Chapter 1- The Business and Society Relationship
Chapter Objectives
▪ 1. Define and explain business and society as foundational concepts. Describe how
society is viewed as the macroenvironment.
▪ 2. Explain the characteristics of a pluralistic society. Describe pluralism and identify
its attributes, strengths, and weaknesses.
▪ 3. Clarify what a special-interest society is and how it poses special challenges for
business.
▪ 4. Identify, discuss, and illustrate the factors leading to business criticism and
corporate response. What is the general criticism of business? How may the balance
of power and responsibility be resolved?
▪ 5. Identify what is the changing social contract and its implications for stakeholders.
▪ 6. Make clear the major themes characterizing this book: managerial approach,
business ethics, sustainability, and stakeholder management.
Key Terms
• Affluence: the level of wealth, disposable income, and standard of living of the society
• Business: the collection of private, commercially oriented (profit-oriented) organizations,
ranging in size from one-family proprietorships
• Business ethics: ethical issues that arise in the commercial realm
• Business power: the capacity or ability to produce an effect, have an impact, or to bring
influence to bear on a situation or people
• Economic environment: the nature and direction of the economy in which business
operates
• Education: the process of receiving or giving systematic instruction, especially at a
school or university
• Entitlement mentality: the general belief that individuals are owed something (e.g., a
job, an education, a living wage, or health care) just because they are a member of
society
• Iron Law of Responsibility: Whenever power and responsibility become substantially
• out of balance, forces will be generated to bring them into closer balance.
• Macroenvironment: the total environment outside the firm
• Managerial approach: a focus on the three main themes of vital importance to
managers, organizations, and society today: business ethics, sustainability, and
stakeholder management.
• Nongovernmental organizations (NGOs): special-interest groups that may be
organized on a local, national, or international level
,• Pluralism: a diffusion of power among society’s many groups and organizations
• Political environment: the processes by which laws get passed and officials get elected
and all other aspects of the interaction between firms, political practices, and government
• Rights movement: a trend and pattern of rising expectations as to how people want to
be treated
• Rising expectation: a belief or an outlook that each succeeding generation ought to
have a standard of living higher than that of its predecessor
• Social contract: a set of reciprocal understandings and expectations that characterize
the relationship between major institutions
• Social environment: the demographics, lifestyles, culture, and social values of the
society
• Social problem: a gap between society’s expectations of social conditions and the
current social realities
• Society: community, a nation, or a broad grouping of people with common traditions,
values, institutions, and collective activities and interests
• Special-interest society: a society characterized by tens of thousands of special interest
groups, each pursuing its own specific agenda
• Stakeholder management: the management of integral constituents in the business and
• society relationship
• Stakeholders: individuals or groups with which business interacts who have a “stake,” or
vested interest, in the firm
• Sustainability: business’s ability to survive and thrive over the long term
• Sustainable development: a pattern of resource use that aims to meet current human
needs while preserving the environment so that these needs can be met not only in the
present but also for future generations
• Technological environment: the total set of technology-based advancements taking
place in society and the world
Foundational Concepts
Business: Collection of private, commercially oriented (profit-oriented) organizations; with a
range from one-family proprietorships to medium-sized businesses to corporate giants.
▪ Also refers to organised economic activity that produces goods and services for profit.
It involves the use of resources like capital, labour, technology, and management to
satisfy consumer demand.
The Business-society relationship refers to the interaction between BUSINESS
INSTITUTIONS and the BROADER SOCIAL SYSTEM in which they operate.
▪ Businesses rely on society for resources, legitimacy, and markets.
▪ Society depends on businesses for goods, services, employment, and innovation.
,Visibility factors:
▪ Manufacturing Firms (auto-industry) = visual pollution contributors
▪ Advertising-intensive Industries (Nike) = high public profile
▪ Health-related industries (pharmaceuticals, fast food) = scrutinized for health effects
*While large businesses receive most attention, small and medium sized enterprises
and social entrepreneurship movement are increasingly significant.
QUESTION: In discussion of business and society, why is there a tendency to focus on large-
sized rather than small- or medium-sized firms? Have the corporate ethics scandals of the
past decade affected small- and medium-sized firms? If so, in what ways have these firms
been affected?
ANSWER: We tend to focus on large firms when discussing business and society for a number
of reasons.
• Large firms are more visible, their products and services are more widely known, and
we generally equate size with power.
• All of these factors contribute to the fact that large firms are more susceptible to public
scrutiny.
• It is debatable whether the ethics scandals of the first decade of the 2000s have had
a significant impact on small and medium-sized firms.
