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Administrative Studies
ADMS 1000
Peter Tsasis

The Challenge of Business Economic Economic Forces Forces Political Global Political Global Forces Forces Forces Forces Customers Government People SuppliersOrganization Local Public Structure Employees Creditors Strategy Competitors Distributors Forcesy Technological Society Unions Technological Forces Forces Forces Competitive Competitive Forces Forces Internal Forces (K. 6) • People – Effective Managing People (K. 6) • Structure – Developing a Suitable Organization Structure (K. 8) • Strategy – Generating a Winning Business Strategy (K. 9) External Forces (K. 9) – Can have either positive or negative effects on the organization. Specific or Task Environment (K. 11) – Parties or groups that have direct influence on the organization’s ability to obtain resources and generate outputs, or have some kind of stake or interest in the organization. Stockholders: Customers, Suppliers, Employees, Competitors, Unions, Distributors, Creditors, Local Public, and the Government. General Environment (K. 11) • Economic Forces (K. 11) – How is the local business and population doing in terms of financial well-being? i.e. Is it a third world/poor environment? Is it an environment in which business can’t do very well? Economic Slump  Downsizing/Lay-off or lots of job losses, not much work, people can’t afford to buy much, cuts in training and staff development, End of traditional work practices. Economic Boom  expansion, extra training, R & D, etc. e.g. Mining Company Case: Operate in a Third World Country (poor economy)  (Impact) Good Thing: benefit from cheap labor and cheap mining properties Minimize the cost. • Competitive Forces (K. 12) – The number of competitors (organization’s views) and the nature of competition (e.g. globalization) will dictate changes in organization design and strategy. e.g. Walmart Case: Loblaws are forced to offer low prices because of its competitors – Walmart. 1 • Technological Forces (K 13) – How organization obtains resource, produce, and compete effectively. Change in technology is a constant and impact on organization – increasing competitors, reducing costs (replace the human labor), generating flexibility in work arrangement, work hours. e.g. Mining Company Case: In long-term, technology can take the place of human labor  achieve more financial success (reducing cost) and be more socially responsible (not using people to mine in dangerous area or improve the working condition). • Societal Forces (K. 13) – Society has a certain set of ethics or values, and these can influence the type of behaviour that organizations will manifest in that society. Business must respond to society: Organization Justice (Social responsibility), How employees are treated, Consumer tastes change, responsible for unethical behaviour of employees, etc. • Global Forces (K. 15) – Global events have an increasingly important impact on local organizations. Trade blocs (Free trade areas), Consumer preferences. Business outsourcing to gain a competitive advantage (lower cost). Generate domestic and foreign competitors, workers, industry etc. • Political Forces (K. 16) – The political environment of business can dictate changes in how business competes, or what services it offers and how they can be offered. E.g. Reduction in trade barriers  Increasing presence of foreign competitors  Force to compete in an open market  may responded by downsizing their workforce. Internal Force and External Force of Walmart: Managing the Forces • Internal forces: • People management – criticized as poor • Structure – becoming too big & bureaucratic? • Strategy – originally gave them success: big box retailer, cost cutting strategies • External forces • Economic – strategy compatible with low income economy • Technological – inventory control • Global – gained from access to global suppliers • Political – grew globally as trade agreements grew. • Competitive – tended to wipe out smaller competitors • Societal – Walmart’s low wage policy could pressure other companies like Loblaws to follow a similar strategy, and this could create a pattern across many organization of reduced wages. This could have cumulative effect of loader wages and consequently the standard of living across a broader section of society. Society is a stakeholder in this manner. 