming of its habitat. What kind of measures can prevent its extinction? • “A Tale of Two Raids” is a study of the dilemmas faced by corporations trying to comply with laws that prohibit hiring unauthorized workers. It tells of two raids, one a physical raid, the other a sudden, mass firing based on an audit. Both tore apart families and towns. SUPPORT MATERIALS FOR INSTRUCTORS The Online Learning Center, at www.mhhe.com/steiner13e, features resources for students and instructors. For students there are interactive exercises and selfquizzes designed to enhance understanding of text material. For instructors there is an Instructor’s Resource Manual with sample course outlines, chapter objectives, term paper topics for each chapter, and case study teaching notes with answers to the case questions. There also is a test bank covering chapters and case studies, including multiple-choice, true/false, fill-in, and essay questions. Instructors will also find a set of PowerPoint© slides for each chapter to use for classroom lectures. The Computerized Test Bank covers chapters and case studies. It includes multiplechoice, true/false, fill-in, and essay questions. In preparing exams instructors can view questions as they are selected; scramble questions and answers; add, delete, and edit questions; create multiple test versions; and view and save tests. ste12672_fm_i-xvi.indd Page xiv 5/4/11 11:08 AM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles Acknowledgments We are indebted to the long line of authors, extending from ancient Athens to the present, who have tutored and inspired us. We extend special thanks to the ranks of colleagues and friends within the Academy of Management who have worked to develop and expand the field over the years. Where appropriate we cite their work. For this edition, the following reviewers have guided us. We are very appreciative of their efforts and have followed their recommendations. Gwendolyn Yvonne Alexis Laura Curran Jeanne Enders Susan A. O’Sullivan-Gavin Jaqueline G. Slifkin Dennis L. Slivinski Harry J. Taft Robert E. Ward George W. Watson Aimee Lynn Williamson Monmouth University California State University, Fullerton Portland State University Seton Hall University The College at Brockport, SUNY California State University, Channel Islands Stetson University Baldwin-Wallace College Southern Illinois University, Edwardsville Suffolk University We thank also those in the world of affairs who were consulted along the way. Those who gave us new ideas, affirmed our interpretations, or verified our facts include Stephen E. Auslander; Jeff Ballinger, Press for Change; Ruthven Benjamin; Chris Banocy, General Electric Transportation; Jamie Yood, Google; Gordon Bennett, New Square Chambers; Bob Davis, Airgas Inc.; Warren Flatau, Federal Railroad Administration; Cheryl Gossin, Constellation Brands, Inc.; Maury Hendler; Kristi R. King, Talladega Speedway; George C. Nield, Office of Commercial Space Transportation, Federal Aviation Administration; Margaret L. Reilly, Office of Management and Budget, Executive Office of the President; Tracy Warner, The Wenatchee World; Tom Wasz, Yum! Brands, Inc.; and Jo Woodman, Survival International. We are thankful for an outstanding editorial team at McGraw-Hill/Irwin, including especially managing development editor Laura Spell, whose guidance led to important and constructive changes in the book; editorial coordinator Jonathan Thornton, who responded to author suggestions while carefully putting all the elements of the effort in place; and lead project manager Christine Vaughan, who is exceptionally competent in the detailed work of turning an original manuscript into a printed book. Their patience and faith throughout the process were always welcome. We are grateful to copyeditor Nancy Dietz for schooling our style and adding clarity and consistency to the benefit of readers. We also express gratitude xiv ste12672_fm_i-xvi.indd Page xv 5/6/11 6:41 PM user-f494 /208/MHBR238/mcc21034_disk1of1/0071221034/mcc21034_pagefiles Acknowledgments xv to marketing manager Jaime Halteman, designer Joanne Mennemeier, senior photo research coordinator Keri Johnson, and media project manager Suresh Babu. Finally, we express our appreciation for the very fine work of Rakhshinda Chishty and the composition team at Aptara, Inc. This edition, like all previous editions, is an improbable, momentary, and partial triumph over an unruly, cosmic mass of information. That it occurred is due in significant part to those named here. John F. Steiner George A. Steiner ste12672_fm_i-xvi.indd Page xvi 5/2/11 9:51 PM user-f497 /Volumes/DATA-DISK/Tempwork/2011/April 2011/29:04:11/MHDQ283:Hirt:202 About the Authors John F. Steiner is Professor of Management Emeritus at California State University, Los Angeles. He received his B.S. from Southern Oregon University and received an M.A. and Ph.D. in political science from the University of Arizona. He has coauthored two other books with George A. Steiner, Issues in Business and Society and Casebook for Business, Government, and Society. He is also the author of Industry, Society, and Change: A Casebook. Professor Steiner is a former chair of the Social Issues in Management Division of the Academy of Management and former chair of the Department of Management at California State University, Los Angeles. George A. Steiner is one of the leading pioneers in the development of university curriculums, research, and scholarly writings in the field of business, government, and society. In 1983 he was the recipient of the first Sumner Marcus Award for distinguished achievement in the field by the Social Issues in Management Division of the Academy of Management. In 1990 he received the Distinguished Educator Award, given for the second time by the Academy of Management. After receiving his B.S. in business administration at Temple University, he was awarded an M.A. in economics from the Wharton School of the University of Pennsylvania and a Ph.D. in economics from the University of Illinois. He is the author of many books and articles. Two of his books received “book-of-the-year” awards. In recognition of his writings, Temple University awarded him a Litt.D. honorary degree. Professor Steiner has held top-level positions in the federal government and in industry, including corporate board directorships. He is a past president of the Academy of Management and cofounder of The California Management Review. xvi ste12672_ch01_001-021.indd Page 1 5/4/11 3:07 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles Chapter One The Study of Business, Government, and Society ExxonMobil Corporation ExxonMobil is a colossus. In 2010 it had revenues of $370 billion and net income of $29 billion. To put this in perspective, it had five times the sales of Microsoft; its profits equaled the total sales of Nike. It paid $89 billion in taxes, a sum exceeding the combined revenues of Microsoft and Nike. ExxonMobil employs 84,000 people, most in the 143 subsidiaries it uses for its operations. Its main business is discovering, producing, and selling oil and natural gas, and it has a long record of profiting more at this business than its rivals. The company cannot be well understood apart from its history. It descends from the Standard Oil Trust, incorporated in 1882 by John D. Rockefeller as Standard Oil of New Jersey. Rockefeller was a quiet, meticulous, secretive manager, a relentless competitor, and a painstaking accountant who obsessed over every detail of strategy and every penny of cost and earnings. He believed that the end of imposing order on a youthful, rowdy oil industry justified the use of ruthless means. As Standard Oil grew, Rockefeller’s values defined the company’s culture; that is, the shared assumptions, both spoken and unspoken, that animate its employees. If the values of a founder such as Rockefeller are effective, they become embedded over time in the organization. Once widely shared, they tend to be exceptionally long-lived and stable.1 Rockefeller emphasized cost control, efficiency, centralized organization, and suppression of competitors. And no set of principles was ever more triumphant. Standard Oil once had more than 90 percent of the American oil market. Standard Oil’s power so offended public values that in 1890 Congress passed the Sherman Antitrust Act to outlaw its monopoly. In 1911, after years of legal battles, the trust was finally broken into 39 separate companies.2 After the breakup, Standard Oil 1 See, for example, Edgar H. Schein, The Corporate Culture Survival Guide, rev. ed. (San Francisco: Jossey-Bass, 2009), part one. 2 Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911). 