respond to the following questions
Complex_
10.4324_9781315715193-2_chapterpdf.pdf
2 Theories about Business– Government Relations in Society
Case Scenario: ABC’s relocation 44
Introduction: The Theories of Business–Government Relations 46
Models of Business and Society 46
When the Ideal Models Become Corrupted: Crony Capitalism 59
Analytical Case: The Lewis Group of Companies 64
Practical Skill: Stakeholder analysis 66
Summary and Conclusion 67
CHAPTER CONTENTS
CASE 2 SCENARIO
ABC’s relocation
Zach’s father, Zeddic, was recently promoted to interim CEO of Acme Bottling Company (ABC), a hi-tech manufacturing plant in Anyplace, about 15 minutes from the City of Somewhere. ABC has a large presence in Anyplace, and packages natural liquid and solid products in eco-friendly containers. In fact, ABC is how Zach and Zoey met. Zoey’s friend Tyler had been working there part time, earning money for college. Tyler introduced Zach and Zoey.
Zach’s dad had been the Chief Finance Officer at Acme Bottling for the past five years and understood the operation of the company well. Zeddic had been excited about becoming interim CEO and hoped to work it into a permanent position. Yet his first month was unexpectedly challenging and overwhelming, especially regarding the company’s decision to relocate.
ABC has operated for over 20 years in Anyplace. The company signed a long- term lease for the land with the city. During the past two decades, because of the
rising real estate market, Anyplace has doubled the land rent, which increased produc tion costs for ABC. Two years ago, a neighboring state established an industrial park less than 100 miles away. To attract new businesses, especially hi-tech ones like ABC, they were providing very favorable tax incentive packages, and extremely low rent leases. The industrial park was also closer to two major customers and one major supplier for ABC.
When the idea of relocation was proposed, Zeddic led a comprehensive cost–benefit analysis as CFO that included all critical production factors—capital, labor, land, utilities, taxes, logistics, etc. Knowing relocation could potentially reduce production costs by 20 percent or more, ABC’s shareholder board was in favor of the relocation and unanimously appointed Zeddic the interim CEO.
The rumor of relocation quickly spread and Zeddic suddenly found himself in a lion’s den. He was confronted by concerned employees everywhere he went. They felt the 100-mile drive to the industrial park was not a desirable commute; the majority would have to move their families or resign. And even though the industrial park had finished basic infrastructure construction, it was still not in a great residential area. In a management meeting, the union leader spoke out about the possibility of a strike in protest.
The Anyplace city government was deeply concerned about the idea as well. As the city’s largest employer, ABC had over 800 employees; relocation of the company could be devastating. For the past few years, Anyplace had worked closely with the company and had accommodated many of ABC’s needs for land, infrastructure, tax breaks, and so on. Several government officials and local politicians attempted to persuade Zeddic to abandon the idea. The city manager was a personal friend of Zeddic’s and he was growing increasingly annoyed. He even considered this a betrayal of their friendship.
Neighboring community owners and land developers wanted to talk with Zeddic. They were afraid the vacancy would affect the environment, security, and land value of the neighborhood. Two local suppliers constantly called him for meetings. They were concerned that relocation would add to their transportation costs. The owner of a restaurant where Zeddic often had lunch expressed regret that he would lose him, and his employees, as major customers. Several local and national reporters wanted to interview him about the relocation and employee compensation.
Even Zach’s mother, Zelda, would not give her husband a break. Several things bothered her. A college professor working toward her tenure, the next few years would be critical for her career. Her two youngest, Zach’s little brother and sister, were now in schools that were located in a very good district; starting over again in a new district would be difficult. Plus, Zach’s relationship with Zoey was going very well and Zelda could see that her son was beginning to think seriously about a future with her. Zelda had been very supportive of Zeddic in the past, but this time . . .
Zach’s father must make a decision that affects short-term profitability, long-term strategy, and many stakeholders. While Zeddic thought at the time that the cost–benefit analysis he conducted was thorough, he now realizes that many other factors affect both the long-term strategy and the integrity of ABC. This chapter explores a variety of perspectives of which managers must be aware if they are not to be surprised and overwhelmed, as Zach’s father now is.
Business–Government Relations in Society 45
Introduction: The Theories of Business–Government Relations
There are many perspectives on business–government societal relations. For simplicity, here we look at three views that capture some of the most important differences. If we decide to narrowly look at the institution of business itself, largely from an economic point of view, then we might assume a business-centric or relatively “pure” shareholder model. If we decide to look at business in relationship to other institutions with which it is in competition but with which it also shares medium-term synergies, we might adopt a strategic model. If we decide to look at business as a long-term means to a better society and quality of life over many generations, rather than as simply a means of individual wealth, then we may use a more socially or ethically based viewpoint or a stakeholder model.
A general point should be made about these three models: these models are not a comprehensive list. When looking at business as institutions in society, for example, we have focused primarily on the central role in Western business, which emphasizes economic means of organizing society over religious or ideological means. In theocratic states, religion may be viewed as more central to society than business, and ideological states may focus more on the importance of social harmony and equity than wealth creation. So while we will choose examples that highlight specific perspectives, the reality is that the mix is generally more subtle and complex.
Models of Business and Society
The Shareholder Model
The shareholder model tends to look at business in isolation and to emphasize economic analysis and profit-making for individuals, proprietors, and in the case of larger companies, shareholders. It tends to exclude other values and institutions from consideration. Thus, internal efficiency and external market analysis leading to dynamic competition and innovation are emphasized. Non-intervention by government and other institutions in the affairs of business is valued so that there can be a sharp focus on the business at hand. Implicitly, it advocates small government in terms of ownership, taxes, regulation, and subsidies, and a relatively unrestrained market. The principle duty of government is to ensure that markets function properly, and to correct market failures if there are any, but to do so with the least possible intrusiveness. See Exhibit 2.2 for a discussion of the causes of market failures. Corporations should only respond to legal requirements and government policies that affect their business.
The theoretical roots of this perspective can be traced to Adam Smith and his book The Wealth of Nations (1776), wherein Smith shifted the focus in economics from being state-centric under the formerly dominant mercantilist approach to his market-based approach. He asserted that the greatest good for society comes when businesses compete freely. In a perfectly competitive market, no single participant is powerful enough to affect the prices or other terms of sale. Producers sell goods to consumers who are attracted by products of the best quality and the lowest price.
46 Introduction to Business–Government Relations
To do so, producers devote their energies to technological and management inno - vations to improve productivity and to create values. Since consumers are determined to maximize their benefit with the lowest cost, the choices of individual consumers lead to the greatest benefit of the society. The market produces an efficient economy that optimally allocates resources and spontaneously coordinates activities among competitive producers.