• On one hand, the scandals may have caused a general increase in the level of distrust
of business. This had a chilling effect on stock prices and made it more difficult for
smaller firms to raise money, especially through initial public offerings (IPOs).
• Furthermore, small- and medium-sized firms that are not publicly traded may feel
pressure to adhere to the costly provisions of the Sarbanes-Oxley Act, as lenders,
investors, and competitors continue to stress that SOX provisions are the “best
practices” by which all firms are measured.
• On the other hand, as stated above, the public tends to focus more on larger firms, so
the effect of scandals may not have “trickled down” to smaller firms on those occasions
when members of society actually do think about them.
Society: a community of people and institutions organized around shared structures, norms
and values.
▪ Includes; governments, markets, families, education systems, and other social
institutions.
, Society as the Macroenvironment
Businesses operate within a macroenvironment; consisting of external forces that
influence decision-making.
Major environmental forces:
1. Economic forces (econ growth, inflation, unemployment)
2. Political forces (gov policies, regulations)
3. Legal forces (laws governing business activities)
4. Technological forces (innovation, business activities)
5. Social forces (values, culture, demographic trends)
6. Environmental forces (natural resource use &
ecological constraints)
Businesses must continuously adapt to changes in
these forces to remain legitimate & competitive.
Pluralistic Societies
Most modern societies are pluralistic- they consist of
multiple groups with different interests, values, and
power bases.
▪ Key Features
• Existence of MANY stakeholders (citizens, NGOs, govs, businesses)
• Competing interests and values among social groups
• Power is distributed among institutions rather than centralised.
Good because...
• Prevents power from being concentrated in the hands of a few.
• Maximizes freedom of expression and action and strikes a balance between
monism, on the one hand, and anarchy on the other.
• Disperses the allegiance of individuals to groups.
• Minimizes the danger that a leader of any one organization will assume full control.
• Provides a built-in set of checks and balances, in that groups can exert power over
one another with no single organization (business or government) dominating and
becoming overly influential.
Special-Interest Society:
▪ Pluralism often results in special-
interest societies
▪ Organised groups attempt to influence
business and government decisions.
▪ Groups like environmental groups,
labour unions, consumer groups etc.
▪ Pursue their own agendas, not always
aligned with other special-interests.
Chapter Objectives
▪ 1. Define and explain business and society as foundational concepts. Describe how
society is viewed as the macroenvironment.
▪ 2. Explain the characteristics of a pluralistic society. Describe pluralism and identify
its attributes, strengths, and weaknesses.
▪ 3. Clarify what a special-interest society is and how it poses special challenges for
business.
▪ 4. Identify, discuss, and illustrate the factors leading to business criticism and
corporate response. What is the general criticism of business? How may the balance
of power and responsibility be resolved?
▪ 5. Identify what is the changing social contract and its implications for stakeholders.
▪ 6. Make clear the major themes characterizing this book: managerial approach,
business ethics, sustainability, and stakeholder management.
Key Terms
• Affluence: the level of wealth, disposable income, and standard of living of the society
• Business: the collection of private, commercially oriented (profit-oriented) organizations,
ranging in size from one-family proprietorships
• Business ethics: ethical issues that arise in the commercial realm
• Business power: the capacity or ability to produce an effect, have an impact, or to bring
influence to bear on a situation or people
• Economic environment: the nature and direction of the economy in which business
operates
• Education: the process of receiving or giving systematic instruction, especially at a
school or university
• Entitlement mentality: the general belief that individuals are owed something (e.g., a
job, an education, a living wage, or health care) just because they are a member of
society
• Iron Law of Responsibility: Whenever power and responsibility become substantially
• out of balance, forces will be generated to bring them into closer balance.
• Macroenvironment: the total environment outside the firm
• Managerial approach: a focus on the three main themes of vital importance to
managers, organizations, and society today: business ethics, sustainability, and
stakeholder management.