1 ste12672_ch01_001-021.indd Page 2 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles 2 Chapter 1 The Study of Business, Government, and Society of New Jersey continued to exist. Although it had shed 57 percent of its assets to create the new firms, it was still the world’s largest oil company. Some companies formed in the breakup were Standard Oil of Indiana (later renamed Amoco), Atlantic Refining (ARCO), Standard Oil of California (Chevron), Continental Oil (Conoco), Standard Oil of Ohio (Sohio), Chesebrough-Pond’s (a company that made petroleum jelly), and Standard Oil of New York (Mobil). In 1972 Standard Oil of New Jersey changed its name to Exxon, and in 1999 it merged with Mobil, forming Exxon Mobil. The passage of time now obscures Rockefeller’s influence, but ExxonMobil’s actions remain consistent with his nature. It has a centralized, authoritarian culture. Profit is an overriding goal. Every project must meet strict criteria for return on capital. ExxonMobil consistently betters industry rivals in its favorite measure, return on average capital employed. Unlike Southwest Airlines or Google, where having fun is part of the job, performance pressure at ExxonMobil is so intense that it “is not a fun place to work.”3 As Rockefeller bought competitors, he kept only the best managers from their ranks. Today managers at ExxonMobil face a Darwinian promotion system that weeds out anyone who is not a top performer. “We put them through a big distillation column,” said a former CEO, and “only the top of the column stays there.”4 And oil industry competitors still find it a ferocious adversary. The company says simply that it “employs all methods of competition which are lawful and appropriate.”5 Although ExxonMobil is a powerful corporation, it is no longer the commanding trust of Rockefeller’s era. As in the old days, its power is challenged and limited by economic, political, and social forces. Now, however, these forces are more leveling. Markets are more contested. ExxonMobil pumps only 8 percent of the world’s daily output of oil and controls less than 2 percent of petroleum reserves. These figures are far lower than in the 1950s when Exxon was the largest of the Seven Sisters, a group of Western oil firms that dominated global production and reserves, including the huge Middle East oil fields.6 Now its largest competitors are seven stateowned oil companies, often called the new Seven Sisters, whose output dwarfs that of today’s privately owned companies.7 The biggest, Saudi Aramco, is 3.5 times the size of ExxonMobil in daily crude oil output and has 32 times its reserves.8 The rise of these state-owned companies reflects a new form of nationalism, one that rejects reliance on foreign firms to exploit natural resources. 3 Fadel Gheit, a former employee and an oil industry analyst, quoted in Geoff Colvin, “The Defiant One,” Fortune, April 30, 2007, p. 88. 4 Lee Raymond, quoted in Tom Bower, Oil: Money, Politics, and Power in the 21st Century (New York: Grand Central Publishing, 2009), p. 162. 5 Exxon Mobil Corporation, Form 10-K 2009, filed with the Securities and Exchange Commission, February 26, 2010, p. 1. 6 The Seven Sisters were Exxon, Mobil, Shell, British Petroleum, Gulf, Texaco, and Chevron. 7 The new Seven Sisters are Saudi Aramco (Saudi Arabia), Gazprom (Russia), China National Petroleum Company (China), National Iranian Oil Company (Iran), Petróleos de Venezuela S. A. (Venezuela), Petrobras (Brazil), and Petronas (Malaysia). 8 Government Accountability Office, Crude Oil, GAO-07-283, February 2007, fig. 9; and Ian Bremmer, “The Long Shadow of the Visible Hand,” The Wall Street Journal, May 22–23, 2010, p. W3. ste12672_ch01_001-021.indd Page 3 5/4/11 3:07 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles Chapter 1 The Study of Business, Government, and Society 3 ExxonMobil is on a treadmill, constantly searching for new oil and natural gas supplies to compensate for declining production in existing fields. Output from a mature field drops 5 to 8 percent a year. To maintain profitability the company pursues new reserves wherever they are, taking political risks and abiding unrest and corruption. Iran and Venezuela have expropriated its assets. In Indonesia, government troops guard its facilities against attacks by rebel forces. In Chad, Angola, Nigeria, and Equatorial Guinea, it has paid dictators for access to oil. Governments are more active and relations with them, ranging from high-level diplomacy to mundane regulatory compliance, are more complex than in the past. In 2003 the company engaged in a high-stakes game of political intrigue trying to purchase Yukos Oil Company. Yukos was a technologically backward Russian company that controlled oil and gas deposits in Siberia so huge they would double ExxonMobil’s reserves. ExxonMobil wanted it badly and offered $45 billion to the Russian capitalists who owned it. Their leader was billionaire Mikhail Khodorkovsky, a political rival of Russia’s President Vladimir Putin. Khodorkovsky promised ExxonMobil that he would use his political influence to clear the deal, but when its top managers met with Putin he was guarded and said, “These details are for my ministers. You must deal with them.”9 Soon, Khodorkovsky’s private jet was mysteriously delayed from taking off at a Siberian airfield and boarded by masked police, who arrested him on charges of fraud and tax evasion. He has been in jail ever since. Yukos soon merged with a state-owned oil company managed by one of Putin’s close allies. In more ordinary ways, webs of law and regulation dictate ExxonMobil’s operations in each country where it does business. In the United States alone approximately 200 federal departments, commissions, agencies, offices, and bureaus, only a handful of which existed in Rockefeller’s day, impose rules on the company. If the founder were alive, he might find this tight supervision unrecognizable—even incredible. For example, in 2009 the company paid a $600,000 fine to settle charges that 85 migratory birds in five states died of hydrocarbon exposure after landing in production and wastewater ponds. It agreed to a $2.5 million bird protection program. It will put nets over ponds and install electronic systems that turn on flashing lights and noisemakers when they detect incoming flights of birds.10 ExxonMobil also faces a demanding social environment. As a leader in the world’s largest industry, it is closely watched by environmental, civil rights, labor, and consumer groups—some of which are actively hostile. For years the company agitated environmentalists by rejecting the scientific case for global warming. Alone among major oil companies, it refused to make significant investments in renewable energy. Its former CEO called such investments “a complete waste of money.”11 In 2006 a new CEO, Rex Tillerson, tried to blunt criticism by granting publicly that the world is warming. But he made no changes in strategy. A group of John D. Rockefeller’s heirs, believing that ExxonMobil no longer represented the “forwardlooking” spirit of its great founder, wrote to Tillerson, welcoming him as the new 9 Quoted in Tom Bower, Oil: Money, Politics, and Power in the 21st Century, p. 10. United States Attorney’s Office, District of Colorado, “Exxon-Mobil Pleads Guilty to Killing Migratory Birds in Five States,” press release, August 13, 2009. 11 Lee Raymond, quoted in “The Unrepentant Oilman,” The Economist, March 15, 2003, p. 64. 10 ste12672_ch01_001-021.indd Page 4 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles 4 Chapter 1 The Study of Business, Government, and Society leader and requesting a meeting.12 He would not meet with them. Subsequently, 66 Rockefeller descendants signed an initiative calling on the company to convene a climate change task force. The company refused to talk with the family members, who held only 0.006 percent of its shares.13 Besides using ethanol blends in gasoline, ExxonMobil’s major investment in alternative energy is a $600 million research project to make biofuels from algae.14 That investment pales in comparison with its $27 billion in capital and exploration expenditures in 2009 and a $30 billion project nearing completion to liquefy and ship natural gas from Qatar. As a corporate citizen ExxonMobil funds worldwide programs to benefit communities, nature, and the arts. Its largest contributions, about 50 percent of the total, go to education. Other efforts range from $68 million to fight malaria in Africa to $5,000 for the National Cowgirl Museum in Fort Worth, Texas. In 2009 ExxonMobil gave $196 million to such efforts. This is a large sum from the perspective of an individual. However, for ExxonMobil it was seven-hundredths of 1 percent of its revenues, the equivalent of a person making $1 million a year giving $7 to charity. Does this giving live up to the elegant example of founder John D. Rockefeller, the great philanthropist of his era? The story of ExxonMobil raises central questions about the role of business in society. When is a corporation socially responsible? How can managers know their responsibilities? What actions are ethical or unethical? How responsive must a corporation be to its critics? This book is a journey into the criteria for answering such questions. As a beginning for this first chapter, however, the story illustrates a range of interactions between one large corporation and many nations and social forces. Such business–government–society interactions are innumerable and complicated. In the chapter that follows we try to order the universe of these interactions by introducing four basic models of the business-government-society relationship. In addition, we define basic terms and explain our approach to the subject matter. WHAT IS THE BUSINESS–GOVERNMENT–SOCIETY FIELD? business Profit-making activity that provides products and services to satisfy human needs. In the universe of human endeavor, we can distinguish subdivisions of economic, political, and social activity—that is, business, government, and society—in every civilization throughout time. Interplay among these activities creates an environment in which businesses operate. The business-government-society (BGS) field is the study of this environment and its importance for managers. To begin, we define the basic terms. Business is a broad term encompassing a range of actions and institutions. It covers management, manufacturing, finance, trade, service, investment, and other activities. Entities as different as a hamburger stand and a giant corporation are businesses. The fundamental purpose of every business is to make a profit by providing products and services that satisfy human needs. 12 Daniel Gross, “There Will Be Blood Orange Juice,” Slate, April 30, 2008. Jad Mouawad, “Can Rockefeller Heirs Turn Exxon Greener?” The New York Times, May 4, 2008, p. B2. 14 “ExxonMobil Invests in Algae for Biofuel,” Nature, July 2009, p. 449. 13 ste12672_ch01_001-021.indd Page 5 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles Chapter 1 The Study of Business, Government, and Society 5 government Structures and processes in society that authoritatively make and apply policies and rules. society A network of human relations composed of ideas, institutions, and material things. idea An intangible object of thought. value An enduring belief about which fundamental life choices are correct. ideology A bundle of values that creates a particular view of the world. institution A formal pattern of relations that links people to accomplish a goal. Government refers to structures and processes in society that authoritatively make and apply policies and rules. Like business, it encompasses a wide range of activities and institutions at many levels, from international to local. The focus of this book is on the economic and regulatory powers of government as they affect business. A society is a cooperative network of human relations, organized by flows of power and relatively distinct in its boundaries from other, analogous networks.15 Every society includes three interacting elements: (1) ideas, (2) institutions, and (3) material things. Ideas, or intangible objects of thought, include values and ideologies. Values are enduring beliefs about which fundamental choices in personal and social life are correct. Cultural habits and norms are based on values. Ideologies are bundles of values that create a worldview. They establish the meaning of life or categories of experience by defining what is considered good, true, right, beautiful, and acceptable. Sacred ideologies, or theologies, include the great religions that define human experience in relation to a deity. Secular ideologies, such as democracy, liberalism, capitalism, socialism, or ethics, all of which will be discussed in this book as they relate to business, explain human experience in a visible world, a world ordered by values based on reason, not faith. The two kinds of ideology can overlap, as with ethics, an ideology rooted in both faith and reason. All ideologies have the power to organize collective activity. Ideas shape every institution in society, sometimes coming in conflict as when capitalism’s practiced values of exploitation, ruthless competition, self-interest, and short-term gain abrade values of love, mercy, charity, and patience in Christianity. Institutions are formal patterns of relations that link people to accomplish a goal. They are essential to coordinate the work of individuals having no direct relationship with each other.16 In modern societies, economic, political, cultural, legal, religious, military, educational, media, and familial institutions are salient. There are multiple economic institutions such as financial institutions, the corporate form, and markets. Collectively, we call these business. As Figure 1.1 shows, markets are supported by a range of institutions. Capitalism has wide variation in nations where it abides because supporting institutions grow from unique historical and cultural roots. In developed nations these institutions are highly evolved and mutually supportive. Where they are weak, markets work in dysfunctional ways. An example is the story of Russia, which introduced a market economy after the fall of communism in the early 1990s. In the old system workers spent lifetimes in secure jobs at state-owned firms. There was no unemployment insurance and, because few workers ever moved, housing markets were undeveloped. A free market economy requires a strong labor market, so workers can switch from jobs in declining firms to jobs in expanding ones. But Russia’s labor market was undeveloped. Because the government did not yet 15 See Michael Mann, The Sources of Social Power, vol. I: A History of Power from the Beginning to A.D. 1760 (New York: Cambridge University Press, 1986), pp. 1–3. 16 Arnold J. Toynbee, A Study of History, vol. XII, Reconsiderations (London: Oxford University Press, 1961), p. 270. ste12672_ch01_001-021.indd Page 6 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles 6 Chapter 1 The Study of Business, Government, and Society FIGURE 1.1 How Institutions Support Markets JUDICIAL REGULATORY Protect property rights, encourage investment by making dispute resolution predictable. Protect the public and investors from dishonesty, danger, and fraud. FINANCIAL Mobilize capital for saving, borrowing, and lending. THE MARKET POLITICAL Make economic policy, collect taxes, provide social safety nets, check and balance business power. CORPORATIONS Combine capital and labor, encourage risk by limiting liability, and have continuity beyond individual lives. CULTURAL MEDIA Impart values, habits, and norms in family, religious, or educational institutions. Inform the public and stimulate commerce with advertising. provide unemployment benefits to idled workers, there was no safety net. And housing markets were anemic. Company managers, out of basic humanity, were unwilling to lay off workers who would get no benefits and who would find it difficult to move elsewhere.17 As a result, restructuring in the new Russian economy was torpid. The lesson is that institutions are vital to markets. Each institution has a specific purpose in society. The function of business is to make a profit by producing goods and services at prices attractive to consumers. A business uses the resources of society to create new wealth. This justifies its existence and is its priority task. All other social tasks—raising an army, advancing knowledge, healing the sick, or raising children—depend on it. Businesses must, 17 Joseph E. Stiglitz, Globalization and Its Discontents (New York: W. W. Norton, 2002), p. 140. Chapter 1 The Study of Business, Government, and Society 7 material things Tangible artifacts of a society that shape and are shaped by ideas and institutions. therefore, be managed to make a profit. A categorical statement of this point comes from Peter Drucker: “Business management must always, in every decision and action put economic performance first.”18 Without profit, business fails in its duty to society and lacks legitimacy. The third element in society is material things, including land, natural resources, infrastructure, and manufactured goods. These shape and, in the case of fabricated objects, are partly products of ideas and institutions. Economic institutions, together with the extent of resources, largely determine the type and quantity of society’s material goods. The BGS field is the study of interactions among the three broad areas defined above. Its primary focus is on the interaction of business with the other two elements. The basic subject matter, therefore, is how business shapes and changes government and society, and how it, in turn, is molded by political and social pressures. Of special interest is how forces in the BGS nexus affect the manager’s task. WHY IS THE BGS FIELD IMPORTANT TO MANAGERS? To succeed in meeting its objectives, a business must be responsive to both its economic and its noneconomic environment.19 ExxonMobil, for example, must efficiently discover, refine, transport, and market energy. Yet swift response to market forces is not always enough. There are powerful nonmarket forces to which many businesses, especially large ones, are exposed. Their importance is clear in the two dramatic episodes that punctuate ExxonMobil’s history—the 1911 court-ordered breakup and the 1989 Exxon Valdez oil spill. In 1911 the Supreme Court, in a decision that reflected public opinion as well as interpretation of the law, forced Standard Oil to conform with social values favoring open, competitive markets. With unparalleled managerial genius, courage, and perspicacity, John D. Rockefeller and his lieutenants had built a wonder of efficiency that spread fuel and light throughout America at lower cost than otherwise would have prevailed. They never understood why this remarkable commercial performance was not the full measure of Standard Oil. But beyond efficiency, the public demanded fair play. Thus, the great company was dismembered. In Alaska, one of the company’s massive tankers spilled 11 million gallons of crude oil when its captain, having consumed enough vodka “to make most people unconscious,” quit the bridge during a critical maneuver. Left alone, an unlicenced third mate ran onto a reef in pristine, picturesque Prince William Sound.20 The captain was an alcoholic, lately returned to command after a treatment program, but known to have relapsed, drinking in hotels, bars, restaurants, parking lots, and even with Exxon officials. Although the company had a clear policy against 18 Management: Tasks-Responsibilities-Practices (New York: Harper & Row, 1973), p. 40. For discussion of this distinction see Jean J. Boddewyn, “Understanding and Advancing the Concept of ‘Nonmarket,’” Business & Society, September 2003. 