Business Essentials, 7th Edition Ebert/Griffin

TOPIC 2: BUSINESS ETHICS AND BUSINESS OWNERSHIPPart 1: Business Ethics and Social ResponsibilityBUSINESS MANAGEMENT 0611

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L E A R N I N G O B J E C T I V E SAfter reading this chapter, you should be able to:Explain how individuals develop their personal codes of ethics and why ethics are important in the workplace.Distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today.Show how the concept of social responsibility applies both to environmental issues and to a firms relationships with customers, employees, and investors.2

In this chapter we will examine how individuals develop their personal codes of ethics and why ethics are important in the workplace. We will explore how to distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today. And, finally, we will show how the concept of social responsibility applies both to environmental issues and to a firms relationships with customers, employees and investors.

Teaching Tips:Ask the class to engage in the following way with the each objective:Objective 1: Explain how individuals develop their personal codes of ethics and why ethics are important in the workplace.Please take out a piece of paper and write down two or three of your own personal values. Now join with another student and share your response. Once you have shared your responses, each pair of students will discuss how these personal values could be important in the workplace. The team will share their responses. Answers will vary. Have the class discuss how their personal codes of ethics developed and how they will impact the workplace.

Objective 2: Distinguish social responsibility from ethics, identify organizational stakeholders, and characterize social consciousness today.Please remain in your teams from Objective 1. I would like each team to provide an example of an organizational stakeholder and why it is important. Then join with another team and share your answers with your combined team. The combined team will also discuss what characterizes social consciousness in business today. Each team will then share their responses with the class.The stakeholders include:EmployeesInvestorsCustomersSuppliersLocal communityThe organization itselfAnswers to the rest of the questions may vary based on the views of social consciousness today.

Objective 3: Show how the concept of social responsibility applies both to environmental issues and to a firms relationships with customers, employees and investors.Please form new pairs of two students. Each pair will write down an example of how social responsibility applies to one of the stakeholders we just discussed. Each team will also list one way in which environmental issues might be important to the stakeholder group they chose. Each pair will then share their response with the class.

Answers should include one of the stakeholder groups noted above. Environmental issues could include things such as pollution, global warming, environmental advertising, etc.2

L E A R N I N G O B J E C T I V E S (contd)After reading this chapter, you should be able to:Identify four general approaches to social responsibility and describe the four steps that a firm must take to implement a social responsibility program.Explain how issues of social responsibility and ethics affect small business.3

We will also explore four general approaches to social responsibility and learn the four steps that a firm must take to implement a social responsibility program. In addition we will explain how issues of responsibility and ethics affect small business.

Teaching TipsObjective 4: Identify four general approaches to social responsibility and describe the four steps that a firm must take to implement a social responsibility program.In your teams, please discuss and provide the rest of the class with the answer to the question What is social responsibility?.Answers should include:The overall way in which a business attempts to balance its commitments to relevant groups and individuals (stakeholders) in its social environment. Answers will also vary based on current business news and could include such things as the elimination of insider trading, environmental pollution, outsourcing of jobs to sweat shops in other countries, etc.

Objective 5: Explain how issues of social responsibility and ethics affect small business.Please discuss how the ethics of a small business owner can affect his or her method of managing employees. Now please share your answer with the class.Answers can include the fact that the personality of the small business owner and his or her personal ethics will impact the way in which the business functions. Areas that could be addressed include the acceptance of gifts by the owner from suppliers, the way the owner treats his or her employees in terms of sick days, leaves of absence, personal use of office supplies, etc.The Gross Domestic Product is the value of all goods and services produced within a given period by a national economy through domestic factors of production. It measures aggregate output.

Whats in It for Me?By understanding the material in this chapter, youll be better able to:Assess ethical and socially responsible issues facing you as an employee and as a boss or business owner.Understand the ethical and socially responsible actions of businesses you deal with as a consumer and as an investor.4

Whats in it for me? you might ask. By understanding social responsibility and ethics in the workplace, you will be able to assess ethical and socially responsible issues that you may face as an employee and as a boss or business owner.You will also understand the ethical and responsible actions of the businesses you deal with as a consumer and as an investor or other stakeholder.

Teaching Tips: Please join with your student partner and make a list of five ethical or socially responsible issues you may face in your future from the perspective of one of the stakeholder groups we discussed earlier.Answers will vary but should address all of the stakeholder groups noted above. Issues could include anything from global warming, use of energy, treatment of employees, outsourcing of jobs, etc.

