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ICS 200 Week 3 Notes

by: Tatum Notetaker

ICS 200 Week 3 Notes ICS 200

Marketplace > DePaul University > Business > ICS 200 > ICS 200 Week 3 Notes
Tatum Notetaker
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About this Document

These notes cover chapter 4 and 5 of our textbook! Including: Ethics, corporate social responsibility, responsibility to the environment, forms of business ownership, and the advantages and disadv...
Introduction to Business
Paul Kessenich
Class Notes
business, ethics, sustainability, ownership
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This 16 page Class Notes was uploaded by Tatum Notetaker on Sunday October 2, 2016. The Class Notes belongs to ICS 200 at DePaul University taught by Paul Kessenich in Summer 2016. Since its upload, it has received 6 views. For similar materials see Introduction to Business in Business at DePaul University.


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Date Created: 10/02/16
Notes 9/27 CHAPTER 4  Life after scandal o Scandals have shaken the real estate, mortgage and banking industries o How do we restore trust in the free market system?  Punish those who have broken the law  Make accounting records more transparent  Consider what is ethical, not just what is legal  What are ethics? o Ethics: the standards of moral behavior; behaviors that are accepted by society as right vs. wrong o Basic moral values  Right: integrity, respect for human life, self- control, honesty, courage, self-sacrifice  Wrong: cheating, cowardice, cruelty o Ethics and you  Plagiarizing from online materials is the most common form of cheating in schools today  Studies found a strong relationship between academic dishonesty and dishonesty at work o Facing ethical dilemmas  Is it legal?  Is it balanced?  How will it make me feel about myself?  Turning Ex-cons into entrepreneurs o Life after prison can be difficult for those with criminal records o Catherine rohr started Defy Ventures to help ex- cons launch their own businesses o Defy and Rohr’s other organizations have helped create 60 startups and many ex-cons find employment  Ethics start at the top o Organizational ethics begin at the top o Managers can help instill corporate values in employees o Trust between workers and managers must be based on fairness, honesty, openness, and moral integrity  Factors influencing managerial ethics o Individual  Values  Work background  Family status  Personality o Organizational  Top level management philosophy  Firm’s reward system  Job dimensions o Environmental  Competition  Economic conditions  Social/cultural institutions 2  Ethics codes o An increasing number of companies have adopted written codes of ethics o Compliance based ethics code: emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers o Integrity based ethics code: define the organization’s guiding values, create an environment that supports ethically sound behavior and stress a shared accountability  How to improve America’s business ethics o Top management must adopt and unconditionally support an explicit corporate code of conduct o Employees must understand that senior management expects all employees to act ethically o Managers and others must be trained to consider the ethical implications of all business decisions o An ethics office must be set up with which employees can communicate anonymously  Whistleblowers – insiders who report illegal or unethical behavior o Involve outsiders such as suppliers, subcontractors, distributors, and customers o The ethics code must be enforced  Corporate social responsibility o Corporate social responsibility – the concern businesses have for the welfare of society o CSR is based on a commitment to integrity, fairness, and respect 3 o CSR proponents argue that businesses owe their existence to the societies they serve and can’t exist in societies that fail  Corporate philanthropy and social initiatives o Corporate philanthropy – includes charitable donations o Corporate social initiatives – include enhanced forms of corporate philanthropy  Corporate responsibility and policy o Corporate responsibility – includes everything from hiring minority workers to making safe products, minimizing pollution, using energy wisely, and providing a safe work environment o Corporate policy – the position a firm takes on social and political issues  Positive impacts of companies o Xerox offers a social service leave program o More and more companies are encouraging employees to volunteer while on company time o The majority of MBA students surveyed reported they would take a lower salary to work for a socially responsible company  JFK’s basic rights of consumers o The right to safety o The right to be informed o The right to choose o The right to be heard  How do customers know? 4 o The primary use of social media is to communicate CSR efforts o Social media allows companies to reach a broad, diverse group and connect directly to them o Now more than ever, it’s important for companies to live up to their expectations  