20 In re: the Exxon Valdez, 270 F.3rd 1238 (2001). 19 8 Chapter 1 The Study of Business, Government, and Society social contract An underlying agreement between business and society on basic duties and responsibilities business must carry out to retain public support. It may be reflected in laws and regulations. use of alcohol by its crews, managers failed to monitor him. Years later, the United States Supreme Court would call this lapse “worse than negligent but less than malicious.”21 The disaster brought acute legal, political, and image problems for the firm. It spent $2.4 billion to clean up the spill and another $2.2 billion to settle lawsuits that dragged on for 20 years, Congress passed a law barring its ship from ever again entering the area, and activists told motorists to get their gas from other companies.22 Today ExxonMobil operates its 650 tankers with extreme care and randomly tests crews for drugs and alcohol. Remarkably, it is now so disciplined that it measures oil spills from its fleet in tablespoons per million gallons shipped. Between 2006 and 2009 it averaged fewer than five tablespoons lost per million gallons shipped.23 Recognizing that a company operates not only within markets but also within a society is critical. If the society, or one or more powerful elements within it, fails to accept a company’s actions, that firm will be punished and constrained. Put philosophically, a basic agreement or social contract exists between economic institutions and other networks of power in a society. This contract establishes the general duties that business must fulfill to retain the support and acquiescence of the others as it organizes people, exploits nature, and moves markets. It is partly expressed in law, but it also resides in social values. Unfortunately for managers, the social contract, while unequivocal, is not plain, fixed, precise, or concrete. It is as complex and ambiguous as the economic forces a business faces and no less difficult to comprehend. For example, the public believes that business has social responsibilities beyond making profits and obeying regulations. If business does not meet them, it will suffer. But precisely what are those responsibilities? How is corporate social performance to be measured? To what extent must a business comply with unlegislated ethical values? When meeting social expectations beyond the law conflicts with raising profits, what is the priority? Despite these questions, the social contract codifies the expectations of society, and managers who ignore, misread, or violate it court disaster. FOUR MODELS OF THE BGS RELATIONSHIP Interactions among business, government, and society are infinite and their meaning is open to interpretation. Faced with this complexity, many people use simple mental models to impose order and meaning on what they observe. These models are like prisms, each having a different refractive quality, each giving the holder a different view of the world. Depending on the model (or prism) used, a person 21 Exxon Shipping Company v. Baker, 128 S.Ct. 2631 (2008). The $2.4 billion includes $303 million in voluntary payments to nearby residents for economic losses. The $2.2 billion figure includes criminal and civil fines, civil settlements, interest, and $500 million in punitive damages imposed by a federal jury. The law was a provision in the Oil Protection Act of 1990. 22 23 “Changes ExxonMobil Has Made to Prevent Another Accident Like Valdez,” at www.exxonmobil.com/ Corporate/about_issues_valdez_prevention.aspx, accessed October 1, 2009. Chapter 1 The Study of Business, Government, and Society 9 market economy The economy that emerges when people move beyond subsistence production to production for trade, and markets take on a more central role. capitalism An economic ideology with a bundle of values including private ownership of means of production, the profit motive, free competition, and limited government restraint in markets. FIGURE 1.2 The Market Capitalism Model will think differently about the scope of business power in society, criteria for managerial decisions, the extent of corporate responsibility, the ethical duties of managers, and the need for regulation. The following four models are basic alternatives for seeing the BGS relationship. As abstractions they oversimplify reality and magnify central issues. Each model can be both descriptive and prescriptive; that is, it can be both an explanation of how the BGS relationship does work and, in addition, an ideal about how it should work. The Market Capitalism Model The market capitalism model, shown in Figure 1.2, depicts business as operating within a market environment, responding primarily to powerful economic forces. There, it is substantially sheltered from direct impact by social and political forces. The market acts as a buffer between business and nonmarket forces. To appreciate this model, it is important to understand the history and nature of markets and the classic explanation of how they work. Markets are as old as humanity, but for most of recorded history they were a minor institution. People produced mainly for subsistence, not to trade. Then, in the 1700s, some economies began to expand and industrialize, division of labor developed within them, and people started to produce more for trade. As trade grew, the market, through its price signals, took on a more central role in directing the creation and distribution of goods. The advent of this kind of market economy, or an economy in which markets play a major role, reshaped human life. The classic explanation of how a market economy works comes from the Scottish professor of moral philosophy Adam Smith (1723–1790). In his extraordinary treatise, The Wealth of Nations, Smith wrote about what he called “commercial society” or what today we call capitalism. He never used that word. It was adopted later by the philosopher Karl Marx (1818–1883), who contrived it as a term of Sociopolitical Environment Market Environment BUSINESS ste12672_ch01_001-021.indd Page 10 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles 10 Chapter 1 The Study of Business, Government, and Society Full Production and Full Employment under Our Democratic System of Private Enterprise, ca. 1944, a crayon and ink drawing by Michael Lenson, an artist working for the Works Progress Administration Federal Art Project. Lenson focuses on the virtues of market capitalism. Source: The Library of Congress. © Barry Lenson, used with permission. managerial capitalism A market economy in which the dominant businesses are large firms run by salaried managers, not smaller firms run by ownerentrepreneurs. pointed insult. But it caught on and soon lost its negative connotation.24 Smith said the desire to trade for mutual advantage lay deep in human instinct. He noted the growing division of labor in society led more people to try to satisfy their self-interests by specializing their work, then exchanging goods with each other. As they did so, the market’s pricing mechanism reconciled supply and demand, and its ceaseless tendency was to make commodities cheaper, better, and more available. The beauty of this process, according to Smith, was that it coordinated the activities of strangers who, to pursue their selfish advantage, were forced to fulfill the needs of others. In Smith’s words, each trader was “led by an invisible hand to promote an end which was no part of his intention,” the collective good of society.25 Through markets that harnessed the constant energy of greed for the public welfare, Smith believed that nations would achieve “universal opulence.” His genius was to demystify the way markets work, to frame market capitalism in moral terms, to extol its virtues, and to give it lasting justification as a source of human progress. The greater good for society came when businesses competed freely. In Smith’s day producers and sellers were individuals and small businesses managed by their owners. Later, by the late 1800s and early 1900s, throughout the industrialized world, the type of economy described by Smith had evolved into a system of managerial capitalism. In it the innumerable, small, owner-run firms that animated Smith’s marketplace were overshadowed by a much smaller number of dominant corporations run by hierarchies of salaried managers.26 These managers 24 Jerry Z. Muller, The Mind and the Market: Capitalism in Modern European Thought (New York: Knopf, 2002), p. xvi. 25 Adam Smith, The Wealth of Nations, ed. E. Cannan (New York: Modern Library, 1937), Book IV, chap. II, p. 423. First published in 1776. 