The Nature of business Power

8/15/2019 The Nature of business Power

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James B. Duke and the AmericanTobacco Company

Opening Case

1870 s – Duke switched from chewingtobacco to cigarettes.

1881 –Used Russian immigrants to roll hiscigarettes and women to market them.188! –Negotiates an exclusive contract fora cigarette-rolling machine and expands hissales to China.188" – mbraced Rockefeller!s methodsand formed the "merican #obacco trust.

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The 'ature o( Business)o*er

+n past eras* dominant companiesin ascending industries changed

societies b) altering all three oftheir primar) elements,+deas

+nstitutions&aterial things

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+hat is )o*er,

)o*er – the force or strength to act orcompel another entit) to act.Business po*er – the force behind an act

b) a compan)* industr)* or sector.-egitimacy – the rightful use of power.Social Contract : Underlying

agreement between business andsociety [the institutions of society] onthe basic duties and responsibilitiesbusiness [each of the institutions] must

carry out… re ected in laws and 3-6


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-e e/s and pheres o(Corporate )o*er

Corporate actions have an impact onsociet) at two levels* and on each level the)create change .

urface levelDeep level

n both the surface and deep levels*

business po*er is exercised in spherescorresponding to the seven businessenvironments set forth in Chapter $.

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-e e/s and pheres o( Corporate)o*er #continued$

conomic po*er is the abilit) of the corporation toinfluence events* activities* and people b) virtue ofcontrol over resources* particularl) propert).Techno/ogica/ po*er is the abilit) to influence thedirection* rate* characteristics* and conse/uencesof ph)sical innovations as the) develop.)o/itica/ power is the abilit) to influencegovernments.-ega/ po*er is the abilit) to shape the laws ofsociet).

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The tory o( the 2ai/roads

Railroads revolutioni0ed transportation dueto speed and more direct routes.Railroads transformed capital markets.

+n the mid '1((s* railroads needed millions incapital to continue expansion.Railroads sold bonds and offered stocks to raisecapital* creating the investment banking industr).

2ater* the financial and speculative mechanismsinspired b) railroad construction were in placewhen other industries needed more capital togrow.

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The tory o( the 2ai/roads#continued$

Railroads spread impersonalit) andan ethic of commerce.

#rains took awa) )oung people fromsmall towns and brought in outsiders.3or the convenience of the railroads* a4eneral #ime Convention met in '11$

and standardi0ed the time of da).#owns reoriented themselves aroundtheir train stations.

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The tory o( the 2ai/roads#continued$

Railroads changed "merican politics andgovernment .

5olitical candidates and issues gained widerexposure.4overnment subsidi3ed but then laterregu/ated railroads.

Railroads changed "merican societ).5ioneered professional management teams*division structures* and cost accounting.Contributed to the +ndian wars.+mported labor whose descendents remain.

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T*o )erspecti es onBusiness )o*er

#here is considerable disagreementabout whether business power isade/uatel) checked and balanced forthe public good.

Dominance theory – the basis of thedominance mode/ of the business-government-societ) relationship discussed in Chapter '.)/ura/ist theory – the basis for thecounter ai/ing (orces mode/ in Chapter '.

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The Dominance odel

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T*o )erspecti es on Business)o*er4 Dominance Theory

6usiness abuses the power itssi0e and wealth confer in man)wa)s.Corporate asset concentration creates monopol) or oligopol) inmarkets that reduces competitionand harms consumers.#he idea that concentration ofeconomic power results in abusearose in response to theawesome economic growth ofthe nineteenth centur).

Dominance theory

#he view thatbusiness is the mostpowerful institution insociet)* because ofits control of wealth.#his power is held tobe inade/uatel)checked and*

therefore* excessive.

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#continued$ " merger *a e between '1%7 and '%(8concentrated economic growth.#he public viewed these huge firms as colossalmonuments to greed.+n the twentieth centur)* corporations continued togrow in si0e* but the marked rise in assetconcentration slowed and leveled off.

