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ORGLectureWeek1.pptxORG20002 Business and Society Week one
The Business-Society Relationship
Convenor: Dr Ryan Jopp
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Why Study Business and Society?
The chief executive of BlackRock, the $6 trillion investment firm, plans to tell C.E.O.s in a letter that businesses must serve a social purpose
To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society
New York Times Article
(January 2018)
Evidence of a clear move away from a purely profit driven agenda, to one that takes a sustainable long-term view, inclusive of all stakeholders
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Lecture overview
This week we will explore the:
Importance of understanding the changing Business and Society relationship
Components of the macro-environment: as a way of understanding the business-society interface
The importance of various stakeholders in the business/society relationship
The power and influence of big business, and explore ethical considerations
Examples of regulatory and normative shifts influencing business
And much more!
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Why study business and society – a managers perspective?
In traditional Introduction to Management units students often examined the different functions associated with the role of the manager.
Does anyone know/recall these 4 functions?? (POLC)
Planning
Organising
Leading
Controlling
Some of you may recall Management theorist Henri Fayol?
Interesting to note that originally Fayol included a 5th function “commanding” which no longer makes it into the text books.
Why do you think this function has been removed from modern day teaching?
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Why study business and society?
The modern manager’s role is that of a teacher, educator, coach, developer and facilitator.
Managers need to engage with and empower their employees rather than command them.
Recently the conventional way of achieving performance through command-and –control management has been significantly challenged.
Managers have a growing understanding that business does not exist in isolation and that the broader environment should be considered.
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Why study business and society?
This unit helps you understand:
Why managers are facilitators rather than commanders
Who the stakeholders are that managers must teach, coach, develop and facilitate, and…
Why managers need new and important skillsets to help facilitate ways forward for their stakeholders in these dynamic times of change
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How we’ll study business and society
In this upgraded version of the unit you will be considering the new challenges for business and how managers deal with these.
Individual Assignment and Preparatory Quiz (weeks 4 & 7)
Group Case-Study (week 10).
Final Examination
Will go through content and assessment in detail during tutorials.
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Thinking about issues more broadly
Management is a multi-disciplinary discipline.
Your assignment tasks will help you think more broadly about how business operates, the problem sets that arise, and what they represent for you as a manager.
This is very good preparation for your third year capstone unit that will require you to work with students from different disciplines
You will see from your weekly schedule in your unit outline that we’ll be covering specific chapters in your text (Carroll & Buchholz 2015).
Although this book has an American focus, which we’ll supplement with other materials, it was chosen because Archie Carroll is perhaps the most influential scholar and commentator on this topic globally.
This is very good preparation for your third year capstone unit that will require you to work with students from different disciplines and learn to understand their skills and bring your skills to the project in a way that adds value.
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Schedule
Module 1 (Weeks 1-4)
We explore some of the foundational concepts critical to this unit.
The changing business-society relationship
Corporate Citizenship & CSR
The managers role in engaging stakeholders
Stakeholder responsibilities and business ethics
Module 2 (Weeks 5-8)
We will examine different internal and external stakeholders and explore their level of power and influence.
Government
Consumers
Natural Environment
Employees
Module 3 (Weeks 10-12)
We explore the particular stakeholder challenges that exist within various contexts.
Private Sector
Nor for Profit Sector (NFP’s)
Collaborative Alliances (PPP’s)
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The business-society relationship has a complex history
Traditionally business has been profit-driven and focussed heavily on shareholders as the key stakeholders
improving the bottom line to increase share value and dividends.
However, this focus now being challenged.
Yet the question as to whether business has broader responsibilities to society than making profit for its shareholders can be traced back for centuries (Carroll and Shabana, 2010)
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The business-society relationship has a complex history
The debate concerning the role of business has been significantly revived over the last decade in relation to :
Business scandals
The role of business in addressing the needs of increasingly numerous and diverse stakeholders
The level of responsibility that business has for resolving society’s most pressing issues (e.g. Climate Change)
The business opportunities available when business operates in this business-society interface
How business might behave ethically in this space in dealing with other stakeholders with different values
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The business-society relationship: the neo-classical view
Let’s start with the more traditional views about business.
From introductory economics studies you may have been introduced to Adam Smith the father of “the free market” who argues strongly for entrepreneurs to follow their own interests, unhindered by interference from government or regulation.
In 1962 towards this end Friedman argued that the role of business was to optimise profits for shareholders, or “the business of business is business”.
Milton Friedman: The Essence of Capitalism
(4.32mins)
Watch video
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Other views opposing Friedman
Four decades on, Barnett (2007) suggests that an excessive focus on profits decreases an essential capability of the firm to influence and manage other stakeholders (i.e. those persons or sectors with other “stakes” in the outcomes and operations of business activity) (Freeman, 1984)
For example…?