Smith’s “invisible hand” of the market was not only important for domestic exchange, but for international exchange as well. His intellectual successor, David Ricardo, systematized this capitalist approach at the global level. His theory of comparative advantage argued not only for specialization among individuals but also for free trade among countries. He asserted that there is always benefit from free trade, even if one party (e.g., a resource-rich country with highly skilled workforce) is more productive in every possible area than its trading counterpart (e.g., a resource-poor country with unskilled laborers). The key to realizing the mutual benefits of trade is that each concentrates on the activities where it has a relative productivity advantage.
The negative effects of wealth concentration following the industrial revolution led to theories for more state-centric, or socialistic approaches, from milder forms advocated by Saint-Simon and John Stuart Mill using government as a force for poverty reduction and progressive improvement of society in a capitalist system, to the more total forms of state domination for public good of Marx and Engels.
Business–Government Relations in Society 47
Crowd shot of a Walmart shareholders’ meeting in 2010
EXHIBIT 2.1
Source: Wikimedia Commons.
48 Introduction to Business–Government Relations
EXHIBIT 2.2
Market failure
Market failure is used to describe the problem when the allocation of goods and services by a free market is not efficient. In theory, an economic situation is efficient when no one can be made better off without making someone else worse off.
Many reasons contribute to market failure:
• Public good. In economics, a public good, as compared to commercial good, is one that is both non-excludable (impossible to prevent people who have not paid for the good from using it) and non-rivalrous (one consumer does not reduce its availability to others). Examples of public goods include fresh air, national defense, knowledge, lighthouses, etc. Because of the nature of public goods, even though they are in demand, the market does not create incentives for their production.
• Information asymmetry. In transactions where one party has more or better information than the other, it creates an imbalance of power and causes the transaction to go awry. The problem of information asymmetry happens in business transactions such as used-car sales, buying insurance, purchasing real estate, etc.
• Non-competitive market. This includes monopoly, in that there is only one provider of a produce of service; monopsony, in that there is only one buyer in a market; and other defections in market structure.
• Principal–agent problem. In principal–agent relations, instead of being motivated to act in the best interest of the principal, the agent may pursue his or her own interests. For example, a patient (the principal) is not sure whether her doctor (the agent) is recommending expensive treatment because it is truly necessary for the patient’s health, or because it can bring income for the doctor.
• Externalities. In economic theories, an externality is a cost (negative externality) or benefit (positive externality) that is incurred by a party who was not involved in the transaction of the goods or services that caused that cost or benefit. Toxic air emitted by a manufacturing plant that pollutes and affects the health of residents in a community is an example of negative externality. An example of positive externality is the Research and Development (R&D) by a company that discovered a new production technique that can be adopted by other firms in the industry.
Market failure often leads to government intervention in a particular market. For example, monopolies that emerged in the oil industry during the late nineteenth century in the US led to a series of government anti-trust regulations.
These late nineteenth-century theories affected all governments in the early twentieth century, until the excessive role of the state in economics was challenged by Friedrich Hayek and the Austrian School in Europe, and later the University of Chicago School of Economics in the US (founded by John D. Rockefeller), as discussed in Chapter 1. With the conversion of the former Soviet Union and its client states in the 1990s, as well as China and Vietnam adopting relatively capitalist economies, the “age of the market” now dominates the world economic stage. Its virtues include macro-level system efficiency, self-organization, consumer focus, and robust innovation, among others.
Nonetheless, there are weaknesses in this purist approach to market capitalism. One of them targets the imperfections of market. The perfectly competitive market is rare. In reality, individuals’ pursuit of maximizing self-interest often leads to various types of systemic fraud and corporate monopolies that are not efficient. For critics, the prospect of market failure demands government vigilance and intervention, such as regulations, wage and price controls, bailouts, and social and corporate insurance programs as well as welfare stabilization programs. Throughout the history of the US, the government’s role has expanded as a result of correcting market failure (see Chapter 3).
Second, it is argued that although business often states that it wants small government, in reality business is as demanding as any other special interest group, and often more successful in reaping benefits (Carney 2011). For example, small- government advocates in Congress are often vociferous about maintaining a large defense establishment, and keeping military bases and weapons producers in their districts open.
Finally, it is often argued that markets place too much emphasis on monetary and material gains and, as a result, erode humanity. Society, they argue, does not exist to promote business, but rather business is an avenue to promote a good society. An excessive emphasis on the profit motive can lead individuals and corporations to abuse legal loopholes, to exploit the disadvantaged, to pollute the environment, and to eliminate opportunities for future generations by fiscal mismanagement or ecological destruction.
An example of the relatively purist perspective can be observed by the Heritage Foundation Economic Freedom Index. It ranks countries based on ten indicators in four major areas:
• Rule of Law (property rights, freedom from corruption) • Limited Government (fiscal freedom, government spending) • Regulatory Efficiency (business freedom, labor freedom, monetary freedom) • Open Markets (trade freedom, investment freedom, financial freedom).
According to its 2015 ranking, the top countries are (in order): Hong Kong, Singapore, New Zealand, Australia, Switzerland, Canada, Chile, Estonia, Ireland, and Mauritius. The US, ranked 12, was brought down by the Limited Government category. Note that over half of the countries with a higher Heritage Foundation ranking have a lower per capita than the US and, notably, Mauritius has a per capita GDP of less than one third. This indicates that it is the
Business–Government Relations in Society 49
capitalist principles, more than the effects of the system, that are paramount in
this mindset. While 10th place is still honorable (out of a list of 177 countries), the
gap between it and the two countries at the top is substantial (Heritage Foundation
2013). The following critique accompanied the ranking: “Restoring the US to a
place among the world’s ‘free’ economies will require significant policy reforms,
particularly in reducing the size of government, overhauling the tax system,
transforming costly entitlement programs, and streamlining regulations.”
An almost perfect example of the shareholder model in the US corporate arena
is investment banks. Examples of investment banks include JPMorgan Chase,
Goldman Sachs, Morgan Stanley, and investment arms of various mixed mega-
banks such as Bank of America and Citi. Investment banks underwrite securities,
assist in mergers and acquisitions, trade derivatives and equities, and provide other
financial services. They also advise others how to invest. Investment banks must
be careful to keep their privileged information confidential and not to use such
information to their own advantage (insider trading). Such institutions tend to be
very averse to any government intervention in their affairs, and welcome a volatile
market place where money can be made more quickly. In those rare instances in
which government stabilization or support may be considered by most as necessary,
this industry is generally not inclined to agree or be appreciative if it is the recipient
in positive terms. While these banks certainly take advantage of strategic govern -
ment interactions, such as the sale of government securities or the acquisition of
troubled competitors through governmental receivership, they do so on the best
terms they possibly can in order to make money, not to do good or improve their
reputation (other than being brutally competitive).