• Nongovernmental organizations (NGOs): special-interest groups that may be
organized on a local, national, or international level
,• Pluralism: a diffusion of power among society’s many groups and organizations
• Political environment: the processes by which laws get passed and officials get elected
and all other aspects of the interaction between firms, political practices, and government
• Rights movement: a trend and pattern of rising expectations as to how people want to
be treated
• Rising expectation: a belief or an outlook that each succeeding generation ought to
have a standard of living higher than that of its predecessor
• Social contract: a set of reciprocal understandings and expectations that characterize
the relationship between major institutions
• Social environment: the demographics, lifestyles, culture, and social values of the
society
• Social problem: a gap between society’s expectations of social conditions and the
current social realities
• Society: community, a nation, or a broad grouping of people with common traditions,
values, institutions, and collective activities and interests
• Special-interest society: a society characterized by tens of thousands of special interest
groups, each pursuing its own specific agenda
• Stakeholder management: the management of integral constituents in the business and
• society relationship
• Stakeholders: individuals or groups with which business interacts who have a “stake,” or
vested interest, in the firm
• Sustainability: business’s ability to survive and thrive over the long term
• Sustainable development: a pattern of resource use that aims to meet current human
needs while preserving the environment so that these needs can be met not only in the
present but also for future generations
• Technological environment: the total set of technology-based advancements taking
place in society and the world
Foundational Concepts
Business: Collection of private, commercially oriented (profit-oriented) organizations; with a
range from one-family proprietorships to medium-sized businesses to corporate giants.
▪ Also refers to organised economic activity that produces goods and services for profit.
It involves the use of resources like capital, labour, technology, and management to
satisfy consumer demand.
The Business-society relationship refers to the interaction between BUSINESS
INSTITUTIONS and the BROADER SOCIAL SYSTEM in which they operate.
▪ Businesses rely on society for resources, legitimacy, and markets.
▪ Society depends on businesses for goods, services, employment, and innovation.
,Visibility factors:
▪ Manufacturing Firms (auto-industry) = visual pollution contributors
▪ Advertising-intensive Industries (Nike) = high public profile
▪ Health-related industries (pharmaceuticals, fast food) = scrutinized for health effects
*While large businesses receive most attention, small and medium sized enterprises
and social entrepreneurship movement are increasingly significant.
QUESTION: In discussion of business and society, why is there a tendency to focus on large-
sized rather than small- or medium-sized firms? Have the corporate ethics scandals of the
past decade affected small- and medium-sized firms? If so, in what ways have these firms
been affected?
ANSWER: We tend to focus on large firms when discussing business and society for a number
of reasons.
• Large firms are more visible, their products and services are more widely known, and
we generally equate size with power.
• All of these factors contribute to the fact that large firms are more susceptible to public
scrutiny.
• It is debatable whether the ethics scandals of the first decade of the 2000s have had
a significant impact on small and medium-sized firms.
• On one hand, the scandals may have caused a general increase in the level of distrust
of business. This had a chilling effect on stock prices and made it more difficult for
smaller firms to raise money, especially through initial public offerings (IPOs).
• Furthermore, small- and medium-sized firms that are not publicly traded may feel
pressure to adhere to the costly provisions of the Sarbanes-Oxley Act, as lenders,
investors, and competitors continue to stress that SOX provisions are the “best
practices” by which all firms are measured.
• On the other hand, as stated above, the public tends to focus more on larger firms, so
the effect of scandals may not have “trickled down” to smaller firms on those occasions
when members of society actually do think about them.
Society: a community of people and institutions organized around shared structures, norms
and values.
▪ Includes; governments, markets, families, education systems, and other social
institutions.
, Society as the Macroenvironment
Businesses operate within a macroenvironment; consisting of external forces that
influence decision-making.
Major environmental forces:
1. Economic forces (econ growth, inflation, unemployment)
2. Political forces (gov policies, regulations)
3. Legal forces (laws governing business activities)
4. Technological forces (innovation, business activities)
5. Social forces (values, culture, demographic trends)
6. Environmental forces (natural resource use &
ecological constraints)
Businesses must continuously adapt to changes in
these forces to remain legitimate & competitive.
Pluralistic Societies
Most modern societies are pluralistic- they consist of
multiple groups with different interests, values, and
power bases.
▪ Key Features
• Existence of MANY stakeholders (citizens, NGOs, govs, businesses)
• Competing interests and values among social groups
• Power is distributed among institutions rather than centralised.
Good because...
• Prevents power from being concentrated in the hands of a few.
• Maximizes freedom of expression and action and strikes a balance between
monism, on the one hand, and anarchy on the other.
• Disperses the allegiance of individuals to groups.
• Minimizes the danger that a leader of any one organization will assume full control.
• Provides a built-in set of checks and balances, in that groups can exert power over
one another with no single organization (business or government) dominating and
becoming overly influential.
Special-Interest Society:
▪ Pluralism often results in special-
interest societies
▪ Organised groups attempt to influence
business and government decisions.
▪ Groups like environmental groups,
labour unions, consumer groups etc.
▪ Pursue their own agendas, not always
aligned with other special-interests.