26 Alfred D. Chandler, Jr., “The Emergence of Managerial Capitalism,” Business History Review, winter 1984, p. 473. ste12672_ch01_001-021.indd Page 11 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles Chapter 1 The Study of Business, Government, and Society 11 laissez-faire An economic philosophy that rejects government intervention in markets. had limited ownership in their companies and worked for shareholders. This variant of capitalism has now spread throughout the world. The model incorporates important assumptions. One is that government interference in economic life is slight. This is called laissez-faire, a term first used by the French to mean that government should “let us alone.” It stands for the belief that government intervention in the market is undesirable. It is costly because it lessens the efficiency with which free enterprise operates to benefit customers. It is unnecessary because market forces are benevolent and, if liberated, will channel economic resources to meet society’s needs. It is for governments, not businesses, to correct social problems. Therefore, managers should define company interests narrowly, as profitability and efficiency. Another assumption is that individuals can own private property and freely risk investments. Under these circumstances, business owners are powerfully motivated to make a profit. If free competition exists, the market will hold profits to a minimum and the quality of products and services will rise as competing firms try to attract more buyers. If one tries to increase profits by charging higher prices, consumers will go to another. If one producer makes higher-quality products, others must follow. In this way, markets convert selfish competition into broad social benefits. Other assumptions include these: Consumers are informed about products and prices and make rational decisions. Moral restraint accompanies the selfinterested behavior of business. Basic institutions such as banking and laws exist to ease commerce. There are many producers and consumers in competitive markets. The perspective of the market capitalism model leads to these conclusions about the BGS relationship: (1) government regulation should be limited, (2) markets will discipline private economic activity to promote social welfare, (3) the proper measure of corporate performance is profit, and (4) the ethical duty of management is to promote the interests of owners and investors. These tenets of market capitalism have shaped economic values in the industrialized West and, as markets spread, they do so increasingly elsewhere. There are many critics of capitalism and the market capitalism model. Bernard Mandeville (1670–1733), an intellect predating Adam Smith, argued that markets erode virtue. The envy, avarice, self-love, and ruthlessness that energize them are base values driving out virtues such as love, friendship, and compassion.27 Karl Marx believed that owners of capital exploited workers and promoted systems of rising inequality. The communist Vladimir Lenin (1870–1924) wrote that industrialists masterminded imperial foreign policies to effect a “territorial division of the whole world among the greatest capitalist powers.”28 Pope John Paul II (1920–2005) feared that markets place too much emphasis on money and material objects and cautioned against a “domination of things over people.”29 27 See George Bragues, “Business Is One Thing, Ethics Is Another: Revisiting Bernard Mandeville’s The Fable of the Bees,” Business Ethics Quarterly, April 2005. 28 V. I. Lenin, Imperialism: The Highest Stage of Capitalism (New York: International Publishers, 1939), p. 89. 29 Ioannes Paulus PP.II, Encyclical Letter, Centesimus annus (May 1, 1991), no. 33. ste12672_ch01_001-021.indd Page 12 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles 12 Chapter 1 The Study of Business, Government, and Society Such critics see a long list of flaws that often, perhaps inevitably, appear in markets. Without correction the market amplifies blemishes of human nature and the result is conspiracies, monopolies, frauds, pollution, and dangerous products. Business models arise to satisfy vices such as adultery, gossiping, gambling, smoking, drug use, and prostitution. Calls for corporate social responsibility and more ethical managerial behavior stem from the inevitability of capitalism’s flaws. As promised by its defenders, capitalism has created material progress. Yet its dark side is unremitting. Denunciations of capitalism are pronounced today, but none are new. They carry on a regular attack that winds through the Western intellectual tradition. Adam Smith himself had some reservations and second thoughts. He feared both physical and moral decline in factory workers and the unwarranted idolization of the rich, who might have earned their wealth by unvirtuous methods. In his later years, he grew to see more need for government intervention. But Smith never envisioned a system based solely on greed and self-interest. He expected that in society these traits must coexist with restraint and benevolence.30 The ageless debate over whether capitalism is the best means to human fulfillment will continue. Meanwhile, we turn our discussion to an alternative model of the BGS relationship that attracts many of capitalism’s detractors. The Dominance Model The dominance model is a second basic way of seeing the BGS relationship. It represents primarily the perspective of business critics. In it, business and government dominate the great mass of people. This idea is represented in the pyramidal, hierarchical image of society shown in Figure 1.3. FIGURE 1.3 Environmental Forces The Dominance Model BusinessGovernment Masses 30 E. G. West, ed., The Theory of Moral Sentiments (Indianapolis: Liberty Classics, 1976), pp. 70–72. Originally published in 1853. ste12672_ch01_001-021.indd Page 13 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles Chapter 1 The Study of Business, Government, and Society 13 populism A political pattern, recurrent in world history, in which common people who feel oppressed or disadvantaged seek to take power from a ruling elite seen as thwarting fulfillment of the collective welfare. Those who subscribe to the model believe that corporations and a powerful elite control a system that enriches a few at the expense of the many. Such a system is undemocratic. In democratic theory, governments and leaders represent interests expressed by the people, who are sovereign. Proponents of the dominance model focus on the defects and inefficiencies of capitalism. They believe that corporations are insulated from pressures holding them responsible, that regulation by a government in thrall to big business is feeble, and that market forces are inadequate to ensure ethical management. Unlike other models, the dominance model does not represent an ideal in addition to a description of how things are. For its advocates, the ideal is to turn it upside down so that the BGS relationship conforms to democratic principles. In the United States the dominance model gained a following during the late nineteenth century when large trusts such as Standard Oil emerged, buying politicians, exploiting workers, monopolizing markets, and sharpening income disparities. Beginning in the 1870s, diverse groups of plain people who found themselves toiling under the directives of rich capitalists rejected the market capitalism model and based a populist reform movement on the critical view of society implied in the dominance model. Populism is a recurrent spectacle in which common people who feel oppressed or disadvantaged in some way seek to take power from a ruling elite that thwarts fulfillment of the collective welfare. In America, the populist impulse bred a sociopolitical movement of economically hard-pressed farmers, miners, and workers lasting from the 1870s to the 1890s that blamed the Eastern business establishment for a range of social ills and sought to limit its power. This was an era when, for the first time, on a national scale the actions of powerful business magnates shaped the destinies of common people. Some displayed contempt for commoners. “The public be damned,” railroad magnate William H. Vanderbilt told a reporter during an interview in his luxurious private railway car. 31 The next day, newspapers around the country printed his remark, enraging the public. Later, Edward Harriman, the aloof, arrogant president of the Union Pacific Railroad, allegedly reassured industry leaders worried about reform legislation, saying “that he ‘could buy Congress’ and that if necessary he ‘could buy the judiciary.’”32 It was with respect to Harriman that President Theodore Roosevelt once noted, “men of very great wealth in too many instances totally failed to understand the temper of the country and its needs.”33 31 “Reporter C.P. Dresser Dead,” The New York Times, April 25, 1891, p. 7. In fairness to Vanderbilt, the context of the remark is elusive. It came in response to questioning by a reporter who may have awakened Vanderbilt at 2:00 a.m. to ask, perhaps insolently, if he would keep an unprofitable route in service to the public. Vanderbilt’s response was magnified far beyond a cross retort to become the age’s enduring emblem of arrogant wealth. See “Human Factor Great Lever in Railroading,” Los Angeles Times, October 20, 1912, p. V15; and Ashley W. Cole, “A Famous Remark,” The New York Times, August 25, 1918, p. 22 (letter to the editor). 