The Strategic Business Model
If the shareholder perspective reveres the market and the ideal of the owner and
stockholder, the strategic perspective admires individual companies and the teams
of people who make them work successfully. Put differently, the shareholder model
tends to look at what it takes to have a successful world market using classical
economics as a matter of principle, and the strategic business model tends to look at what it takes to have a successful company. Thus, one looks more at the theory of capitalism, the other looks at the practice of it.
This pragmatic approach to business shifts the focus in two ways, which are
ultimately in some tension with each other. First, the strategic business model is a
competitive model. What do companies have to do to be competitive against rivals
and to make as large a profit for owners as possible? Of course, basic competitive
strategy looks at the most efficient and effective use of capital, labor, technology,
and innovation. In this aspect, business is fighting for survival and there is a
Darwinian sense of drama in businesses being created, competing, succeeding, or
vanishing as young companies thrive and adapt if factors are right, or fail. It
emphasizes “playing the game” well, coming in first, and/or eliminating dangerous
rivals to “corner the market” when possible. The business world is tough, and tough
companies must be competent and sophisticated in marketing, sales, recruiting talent,
50 Introduction to Business–Government Relations
international business, and other management areas and must be disciplined at
practicing these skills. Not surprisingly, the competitive company wants low taxes
and few regulations from government to maximize profits and compete inter -
nationally. It wants a stable economic policy and strong national performance
indicators to facilitate growth. Market size is important, so it wants government
protection where it is vulnerable to international competition, and trade barrier
reductions for foreign markets.
Yet a strategic approach is not just about competition, but also about collaboration
(Porter 1998). Good strategy will include networking, occasionally positioning
oneself to be a part of a winning team rather than a sole winner, and finding win-
win solutions. Networking provides market intelligence and goodwill. Being a
corporate team player allows better supply chain management, cooperative and
profitable ventures with other companies, and economies of scale, size, and com -
parative strengths. In many cases, it is not winning that is most important, but rather
it is not losing. A negotiated settlement may be more sensible than a long, drawn- out legal or labor fight in which even the winning side is much weaker. Internally,
collaboration leads to better coordination, teamwork, and talent develop ment.
Externally, companies explicitly or implicitly depend on a collaborative environment
with government in numerous areas.
Governments purchase billions of dollars’ worth of goods and services, so many
businesses find it important to be savvy about government procurement and
contracts. The Department of Defense, the largest purchaser, spends about $300
billion in goods and services annually. Boeing Corporation is an example of a
company that lives and dies by government contracts despite its private sector
business (Carney 2011).
Governments play a key role in establishing an environment of high-quality
human resource availability through public education, job training programs, and
educational support via loans and subsidies. Governments play important roles in
creating a healthy environment via health care systems and in providing good
infrastructure for goods movement. Governments are also a critical part of powerful
market clusters (see Chapter 9), most noticeable for technology hubs today.
Likewise, governments help or hinder new business development, from programs
that assist business incubation and expansion to regulations that make launching
business start-ups daunting. Since government’s roles in this regard take resources,
business’s interest in low taxes is somewhat transfigured to an interest in good value
for taxes. Further, the interest in small government is converted into one of wanting
government to be large enough to be effective or supportive.
The dynamic tension of the competitive and collaborative roles that strategic
companies want is demonstrated in business groups such as Chambers of Commerce,
where goals for low taxes may contrast with the price of substantial services useful
for business. See the business-led Council on Competitiveness goals in Exhibit 2.3.
A strength of the strategic perspective to business–government relations is that
it is more balanced and realistic than the shareholder perspective. It embeds business
in the dynamics of society, while still giving business the central role. On the
negative side, the strategic perspective is so inclusive and relativistic that it is
Business–Government Relations in Society 51
52 Introduction to Business–Government Relations
difficult to know what it stands for because circumstances change so frequently and dramatically. If the shareholder perspective can be rigid in its principle-based orientation, the strategic perspective can be unclear, inconsistent, and ethically dubious.
An example of the strategic approach at the international level is the World Economic Forum’s Global Competitiveness Index, rating competitiveness in 144 countries (Schwab 2012). Its 12 “pillars” include both the role of government and the state of business development in countries: quality of government institutions (e.g., low corruption and reasonable taxes), infrastructure (e.g., roads and ports), macro economic environment (e.g., low government debt), health and primary education, goods-market efficiency, higher education and training, labor-market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation. Switzerland ranked as the most competitive in 2012–2013, with the US seventh. While little, entrepreneurially oriented island
EXHIBIT 2.3
An example of the expressed need for government to be efficient yet active in promoting American business
The Council on Competitiveness is a business forum that includes some of the major business leaders in the US. CEOs study trends to recommend national policy directions to political leaders. Below is a statement of needs for 2012.
Where America Needs to Be
To drive US productivity, buttress our leadership in world markets, and raise the standard of living for all Americans, the United States must:
• Immediately work to: – Ensure lower cost, easy access to high-quality education and training for
all Americans – Maintain long-term federal investments in science and technology
leadership – Reform and simplify the tax code to stimulate investment and attract
global capital to the United States
• Over the next ten years: – Create at least 21 million jobs – Reduce unemployment to 5 percent – Reduce government debt by $4 trillion to ensure America’s long-term
solvency – Invest $2.2 trillion in infrastructure to maintain competitive advantage – Double exports.
Source: Council on Competitiveness 2012, p. 4.
state Mauritius ranked ninth in the Heritage Foundation Economic Freedom index, it slips to 54th (still good but much lower) in its ability to actually provide competition. Russia and China are prominent examples of the differences in the shareholder and strategic perspectives. While both do well in competitiveness— with China at 29 and Russia at 67—these relatively authoritarian states drop—to 136 and 139, respectively—in the Economic Freedom Index, a hallmark of the shareholder model.
At the state level, a similar index is the Beacon Hill Institute Competitiveness Report (Moore 2013). In 2012, it gave the top ten rankings to: Massachusetts, North Dakota, Minnesota, South Dakota, Utah, Colorado, Texas, Washington, Virginia, and Kansas. Note that while low tax rate is a sub factor in the scale, a high-tax state ultimately got the top spot. California was in the middle at 24th. While there are various company competitiveness surveys, it is hard to surpass the stock market, which keeps the pulse on the overall track record of companies in milliseconds. Not only do increased profits drive up stock prices, so, too, do announcements of new products, cooperative agreements with other companies, government contracts, and inexpensive out-of-court settlements; similarly, it is not only low profits or losses that signal lower comparative prices but also corporate scandals, increased tax liabilities, onerous regulations (but note: not all regulations are onerous and some actually stabilize markets and drive long-term profits up), and corporate feuds that result in loss of energy rather than productivity gains through innovation.