#oda) the number of transnational firms and thescale of their activit) has grown* however thelargest global firms do not show signs ofconcentrating international assets.

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#continued$/ite dominance – belief

that there is a smallnumber of individuals who*b) virtue of wealth andposition* control the nation.The Power Elite b) C.

9right &ills is the modernimpetus for this theor).

)o*er e/ite

" small group ofindividuals in control

of the econom)*government and themilitar).

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The !ounter"ailing #orces odel

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5our Boundaries o(6anageria/ )o*er

1. o ernments and /a*s in all countriesregulate business activit). 4overnmentcan act forcefull) to blunt the exercise of

corporate power that harms the public.2aws channel and regulate operations.&. ocia/ interest groups represent ever)

segment of societ) and use man)

methods to restrain business* includingbo)cotts* lawsuits* picket lines* mediacampaigns* and lobb)ing for moreregulation.

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". ocia/ a/ues are transmitted acrossgenerations* reflected in public opinion* andembedded in the law. &anagers internali0e themin schools and churches. #hese include norms ofdut)*


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. 6arkets and economic stakeho/ders impose strong limits. tockholders*suppliers* creditors* and competitors

influence corporate decisions. #he marketalso registers the great waves oftechnological change that can sweep awa)even the largest corporation.

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Origins o( Critica/ AttitudesTo*ard Business

#wo underl)ing sources of criticism of business,

#he belief that people in business place

profit be(ore more worth) values such ashonest)* truth*


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Critics of Business –Reasons forCriticismsB ore educated populationB$reater awareness of issues "ia themedia

B%egati"e portrayals by mediaB$reater e&pectations from society's

membersB(ense of entitlementB)mphasis on rights


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McDonald’s

CorporationB(tandardi*ed a formulaB +uality, (er"iceB !leanliness, -alue

B merican !ultural /mperialism

B 0un1 foodB )n"ironmental destructionB nimal cruelty

C i i f B i


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Critics of Business -Criticisms

1. Corporations have too muchpower. #ree mar1ets do not forcethem to ser"e the public interest.$o"ernments cannot control

them. They use their wealth toundermine democracy bycorrupting politicians .

2i1e entrenched oligarchs, theyescape accountability for their self3

interested e&ercise of power.

C i i f B i


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2. Corporations ha e inor!inatelegal rights.

/n the colonial era in U( , thestate charters that authori*edcorporations carefully restrictedthem to ensure that they acted forthe common welfare .

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". Corporations are inherentl#immoral./f often sta4ed by good people,

their actions are per"erted by animplacable master force, the "erylogic of the corporation itself.

!orporations act to ma1e money. They see1 mar1et e&pansion, salesgrowth, short3term 5nancial results

and regulatory lenience.


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Critics are

"re highl) articulated and speciali0ed.:ave a network structure that includesfoundations* research institutespublications mutual funds pension fundsunions and groups of environmental*human rights* and labour advocates.#ogether the network structure createsan organi0ational s)mbiosis.

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9 * h C i i ' * k A k


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9o* the Critics 'et*ork Attacks aCorporation

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/oba/ Acti ism

"ctivists attack corporations using arange of devices,

Consumer bo)cottshareholder proposals

:arassment

Codes of conductCorporate campaign

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Conc/uding Obser ations

ach era brings new personalities* new targets*and some new issues* but the fundamentallanguage and substance of criticism remains thesame .

:ndustria/ capita/ism is a historical force forcontinuous* turbulent socia/ change .Capitalism* for the most part* brings changes thatrepresent progress * a condition of impro ement

for humanit). " broad spectrum of criticism is an importantcheck on business power.

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Tutorial ctivit!

6. !an rumours a4ect a corporation7s acti"ity8 esearchwhere rumours has disrupted the operations of acorporation.

. $i"e three criticisms of 0amaican corporations.

;. ro"ide e&amples of corporations @local or internationalAthat ha"e or had economic, political, legal or culturalpower.

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The Nature of business Power