Insider trading o Insider trading – insiders using private company information to further their own fortunes or those of their family and friends o Unethical behavior does financial damage to a company and investors are cheated  Responsibility to employees o Create jobs and provide a chance for upward mobility o Treat employees with respect o Offer salaries and benefits that help employees reach their personal goals  When employees are upset o Employee fraud costs US businesses about 5% of annual revenue and causes 30% of business failures o Disgruntled workers relieve frustration by  Blaming mistakes on others  Manipulating budgets and expenses  Making commitments they intend to ignore  Hoarding resources  Doing the minimum  Society and the environment 5 o Over 1/3 of working Americans receive salaries from non-profits, who are dependent on funding from others o The green movement emerged as concern about global warming increased o Many companies are trying to minimize their carbon footprints – the amount of carbon released during an item’s production, distribution, consumption, and disposal  Responsibility to the environment o Environmental efforts may increase costs, but can offer good opportunities o The emerging renewable-energy and energy- efficiency industries for 9 million US jobs o By 2030, as many as 40 million “green” jobs will be created  Sustainability’s in the bag o Rickshaw Bagworks makes sustainable accessories built to last o The “three F’s” are followed company-wide  Form  Function  Footprint  Social Auditing o Social audit – a systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs o Five types of watchdogs  Socially conscious investors 6  Socially conscious research organizations  Environmentalists  Union officials  Customers  International ethics o Many businesses want socially responsible behavior from their international suppliers o In the 1970’s, the Foreign Corrupt Practices Act criminalized the act of paying foreign businesses or gov’t leaders in order to get business o Partners in the organization of American States signed the Inter-American Convection Against Corruption  Going by a different standard o A telecommunications employee returns to his home country to work and the company reimburses living expenses so he can live in a safe area o The employee is trying to do the honorable thing for his family and the company is trying to keep the employee safe o If the employee uses the money to help his family instead, is it right for the company to stop payment? CHAPTER 5  Major forms of ownership o Sole proprietorship – a business owned, and usually managed, by one person 7 o Partnership – two or more people legally agree to become co-owners of a business o Corporation – a legal entity with authority to act and have liability apart from its owners  Sole proprietorship o Benefits  Ease of starting and ending the business  Being your own boss  Pride of ownership  Leaving a legacy  Retention of company profit  No special taxes o Disadvantages  Unlimited liability – any debts or damages incurred by the business are your debts, even if it means selling your home, your car, or anything else  Limited financial resources  Management difficulties  Overwhelming time commitment  Few fringe benefits  Limited growth  Limited life span  Major types of partnerships o General partnership – all owners share in operating the business and in assuming liability for the business’s debts 8  General partner – an owner (partner) who has unlimited liability and is active in managing the firm o Limited partnership – a partnership with one or more general partners and one or more limited partners  Limited partner – an owner invests money in the business, but enjoys limited liability  Limited liability – liability for the debts of the business is limited to the amount the limited partner puts into the company; personal assets are not at risk o Master limited partnership – a partnership that looks much like a corporation, but is taxed like a partnership and thus avoids the corporate income tax o Limited liability partnership – limits partners’ risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision o Advantages of partnerships  More financial resources  Shared management/complementary skills and knowledge  Longer survival  No special taxes o Disadvantages  Unlimited liability  Division of profits  Disagreements among partners 9  Difficult to terminate o Picking your partner  Do you share the same goals?  Do you share the same vision for the company?  What skills does he/she have? Are yours the same?  What can he/she bring to the business?  What type of decision maker is he/she?  Do you trust each other?  How does he/she problem solve?  