An example of companies that practice a highly strategic approach are various types of community and regional banks. Community banks are depository institutions that are generally owned and operated locally. They have strong roots in the community with local businesses and families, capitalizing on their under - standing of local needs and conditions. Although they represent the bulk of all banks by number, they are a relatively small part of the depository banking industry (less than 15 percent), with mega-banks like Bank of America and Citi capitalizing on their ubiquity and marketing prowess. Therefore, community banks are careful to use their local connections strategically by having senior employees join local professional organizations, sponsoring local events, and participating in local nonpartisan policy-making. They often benefit by getting the business of the largest local companies and agencies in the region because of perceptions by local businesses of the importance to invest locally when possible.
The Stakeholder Model
While the shareholder perspective sees itself as separate from society and the strategic perspective sees itself as a part, and at the center of, society, the stakeholder perspective sees itself as subordinate to society (Freeman 1984). While profits are important and one of the mainstays of business, they do not crowd out other business and social values in the stakeholder view. Profit maximization, the driving force in other business perspectives, is by nature a short-term view, and does not fully take into account either long-term equity interests or the value of reputation. Furthermore, the stakeholder view consistently looks at community and environment as necessary factors to consider, not just when legally required or advantageous to
Business–Government Relations in Society 53
54 Introduction to Business–Government Relations
EXHIBIT 2.4
The Boeing Company
Founded in 1916 by William Boeing, the Boeing Company is an American multinational aerospace and defense corporation. Today, Boeing is not only the second largest government contractor (second to Lockheed Martin) based on defense-related revenue, but also the largest exporter by value in the United States.
Ever since the company’s existence, the business of Boeing has been strongly connected to and influenced by government activities and policies. In 1917, when the US entered World War I, Boeing started to build seaplanes for the Navy. When the war ended in 1918, Boeing was incapable of selling new airplanes because a large surplus of cheap, used military planes flooded the market. Instead of going out of business, Boeing started selling other products, such as dressers, counters, furniture, and Sea Sleds, a kind of flat-bottom boat.
In the 1920s, Boeing won government contracts for mail planes, and consequently created an airline. However, the Air Mail Act passed by Congress in 1934 prohibited manufacturers and airlines from being under the same corporate umbrella, so the company had to split into three smaller companies— Boeing Airplane Company, United Airlines, and United Aircraft Corporation.
During World War II, Boeing built a large number of bombers for the Army and its production was largely scaled up. After the war, as orders for bombers were discontinued, around 70,000 employees of Boeing lost their jobs. In the
A replica of the original “Red Barn” where the Boeing Company started. Source: Wikimedia Commons.
do so. A collaborative style that emphasizes a win-win approach is not case specific, as in the strategic perspective, but adopted as a preferred mode of operation. Competition is not eliminated, but success is comprehended as a product of quality and hard work rather than cleverness or market manipulation.
A long-term perspective encourages an attitude of sportsmanship in competition, with the accent being on getting better rather than simply winning in the short-term. Thus the semi- and intangible benefits of customer confidence, employee loyalty, and civic trust are valued more highly as genuine practice rather than merely as sales pitches. Civic and government organizations are more likely to be perceived as partners in social productivity rather than impediments to business success. While
Business–Government Relations in Society 55
1950s, with government support in R&D, Boeing diversified its products and became a leader in commercial jet manufacture.
In the 1970s, Boeing survived a series of strikes, including the decline in military spending after the Vietnam war, the revamping of the space programs, the economic recession, and the shrinking of government financial support for the development of new aircraft.
In the 1980s as passenger air traffic increased, Boeing was facing intensified competition, mainly from Airbus, a European commercial airline manufacturer established in 1969. As both parties became concerned about the subsidies paid by government to the large civil aircraft manufacturers, the European Community and the US started bilateral negotiations for the limitation of government subsidies to the industry. Negotiations led to the EC–US Agreement on Trade in Large Civil Aircraft in 1992, which imposed stricter rules than the World Trade Organization (WTO) on government support.
After several decades of success, Boeing started to lose ground to Airbus and its lead in the airline industry in the 2000s. The two competitors also entered into a series of disputes related to government subsidies. On September 15, 2010, WTO ruled that Boeing had received illegal subsidies, such as R&D aid from the National Aeronautics and Space Administration (NASA) and the Defense Department as well as tax-related export subsidies and tax incentives from the states of Illinois, Kansas, and Washington.
Given the fact that the company’s business largely depends on government contracts and policies, Boeing has been consistently building political con - nections and contributing to political campaigns. For example, in the 2008 presidential campaign, candidate Obama received $197,000 in contributions from the company, by far the largest campaign contribution from Boeing employees and executives (Carney 2011). The investment pays off well for Boeing. For example, United States diplomats are notorious marketing agents of Boeing. They often help push sales of jetliners to other countries. As a result, Boeing sells about 70 percent of its commercial planes to foreign buyers and is the single largest exporter of manufactured goods in the United States (Lipton, Clark, and Lehren 2011).
Source: Based on the history of Boeing at www.boeing.com.
this view is sometimes considered the ethical view, it is also a more holistic view that enhances accountability and avoids cost-shifting onto others in society or into the future.
The pursuit of a good reputation for pragmatic purposes and the importance of business ethics are ancient concepts. At the beginning of the twentieth century, notable attempts were made to encourage self-regulation. The Better Business Bureau was founded in 1912 to advance reputation certification and self- enforcement, and to discourage scams and wrongdoing. Other early efforts to provide voluntary industry standards were the Good Housekeeping Seal of Approval (launched in 1909) and Consumer Reports (started in 1936). A new renaissance of business ethics began in the 1970s with the expanded use of the concept of corporate social responsibility (Carroll 1979), which looks at social accountability as a necessary component of corporate behavior. This topic is dealt with in detail in Chapter 6.
When examined from a corporate point of view, a wide variety of indicators can be used, depending on the breadth and emphasis of the perspective. Businesses can be more mindful of employee relations, often providing more services and stability for employees than is required by the market. Businesses can improve their reputations based on environmental practices that limit habitat destruction, reduce waste, encourage recycling, diminish one’s carbon footprint, and so forth (Birchall 2006). They can also try to ensure that lower-cost foreign labor is not exploited in the drive for profit maximization. They can provide good corporate governance and openness when publicly traded, and direct philanthropy or indirect service to the community via employees or the company itself.
