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MNGT 482 - Quiz #3 Study Guide

by: Gilmarys Bernal

MNGT 482 - Quiz #3 Study Guide mngt 482

Marketplace > Towson University > mngt 482 > MNGT 482 Quiz 3 Study Guide
Gilmarys Bernal
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These notes cover chapter 1 of MNGT 482
Business Ethics/Sustainability
Manoj Basuray
Study Guide
Management, business, ethics, towson
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This 4 page Study Guide was uploaded by Gilmarys Bernal on Friday September 23, 2016. The Study Guide belongs to mngt 482 at Towson University taught by Manoj Basuray in Fall 2016. Since its upload, it has received 20 views.


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Date Created: 09/23/16
Chapter 1 – The Corporation and Its Stakeholders Business today is arguably the most dominant institution in the world. It refers to any organization that is engaged in making a product or providing a service for a profit. Society refers to human beings and to the social structures they collectively create. The term is used to refer to segments of humankind, such as members of a particular community, nation, or interest group. A Systems Perspective General systems theory first introduced in the 1940s, argues that all organisms are open to, and interact with, their external environments. As applied to management theory, the systems concept implies that business firms (social organisms) are embedded in a broader social structure (external environment) with which they constantly interact. Botany the growth of a plant cannot be explained without reference to soil, light, oxygen, moisture, and other characteristic of its environment. The key to business survival is often the ability to adapt effectively to changing conditions. Interactive social system business and society need each other, influence each other. They are entwined so completely that any action taken by one will surely affect the other. The Stakeholder Theory of the Firm • Ownership theory of the firm (also called property or finance theory) the firm is seen as the property of its owners. In this view, owners’ interests are paramount and take precedence over the interests of others. • Stakeholder theory of the firm argues that corporations serve a broad public purpose: to create value for society. In this view, corporations have multiple obligations, and all stakeholders’ interests must be taken into account. Core arguments: o Descriptive argument: says that the stakeholder view is simply a more realistic description of how companies really work. Managers have to pay keen attention to their quarterly and annual financial performance. o Instrumental argument: says that stakeholder management is more effective as a corporate strategy. Attention to stakeholders’ rights and concerns can help produce motivated employees, satisfied customers, and supportive communities, all good for the company’s bottom line. o Normative argument: says that stakeholder management is simply the right thing to do. Corporations have great power and control cast resources; these privileges carry with them a duty toward all those affected by a corporation’s actions. Any individual or group who makes a contribution, or takes a risk, has a moral right to some claim on the corporation’s rewards. Fiduciary means a person who exercise power on behalf of another, that is, who acts as the other’s agent. In U.S. law, managers are considered fiduciaries of the owners of the firm (its stakeholders) and have an obligation to run the business in their interest. The Stakeholder Concept Stakeholder refers to person and groups that affect, or are affected by, and organization’s decisions, policies, and operations. Stake means an interest in – or claim on – a business enterprise. Those with a stake in the firm’s actions include such diverse groups as customers, employees, stockholders, the media, governments, etc. Stockholders individuals or organizations that own shares of a company’s stock. Different kinds of Stakeholders 1. Market stakeholders are those that engage in economic transactions with the company as it carries out its purpose of providing society with goods and services. Each relationship between a business and one of its market stakeholders is based on a unique transaction, or two-way exchange. 2. Nonmarket stakeholders by contrast, are people and groups who – although they do not engage in direct economic exchange with the firm – are nonetheless affected by or can affect its actions. Includes the community, various levels of government, nongovernmental organizations, the media, etc. 3. Internal stakeholders are those such as employees and managers who are employed by the firm. They are “inside” the firm in the sense that the contribute their effort and skill usually at a company worksite. 4. External stakeholders are those who – although they may have important transactions with the firm – are not directly employed by it. Examples are stockholders, customers, creditors, suppliers, etc. Stakeholder Analysis Identifying relevant stakeholders and to understand both their interests and the power they may have to assert these interests. Focal organization is the organization from whose perspective the analysis is conducted. Stakeholder analysis asks four key questions: 1. Who are the relevant stakeholders? Some stakeholders are not relevant such as a private held firm and some businesses that sell directly to customers online. 2. What are the interest of each stakeholder? Stakeholder interests are the nature of each group’s stake. Stockholders for their part have an ownership interest in the firm. In exchange for their investment they expect to receive dividends and, over time, capital appreciation. 3. What is the power of each stakeholder? Means the ability to use resources to make an event happen or to secure a desired outcome. Stakeholders have five different kinds of power: o Voting power means the stakeholder has a legitimate right to cast a vote. Stockholders typically have voting power proportionate to the percentage of the company’s stock they own. o Economic power customers may refuse to fill orders if a company fails to meet its contractual responsibilities. Customers may refuse to buy a company’s products or services if the company acts improperly. Employees for their part can refuse to work under certain conditions known as strike or slowdown. o Political power government can exercise political power through legislation, regulations, or lawsuits. Stakeholders use their political power by urging governments to use its powers by passing new laws or enacting regulations. o Legal power stakeholders have legal power when they bring suit against a company for damages, based on harm caused by the firm such as defective products, workplace injury, or pollution/harm to habitat. o Informational power stakeholders have informational power when they have access to valuable data, facts or details. The nondisclosure of information can be used to persuade, mobilize, or threaten others. Stakeholder Coalition How are coalitions likely to form? When their interests are similar, stakeholders may from coalitions, temporary alliances to pursue a common interest. Stakeholders coalitions are not static, groups that are highly involved with a company today may be less involved tomorrow. Stakeholder Salience and Mapping Something is salient when it stands out from a background, is seen as important, or draws attention. Stakeholders stand out to managers when they have power, legitimacy, and urgency. Legitimacy refers to the extent to which a stakeholder’s actions are seen as proper or appropriate by the broader society. Urgency refers to the time-sensitivity of a stakeholder’s claim, that is, the extent to which it demands immediate action. Managers can use the salience concept to develop a stakeholder map which is a graphical representation of the relationship of stakeholder salience to a particular issue. The map shows the position of various stakeholders on a hypothetical issue. The horizontal axis represents each stakeholder’s position on the issue (against or for). The vertical axis represents the salience of the stakeholder, an overall measure of that stakeholder’s power, legitimacy, and urgency. The Corporation’s Boundary-Spanning Departments Are departments, or offices, within an organization that reach across the dividing line that separates the company from groups and people in society. Departments of public affairs or government relations interact with elected officials or regulators. Departments of investor relations interact with stockholders, etc. The dynamic Environment of Business The external environment of business is dynamic and ever changing. There are six dynamic forces that powerfully shape the business and society relationships: o Changing societal expectations people increasingly expect business to be more responsible, believing companies should pay close attention to social issues and act as good citizens in society. o Growing emphasis on ethical values the public also expects business to be ethical and wants corporate managers to apply ethical principles or values when they make business decisions. o Globalization we live in an increasingly integrated world economy characterized by unceasing movement of goods, services, and capital across national borders o Evolving government regulations of business government regulations of business periodically becomes tighter, then looser, much as a pendulum swings back and forth o Dynamic natural environment all interactions between business and society occur within a finite natural ecosystem. Humans share a single planet, and many of our resources. o Explosion of new technology and innovation the extent and pace of technological innovation pose massive challenges for business, and sometimes government, as they seek to manage various privacy, security, and intellectual property issues embedded in this dynamic force. Creating value in a dynamic environment The purpose of the firm is not simply to make a profit, but to create value for all its stakeholders. Ultimately, business success is judged not simply by a company’s financial performance but by how well it serves broad social interests.


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