32 Quoted from correspondence of Theodore Roosevelt in Maury Klein, The Life & Legend of E.H. Harriman (Chapel Hill: University of North Carolina Press, 2000), p. 369. 33 Ibid., p. 363. ste12672_ch01_001-021.indd Page 14 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles 14 Chapter 1 The Study of Business, Government, and Society This 1900 political cartoon illustrates a central theme of the dominance model, that powerful business interests act in concert with government to further selfish money interests. Although the cartoon is old, the idea remains compelling for many. Source: © Bettmann/CORBIS Marxism An ideology holding that workers should revolt against propertyowning capitalists who exploit them, replacing economic and political domination with more equal and democratic socialist institutions. The populist movement in America ultimately fell short of reforming the BGS relationship to a democratic ideal. Other industrializing nations, notably Japan, had similar populist movements. Marxism, an ideology opposed to industrial capitalism, emerged in Europe at about the same time as these movements, and it also contained ideas resonant with the dominance model. In capitalist societies, according to Karl Marx, an owner class dominates the economy and ruling institutions. Many business critics worldwide advocated socialist reforms that, based on Marx’s theory, could achieve more equitable distribution of power and wealth. In the United States the dominance model may have been most accurate in the late 1800s when it first arose to conceptualize a world of brazen corporate power and politicians who openly represented industries. However, it remains popular. Ralph Nader, for example, speaks its language. Over the past 20 years, big business has increasingly dominated our political economy. This control by corporate government over our political government is creating a widening “democracy gap.” The unconstrained behavior of big business is subordinating our democracy to the control of a corporate plutocracy that knows few self-imposed limits to the spread of its power to all sectors of our society.34 Nader persists in the rhetoric of the dominance model. Running for president in 2008 he wrote that “the corporations . . . have become our government . . . [and] 34 “Statement of Ralph Nader,” in The Ralph Nader Reader (New York: Seven Stories Press, 2000), pp. 3 and 4. ste12672_ch01_001-021.indd Page 15 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles Chapter 1 The Study of Business, Government, and Society 15 FIGURE 1.4 The Countervailing Forces Model Environmental Catalysts The Public •Markets •Geopolitics •Ideologies •Movements •Technology •Nature •Wars, terrorism •Information media •Cultural values •Public opinion •Voting •Interest groups •Market demands •Social classes •Demographic change Business Government •Products, services •Use of technologies •Public relations •Campaign donations •Government service by executives •Lobbying •Philanthropy •Constitutions •Laws and statutes •Regulations •Political parties •Political leaders •Judiciaries both parties are moving deeper into the grip of global corporatism,”35 later adding that “corporate power over our political economy and its control over people’s lives knows few boundaries.”36 The Countervailing Forces Model The countervailing forces model, shown in Figure 1.4, depicts the BGS relationship as a flow of interactions among major elements of society. It suggests exchanges of power among them, attributing constant dominance to none. This is a model of multiple forces. The power of each element can rise or fall depending on factors such as the subject at issue, the strength of competing interests, the intensity of feeling, and the influence of leaders. The countervailing forces model generally reflects a way of looking at the BGS relationship in the United States and other Western industrialized nations. It differs from the market capitalism model in opening business directly to influence by nonmarket forces. It differs 35 Ralph Nader, “It’s Not About Me. It’s About Our Broken System,” USA Today, March 5, 2008, p. 11A. Ralph Nader, “Time for Citizens to Convene,” Common Dreams.org, September 28, 2009, at www.commondreams.org. 36 ste12672_ch01_001-021.indd Page 16 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles 16 Chapter 1 The Study of Business, Government, and Society stakeholder An entity that is benefitted or burdened by the actions of a corporation or whose actions may benefit or burden the corporation. The corporation has an ethical duty toward these entities. from the dominance model in rejecting an absolute primacy of business and crediting more power to a combination of forces and interactions rendered paltry by the dominance model. What overarching conclusions can be drawn from this model? First, business is deeply integrated into an open society and must respond to many forces, both economic and noneconomic. It is not isolated from any part of society, nor is it always dominant. Markets, for example, have the power to organize human activity and can operate very independently of corporate influence. Business exerts power in them, but so do other elements in society. Consumer demand rewards some business decisions, penalizes others, and forces innovation. Governments also shape markets, restricting buyers and sellers as to what products can be exchanged, when, and how. Second, business is a major force acting on government, the public, and environmental factors. Business often defeats labor, wins political battles, and shapes public opinion. It consumes natural resources. It conditions cultural values, for example, commercialism and materialism, each encouraged by advertising perhaps at the expense of values such as temperance and spirituality. Some believe that among the power groupings in American society business predominates. However, defeats, compromises, and power sharing are highly visible. For example, in the 1970s large corporations fought new environmental regulations only to see a string of major laws, costly to comply with, adopted by Congress. Third, to maintain broad public support, business must adjust to social, political, and economic forces it can influence but not control. Faulty adjustment invites correction. This is the social contract in action. For more than 50 years American business suppressed labor unions. In keeping with the dominance model, government acted as its constant ally, even sending troops to end strikes forcibly, sometimes violently. Then, during the depression of the 1930s, the public blamed economic problems on corporate greed and excesses, electing President Franklin D. Roosevelt to bring reform. Sympathy for struggling workers was so strong that in 1935 Congress passed the National Labor Relations Act, protecting and easing union organizing, a colossal defeat for business and a bitter lesson about the social contract. Finally, BGS relationships evolve as changes take place in the ideas, institutions, and processes of society. After the collapse of financial markets in late 2008, for example, the federal government took unprecedented actions, taking large ownership shares in big companies, firing the CEO of General Motors, and dictating executive salaries. Such actions altered the nature of capitalism as practiced in the United States in a way that reduced business power. The Stakeholder Model The stakeholder model in Figure 1.5 shows the corporation at the center of an array of relationships with persons, groups, and entities called stakeholders. Stakeholders are those whom the corporation benefits or burdens by its actions and those who benefit or burden the firm with their actions. A large corporation has many stakeholders, all divisible into two categories based on the nature of the relationship. But the assignments are relative, approximate, and inexact. Depending ste12672_ch01_001-021.indd Page 17 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles Chapter 1 The Study of Business, Government, and Society 17 FIGURE 1.5 The Stakeholder Model Educational Institutions Media The Poor Competitors Stockholders Future Generations Suppliers Governments Customers Corporation Trade Associations Earth’s Biosphere Religious Groups Primary Stakeholders primary stakeholders Entities in a relationship with the corporation in which they, the corporation, or both are affected immediately, continuously, and powerfully. secondary stakeholders Entities in a relationship with the corporation in which the effects on them, the corporation, or both are less significant and pressing. Communities Political Parties Employees