There are numerous rankings that look at these various factors, but one that focuses on social responsibility is the journal Corporate Responsibility, which provides an annual list of the 100 Best Corporate Citizens based on impact on the environment, climate change behaviors, avoidance of human rights abuse, quality employee relations, open corporate governance, community-based philanthropy, and financial integrity. The top ten major corporations in the 2013 report were (in order): AT&T; Mattel; Bristol-Myers Squibb; Eaton; Intel; The Gap; Hasbro; Merck; Campbell Soup; and Coca-Cola Enterprises. On the other hand, there are also organizations that track and publicize bad behavior, such as the Public Eye Awards (aka The Most Despicable Corporation Awards) that are given each year as a counter-event at the World Economic Forum. While Goldman Sachs was ranked 34 in the CR awards, it also was slammed despite being the most powerful investment house in the world and was placed in the Public Eye’s Hall of Shame:
Goldman Sachs is the vampire of finance capital. Never one to waste a crisis— whether a subprime mortgage bubble, a bank collapse or a Euro-failure— Goldman Sachs makes good money from most of them. And the company does not shy away from deals that might ruin entire countries. Between 1998 and 2009 Goldman Sachs pocketed horrendous fees to hide half of Greece’s public deficit by means of accounting tricks. These financial constructions eventually ruined Greece and plunged the EU into a financial crisis with no end in sight even now—another crisis from which Goldman Sachs has already profited
56 Introduction to Business–Government Relations
Business–Government Relations in Society 57
handsomely and will continue to do so: so far Goldman’s profit is at least 600 million dollars and Greece owes the bank 400 million per year until 2037, for a total of more than 10 billion dollars at the expense of European taxpayers. Goldman Sachs is the epitome of a money machine with an opaque and matchless network of allies in top positions such as ECB-chief Mario Draghi. Governments come and go. Goldman Sachs stays. (Public Eye 2013)
The stakeholder perspective is sometimes used to rate and rank countries as well, but with some adaptation of the focus. The “employee loyalty” aspect becomes “quality-of-life” measures, such as with the UN Human Development Index that looks at life span, per capita income, and years of schooling. The wealthier countries of Europe and the Anglophone world (e.g., the US, Australia, Canada, New Zealand, but not South Africa) do well in this measure, Russia is in the upper middle ranks and China is in the lower middle ranks, while African countries tend to dominate the bottom.
A wide variety of environmental issues are ranked by the Environmental Performance Index (2012). Richer countries tend to do better in environmental
Protestors holding a banner: “U.S. Treasury Under New Management” (Washington, DC)
EXHIBIT 2.5
Source: Wikimedia Commons.
rankings, but the US falls to 49 as a “modest performer” behind far poorer countries. Doing much more poorly are the transitioning states of Russia (106) and China (116), whose focus on growth has overwhelmed environmental consciousness.
“Public reputation” becomes configured as “domestic freedoms” or assistance to the most vulnerable. Examples of rankings of the democratic rights are Freedom House and the Index of Freedom. Again, the European and Anglophone countries tend to do very well here, with the US normally near the top. On the other hand, Russia, China, and the oil-rich states of the Middle East (e.g., Qatar, United Arab Emirates, Saudi Arabia) do very poorly as authoritarian regimes.
Vulnerability is measured by income disparity, known as the GINI coefficient, in which the lower the fraction of 1, the more equally national income is distributed. For example, Switzerland has a very low GINI coefficient of .296, the US has a moderately high GINI coefficient of .45, and a handful of Latin American and African countries have GINI coefficients above .50, such as South Africa, Haiti, and Brazil. Another index of national philanthropy, foreign aid, is the annual OECD survey of aid donors. While the US gives the most because of the size of its economy, as a percentage of gross national income, it ranked 19th out of 24 in 2013.
Below, Exhibit 2.6 gives some examples of how different countries are ranked in the three perspectives that we have examined. The US is often at or close to the top in terms of shareholder and strategic business approaches. It is given stiff competition by northern European countries, Singapore, Hong Kong, Korea, and some oil-rich countries in these capitalistic dimensions. The US also does well in most civic surveys that emphasize national income and political freedoms, as do northern European countries. However, in terms of other social responsibility indicators, its performance is lower, falling to the middle in terms of environmental protection and 95th in terms of income distribution, in contrast to a public perception that it is either a classless or middle class society. Some countries like Russia have improved economic competitiveness (after its financial collapse in 1985) despite poor rankings in economic and political freedoms. China, too, has moved from one of the least competitive countries in the world after World War II to one of the most competitive. On the other hand, it has only modestly provided more freedom, the benefits of its financial expansion have been largely limited to the top third of its population, and its environmental record has actually declined.
In terms of highly stakeholder-oriented industries, development banks are a pure example of the model. Development banks can be international, such as the World Bank, or local, such as community development banks, which will be our focus here. Community development banks are still commercial banks in the US, but their mission is to generate economic development for moderate- and low-income individuals and regions. They generally target financially underserved individuals and businesses, consciously try to do good, and not only involve stakeholders, but try to improve the lives of the most vulnerable ones. Such banks are certified by the US Treasury as meeting appropriate guidelines. Examples of such banks in the US include Carver Federal Savings Bank in New York, ShoreBank in Chicago, Hope Community Credit Union in Jackson, MS, and Neighborhood National Bank in San Diego. Internationally, the most famous example of a massively successful
58 Introduction to Business–Government Relations
Business–Government Relations in Society 59
community bank is Grameen Bank of Bangladesh, which made microfinance to the very poor a model of success and earned the founder a Nobel Peace Prize.
In summary, a comparison of the three models indicates that they fall along a spectrum. In its purist form, the shareholder model emphasizes the complete-as- possible separation of business and government, would even shun assistance from government, and implicitly wants as small a government as possible, with nearly all services being provided by the private sector and an absolute focus on wealth creation. At the other end of the spectrum, the stakeholder model asserts that business interests should never be at the expense of society’s long-term interests, cooperation for social benefit is for everyone’s benefit, and that when business self- regulates there can be less government. Somewhere in the middle is a more strategic approach, which is probably the most common because of its pragmatic implications. The strategic approach accepts the role of government as a given and as generally useful, utilizes the many opportunities to prosper from the sale of products, services, and various types of cooperation with government, uses its influence to ensure that government policies are as favorable as possible, and ultimately appreciates government for doing those things that are not very profitable. These roles are summarized below in Exhibit 2.7.
