Week 9

Question 1

Three main types of business organizations are:

Answer 1

Individual proprietorships

Partnerships

Corporations

Question 2

Shareholder primacy model

Answer 2

The belief that a corporation should be run for the benefit of its shareholders

Question 3

Stakeholder model

Answer 3

The belief that a corporation should be run for the benefit of its entire stakeholder, with no group enjoying primacy in decision making

Question 4

Two reasons for shareholder primacy model

Answer 4

1. Nexus of contracts - sum total of its contracts with different stakeholders
2. 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

Question 5

How can you incentivize agents to act like principals?

Answer 5

Incentivize agents with compensation opportunities and pay for performance.

Includes:
Bonuses
Stock-based compensation
Stock options
Stock grants

Question 6

How do you solve the agency problem?

Answer 6

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.

Question 7

How do you map the agency problem?

Answer 7

Understand all stakeholders and what they are looking to get from the business.

Question 8

What is a proxy fight?

Answer 8

An attempt by dissatisfied investors or stakeholders to GAIN SEATS on the board of directors, or to influence corporate policy.

Question 9

Define a tender offer.

Answer 9

An offer by those hoping to CONTROL corporation to purchase shares of dissatisfied investors.

Question 10

What is the agency problem?

Answer 10

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

Question 11

How do you map stakeholder influence?

Answer 11

1. Identify the main stakeholder groups (customers, employees, suppliers, investors, community/government).
2. Assess how each group is affected by the business.
3. Assess how each group affects the business.
4. Think through tools for listening and responding to each group.

Question 12

Define a nexus of contracts.

Answer 12

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.

Question 13

Name two models that drive the purpose of a business.

Answer 13

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.

Question 14

What are the four key ethical values?

Answer 14

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.

Question 15

What is a social entrepreneur?

Answer 15

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.

Question 16

What do social value organizations rely on?

Answer 16

Rely on repeat transactions.

For example, universities need ongoing partnerships for support.

Question 17

How is the Value Net used as a tool for external analysis?

Answer 17

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.

Question 18

Name tools to create value for social-value organizations.

Answer 18

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.

Question 19

What four types of responsibilities should organizations consider?

Answer 19

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

Question 20

List three ways the social entrepreneurs can create value.

Answer 20

1. Capacity building - transfer of skills & abilities from one organization to another.
2. Sell products/services - bring change through new products/services.
3. Institutional change - entrepreneurs strive to change the way people/groups

Question 21

Three main sets of skills that social entrepreneurs can adopt.

Answer 21

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.

Question 22

What are the challenges of social entrepreneurship?

Answer 22

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).