Business, Government and Politics Exam 2 Study Guide Chapter 9: Business in Politics • Where do libertarians fall on the ideologies spectrum (both personal and economic freedom)? • Libertarians believe iWe also discuss several other topics like uiuc econ 102
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n highly in economic freedom as well as personal freedom. You’re Gary Johnsons, if you will. • Why is the first amendment so important, as it relates to businesses’ involvement in politics? • The first amendment protects the right of businesses to organize and press its agenda on government. It also protects the freedom of speech, freedom of the press, and freedom of assembly, all of which are critical in pressuring government. • What are the two broad areas of business involvement in politics? • The two broad areas are lobbying, which is when a business exercises influence by advocating positions to lawmakers and officials, and electoral activity/process, in which businesses work to elect or defeat candidates. • What is an earmark? • An amount of money for a project added into an appropriations bill by any member of the Senate or House of Representatives • Describe the following: contact, background, and grassroots lobbying… (Google article) • Contact lobbying: direct interaction with government officials or staff in meetings, phone calls, or e-mail. • Background lobbying: indirect lobbying activity designed to build friendly relations with lawmakers, officials, and staff • Ex. Sponsor fundraisers, work in campaigns, etc. • Grassroots lobbying: the technique of generating an expression of public, or “grassroots,” support for the position of company, industry, or any interest • What is quid pro quo bribery?• Bribery where there is an agreed upon exchange, one thing for another, between parties. Usually when a gift is given, it is reciprocated by an action. • What are Super PACs? Review cases and laws leading up to this. • Super PACs are a type of independent political action committee which may raise unlimited sums of money from corporations, unions, and individuals (both for profit and not-for-profit) for the purpose of making independent expenditures. They are not permitted to contribute to or coordinate directly with parties or candidates. • McCutchen v. FEC? • Eliminated the aggregate limit set on the contributions an individual can make over a two-year period. • There’s a lot of information here. Make sure you review all the laws and recent changes affecting businesses’ involvement in politics. Chapter 10: Regulating Business • What are the arguments for and against government regulation of business (benefits and costs)? – Without regulations, at an aggregate level, business could not operate easily and society would not prosper. Regulation has reduced discrimination, improved the environment, freed competition, reduced corruption, banned dangerous products, strengthened the banking system, cut workplace fatalities, helped the elderly, controlled communicable diseases, and much more. – The costs for federal regulation is massively expensive, totally $876 billion in 2000, or 8.6 percent of the GDP. This is the money business has spent to follow all the rules imposed by federal agencies. The cost of administrating the regulatory process is also huge. Another cost of regulation that is damaging, yet hard to quantify, is the impact regulation has employment, productivity and innovation. In 1992, when the FDA ordered a decided to order a moratorium on the use of silicone gel breast implants, the company Dow Corning went bankrupt. This resulted in the loss of over 1000 jobs, evaporation of shareholder equity, and dampening of research into new uses of silicone body parts. • Externality (Regulating Business): – Costs of production borne not by the enterprise that causes them but by society. Examples of this? • When a company dumps its waste into a river, it is left unaffected yet the community takes the full brunt of the contamination. If the company were clean up its mess, the pollution-control equipment needed would put it at a cost disadvantage against its competitors. This disadvantage can be removed with regulation by forcing all companies to bear the cost. • Know the major regulatory agencies that we discussed and, in general, what they do (i.e., EPA, SEC, FDA, FEC, EEOC, CSPC, FTC) – Environmental Protection Agency (EPA): created for the purpose of protecting human health and the environment – Securities and Exchange Commission (SEC): enforcing the federal securities laws, proposing securities rules, and regulating the securities industy, the nation’s stock and options exchanges, and other activities and organizations. – Food and Drug Administration (FDA): responsible for protecting and promoting public health through the control and supervision of food safety, tobacco products, dietary supplements, prescription and over-the counter pharmaceutical drugs, vaccines, biopharmaceuticals, blood transfusions, medical devices, electromagnetic radiation emitting devise, cosmetics, animal foods & feed and veterinary products. – Federal Elections Commission (FEC): founded to regulate the campaign finance legislation in the United States – Equal Employment Opportunity Commission (EEOC): federal agency that administers and enforces civil rights laws against workplace discrimination. The agency investigates discrimination complaints based on an individual’s race, color, national origin, religion, sex, age, disability, gender identity, genetic information and retaliation for reporting, participating in, and/or opposing a discriminatory practice. – Consumer Product Safety Commission (CSPC): an independent agency that seeks to promote the safety of consumer products by addressing “unreasonable risks” of injury, developing uniform safety standards, and conducting research ito product-related illness and injury. – Federal Trade Commission (FTC): established to enforce the promotion of consumer protection and the elimination and prevention of anticompetitive business practices. Basically, competition is good, monopolies are a no-no. • Know the process of how regulation is made. – Federal regulation starts out in Congress. When a bill containing regulatory authority is passed by both houses and signed by the president, that new authority is assigned to a regulatory agency, either an independent commission or an executive branch agency. – Screw it, in short, regulation starts in Congress, then becomes a bill, and later on down the road, is signed into law. Boom! Legislation! • What are the main objectives of the FTC antitrust laws? In what ways do they get involved with business? – The main objectives are to promote competition, protect consumers and prevent anticompetitive business moves. – They work to prevent price fixing and predatory pricing between companies. • What are subsidies? Why are the used? Benefits and criticisms? – A subsidy is a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive – They can be used for farming, renewable energy, and big business Labor, Consumer (covers chapters 15, 16 and 17)• What is consumerism? • Consumer has two meanings: • A movement to protect the rights and powers of consumers in relation to sellers • The pursuit of material goods beyond subsistence shapes social conduct • Materialism, capitalism, individualism, your things define you and give you meaning • Relates back to environment sustainability • BUT successful products and services create VALUE for consumers • Explain outsourcing and offshoring. • Outsourcing is the transfer of work from within a company to an outside supplier • Offshoring is the transfer of work from domestic to a foreign location or to a foreign supplier • Ex. Apple and its suppliers in China • Arguments for/against protecting workers vs. granting firms flexibility. • • What was the purpose of the Civil Rights Act of 1964? • The Civil Rights Act of 1964 outlaws the discrimination of an individual based on their race, color, religion, sex, or national origin. • What are affirmative action policies? Reverse discrimination? • Affirmative action policies seek out, encourage, and sometimes give preferential treatment to employees in groups protected by Title VII • Reverser discrimination is the practice or policy of favoring individuals belonging to groups known to have been discriminated against previously • Know the different types of sexual harassment (quid pro quo and hostile environment).• Quid pro quo: a situation, defined as illegal, when submission to sexual activity is required to get or keep a job • Hostile environment: a situation, defined as illegal, where sexually offensive conduct is pervasive in a workplace, making work unreasonably difficult for an affected individual • Diversity and team performance • Diversity within a team can produce tensions derived from attitudes of racism, sexism, and ethnic biases. Chapter 18: Corporate Governance • Who are the major players? • The major players are the executives, board of directors and shareholders • Theory vs. reality – which group is the most powerful? • In theory, shareholders are the ones who hold the most power • In reality, however, board of directors control most of the power • Mechanisms used to align CEO and shareholder interests & deter self interested behavior? • Directors’ responsibilities? …what about shareholders’ rights? • Director’s responsibilities/duties: • Approve the issuance of securities and the voting rights of their holders • Review and approve the corporation’s goals an strategies • Select the CEO, evaluate his/her performance, and remove that person is necessary • Give advice and counsel to management • Create governance policies for the firm, including compensation policies• Evaluate the performance of individual directors, board committees, and the board as a whole • Nominate candidates for election as directors • Exercise oversight of ethics and compliance programs • Shareholder responsibilities/duties: • Sell their stock • Vote to elect directors and on other corporate issues • Receive information about the corporation • Receive dividends • Sue the corporation if directors and officers commit wrongful acts • Acquire residual assets in case of bankruptcy • Can propose resolutinos for a vote at the annual meeting • Executive compensation • Includes base salary, cash incentives/bonus, stock, a retirement plan and other stuff. • SOX and Dodd-Frank – after what events were they enacted? In general, what are they? • The Sarbanes-Oxley Act was enacted in 2002, after the Enron fraud scandal, to prevent financial fraud in corporations. It mandated stricter financial reporting and greater board oversight • The Dodd-Frank Act, enacted after the Lehman Brothers bankruptcy in 2008, the largest bankruptcy filing in U.S. history, is a statute Congress made to reform financial regulation and prevent another financial crisis such as those that occurred in 2007 through 2008. Chapter 11 & 12: MNCs and Globalization • Globalization, multinational, FDI - know the meanings.• Multinational Corporation (MNC): an entity headquartered in one country that does business in one or more foreign countries • Globalization: growth in the network of human interaction…economic, political, social, military, scientific, or environmental interdependence to span worldwide distances • Integration • Public and private initiatives • Foreign Direct Investment (FDI): a firm directly invests (beyond exporting, franchising, and licensing) in a market outside its home country • Partial or full control of foreign assets with the intention of long-term presence (10%+) • Corruption? Foreign Corrupt Practices Act (FCPA)? • Corruption is the debasement of integrity for money, position, privilege, or other self-benefit • “misuse of public power for private gain” • The FCPA has made it illegal to bribe government officials and political candidates • There is an exception for facilitating payments (e.g., small sum paid to connect utilities) • What are the arguments for and against free trade agreements? Types of agreements? • Types of trade agreements: • Trans-Pacific Partnership • Transatlantic Trade and Investment Partnership • General Agreement on Tariffs and Trade • World Trade Organization • Arguments for tree trade: • Specialization (focus on what you’re good at)• All countries benefit – law of comparative advantage • Increase growth and FDI • Lower the cost of goods and services for consumers with more options • Assistance for developing and smaller nations (think EU) • Build friendly relations with other nations • Higher wages when compared with domestically focused firms/sectors • Arguments against free trade: • Discriminates against non-member countries & discourages globalization • Hurts small firms & less developed partner countries • Job loss (approximately 13% from trade - NYT, automation and efficiency gains…) • Protect growth of certain industries • Protect from “dumping” • What are motives for international expansion? What are some of the challenges? • Motives for international expansion include: • Use of current resources and access to new resources • Seeking to expand or develop new markets • Competitive rivalry • Crowded domestic markets • Reduce risk • Learning • Centers of excellence • Challenges:• Cultural differences • Child labor, working conditions • Political risk – stability • Corruption • Weak “institutions” – economy, infrastructure, regulations • International entry modes • Exporting: sending goods/services from one country to another for distribution, sale, and services • Licensing: leasing the right to use the firm’s IP to a firm doing business in the targeted international market • Franchising: licensing of a good/service AND business model to partners for specified fees • Other contract modes: contract manufacturing • Alliances & JVs: home and host country firms work together. JVs form a separate legal entity • Greenfield Venture: starting from scratch; more control (proprietary technology) • International Acquisition: acquire a current business; entry is much faster; cultural distance can be an issue • Informal economy