When the Ideal Models Become Corrupted: Crony Capitalism
Each of the models already identified is ideologically distinct, and, for discussion purposes, assumes that business–government relations are transparent, fair to all groups in society, and relatively free of corruption. However, these “ideal” models are often degraded to varying degrees, and when this is so, the type of model reported
A comparison of four countries and their economic, competitiveness, and civic responsibility rankings shareholder model: EPI/Human Development Index
Country Heritage Global Human EPI GINI Economic Competitive- Develop- (2012; Coefficient Freedom ness Index ment 132 of Income (2012; (2012–13; Index countries) Distribution 177 144 (2012; (World countries) countries) 186 Factbook;
countries) 136 countries)
Switzerland 5 1 9 1 19
US 10 7 3 49 95
Russia 139 67 55 106 84
China 136 29 101 116 107
EXHIBIT 2.6
E X
H IB
IT 2
.7
C o
m p
ar is
o n
o f
th re
e m
o d
el s
o f
b us
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s– g
o ve
rn m
en t
re la
ti o
ns
M od
el s
S ha
re ho
ld er
S tr
at eg
ic S
ta ke
ho ld
er
R ol
e of
S oc
ie ta
l C
om p
le te
s ep
ar at
io n
of fi
na nc
ia l
M ix
o f
fin an
ci al
in te
re st
s of
w hi
ch
Fi na
nc ia
l i nt
er es
ts s
ho ul
d n
ev er
o ve
rr id
e In
te re
st s
an d
s oc
ie ta
l i nt
er es
ts so
m e
so ci
al in
te re
st s
ar e
a st
ra te
gi c
so ci
al g
oo d
p ar
t
In te
gr at
io n
of
S ec
to rs
s ho
ul d
b e
as s
ep ar
at e
as
Th e
se ct
or s
d o
w or
k to
ge th
er a
nd
Th e
b us
in es
s se
ct or
s ho
ul d
n ot
P
riv at
e an
d P
ub lic
p
os si
b le
; th
er e
sh ou
ld b
e as
li tt
le
b us
in es
s sh
ou ld
b en
efi t
fr om
t he
m
an ip
ul at
e th
e p
ub lic
s ec
to r
fo r
its
S ec
to r
re gu
la tio
n or
fi na
nc ia
l i nc
en tiv
es f
or
ad va
nt ag
es a
nd s
up p
or t
of
se lfi
sh e
nd s,
b ec
au se
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he lo
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, b
us in
es s
(a s
d is
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m ar
ke t)
go ve
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en t;
lo b
b yi
ng a
nd t
ak in
g th
er e
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so ci
al c
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t o
p ay
; as
p os
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of in
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f ac
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rm or
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is u
ne th
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; p
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ct or
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re
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so
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p ro
fe ss
io na
l n or
m s
K ey
V al
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S ho
rt -t
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w ea
lth c
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io n,
s el
f- Lo
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w ea
lth c
re at
io n,
s yn
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W
ea lth
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se o
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s el
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cl us
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st s
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w
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it is
p ro
fit ab
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nd s
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ce s
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oc ie
ty
th e
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(r em
em b
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in es
s p
rin ci
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s th
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th er
s re
m em
b er
b ad
b eh
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r)
to be important by the regime may be less important than the level and types of business influence functioning at the expense of the public good. We identify this general problem as crony capitalism. Crony capitalism refers to an economy, or parts of an economy, in which there are close relationships between business and government that lead to favored treatment of individuals, companies, or even entire industries at the expense of the public good. For this discussion we include crony socialism (e.g., in contemporary China) and related terms that are sometimes used to identify power collusion by elites such as decadent capitalism, no matter whether the country has leanings toward being a plutocracy (ruled by wealth) or kleptocracy (ruled by theft). The effect of crony capitalism is to stifle competition and distort the market using government power for the few.
Crony capitalism can be thought of as a spectrum, from blatant biases toward business and/or family elites who forcefully dominate both government and the economy, to subtle biases that simply give elites a substantial but long-term edge over start-up innovators, poorly financed companies, or localized businesses wanting to break into national markets. The most blatant version is the strongman model in which a domineering leader and his/her allied group occupy the government by force or rigged elections. This model is common in dictatorships and quasi-dictatorships common to South America, Africa, the Middle East, and central Asia. Such countries witness occasional criminal charges against successful business people to eliminate competition, and the jailing of political competitors who want a more fair political and legal system. While such countries are a part of the capitalistic system generally, a key feature is the erratic enforcement of vague laws, giving government officials opportunities for bribes. Russia is an example of such a country.
A second version that is only somewhat subtler is the fused political-bureaucratic elite model. This is an aristocratic model where family or in-group asset owners tend to dominate both business and politics. Generally bribery and corruption are rampant. Examples of this model include Indonesia, China, Mexico, Brazil, India, and many other developing countries.
The subtlest version is the economic elite dominance model where economic elites do not have full control but do have outsized influence because of the power of money. Those with a lot of money will always have some additional power, but unchecked, that power can become overwhelming and thereby distort the market and create unhealthy imbalances in civil society. Five of the means by which powerful financial interests in society can corrupt the economic-political system are identified below.
1. Powerful economic elites can have the ability to change critical administrative rule-making because of the long-term resources they wield, leading to a condition called regulatory capture. At its most complete, regulatory capture means that the primary function of regulatory bodies is to keep newcomers out, rather than monitor established industries or license holders. This is most prone to happen in licensing and in heavy state involvement of “rent-seeking” sectors such as large-scale transportation, energy production, commercial real estate, and defense (via government contracts) at the corporate level, or high-end professions at the individual level. For example, when licensing becomes more
Business–Government Relations in Society 61
about ultra-high standards, it may actually be more beneficial to the members
of the profession to reduce competition rather than for the good of the public.
Another example is where economically advantaged groups have the ability to
exert excessively expansive patent rights, holding competitors up in the courts
for years as JPMorgan did in the budding electric industry with Westinghouse
in 1895.
2. Powerful economic interests can exert immense influence via outright control
of media or through paid political and policy messaging. Such messaging
sometimes bombards the public with direct arguments for policy issues or
political stances. However, it is also often to disseminate information that is
purposely confusing or highly distorted, or to make complaints about largely
fictitious challenges being faced by industries that are actually financially very
well off.
3. Powerful economic interests have increased opportunity to be members of the
political establishment (rather than just influence it) when the cost and challenge
of running for major offices is more difficult. For example, while the poor can
run for the US Senate, the average Senator was worth about $2.7 million in
2012, excluding any private residences and pensions.
4. Powerful economic interests can buy access based on economic support of
candidates as well. This can lead to not-so-subtle government intervention.
A famous example was exposed in the Charles Keating scandal that erupted in
1989. Keating amassed a fortune in the poorly regulated savings and loan
industry, but went on to make enormously risky business decisions with
depositors’ savings and bondholder investments. As he saw his decisions
leading to greater and greater losses unknown to the public, his contributions
to five US congressmen grew. When regulators began to look at taking the
bank over, he asked the congressmen to intervene in his behalf in 1987, and
all of them did to varying degrees, which resulted in the initial investigation
being halted. By the time Keating’s savings and loan finally failed, it cost
taxpayers $3 billion to support depositor savings and left an additional 23,000
bondholders without recourse. Subsequently, three of the congressmen were
formally reprimanded and two received informal reprimands because of the
extraordinary damage caused by their unwise intervention. While this case
became public, American history is also famous for cases in which big
money has been quietly successful, such as the presidential election victory
of McKinley who was heavily financed by tycoons like Andrew Carnegie and
John D. Rockefeller.
