Chapter 1
The Study of Business,
Government, and Society
This chapter provides an overview of the business-governmentsociety field of study by:
 Defining basic terms
 Discussing the field’s importance to managers
 Introducing the four basic models of the businessgovernment-society relationship
 Explaining the authors’ approach to the subject matter.
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Opening Case:
ExxonMobil Corporation
 Company history
 Main business is discovering, producing, and
selling oil and natural gas
 Descended from the Standard Oil trust
 In 1890 Congress passed the Sherman Antitrust Act to
outlaw its monopoly
 Once had more than a 90% market share of the
American oil market
 The values of its founder, John D. Rockefeller,
defined the company culture
 In 1972 Standard Oil of New Jersey changed its
name to Exxon, and in 1999 it merged with
Mobil, to form ExxonMobil
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Opening Case:
ExxonMobil Corporation (continued)
 The leader
 John D. Rockefeller (Standard Oil)
 Brilliant strategist and organizer who
crushed competitors
 Emphasized cost control, efficiency,
centralized organization, and suppression
of competitors
 Although Rockefeller’s influence is buried in
the passage of time, ExxonMobil’s actions
remain consistent with his nature
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Opening Case:
ExxonMobil Corporation (continued)
 Today ExxonMobil remains a powerful force, but that power is
limited by economic and political forces.
 It now controls only 5.6% of oil production and holds less than
1% of petroleum reserves, far less than it did in the 1950s.
 It has complex relationships with powerful governments.
 For a considerable time, company managers denied that the
world is warming.
 ExxonMobil’s large size attracts the watchful eye of
environmental, civil rights, labor, and consumer groups.
 It engages in corporate citizenship by funding a variety of
programs to benefit education, communities, health, nature,
and the arts.
The story of ExxonMobil illustrates the importance of interactions
between one large corporation, governments, and society.
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
What is the Business–
Government– Society Field?
 Business – broad term encompassing a
range of actions and institutions.
 Government – refers to structures and
processes in society that authoritatively
make and apply policies and rules.
 Society – a network of human relations that
includes three interacting elements:
 Ideas
 Institutions
 Material things
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
How Institutions Support Markets
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Why is the BGS Field Important to
Managers?
 To succeed in meetings its objectives a business
must be responsive to both its economic and its
noneconomic environment.
 Recognizing that a company operates not only
within markets but within a society is critical.
 A basic agreement or social contract exists
between the business institution and society.
 Managers must respect and adhere to society’s
expectations.
 This contract defines the broad duties that
business must perform to retain society’s
support, but these duties are often ambiguous.
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Four Models of the BGS Relationship:
The Market Capitalism Model
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Four Models of the BGS Relationship:
The Market Capitalism Model
(continued)
 The market capitalism model depicts
business as operating within a market
environment, responding primarily to
powerful economic forces.
 The market acts as a buffer between
business and nonmarket forces.
 History and nature of markets
 Adam Smith, The Wealth of Nations
 Capitalism
 Managerial capitalism
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Four Models of the BGS Relationship:
The Market Capitalism Model
(continued)
 Important assumptions of the market capitalism
model:
 Government interference in economic life is
slight (laissez-faire).
 Individuals can own private property and freely
risk investments.
 Consumers are informed about products and
prices and make rational decisions.
 Moral restraint accompanies the self-interested
behavior of business.
 Basic institutions such as banking and laws
exist to ease commerce.
 There are many producers and consumers in
competitive markets.
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Four Models of the BGS Relationship
The Market Capitalism Model
(continued)
 Critiques of the Market Capitalism Model
 Increased prosperity comes at the cost of
increased inequality
 Results in base values being energized and
virtue being eroded
 The BGS relationship according to the Market
Capitalism Model:
 Government regulation should be limited.
 Markets discipline private economic activity to
promote social welfare.
 The proper measure of corporate performance
is profit.
 The ethical duty of management is to promote
the interests of shareholders.
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Four Models of the BGS Relationship:
The Dominance Model
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Four Models of the BGS Relationship:
The Dominance Model (continued)
 Business and government dominate the
great mass of people, which results in the
enrichment of a few at the expense of
many.
 Populist reform movement opposed the
dominance model.
 Marxism emerged in Europe about the
same time.
 Most accurate in the 1800s, but is being
resurrected due to the fear of transnational
corporations in a global context.
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Four Models of the BGS Relationship
The Countervailing Forces Model
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Four Models of the BGS Relationship
The Countervailing Forces Model
(continued)
 Countervailing forces model conclusions:
 Business is deeply integrated into an open society
and must respond to many forces, both economic
and noneconomic.
 Business is a major initiator of change in society
through its interaction with government, its
production and marketing activities, and its use of
new technologies.
 Broad public support of business depends on its
adjustment to multiple social, political, and
economic forces.
 BGS relationships continuously evolve as changes
take place in the main ideas, institutions, and
processes of society.
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Four Models of the BGS Relationship
The Stakeholder Model
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Four Models of the BGS Relationship
The Stakeholder Model
 Stakeholders are those whom the corporation
benefits or burdens by its actions and those who
benefit or burden the firm with their actions.
 Primary stakeholders
 Secondary stakeholders
 Debate about how to identify who or what is a
stakeholder.
 Stakeholder model is an ethical theory of
management in which the welfare of each
stakeholder must be considered as an end.
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Four Models of the BGS Relationship
The Stakeholder Model (continued)
 Criticism of the stakeholder model:
 It is not a realistic assessment of the power
relationships between the corporation and other
entities.
 There is no single, clear, and objective
measure to evaluate the combined
ethical/economic performance of a firm.
 Advocacy for the stakeholder model:
 A corporation that embraces stakeholders
performs better.
 It is the ethical way to manage because
stakeholders have moral rights that grow from
the way powerful corporations affect them.
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved
Text Approach to the
Subject Matter
 Comprehensive scope
 Interdisciplinary approach with a
management focus
 Use of theory, description, and case
studies
 Global perspective
 Historical perspective
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved