Week 9 Flashcards
Three main types of business organizations are:
Individual proprietorships
Partnerships
Corporations
Shareholder primacy model
The belief that a corporation should be run for the benefit of its shareholders
Stakeholder model
The belief that a corporation should be run for the benefit of its entire stakeholder, with no group enjoying primacy in decision making
Two reasons for shareholder primacy model
- Nexus of contracts - sum total of its contracts with different stakeholders
- PROPERTY Rights
The rights of owners to:
- claim the residual earnings of the corporation or the profits after all other stakeholders have been paid
- monitor the management team to make sure that the team works in their best interests
How can you incentivize agents to act like principals?
Incentivize agents with compensation opportunities and pay for performance.
Includes:
Bonuses
Stock-based compensation
Stock options
Stock grants
How do you solve the agency problem?
Solve the problem by having a Board of Directors
Board of Directors - a group of individuals who monitor the executive team of the corporation and ensure that those executives are acting in the best interests of the shareholders.
How do you map the agency problem?
Understand all stakeholders and what they are looking to get from the business.
What is a proxy fight?
An attempt by dissatisfied investors or stakeholders to GAIN SEATS on the board of directors, or to influence corporate policy.
Define a tender offer.
An offer by those hoping to CONTROL corporation to purchase shares of dissatisfied investors.
What is the agency problem?
The separation of ownership (shareholders/principals) and control (managers/agents) in the corporation.
It destroys value in two ways:
1) principal’s investments are sunk and hard to recover
2) ability to monitor/supervise the agents is limited
*when ownership and control have different views
How do you map stakeholder influence?
- Identify the main stakeholder groups (customers, employees, suppliers, investors, community/government).
- Assess how each group is affected by the business.
- Assess how each group affects the business.
- Think through tools for listening and responding to each group.
Define a nexus of contracts.
A model of the corporation suggesting that the firm is the sum total of its contracts with different stakeholders.
firm = all contracts with different stakeholders (the contracts make up the firm)
The legal entity of the business is like a bundle divided between participating parties.
Name two models that drive the purpose of a business.
Shareholder primacy model - belief that a corporation should be run, primarily or exclusively, for the benefit of its shareholders.
Stakeholder model - belief that a corporation should be run for the benefit of its entire stakeholder set, with no group having primacy in decision making.
What are the four key ethical values?
A good society creates the greatest good for the greatest number of people.
A good society ensures a basic set of rights for its citizens.
A good society creates the most freedom for people to act as they please.
In a good society, individuals care for each other, exhibit empathy, and focus on meaningful relationships.
What is a social entrepreneur?
uses free-market principles
creates for-profit businesses
creating shared value.
A social entrepreneur is someone who creates a business to solve a social problem or address a societal need, prioritizing social impact over profit.
What do social value organizations rely on?
Rely on repeat transactions.
For example, universities need ongoing partnerships for support.
How is the Value Net used as a tool for external analysis?
The Value Net model explains how organizations create value by interacting with their environment, including customers, suppliers, competitors, and complementors. It’s an external analysis that considers stakeholders in various roles, making it useful for decision-making.
Name tools to create value for social-value organizations.
Cost leadership, differentiation, and innovation strategies: to stay ahead of competitors.
Differentiating to create unique value: standing out in the market by offering something unique.
Corporate strategy and alliances: partnering with other companies to achieve success.
Corporate diversification: expanding resources and capabilities to provide new programs.
Implementation and governance: ensuring strategies are put into action and managing the company effectively.
What four types of responsibilities should organizations consider?
Economic responsibility - obligation to generate profits
Legal responsibility - obligation to obey the written & codified laws of the countries it operates
Ethical responsibility - obligation to abide by the unwritten ethical, standards, norms, and values of the communities in which it operates
Philanthropic responsibility - obligation to contribute to the enhancement of the communities in which it operates
List three ways the social entrepreneurs can create value.
- Capacity building - transfer of skills & abilities from one organization to another.
- Sell products/services - bring change through new products/services.
- Institutional change - entrepreneurs strive to change the way people/groups
Three main sets of skills that social entrepreneurs can adopt.
The three main skills are:
Social bricoleur: combines different elements to create something new.
Social constructor: builds something that didn’t exist before.
Social engineer: designs and creates new social systems to create big changes.
What are the challenges of social entrepreneurship?
Work in difficult, unstable, and harsh conditions.
Relates to Base of the Pyramid - describes those living in conditions of extreme poverty.
Difficulty of managing a hybrid organization (organization pursuing more than a single goal and each goal has equal importance).