2 The Responsibilities of Business Business and Society Relationship • Business takes social resources to serve society as well as generate its profits. • Issues of business ethics: misuse of natural resources, too close relationship with government, not treated employees properly, and corporations being too big and too powerful (K. 40). General issues included corporate abuse of the environment, sweatshop condition employment, sexual harassment in the workplace, toxic waste disposal, minority right, insider trading, product liability crises, and use its power to influent the outcome of legislation. (KCB. 3). • The rapidly expanding list of corporate wrongdoers has caused a breach in society’s trust for business leaders. E.g., Enron  forged financial reports by management, auditor, and public accounting firm. WorldCom  bankruptcy as a result of corporate corruption and falsely report their revenues (KCB. 2). Stakeholders (K. 42 & KCB. 21) • Stakeholders are individuals or groups with whom business interacts and who have a “stake,” or vested interest, in the business. Stakeholders can affect or is affected by the actions, decisions, policies, practices, or goals of the organization (KCB. 21). ○ Stake: an Interest or share in an activity ○ Right: a legal right (to fair treatment) or a moral right (to expect satisfactory service) ○ Ownership: a legal title to an asset/ property • External Stakeholder: Government (Regulation, Tax, Consumer Safety) , Consumers (Safe Products, Benefit, Cost), Community members (Pollution, Resource Usage, Discrimination) • Internal Stakeholder: Owner/Investors/Shareholders (Profits), Employees/Manager (Well- Treated, Well-Paid wage, Benefit) • Primary Social Stakeholders (KCB. 23): ○ Shareholders, owner and investors  Profit ○ Employees and managers  Well-Treated, Well-Paid wage, Benefit, Discrimination ○ Customers or consumers  safe and satisfied product, reasonable price ○ Local communities Be ethical and social responsibilities (Pollution, Resource misuses) ○ Suppliers and other business partners  Profits or benefit from cooperation ○ Government and regulations  Regulation, Tax, Consumer Safety • Secondary Social Stakeholders (KCB. 23): ○ Social pressure groups ○ Media and Academics commentators ○ Trade bodies ○ Competitors • Primary nonsocial Stakeholders: (KCB. 24) • Secondary Nonsocial Stakeholders: ○ The natural environment ○ Environment pressure group ○ Future generations ○ Animal welfare organizations ○ Nonhuman species 3 • Primary stakeholders have a direct stake in the organization and its success. Secondary stakeholders are influential but stake is more representational of public or special interest. Accountability to secondary stakeholders is less but may be very powerful (Become Primary). 4 Corporate Social Responsibilities • The obligation of decision makers to take actions which protect and improve the welfare of society as a whole along with their own interests (KCB. 5). An Obligation to create policies, make decisions and engage in actions that are desirable in terms of society’s value and objectives (K. 43). • The Pyramid of Corporate Social Responsibilities (CSR): (K. 45 & KCB 8-9) CSR Responsibilities Societal Expectation Example Society requires business to Make rational business strategy, Economic Responsibilities fulfill these Responsibilities make profits, minimize costs, be attentive to dividend policy Obey/Honour all relevant laws and Legal Responsibilities Society requires business to regulations: environmental, fulfill these Responsibilities consumer employment laws Be ethical. Engages in business practices that are in line with what Ethical Responsibilities Society expects business to society considers acceptable, fair, fulfill these Responsibilities just. Avoid questionable practices, assume law is a floor on behaviors, operate above minimum required Be a good corporate citizen, engages in activities that help the Society desires business to Philanthropic Responsibilities fulfill these Responsibilities betterment of society, i.e. volunteerism, charity, cooperate donations, corporate contributions • Economic Responsibilities (KCB. 6) – To produce goods and services that society wants and to sell them at fair price which provide profits to ensure business growth and benefits to its investors. • Legal Responsibilities (KCB. 6) – Legal responsibilities do not cover the full range of behaviours expected of business by society: 1- Law cannot address all the topics areas or issues that business faces (e-commerce, genetically engineered foods) 2- Laws may are outdated. 3- Laws may be personal interests and political motivations of legislator rather than ethical justifications. So, society expects more responsibilities from business. • Ethical Responsibilities (KCB. 6) – To present the full scope of norms, standards, and expectations that reflect a belief of what consumers, employees, shareholders, and the community regard as fair just, and in keeping with the respect for or protection of stakeholders’ moral rights, which has not yet included or codified into laws. (Social pressure) • Philanthropic Responsibilities (KCB. 6) – The activities that are voluntary, guided only by business’s desire to engage in social activities that are not mandated, not required by law, and not generally expected by business in an ethical sense. E.g., CIBC  Cancer charity; Microsoft  donation to community programs, etc. (No social pressure for company to conduct the responsibilities) 5 The Case Against CSR 1. Business is Business (K. 45): Profit maximization (for owner/Investor/Shareholder) is the primary purpose of business; social issues are not the concern of businesspeople. The invisible hand of the free market will produce a systematic morality. CSR Confuse economic goals  fail to fulfill basic business function/operation efficiently. No company can be expected to serve the social interest unless its self-interest is also served. Outsourcing  unemployment  Not CSR, but if Not Outsourcing  No cheap labor, No lower cost  Less competitive advantages/Loss/Bankruptcy. 