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Which element of capitalism emphasizes that individuals are decision makers in society?
What does consumer sovereignty refer to in the context of capitalism?
Which of the following best describes the concept of 'inequality of opportunity'?
Which element of capitalism is most concerned with minimizing government intervention?
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What is a significant consequence of the profit motive in a capitalist system?
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What is one of the key benefits of issue management?
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Which stage of awareness signifies that the nature of the issue isn’t fully clear?
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What characterizes the 'peak' stage in the issue awareness life cycle?
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What is the first stage of Fink's anatomy of crisis?
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Which action is NOT typically part of effective crisis management?
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What does integrity in business primarily encompass?
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What is the essence of the Triple Bottom Line approach?
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Which of the following best describes capitalism?
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How does a sole proprietorship differ from a partnership?
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What is meant by the term 'social licence' in business?
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What is a key characteristic of a responsible enterprise system?
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Which of the following is NOT a factor that contributes to a business's legitimacy?
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Which doctrine relates to the formation of a corporation?
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What is the primary concern of a Board of Directors in a company?
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Which of the following factors does NOT influence attitudes towards business?
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What defines a stakeholder in the context of a business?
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What role does corporate citizenship play in a business?
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Which of the following statements best describes the term 'Social Licence'?
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Which of the following best defines corporate social responsibility (CSR)?
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What characterizes the relationship defined by a social contract between business and society?
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What is NOT a responsibility associated with corporate governance?
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Which group comprises primary stakeholders in a corporation?
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What is a key responsibility of managers regarding stakeholders?
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What is the primary argument against the stakeholder categorization?
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What defines derivative stakeholders?
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What sustainable pay refers to in the context of executive compensation?
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According to Milton Friedman, what is the primary responsibility of businesses?
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What is a potential challenge when attempting to meet stakeholder expectations?
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How does categorizing stakeholders help a corporation?
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Study Notes
Capitalism
- Capitalism is an economic system where private ownership of the means of production is allowed and individuals are motivated by profit.
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Eight main elements of capitalism:
- Right to private property: Individuals can legally own and control assets like land and buildings.
- Equality of opportunity : All individuals should have a fair chance to succeed, though this is often debated due to inequalities in wealth and access.
- Competition: Many sellers compete to provide goods and services to many buyers, although monopolies and oligopolies can inhibit this.
- Individualism and economic freedom: Individuals make their own decisions about their economic lives.
- Profits: The primary incentive in capitalism, achieved by subtracting costs from revenues.
- Work ethic: The belief that hard work is valuable and good in itself.
- Consumer sovereignty: Consumers have power over producers through their purchasing choices, but companies can sometimes ignore consumer preferences.
- Role of government: Typically minimal (laissez-faire), focusing on infrastructure and protecting businesses.
Integrity in Business
- Operating with integrity includes:
- Paying taxes
- Treating employees and customers fairly
- Considering ESG factors (environmental, social, governance)
- Protecting the environment
- Leaders that act with integrity reflect societal norms and values
Business Responsibilities
- Businesses should be sustainable and ethically responsible.
- Cooperation between business and society is essential for a sustainable future.
Triple Bottom Line
- A framework for evaluating a company's performance on economic, social, and environmental dimensions.
Business as an Economic System
- An economic system uses resources (land, labor, capital) to produce, distribute, and exchange goods and services to meet societal needs and wants.
Types of Capitalism
- Free enterprise/private enterprise system: Limited government involvement, emphasizing profit motive, competition, and private ownership.
- Laissez-faire capitalism: Minimal government interference beyond essential services like police and fire departments.
- Responsible enterprise system: A free enterprise system that incorporates accountability practices.
Canadian Business Structure
- Sole proprietorships: Owned by one person, who is fully liable for all business obligations
- Partnerships: Owned by multiple people, each with full liability for all business obligations.
- Incorporated entities: A separate legal entity that can make financial decisions independently and be sued separately.
Incorporation Doctrine
- Concession doctrine: Historically, incorporation was by government grant and not an agreement between individuals.
- Freedom of association: The ability of individuals to associate freely for business purposes is now considered fundamental.
Legitimacy of Business
- Businesses must adapt to changing societal values and expectations to maintain legitimacy.
- ESG factors and ethical considerations are increasingly important in shaping business legitimacy.
Social License
- Society's recognition of a company as responsible and mindful of its social, environmental, and economic impacts.
- Earned and maintained through stakeholder engagement.
- A privilege granted by stakeholders.
Factors Influencing Attitudes Toward Business
- Standard of living
- Decentralized decision making
- Allocation of resources
- Self-interest
- Business cycle (boom and bust)
- Business wrongdoing
- Unemployment
- Globalization
- Technological innovation
- Media coverage
- Government policies
Who Runs Canadian Businesses?
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Board of Directors:
- Elected by shareholders.
- Primarily focused on maximizing shareholder return on investment (ROI).
- Increasingly engaged in Corporate Social Responsibility (CSR).
- Responsible for corporate governance.
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Managers:
- Hired by the Board of Directors.
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Types of Ownership:
- Direct ownership: Shareholders
- Indirect ownership: Mutual fund holders
Social Contract
- An agreement between business and society that outlines their respective roles and responsibilities.