Political Interest Groups Creditors Unions Secondary Stakeholders on the corporation or the episode, a few stakeholders may shift from one category to the other. Primary stakeholders are a small number of constituents for which the impact of the relationship is mutually immediate, continuous, and powerful. They are usually stockholders (owners), customers, employees, communities, and governments and may, depending on the firm, include others such as suppliers or creditors. Secondary stakeholders include a possibly broad range of constituents in which the relationship is one of less immediacy, benefit, burden, or power to influence. Examples are activists, trade associations, politicians, and schools. This model is based on a growing body of work by academicians who follow the lead of R. Edward Freeman, a management scholar and ethicist whose seminal 1984 book consolidated rudimentary ideas into a cohesive theory.37 Now the idea seizes the imagination of many, including Pope Benedict XVI who writes of 37 R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman Publishing, 1984). ste12672_ch01_001-021.indd Page 18 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles 18 Chapter 1 The Study of Business, Government, and Society “a growing conviction that business management cannot concern itself only with the interests of proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business.”38 Exponents of the stakeholder model debate how to identify who or what is a stakeholder. Some use a broad definition and extend the idea to include, for example, natural entities such as the earth’s atmosphere, oceans, terrain, and living creatures because corporations have an impact on them.39 Others reject this broadening, since natural entities are defended by conventional stakeholders such as environmental groups. At the farthest reaches of the stakeholder idea lie groups such as the poor and future generations. But in the words of one advocate, “[s]takeholder theory should not be used to weave a basket big enough to hold the world’s misery.”40 If groups such as the poor were included in the stakeholder network, managers would be morally obliged to run headlong at endless problems, taking them beyond any conceivable economic mission. Still, any group becomes a stakeholder simply by attacking the reputation and image of the corporation. Political activism equals right to consideration. The stakeholder model reorders the priorities of management away from those in the market capitalism model. There, the corporation is the private property of those who contribute its capital. Its top priority is to benefit one group—the investors. The stakeholder model, by contrast, removes this priority, replacing it with an ethical theory of management in which the welfare of each stakeholder must be considered as an end. Stakeholder interests have intrinsic worth: They are not to be valued only as they enrich investors. Managers have a duty to consider the interests of multiple stakeholders, and thus, “the interests of shareowners . . . are not always primary and never exclusive.”41 Beyond this, other ethical duties that have been suggested include avoiding harm, justifying decisions, and protecting future generations.42 The stakeholder theory is at heart a political ideology that regards traditional capitalist corporate governance as akin to an undemocratic political system in which the “population” of stakeholders is not given proper representation. Without checks and balances autocratic managers will be tempted by greed into various degrees of economic oppression, treating the un- and underrepresented stakeholders unfairly. The ethical concept of duties introduces such a mechanism of representation. Stakeholder management creates duties toward multiple 38 Benedictus PP.XVI, Encyclical Letter, Caritas in Veritate (2009), no. 40. See Edward Stead and Jean Garner Stead, “Earth: A Spiritual Stakeholder,” Business Ethics Quarterly, Ruffin Series no. 2 (2000), pp. 321–44. 40 Max Clarkson, A Risk-Based Model of Stakeholder Theory (Toronto: The Centre for Corporate Social Performance & Ethics, 1994), cited in Robert Philips, Stakeholder Theory and Organizational Ethics (San Francisco: Berrett-Koehler, 2003), p. 119. See also James P. Walsh, “Taking Stock of Stakeholder Management,” Academy of Management Review 30, no. 2, p. 205. 41 James E. Post, Lee E. Preston, and Sybille Sachs, Redefining the Corporation: Stakeholder Management and Organizational Wealth (Stanford, CA: Stanford University Press, 2002), p. 17. 42 For a list of ethical duties toward stakeholders see Advisory Panel, Newmont Community Relationships Review, Building Effective Community Relationships: Final Report of the Advisory Panel to Newmont’s Community Relationship Review, February 8, 2009, appendix 7. 39 ste12672_ch01_001-021.indd Page 19 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles Chapter 1 The Study of Business, Government, and Society 19 entities of the corporation—duties not emphasized in the traditional capitalist firm, which tries to dominate its environment out of an obsessive focus on enriching stockholders. Management must raise its gaze above profits to see and respond to a spectrum of other values; it must manage to make each stakeholder “better off.”43 The stakeholder model is intended to “revitalize capitalism” with a “new conceptualization” of how the corporation should work.44 It rejects the shareholder-centered view of the firm in the market capitalism model as “ethically unacceptable.”45 Not everyone agrees. Critics argue that the stakeholder model is an unrealistic assessment of power relationships between the corporation and other entities. It seeks to give power to the powerless by replacing force with ethical duty, a timeless and often futile quest of moralists. In addition, it sets up too vague a guideline to substitute for the yardstick of pure profit. Unlike traditional criteria such as return on capital, there is no single, clear, and objective measure to evaluate the combined ethical/economic performance of a firm. According to one critic, this lack of a criterion “would render impossible rational management decision making for there is simply no way to adjudicate between alternative projects when there is more than one bottom line.”46 In addition, the interests of stakeholders so vary that often they conflict with shareholders and with one another. With respect to corporate actions, laws and regulations protect stakeholder interests. Creating surplus ethical sensitivity that soars above legal duty is impractical and unnecessary.47 And finally, a lasting conviction, going back to Adam Smith, is that even the most fanatical pursuit of profit, if guided by law and the invisible hand, creates greater lasting good for society than pursuit of profit tempered by compassion. If a new conception of capitalism redistributes decision-making power and resources to stakeholders it can only impair the efficiency of the firm in maximizing both profits and social benefits.48 Some puzzles exist in stakeholder thinking. It is not always clear who or what is a legitimate stakeholder, to what each stakeholder is entitled, or how managers should balance competing demands among a range of stakeholders. Yet its advocates find two arguments compelling. First, a corporation that embraces stakeholders prospers more, better sustaining its wealth-creating function with the support of a network of parties beyond shareholders. Put bluntly by an advocate of the stakeholder perspective, “[e]xecutives ignore stakeholders at the peril of the survival of their companies.”49 Second, it is the ethical way to manage because stakeholders have moral rights that grow from the way powerful corporations 43 R. Edward Freeman, Jeffrey S. Harrison, and Andrew C. Wicks, Managing for Stakeholders: Survival, Reputation, and Success (New Haven: Yale University Press, 2007), p. 12. 44 Freeman, Harrison, and Wicks, Managing for Stakeholders, pp. x and 3. Post, Preston, and Sachs, Redefining the Corporation, p. 16. 46 John Argenti, “Stakeholders: The Case Against,” Long Range Planning, June 1997, p. 444. 47 Anant K. Sundaram, “Tending to Shareholders,” Financial Times, May 26, 2006, p. 6. 48 James A. Stieb, “Assessing Freeman’s Stakeholder Theory,” Journal of Business Ethics, 87 (2009), p. 410. 49 R. Edward Freeman, “The Wal-Mart Effect and Business, Ethics, and Society,” Academy of Management Perspectives, August 2006, p. 40. 