Which Stakeholders may not have traditionally been considered?
Future generations, the natural environment…
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So why is this traditional approach to the purpose of being challenged ?
Carroll & Buchholtz (2012) note that scandals such as Enron/Arthur Anderson, the Global Financial Crisis (GFC), and the BP oil spill focussed some criticism on the capitalist system itself for justifying “corruption” and inappropriate risk taking in the interest of creating shareholder wealth at any cost. Criticism focussed on:
individual greed and corruption;
Corrupt practices within financial institutions themselves, and
the deregulation of the US business sector by the Reagan government during the 1980’s
Exorbitant executive pay
This lead to negative impacts on society that were both costly and harmful.
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How to manage broader interests that are affected by business activities?
What these debates did raise was how, and to what extent, business operated in the interests of the broader society.
Is it enough for the Board, CEO or manager within an organisation to argue that business is the driver of growth in a society, but deny responsibility for the social impact its strategic directives and operations incur on society more generally?
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Business operates within the macro-environment: a way of seeing the business-society interface
“The macro-environment Is the complete societal context in which the organization resides” (Carroll and Buccholtz, 2012)…
Social environment ..demographics, lifestyles and social values of society
Economic environment…micro and macro-economic factors, internal stakeholders such as employees, macro-economic influences: e.g. inflation rates, exchange fluctuations, unemployment, and aspects of globalisation
Political environment …business regulation of industries eg the Sarbanes-Oxley Act
Technological environment … impacting on products, services, processes, knowledge creation and the need for adaptive capability to take advantage of relevant technological shifts.
SHOULD THE PHYSICAL ENVIRONMENT BE INCLUDED? HOW?
Impact on the natural environment (pollution, water security, climate change)
Ability to put price on Natural Assets (e.g. commodification of nature)
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Pluralism: strengths and weaknesses
Society composed of many autonomous and semi-autonomous groups, each pursuing their own self interest… however pluralism has worked to achieve some equilibrium in the balance of power of the dominant institutions that constitute our society. (Carroll and Buccholtz, 2012).
Carroll argues that business is increasingly having to respond to its multiple, shifting and complex constituencies who have a “stake” in their business, often previously unrecognised e.g. the natural environment – fresh water, air pollution…
Promotes a healthy degree of competition and cooperation.
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Corporations adapting to social expectations as well as economic, political and technical (Carroll)
Corporate Responsibility: The American Experience (4.51 mins)
YouTube video in which Carroll suggests that over the past four decades business has:
Become more experienced and sophisticated in dealing with public concerns about business practice
More professionally mainstreamed its dealings with stakeholders as part of the management role
Moved past a Public Relations mindset in responding to shifting societal expectations about business:
Today it’s standard business practice…sound business principles
Responding to social issues does not stand alone from business practice. It is embedded in strategy and operations
Organisations are becoming adept in responding to political, tech and social change… in order to maintain its social licence and competitive advantage.
Watch video/Review key points
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So what factors in the social environment have increased expectations and critique about business accountability?
Affluence and education
Awareness through social media , TV , movies and the internet
Entitlement mentality ----is this an appropriate term to describe expectations about the availability of employment, education, health services?
Rights movement (Human rights, equal opportunity, environmental movement)
Victimisation philosophy- revolution of rising sensitivities. Carroll and Buccholtz suggest this is sometimes related to the Rights Movement.
Belief that individuals are being unfairly hurt by society’s institutions including government, business, education
How might this manifest in a business?
How might this relate to global warming?
Prime minister Tony Abbott recently stating that “the age of entitlement is over”….
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Criticism of business: use and abuse of power
Levels of power
Spheres of power
Balance of power and responsibility
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Appcrozonglecle: (p. Ap-kro–zon–gool–cool) def. A Very Big Company.
Apple, Microsoft, Amazon, Google and Oracle.
New Zealand, Belarus, Sri Lanka, Croatia and Uruguay.
2012 Revenue from highest to lowest, Apple $156.5 billion, Microsoft $73.7 billion, Amazon $61.3 billion, Google $50.1 billion and Oracle $31.1 billion.
See Next slide for details
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Levels of Power: sheer size and resources: implications for ethics?
Apple sells per year in product what the entire country of New Zealand creates per year in GDP.
Their combined revenues of $372.6 billion put them as the 31st largest country in the world. Bigger than Columbia, Denmark, Singapore and the United Arab Emirates.
Then what if we look at their cash positions combined — that is, how much cash to these tech giants have in their coffers?
For a start, if they wanted to, Apple could have bought Cyprus. And had change to wipe the total external debt of Singapore for the fun of it!
That’s right. Apple on its own has enough cash to eliminate the total external debt of Cyprus and Singapore; over $130 billion.
Is this analysis useful?
Do you think this is a good thing?
Questions to consider:
Is this analysis useful?