2. Business Plays by Its Own Rules (K. 46): Business cannot be judged by the same set of rules or standards of moral conduct that we apply to our personal lives. Business might be considered as game (poker game which has its own rule to play in order to succeed). Business is not equipped to mange CSR, and managers do not have expertise (social skills) to make social decision. There are commonly accepted and expected business practices that are considered legitimate within world of business. So, the notion of CSR is difficult to apply. E.g. Convince customers that product is worth significantly more than the cost of producing it or higher quality than it really is (advertising)  Profit. E.g., giving a gift to achieve millions contract  Bribe  Unethical, but if Not giving  No Contract  No profit (for employees, owner/shareholders), giving gift  rule of the game. 3. Business Should Not Dictate Morality (K. 48): Business is fundamentally responsible to the owners or shareholder (profit maximization). We should leave the issue of social policy or morality to Jurisdiction of government rather than business because the expertise of managers is making money, not in the area of social policy. Business already has enough power, allowing business involves in political power is potentially dangerous; they can influence law/policy to gain benefit. Government can simply enforce regulations to ensure that business is socially responsible rather allowing business to take it upon itself to judge matter of social responsibilities. Business should stick to its business. If business involves in any other position will take over power, authority and decision-making in those areas, so we should reserved to government, individual or other institutions. 4. Organizations Cannot Be Held Accountable (K. 48): It is not always easy to place blame when the entity responsible for an action is not an individual but a corporation. Organizations, unlike individual, cannot be held accountable in the same way as we can. Since multination organization are “big”, we can’t tell what to do – employee certain people, pay certain wage. E.g., Senior Managers made an unethical decision, should the entire organizations (IBM) be held accountable for the actions and end up with bankruptcy (Unemployment to innocent people). It is easier to hold specific individuals accountable for what they do than for organization. • Costs of CSR would be passed on to consumers and limit national competitiveness, but we have to consider the reality that social responsibility is quickly becoming a global concern, not restricted to North American firms. 6 The Case For CSR 1. Conform to Societal Expectations (K. 49): Businesses take social and nature resources to generate profit and businesses are fundamentally created to serve public and enhance the welfare of communities, societies and the world. Businesses have an obligation not to violate societal values/beliefs regarding socially responsible behaviour. They should not act in any way that will reduce its legitimacy in the eyes of the public because those violations would undermine their credibility in society. 2. Adopt CSR as a Practical Business Strategy (K. 50): Business can avoid public criticism or scrutiny that might inadvertently encourage more government involvement or regulation. E.g. in Business-Consumer relationship, if the business only wants to exploit the consumer for profits, this would be both socially irresponsible and unwise for any business because it could end up with lawsuit and loss the reputation in the society. Business have talent, capital and expertise to solve social problems such as fair workplace, safe products, fair advertising or competition. 3. Acknowledge Membership in a Broader Network of Stakeholders (K. 51): Stakeholders bear some type of risk as a result of the corporation’s action. We have to consider these stakeholders in conducting business since they can be affected in some way by corporate activities. Moreover, aside from moral issues, if management concerns only on minority stakeholders – owners/investors/shareholders, and not consider other stakeholders’ interest, they may withdraw their participation with and support for the enterprise, accordingly, harm the business. On the other hand, business can use its power for CSR/positive to gain public reputation and generate benefit to society, e.g. volunteer activities help aboriginal people or minority group. 