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
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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
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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
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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
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2011007905
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We dedicate this book to the memory of
Jean Wood Steiner.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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.
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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
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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.
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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
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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
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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
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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
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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).
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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
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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
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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
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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,
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