45 ste12672_ch01_001-021.indd Page 20 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles 20 Chapter 1 The Study of Business, Government, and Society affect them. Despite academic debates, in practice the stakeholder ideology has been powerful enough to change the way capitalist corporations are managed. Most of the largest global corporations now analyze their stakeholders and enter into dialogue with a wide range of them. This trend is discussed in Chapter 6. OUR APPROACH TO THE SUBJECT MATTER Discussion of the business-government-society field could be organized in many ways. The following is an overview of our approach. Comprehensive Scope This book is comprehensive. It covers many subjects. We believe that for those new to the field seeing a panorama is helpful. Because there is less depth in the treatment of subjects than can be found in specialized volumes, we suggest additional sources in footnotes. Interdisciplinary Approach with a Management Focus strategic management Actions taken by managers to adapt a company to changes in its market and sociopolitical environments. theory A statement or vision that creates insight by describing patterns or relationships in a diffuse subject matter. A good theory is concise and simplifies complex phenomena. The field is exceptionally interdisciplinary. It exists at the confluence of a fairly large number of established academic disciplines, each of which contributes to its study. These disciplines include the traditional business disciplines, particularly management; other professional disciplines, including medicine, law, and theology; the social sciences, including economics, political science, philosophy, history, and sociology; and, from time to time, natural sciences such as chemistry and ecology. Thus, our approach is eclectic; we cross boundaries to find insight. The dominant orientation, however, is the discipline of management and, within it, the study of strategic management, or actions that adapt the company to its changing environment. To compete and survive, firms must create missions, purposes, and objectives; the policies and programs to achieve them; and the methods to implement them. We discuss these elements as they relate to corporate social performance, illustrating successes and failures. Use of Theory, Description, and Case Studies Theories simplify and organize areas of knowledge by describing patterns or regularities in the subject matter. They are important in every field, but especially in this one, where innumerable details from broad categories of human experience intersect to create a new intellectual universe. Where theory is missing or weak, scholarship must rely more on description and the use of case method. No underlying theory to integrate the entire field exists. Fortunately, the community of scholars studying BGS relationships is building theory in several areas. The first is theory describing how corporations interact with stakeholders. The second is theory regarding the ethical duties of corporations and managers. And the third is theory explaining corporate social performance and how it can be measured. Theory in this last area focuses on defining exactly what a firm does to be responsible in society and on creating scales and rulers with which to weigh ste12672_ch01_001-021.indd Page 21 4/4/11 7:36 PM user-f501 204/MHBR234/ste12672_disk1of1/0078112672/ste12672_pagefiles Chapter 1 The Study of Business, Government, and Society 21 and measure its actions. Scholarship in all three areas shows increasing sophistication and wider agreement on basic ideas. Despite the lack of a grand theory to unify the field, useful theories abound in related disciplines. For example, there are economic theories about the impact of government regulation, scientific theories on the risks of industrial pollution, political theories of corporate power, ethical theories about the good and evil in manager’s actions, and legal theories on subjects such as negligence applied by courts to corporations when, for example, industrial accidents occur. When fitting, we discuss such theories; elsewhere we rely on descriptions of events. In each chapter, we also use stories at the beginning and case studies at the end to invite discussion. Global Perspective Today economic globalization animates the planetary stage, creating movements of people, money, goods, and information that, in turn, beget conflicts as some benefit more and others less or not at all. Viewing any nation’s economy or businesses in isolation from the rest of the world is myopic. Every government finds its economic and social welfare policies judged by world markets. Every corporation has a home country, but many have more sales, assets, and employees outside its borders than within. For now, capitalism is ascendant. It brings unprecedented wealth creation and new material comforts, but it also brings profound risks of economic shocks, imposes burdens on human rights and the environment, and challenges diversity of values for those who stand aloof from the free market consensus. A fitting perspective on the BGS relationship must, therefore, be global. Historical Perspective history The study of phenomena moving through time. History is the study of phenomena moving through time. The BGS relationship is a stream of events, of which only one part exists today. Historical perspective is important for many reasons. It helps us see that today’s BGS relationship is not like that of other eras; that current ideas and institutions are not the only alternative; that historical forces are irrepressible; that corporations both cause and adapt to change; that our era is not unique in undergoing rapid change; and that we are shaping the future now. In addition, the historical record is relatively complete, revealing more clearly the lessons and consequences of past events as compared with current ones that have yet to play out and show their full significance. Despite appearances of novelty, the present is seldom unparalleled and is best understood as an extension of the past. So we often examine the origins of current arrangements, finding them both enlightening and entertaining. Readers of this book, many at the beginning of long business careers, can take heart from the words of Nicolò Machiavelli, a student of history who believed that “whoever wishes to foresee the future must consult the past; for human events ever resemble those of preceding times.”50 50 Niccolò Machiavelli, Discourses on the First Ten Books of Titus Livius (New York: The Modern Library, 1950), book 3, chapter 43, p. 530, written in 1513. Chapter Two The Dynamic Environment Royal Dutch Shell PLC scenario A plausible story of the future based on assumptions about how current trends might play out. liberalization An economic policy of lowering tariffs and other barriers to encourage foreign trade. Royal Dutch Shell is one of the world’s largest companies. It operates in 130 countries. Each year it makes capital investments of between $30 billion and $40 billion, sums ...
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MEMO

1

To: Managers and Employees
From:
Date:10th May 10, 2019
Subject: Preparing for The Changing Workplace
Change is the new Normal. How can we adapt? Change is inevitable and is essential
especially with the ongoing throat cutting competition in the economic environment. We are
working in a highly dynamic business environment with the majority of the companies relying on
full-time employees. Employees are increasingly juggling with workplace commitments and
private lives. New businesses, emerging as large or small, are increasingly gaining entry into the
market all striving to gain a larger share and extending their survival. These changes are creating
a more competitive economy affecting the substance and conditions in the workplace. As such,
companies are increasingly seeking new strategic measures that can help them dominate the
market. The pace of change relentless. Businesses are expected to conform to the changes to ensure
continued existence and performance improvement in the market.
How is the workplace Changing?
Technology is at the heart of the changing workplace. Businesses are increasingly
recognizing technology as a double-edged sword that makes carrying tasks quicker and easier.
Technology is a vital driver of effective internal operations and change in an organization (Kramer,
2017). The technology available to us today has changed not only how the organization operations
but also how the employees think and work (Gharabegian, 2018). From medicine to travel,
technology has gone up and beyond to change the process of design, thinking conceptualization
and the aspect of product development. For example, two decades ago, designers and architects
across the globe could not design and use visual manipulation than they are able today
(Gharabegian, 2018). Technology has transformed the development processes and ultimately
improving the rate of productivity of the employees and performance of an organization. With the
ongoing development, various trends have emerged and others anticipated to arise (Gharabegian,
2018). For example, social media is one of the greatest development attributed to technology.
Platforms such as Facebook, Twitter and Instagram have transformed the concept of
communication, marketing and advertisement at the workplace. Ideally, social media has given
power back to the people hence efficiently communicating their concerns that can be instantly
accessed by an organization thus utilizing the necessary measures to institute change. Besides,
wireless internet, emails and virtual video conferencing are changing the ways of communication
at the workplace (Gharabegian, 2018). For example, in large organizations, leaders can now use
memos and emails to communicate to a large number of employees at the same time that cannot
be otherwi...


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