4. Gain Long-term Benefits of CSR (K. 52): CSR may not result in immediate benefits for the business, but engaging in socially responsible behaviour is wise from a longer-term strategic perspective. CSR  maintain goodwill with the public  positive image in society  gain its reputation  public confidence/preferences  profits in long-term. In order to have a long- term healthy business climate in the future, business must take CSR actions; otherwise, public may react through government regulation, for example. • Nowadays, business enterprises have begun to make greater efforts to recognize and balance the needs of different stakeholders. They have to balance the profit objective with goals of social responsibility in order to succeed in the society in long-term (K. 53). 7 Business Ethics Business Ethics as Managing Stakeholder Interests (K. 57) • Business ethics is the standards/rules/principles used to judge the rightness or wrongness of behaviours. • We have business ethics issues in the workplace due to the conflicting interests between stakeholders, which results from the scarce resources. • Business ethics is about how we choose to resolve these conflicting interests. Ethical problems in business involving stakeholders • Owners  reporting to shareholders • Employees  hiring, wages, discrimination, firing. (layoff after certain age or years of service) • Consumers  product safety, advertising, reasonable price • Creditors  disclosure of information (ensure of getting repaid) • Competitors  corporate spying, unfair competition (misrepresent yourself to get information) • Suppliers  favors/gifts to potential purchaser? • Government  political contributions in return for favors • Society  pollution, Resource misuses End-Point Ethics (K. 59) • An action is ethical if the total utility produced by that act is greater than the total utility produced by another act that could have performed in its place, i.e. action is ethical when it tends to produce the greatest amount of good for the greatest number of people affected by the action (stakeholders). • In order to determine whether an action is right or wrong, one must assess the likely consequent: tangible economic outcomes (profit for shareholders), or intangible outcomes (happiness or friendship). • Challenges of this approach: How can we determine the greater good? What about means? • Question to ask when using the End-point ethics model ○ Which stakeholders have we used in our model? ○ Have we acknowledged harm and benefits? ○ How much harm/benefit has been caused? ○ Which stakeholders are more or less important? Rule Ethics (K. 61) • An individual should do what is required by valid, ethical principle and should not do anything that violates those principles. • Rule ethics focuses on actions not their ends. We assumes basic rules for social behaviours and applied them to a given actions. • Challenges of this model: What rules should apply? • Questions to ask when using rule ethics approach: ○ Where did the rules or ‘basic principles’ that guide what we think is right or wrong come from? ○ How have our own cultural values affected our judgment? ○ Are we applying the rules consistently? 8 ○ Is there a difference between rules for our professional and rules for our personal lives? ○ What do we stand to gain from our judgment? Applying the Models: A Scenario (K. 61-63): You are a business person trying to win a $20M contract. The representative of the other company hinted that you could almost certainly be assured of getting his business if you gave him a gift. Would you do it? From an End-Point Ethics Perspective (Giving the gift) • Your company/boss  profitable from contract (+) • You  Great achievement, maybe promoted (+) • The company  Good deal to receive a good business partner (+) • Competitor  Do not get the contract which is deserved (−) • Consumers  Costs of bribery may results in cost or quality (−) We may consider the action is ethical and argue for the negative effects to stakeholders as follow: • Competitor  Your company is the best choice, and if you did not give out the gift, your competitor would do so. • The bribe help your company conduct business and sell a good product that is fairly priced – then the consumers are not harmed. And bribery will occurs any way regardless of whether you choose to bribe or not. From an Rule Ethics Perspective (Giving the gift) • Let’s assume that this happens in country where businesses have instituted strict codes of ethics that prohibit giving or accepting gifts of any kind. Also, individual’s personal or religious beliefs of honesty serve to act as rule prohibiting engaging in a bribe. Hence, giving the gift in this case would be an unethical business practice. • However, other obligations could sometimes override our ethical prohibition of bribery. E.g., let’s make assumption that if your company’s survival depends on this contract, if you could not get it, thousands of people, including you, would loss their jobs. In this case, your obligation to avoid bankruptcy o
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