- Both institutions need to benefit for the relationship to be successful.
Corporate Citizenship
- When a corporation considers its impact and role on society, the environment, and the economy.
Ethics in Business
- The rules, standards, codes, or principles that guide morally appropriate behavior.
- Encompasses concepts like: CSR, Triple Bottom Line, Corporate Citizenship, Corporate Governance, Accountability, and Environmental Stewardship.
CSR (Corporate Social Responsibility)
- The balance of a company's economic, social, and environmental responsibilities to meet stakeholder expectations.
CS (Corporate Sustainability)
- Incorporates environmental, economic, and social responsibilities, considering their impact on stakeholders to ensure long-term company survival.
Stakeholders
- Definition: Anyone who is impacted by or can impact the success of an organization.
- Examples: Owners, directors, employees, customers, lenders, suppliers, service professionals, distributors, dealers, franchisees, competitors, NGOs, government, society at large.
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Managers need to:
- Identify stakeholders for resource acquisition and business legitimacy.
- Consider their impact on decision-making processes.
Stakeholder Categorization
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Fredrick Davis and Post:
- Primary stakeholders: Directly involved in the organization's activities (employees, shareholders, creditors, suppliers, customers, competitors, distributors).
- Secondary stakeholders: Less directly involved, but still influential (community, government, social activist groups, general public).
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Mintzberg:
- Categorizes stakeholders as internal or external to the corporation to understand power dynamics.
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Phillips:
- Normative stakeholders: Those with a claim on the corporation due to a reciprocal relationship of benefits (employees, creditors, suppliers, consumers).
- Derivative stakeholders: Those who do not directly benefit but have power over the corporation (competitors, NGOs).
The Manager's Role Regarding Stakeholders
- Identify and understand how stakeholders can influence the corporation and vice versa.
- Rank stakeholders based on their level of influence.
- Develop strategies to engage with and address stakeholder concerns.
- Assess opportunities and threats associated with stakeholder engagement.
CEO Pay
- Often based on performance, with a combination of cash salary and stock and equity incentives.
- Raises ethical concerns due to significant disparities between executive pay and employee compensation.
- Focuses on shareholder return on investment (ROI) as a primary performance metric.
Sustainable Pay
- Tying executive compensation to environmental, social, and governance (ESG) performance targets to promote sustainable business practices.
Arguments Against Stakeholder Categorization
- Difficulties in objectively categorizing stakeholders.
- Challenges in meeting all stakeholder expectations.
- Potential dilution of management authority.
- Conflicts of interest among diverse stakeholder groups make shared governance impractical.
Arguments for Stakeholder Concept
- Responding to stakeholder interests is beneficial for long-term business success.
- Identifies key stakeholders whose loyalty and support are essential.
- Provides a systematic approach to recognizing and responding to stakeholder expectations.
Milton Friedman's View of Business Responsibility
- The responsibility of business is to maximize profits within the rules of the game.
- Social responsibility is achieved by using resources to increase profits, not by directly engaging in social or environmental initiatives.
Issue Management
- A systematic process for identifying, evaluating, and responding to issues that could affect the business.
- Acts as an early warning system.
- Requires managers to approach issues systematically.
Benefits of Issue Management
- Increased likelihood of maintaining a competitive advantage.
- Better alignment of company behavior with stakeholder expectations.
- Reduced likelihood of ethical mistakes.
- Early detection and response to potential issues.
- Enhanced credibility and reduced vulnerability.
Issue Life Cycle
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Two dimensions:
- Time-bound: Issues progress from emergence to peak prominence and then decline in awareness over time.
- Degree of awareness: How aware and engaged stakeholders are about the issue.
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Degrees of awareness:
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None or little:
- Issue is not fully understood.
- Emerging issues become current issues.
- Involves conflicting values and interests.
- Expert knowledge may not provide solutions.
- Lack of specific details.
- Trade-offs are required.
- Increasing: Urgency of the issue is not yet clear.
- Prominent: Stakeholders have formed opinions and viewpoints.
- Peak: Media coverage is high.
- Declining: Issue awareness diminishes, but the issue may still exist.
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None or little:
Crisis Management
- If issues are not managed, they can escalate into crises.
- Crisis: A critical point where an event poses significant risk and uncertainty.
- Crisis management aims to reduce risk and uncertainty to better control events.
Fink's Anatomy of Crisis
- Prodromal crisis: Early warning signs and signals of a potential crisis.
- Acute crisis: The peak of the crisis, with intense public attention, media scrutiny, and damage control efforts.
- Chronic crisis: The aftermath of the acute crisis, with efforts to recover and rebuild trust.
- Crisis resolution: The resolution of the crisis, with a return to a more stable state.
Key Principles of Crisis Management
- All corporations experience crises.
- Preparation is essential.
- Honesty, transparency, and timely disclosure of all relevant facts are critical.
- Apologizing for mistakes and taking responsibility are important steps in regaining trust.
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Description
This quiz covers the fundamental elements of capitalism, an economic system characterized by private ownership and profit motivation. Explore concepts such as private property, competition, and individualism that form the foundation of capitalist economies.