Conventional corporations o Conventional corporation – a state-chartered legal entity with authority to act and have liability separate from its owners (stockholders) o Advantages  Limited liability  Ability to raise more money for investment  Size  Perpetual life  Ease of ownership change  Ease of attracting talented employees  Separation of ownership from management o Disadvantages  Initial cost  Extensive paperwork  Double taxation 10  Two tax returns  Size  Difficulty of termination  Possible conflict with stockholders and board of directors  B Corporations let sustainability set sail o Michael dimin saw tons of fish were left to rot after fisherman caught too much o Registered his company Sea2Table as a benefit corporation o B-corporations are judged on how they meet their own set of socially or environmentally beneficial goals  Who can Incorporate? o Anyone – truckers, doctors, plumbers, athletes, and small business owners o Normally stock is not issues to outsiders when individuals incorporate, so the advantages and disadvantages are not exactly the same as for large corporations o Major advantages are limited liability and possible tax benefits  S Corporations o S corporation – a unique gov’t creation that looks like a corporation, but is taxed like sole proprietorships and partnerships o S corporations have shareholders, directors and employees, plus the benefit of limited liability o Profits are taxed only as the personal income of the shareholder 11 o Qualifications for S Corporations  Have no more than 100 shareholders  Have shareholders that are individuals or estates and are citizens or permanent residents of the US  Have only one class of stock  Derive no more than 25% of income from passive sources o If a S corporation loses its S status, it may not operate under it again for at least 5 years  Limited Liability companies o Limited liability company (LLC) – similar to an S corporation, but without the eligibility requirements o Advantages  Limited liability  Choice of taxation  Flexible ownership rules  Flexible distribution of profits and losses  Operating flexibility o Disadvantages  No stock, therefore ownership is nontransferable  Limited life span  Fewer incentives  Taxes  Paperwork  Mergers and acquisitions 12 o Merger – the result of two firms joining to form one company  Vertical merger – the joining of two firms in different stages of related business  Horizontal merger – the joining of two firms in the same business  Conglomerate merger – the joining of firms in completely unrelated industries o Acquisition – one company’s purchase of the property and obligations of another company  Leveraged buyouts o Leveraged buyout (LBO) – an attempt by employees, management, or a group of investors to buy out the stockholders in a company o LBO’s have ranged in size from $50 million to $34 billion and have involved everything from small businesses to giant corporations o In 2012, foreign investors poured $166 billion into US companies  Franchising o Franchise agreement – an arrangement whereby someone with a good idea for a business (franchisor) sells the right to use the business name and sell a product of service (franchise) to others (franchisees) in a given territory o More than 770,000 franchised businesses operate in the US, employing approximately 8.5 million people o Advantages  Management and marketing assistance  Personal ownership 13  Nationally recognized name  Financial advice and assistance  Lower failure rate o Disadvantages  Large start-up costs  Shared profit  Management regulation  Coattail effects  Restrictions on selling  Fraudulent franchisors o The building blocks of franchising  Bricks 4 Kidz was created as a way to help kids understand engineering and construction  Since the business was low cost and easily reproduced, this led to over 200 franchises in the US and 11 other countries o Women in franchising  Women own about half of US companies, yet ownership of franchises is about 21%  More women are becoming franchisors: auntie anne’s and jazzercise are owned by women o Minority owned franchises  DiversityFran is an initiative to build awareness of franchising opportunities within minority communities  Domino’s launched a minority franchise recruitment program called Delivering the dream 14  Over 20% of franchises are minority owned o Home based franchises  Advantages: relief from commuting stress, extra family time, low overhead expenses  Disadvantages: isolation, long hours o E-commerce in franchising  Most brick-and-mortar franchises have expanded online  Many franchisors prohibit franchisee-sponsored sites because conflicts can erupt  Sometimes “reverse royalties” are sent to franchisees who believe their sales were hurt by the franchisor’s site  Other franchises are solely based online o Global franchising  Canada is the most popular target for US based franchises  China, south Africa, the Philippines and the Middle East are becoming popular despite high cost  International franchising goes both ways – some foreign franchises have come to the US  Cooperatives o Cooperatives – businesses owned and controlled by the people who use them (producers, consumers, or workers) with similar needs who pool their resources for mutual gain o Worldwide, co-ops serve 1 billion members 15 o Members democratically control the business by electing a board of directors that hires professional management 16


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