5. Powerful economic interests can sometimes have the ability to “buy off”
portions of the electorate with threats (e.g., loss of employment) or by making
unwise concessions to the public that will return to haunt the country later. Greek
tycoons, in league with Wall Street and the government of the day, kept the
Greek economy floating with usurious loans despite unsustainable public
expenditures. When the financial downturn occurred in 2008, the public received
a rude awakening when it learned that it had a heavy price to pay in terms of
reduced services, pensions, and public sector workforce.
62 Introduction to Business–Government Relations
Business–Government Relations in Society 63
Crony capitalism based on billionaire wealth invested in government-regulated industries in 2014 (structural) versus perceptions of public sector corruption
Ranking Crony Capitalism Based on Crony Capitalism Based on Wealth Concentrated in Public Perceptions of Outright Government-Regulated Corruption (Comparing the Same Industries Countries)
Source: Author-constructed table based on The Economist and Transparency International data.
1 Denotes 2013 Transparency International ranking of 175 countries.
Notes: Shading denotes countries in the top ten Economist ranking and top ten of the same grouping for Transparency International Corruption Perception Ranking.
Does not account for undue business influence in non-government regulated industries, and does not account for wealthy, but non-billionaire ownership.
1 Hong Kong Ukraine (1441)
2 Russia Russia (127)
3 Malaysia Indonesia (114)
4 Ukraine Mexico (106)
5 Singapore Argentina (106)
6 Philippines Thailand (102)
7 Mexico Philippines (94)
8 Taiwan India (94)
9 India China (80)
10 Indonesia South Africa (72)
11 Argentina Brazil (72)
12 South Africa Malaysia (55)
13 Brazil Turkey (53)
14 Turkey South Korea (46)
15 Britain Poland (38)
16 Thailand Taiwan (36)
17 United States France (22)
18 Poland United States (19)
19 China Japan (18)
20 France Hong Kong (15)
21 Japan Britain (14)
22 South Korea Singapore (5)
EXHIBIT 2.8
It is important to remember that none of our ideological models of business– government relations is exempt from crony capitalism. Strongly shareholder- oriented countries such as Hong Kong and Singapore have still allowed virtual monopolies of government controlled areas to flourish, driving up the cost of living. Strongly strategic-oriented countries such as Russia and Mexico have been unable to find a moral balance as the economic drivers favor crony businesses while government corruption flourishes. Even countries that utter a strongly shareholder- oriented philosophy, such as China and Greece, have evolved agendas that seem to have little to do with helping the poor in the long-term, but are rather aimed primarily at aiding the richest in society.
Where does the United States stand on various rankings of its level of crony capitalism? If one looks at outright government corruption, the US stands as the 19th least corrupt out of 175 countries; that is a relatively low level and is primarily aimed at political corruption rather than administrative bribery. Another perspective is to look at the level of wealth in sectors in which government regulation gives insiders (those with established wealth) an edge; in a ranking by The Economist, the US was the 17th most prone to crony capitalism based on rent-seeking industries rather than entrepreneurial industries. For this survey, this means that the US still has more of its super-wealth in entrepreneurial industries such as the booming technology sector. Some other examples of countries high in both types of crony capitalism include Russia, Ukraine, Indonesia, Mexico, and the Philippines. Hong Kong is an unusual case in which outright corruption is very low, but the lack of an anti-competition law until very recently has resulted in numerous, well- entrenched oligopolies; despite its tiny size, the special administrative region is home to 45 billionaires as of 2013 (Forbes 2014). Japan and South Korea are examples of where neither of these surveys fully picks up the governmental influence of Japanese or South Korean informal conglomerates (called keiretsu and chaebol, respectively) because despite their anti-competitive power domestically, they remain highly competitive industries on the global stage. The government-controlled industry perspective versus the corrupt government perspective is illustrated in Exhibit 2.8 above.
A final perspective is the relative spread of income distribution across the population as a proxy for the product of crony capitalism. In other words, from this perspective, when the distribution of wealth in a country is moderate and there is a strong middle class, crony capitalism is in check; when there is a large lower class, a small middle class, and a super-rich upper class, crony capitalism is likely operating. The data here shows that the gap between rich and poor has been increasing around the world since the 1980s, including the US where policies have encouraged what some have labelled winner-take-all philosophies (Piketty 2014).
ANALYTICAL CASE: THE LEWIS GROUP OF COMPANIES
The Lewis Group of Companies (LGC) (http://www.lewisop.com) is a privately held real estate development corporation which focuses on mixed-use planned
64 Introduction to Business–Government Relations
Business–Government Relations in Society 65
communities and residential subdivisions in California and other states, as well as building and owning rental communities, shopping centers, office parks, and industrial buildings. Founded in Claremont, California in 1955, LGC has developed thousands of homes, apartments, retail, office, and industrial space for the city and its surrounding areas, as well as elsewhere in California and other states. Real estate development is a multifaceted business. It typically involves a process where a developer purchases a parcel of land, determines the marketing of the property, develops the design and building programs, obtains financing, builds the structures, and leases, manages, or sells it. The company tries to make relationships with local officials prior to committing to projects to ensure support (or steer clear of the project early on) with the officials who will inspect plans and buildings countless times, the transportation department with regard to infrastructure, the zoning department with regard to use permission, and the state environmental protection agency with regard to an environmental impact assessment. Should Native American remains be discovered or water run-off adversely affect other properties, additional government officials will be on site quite quickly!
Real estate development is critical to a community, because it affects the appearance, the mix of land uses, the infrastructure (such as roads, water, sewer - age, drainage systems, and utilities), and ultimately the economic condition of the community. It is one of the riskiest yet most profitable businesses because there is a long investment period without positive cash flow, and economic down - turns or unexpected problems can scuttle projects with enormous loss of sunk costs.
The Lewis company currently hires over 400 employees in a variety of areas. The development process requires skills of many professionals, such as architects and civil engineers to address project design; market consultants to determine demand and a project’s economics; attorneys to handle agreements and government approvals; environmental consultants to analyze a site’s physical limitations and environmental impacts; inspectors and title companies to provide legal descriptions of a property; lenders to provide financing; and public relation experts to deal with issues related to media and the communities. The top management of the company is also heavily involved with strategic planning in all the jurisdictions in which the company operates.
Questions for Discussion and Analysis
1. With what issues does LGC have to deal with government? How important are good relations with government officials in LGC’s industry?
2. If you were the CEO of LGC, which model would you adopt to develop BGR strategies? Why? Visit the company’s website. Based on information from the company’s website, what BGR model do you think the company has used? What is the evidence?
3. Who are the stakeholders of LGC? What are the “stakes” they have with LGC, and vice versa?
66 Introduction to Business–Government Relations
PRACTICAL SKILL
Stakeholder analysis
Stakeholder analysis refers to the process of identifying the individuals and groups that are likely to affect, or be affected by, a proposed course of action and analyzing their impact on the action, as well as the impact the action will have on them. It is a technique that is widely used in decision- making, project management, and conflict resolution.