Do you think this is a good thing?
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Spheres of power in the business-society interface?
Economic
– increasing need for working across sectors to provide value eg energy, climate change, health and education infrastructure (Porter and Kramer, 2011)
Political
Influence over government? Lobbying? Mining resource tax?
Cultural
Respect for community values in advertising?
Power over the individual
In the workplace
As a consumer
Technological
Technology as a facilitator or a barrier?
Exclusion factor
Environmental
Accountability for resource usage
Inter-generational equity
Global citizenry
Briefly review.
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Power and responsibility: The iron law of responsibility
“in the long run those who do not use power in a manner which society considers responsible will tend to lose it ” (David and Blomstrom, 1966)
How does society communicate its perspective on whether power is being used in a balanced manner?
Regulation
Community commentary through social media
Consumer power (decision making, boycotts, etc…)
Community protests, rally’s etc…
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Is there a social contract between business and society?
Carroll and Buccholtz suggest we can think of a social contract between business and society or societal stakeholder groups that articulates both
Laws and regulation (rules of the game), and
Shared understanding that evolves over time (normative perspective, what ought to be, more ambiguous and shifting)
Significant agreement in the literature and the business press that these rules are shifting rapidly.
Carroll and Buccholtz suggest this emergent and urgent shared understanding is around three key areas
Business ethics
Sustainability issues
Stakeholder management
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Example of Regulatory Shifts
Sarbanes-Oxley Act (Enron)
Law to enforce stricter accounting laws.
http:// www.youtube.com/watch?v=xW9pSAwaeO0
Carbon tax (Emissions Trading Schemes)
Continually being debated in Australia, and in most countries around the world
Despite the apparent success of the Paris Climate Accord
President Trump’s impact on global agreements yet to be fully known
Donald Trump has said he is going to bring back ‘beautiful clean coal’ and the many associated jobs
Has previously asserted that climate change is a hoax perpetrated by the Chinese.
Source: https ://www.nytimes.com/2016/11/19/world/asia/china-trump-climate-change.html?_ r=0
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Example of normative shifts
Ethics: issues of right or wrong, fairness, justice that arise in the business environment
Apparent changes in societal norms and expectations in relation to the business/society interface
The concept of sustainability has become one of businesses most pressing mandates. Moved from concerns about the environment to a much more holistic appraisal as to how we do business
Derived from the notion of sustainable development that considers both
the sustainability of the business alongside
the broader definition of the Brundtland Commission “…meets the needs of the present without compromising the ability of future generations to meet their own needs”
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As managers, why should we think differently about the role of stakeholders?
Increasing complexity requires stakeholder engagement and buy-in to act effectively and quickly both strategically and operationally
Can use stakeholder input as a form of business development and effective design (identify new opportunities)
Need an understanding of stakeholder agendas to understand and mitigate risk (manage potential stakeholder tensions)
Helps managers understand the various “impacts” of business to support new forms of accountability and responsibility.
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Ways of conceptualising normative shift: Management of individual capitals
Triple bottom line a term coined by John Elkington in the mid 1990s to help companies conceptualise the ways they create value in multiple dimensions through economic, social and environmental value added – or destroyed
intended to assist business review, measure and report on the overall impact of their operations
More recently some institutions have added corporate governance and made it a quadruple bottom line.
Bendell and Kearns (2005) suggest that a political bottom line to measure the impact of progressive corporate political activity and influence on the overall goal of achieving more effective governance for sustainable development
Robbins (2006) notes that a key strength is that it makes companies take account of a much broader range of stakeholders
Helping companies go further than just an approach to comply with regulation
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Management of Capitals: International Integrated reporting Council (IIRC)
International Integrated reporting (2013) encourages business to be more transparent and accountable in the way it uses resources.
Business and investors from over 25 countries pioneered and contributed to the development of the International <IR> Framework.
The IIRC has attracted world-leading organizations into its business network – companies like Unilever, HSBC, Deutsche Bank, Hyundai, Microsoft, PepsiCo, National Australia Bank, Tata Steel, AMP
(Model on next slide)
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IR Framework – Introductory Video (1.44mins)
IIRC Model
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What we looked at today…
The changing business-society relationship and why it is important for managers
Increasing pressure on business to act in a sustainable manner and to be accountable for their actions
Some negative impacts of business activity will be dealt with by self-regulation (e.g. codes of conduct)
Others will be regulated by government legislation (e.g. environmental legislation, consumer rights, EEO)
Business need to understand the role of stakeholders with divergent interests and values
Business boundaries are shifting beyond the organisation to include the societal (macro) environment.
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Tutorial 1
Introductions
Review lecture 1
Review of Assessments
Look at IIR handout and discuss in groups what managing capitals means. Is it broader than financials?
Why is this important to managers?
Look at Tom’s case study. How are they managing their capitals?
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