1 & 2 Flashcards
Nature of Humans
Capuchin monkey studies
- an innate sense of fairness
Yale Baby lab
- babies appear to have sense of nice/mean behavior and seem selfish but social interaction changes them
Corporations are “legal persons” for 3 purposes
- entering a contract
- civil & regulatory liability (sue)
- criminal law (be punished)
Define citizen
member of community or state with political rights
- entails rights and responsibilities
Define economic rent
the extra amount earned by a resource (i.e. land, capital, labour) by virtue of present use, due to exclusivity or scarcity
i.e. ask boss for raise, Uber price-gouging on NYE
Define externalities
a loss or gain in welfare of one party, resulting from another party’s activities without compensation for losing party
- > important consideration in cost-benefit analysis
- > not contained in price of a good
i. e. bee keeping, social or environmental factors like pollution
What is the fundamental implicit agreement between business and society?
social contract
Milton Friedman’s View
Pursuit of profits should be constrained by a respect for law & local customs
***focus on law, not on ethics
His model does not condone fraud, deliberate deception or illegal behaviour
Wrote that employees are expected to respect fundamental moral values – be loyal to firm, honest in their work, and respectful of company property
Critique of Milton Friedman
- more concerned with law than ethics
5 Models of Firms
- Classic Economic
- Economic rationalist
- Corporate Citizen
- Activist Model
- Shared Value Model
Classic Economic Model
Associated with Milton Friedman – emerged 1970’s
Business’ sole responsibility: maximize profit & share value
Business viewed as separate from society & government
“leave business to business” (gvn’t should keep hands off)
Role of government & civil society is to regulate & manage business externalities – the social, economic, and environmental impacts of economic activities
In business decisions: strategic elements are viewed separately from ethical elements
Economic Rationalist Model
Has largely replaced Friedman’s model (but profit still trumps all)
Assesses “trade-offs” against “enlightened self-interest”
Recognizes the costs and benefits of acting on, or ignoring, ethics
Will address externalities if it pays to do so
Firm takes time to think explicitly about ethics as a source of competitive advantage
May craft a value proposition that incorporates an ethical vision to attract like-minded customers and employees
In business decisions recognizes that it is not practical to view strategic elements separately from ethical elements
i.e. Montsanto
Corporate Citizen (or CSR) Model
Goal is profit maximization while being responsible within society
Traditional CSR model was a response to external pressure, but increasingly CSR firms appear more purpose-driven
When CSR is authentic & successful, it can reshape an industry
In business decisions attempts to balance profit maximization against its concern for society and the environment
i.e. Google
Activist Model
Similar to an NGO, but functions as sustainable business
Cause-driven, aims to make a social or environmental impact
Investors share the commitment to society/environment
Aims to repay original investment, but investors do not receive dividends
Share can be inherited and become part of a family’s legacy
Often form JV’s with regular business
Profit is directed towards company expansion & improvement
In business decisions balances the need to be commercially sustainable against the social purpose
i.e. Tom’s shoes
Creating Shared Value Model
Competitive, purpose-drive, aims to make a social impact
Concern for society/environment is baked into company’s DNA (mission, strategies, policies, operating practices, etc.)
Views capitalism as an unparalleled vehicle for meeting human needs, improving efficiency, creating jobs, and building wealth
Competed by creating value for both business & society
Success means profit maximization and social progress
Views CSR model as a weaker strategy, reactionary, greenwashing
In business decisions pursues a competitive edge throguh the creation of value for society/environmental
Examples: Unilever, Warby Parker
Carrol’s Pyramid of Social Responsibility
PELE
PHILANTHROPIC responsibility - be a good corporate citizen
ETHICAL responsibility - be ethical
LEGAL - responsibility - obey law
ECONOMIC responsibility - be profitable