Stakeholder analysis is used when there is a need to clarify the consequences of the envisioned change to ensure the successful outcomes of the action. There are a variety ways of conducting stakeholder analysis. Generally speaking, all of them include two components:
1. Identifying stakeholders. Any proposed course of action may involve a multitude of stakeholders that can be impacted or cause an impact on the action. In a given situation, the primary stakeholders are those who are ultimately affected, either positively or negatively, by the action. Secondary stakeholders are those who are indirectly affected by the action. It is critical to identify all stakeholders, to comprehensively understand the implications of a proposed action.
2. Mapping stakeholders. The potential list of stakeholders for any pro posed action may exceed the capacity of analysis; therefore, it is more feasible to focus on the important stakeholders. To map stake holders is to develop a table or picture by categorizing the members and assigning priorities in certain ways. Some commonly used dimen sions for catego - rizing (and degrees to prioritizing stakeholders) include power/influence (high, medium, low), attitude/support (positive, neutral, negative), and need/interest (strong, medium, weak) (Mitchell, Agle, and Wood 1997).
The map is often presented in a matrix format with two dimensions of interest. A third dimension can be added by integrating color scheme, font size, or symbols.
For example, a stakeholder map may look like:
The table will help decision-makers better understand the impact of the action, set up priorities, balance the cost and benefits, and ultimately make a wise decision.
Positive Attitude Neutral Attitude Negative Attitude
High Power Stakeholder A Stakeholder B Stakeholder C
Medium Power Stakeholder D Stakeholder E Stakeholder F
Low Power Stakeholder G Stakeholder H Stakeholder I
SUMMARY AND CONCLUSION
1. Theories about business, government, and society are numerous. We examined three common business-centered approaches that often underlie public dis - cussions of what proper business–government relations should be. We also examined a business–government model in which relations have been corrupted.
2. The first of two business-centric perspectives was the shareholder model. It considers only business interests, and asserts that the two sectors should be as separate as possible, with the implicit assumption that government should also be as small as possible. Its strength is its focus on economic principles of a pure market and the dynamism and innovation that such a focus can ideally lead to. Its weaknesses are that, pragmatically, business only wants government to step aside in terms of short-term gains, and rarely accounts for external effects and long-term effects, even negative ones for the market itself.
3. The second market-based perspective was the strategic model. It assumes that business is but one of many players, and looks at maximizing business’s success in a competitive and political world. From a long-term perspective, it also includes a subordinate consideration of collaboration for both profit maximization from joining core competencies, as well as for public trust-building and public relations. Its weakness is that there is no ethical framework, and so ethical lapses may become common unless clear rules are spelled out in law (which limits flexibility).
4. The third market-based perspective was the stakeholder approach. It assumes that business is a fully integrated element of society, and must give as much attention to the interests of internal and external stakeholders as it does to owners or shareholders. It emphasizes the idea that society must balance both democratic as well as economic principles to be just and ensure social cohesion. Its strengths are that it reintegrates the social values that we were brought up to cherish and takes a long-term perspective toward business interests. Its weakness is that it is often argued that it, too, frequently goes beyond the appropriate realm of business, which is simply to make a profit and create jobs.
5. Understanding these different models of business and society is useful to sort out complex debates and conflicting assertions. Often those involved in debates are essentially talking past one another because they have fundamentally different assumptions. However, even more importantly, those making arguments often
Business–Government Relations in Society 67
Skill Exercise: Stakeholder analysis of ABC’s relocation
Read the opening case scenario: ABC’s relocation. Create a list of stakeholders for ABC’s relocation, identifying who are the primary, secondary, and key stakeholders (if there are any). Using the power–attitude matrix above, map the stakeholders.
Discuss how the analysis may inform you and how you would resolve the issue, if you were Zach’s father, Zeddic.
change their assumptions to suit the specific argument, thereby having an eclectic and incoherent approach. Since government is not a monolith, but rather an enormous set of complex operations, it is also important to be able to understand the three major ways that it attempts to fulfill the American public’s expectations. For example, the US Security and Exchange Commission is committed to the shareholder perspective by guaranteeing a fair playing field, the US Trade Representative’s office fights for the strategic position of American products, and the US Department of Health and Human Services is an advocate for the various constituents that make up society as represented in the stakeholder approach. A more sophisticated understanding of government, and the multiple approaches it is expected to embrace, allows business people to interact with government with both more comfort and effectiveness.
6. Finally, it is also important not to confuse the three different approaches listed above with crony capitalism, which is when any of these models becomes distorted and corrupted to provide unfair advantages to small elite groups in society, using government as a primary tool. Crony capitalism ranges from the flagrant variety exhibited in dictatorships to the subtler varieties found in all democracies. While crony capitalist tendencies can never be eradicated, they can be enormously reduced, which ultimately is both critical for maintaining the trust of society in its business and government institutions, as well as for the long-term good of a healthy market economy.
68 Introduction to Business–Government Relations
Competitiveness index Economic freedom
index GINI coefficient Government
“ownership”
Regulation Shareholder model Stakeholder Stakeholder analysis Stakeholder
model
Strategic business model
Subsidies Tax breaks
KEY TERMS
STUDY QUESTIONS
1. What are the issues that cause market failure? How can/does government deal with each of the issues?
2. What are the government policies that have affected the business of Boeing?
3. What are the advantages and disadvantages of using each of the three business- oriented approaches (the shareholder, strategic, and stakeholder models)?
4. What do you think the balance of the three government-oriented models (ownership, regulation, financial leverage) should be? What do you think the balance actually is? What direction do you think it is going? Discuss with examples.
References
Birchall, J. (2006). Wal-Mart Picks a Shade of Green. Financial Times, February 7. URL: http:// www.ft.com/cms/s/0/ba5fd83a-977d-11da-82b7-0000779e2340.html#axzz2MRLDEOZu.
Carney, T. P. (2011). Boeing Lives by Big Government, Dies by Big Government. The Examiner, April 24. URL: http://washingtonexaminer.com/boeing-lives-by-big-government-dies-by-big-
government/article/113179.
Carroll, A. B. (1979). A Three-Dimensional Conceptual Model of Corporate Social Performance.
Academy of Management Review, 4:497–505. Council on Competitiveness (2012). A Clarion Call for Competitiveness. URL: http://www.
compete.org/images/uploads/File/PDF%20Files/Clarion_Call.pdf.
Forbes (2014). The World’s Billionaires. http://www.forbes.com. Freeman, E. (1984). Strategic Management: A Stakeholder Approach. Boston: Pitman. Heritage Foundation Website (2015). 2015 Index of Economic Freedom. http://www.heritage.org/
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