Business and Society
1. Explain the relationship between business and society and the ways in which they are part of the interactive system.
A business is any organization that is engaged in making a product or providing a service for a profit. A society is human beings and the social structure they collectively create. Both business and society are highly interdependent. We borrow “General Systems Theory” from biology to explain this relationship between business and society, which was first introduced in the 1940s. The theory posits that organisms cannot be understood in isolation, even though they have clear boundaries, they can only be understood in relationship to their surroundings. Adapted to management theory means that business firms are embedded in a broader social environment with which they constantly interact. Business and society together, form an interactive social system. Each needs the other, and each influences the other. They are entwined so completely that any action taken by one will surely affect the other. Business is part of society, and society penetrates far and often into business decisions.
2. What is the purpose of the modern corporation?
In the ownership theory of the firm, the firm is seen as the property of its owners. The purpose of the firm is to maximize its long-term market value, that is, to make the most money it can for shareholders who own stock in the company. Managers and boards of directors are agents of shareholders and have no obligations to others, other than those directly specified by law. In this view, owners’ interests are paramount and take precedence over the interest of others. A contrasting view, called the stakeholder theory of the firm, argues that corporations serve a broad public purpose: to create value for society. All companies must have a profit for their owners. However, corporations create many other kinds of value as well, such as professional development for their employees and innovative new products for
A business is any organization that is engaged in making a product or providing a service for a profit. A society is human beings and the social structure they collectively create. Both business and society are highly interdependent. We borrow “General Systems Theory” from biology to explain this relationship between business and society, which was first introduced in the 1940s. The theory posits that organisms cannot be understood in isolation, even though they have clear boundaries, they can only be understood in relationship to their surroundings. Adapted to management theory means that business firms are embedded in a broader social environment with which they constantly interact. Business and society together, form an interactive social system. Each needs the other, and each influences the other. They are entwined so completely that any action taken by one will surely affect the other. Business is part of society, and society penetrates far and often into business decisions.
2. What is the purpose of the modern corporation?
In the ownership theory of the firm, the firm is seen as the property of its owners. The purpose of the firm is to maximize its long-term market value, that is, to make the most money it can for shareholders who own stock in the company. Managers and boards of directors are agents of shareholders and have no obligations to others, other than those directly specified by law. In this view, owners’ interests are paramount and take precedence over the interest of others. A contrasting view, called the stakeholder theory of the firm, argues that corporations serve a broad public purpose: to create value for society. All companies must have a profit for their owners. However, corporations create many other kinds of value as well, such as professional development for their employees and innovative new products for