Ethics in the WorkplaceEthicsBeliefs about whats right and wrong or good and badEthical BehaviorBehavior conforming to individual beliefs and social norms about whats right and goodUnethical BehaviorBehavior conforming to individual beliefs and social norms about what is defined as wrong and badBusiness EthicsThe ethical or unethical behaviors by employees in the context of their jobs

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When we explore the concept of ethics in the workplace, we need to examine four different areas:These include ethics, or beliefs about what is right and wrong or good or bad.In addition we need to examine ethical behavior, which is behavior conforming to individual beliefs and social norms about whats right and good. What is unethical behavior? It is behavior confirming to individual beliefs and social norms about what is defined as wrong and bad.In order to succeed in business, we need to address the ethical or unethical behavior by employees in the context of their jobs.

Teaching Tips:In your student team, please develop a list of 5 examples of ethical behavior and 5 examples of unethical behavior in the workplace.Answers will vary.

Individual Values and CodesSources of Personal Codes of EthicsChildhood responses to adult behaviorInfluence of peersExperiences in adulthoodDeveloped morals and values6

How does an individual develop a code of personal ethics? Here are some answers:First, a person can develop personal values through their own childhood responses to adult behavior. An example could include seeing parents yell at each other or at their children whenever something goes wrong in the household, whenever the child does not do something the parent likes, etc. By doing this, the child internalizes that whenever anything bad happens, they should yell or scream at the other people in their lives. On the opposite side, if children see that whenever they make an honest mistake or make an error, their parents correct them and demonstrate the appropriate behavior and give them a hug, then in the future, these children probably would be more patient with others when they make mistakes, correct them in an even tone, and show empathy.People may also be influenced by their peers, whether they are other children, teenagers or adults. For example, in middle school, one of the teens in a group of friends gets some cigarettes. The friends think it is cool and so they try it too. They may continue the behavior because they think it makes them look better in front of their friends. Adults do the same thing. They may see their friends buying new cars, new furniture and other things, and adults think they need to buy the same type of things, even though they may not have the money. Instead of paying cash, they use credit cards, and end up with a huge credit card balance they cannot pay.Other experiences in adulthood can also impact an individuals values or codes. For example, an adult may decide they love working for their employer, and offer to stay late and work harder, but then when it comes time for a promotion, they are overlooked by someone who may have offered favors or friendship to the boss. The hard worker may begin to think it is not worth it to work hard.Of course, all of the above develop morals and values in a person. These are the foundation for their behavior both personally and within the workplace. Their morals and values seem correct to the individual, and so employees may need special attention or training if they come from another culture, where, for example, it is OK to stand very close to other people, while in the U.S. culture, people like to have about 3 feet of personal space around them in a business setting.Teaching Tips:Using your example from our last exercise, please remain in your teams and write down the possible source or personal code of ethics that might cause the ethical or unethical business behaviors you shared with the class. Once you have discussed these, we will share them with the class.Answers will vary but will include religion, family upbringing, culture or subculture, social class and income levels, etc.

Business and Managerial EthicsManagerial EthicsThe standards of behavior that guide individual managers in their workEthics affect a managers behavior toward:EmployeesThe organistionOther economic agentscustomers, competitors, stockholders, suppliers, dealers, and unionsEthical ConcernsAmbiguity (e.g., financial disclosure)Global variation in business practices (e.g., bribes)

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Managerial ethics are the standards of behavior that guide individual managers in their work. Ethics can affect a managers behavior toward:Employees: For example, in a case in which an employee is constantly late for work, if a managers ethics include perfection in attendance, this could present an issue.The organization: For example, if the organization is very open and wants employee suggestions, this could cause discord for employees reporting to a manager who is not accustomed to this type of input.Other stakeholders or economic agents such as customers, competitors, stockholders, suppliers, dealers and unions: For example, a manager may have developed a certain communication style across his or her career, and may have a specific manner of dealing with such agents, or may hold them as equals or as outsiders.

Ethical concerns that should be considered when addressing business situations can include many issues. Lets look at two examples:Ambiguity: When an organization is not performing as well as its investors would like, the manager may consider not disclosing, or hiding, certain financial information. There have been many examples of this during the past ten years.Global variation in business practices: When an organization does business in another country, especially Latin America, it can be quite common to have to bribe a government official or pay a little extra money to an agent to get permits, get shipments through customs, etc. While this is illegal under U.S. law and the Foreign Corrupt Practices Act, this cannot be avoided in some countries, such as the Jeitinho in Brazil, which is more like a personal favor payment to find a way to make the transaction move forward more rapidly. Many Latin American countries, such as Paraguay, have taken a hard stance against such practices. The police, for example, used to make extra money by stopping cars on the road just to search for something that might be wrong. In so doing, they would ask for bribes to allow the person to pass. There were strikes and some rebellion, but now this practice has for the most part been eliminated.Teaching Tips:In your same student teams, please choose one of the three areas where a managers ethics could have an impact (employees, the organization or other economic agents), and take a few minutes to apply the ethical codes you discovered in our last exercise. Discuss how these might impact the group you choose (i.e., employees, the organization or other economic agents). We will then discuss this topic as a whole class.Answers will vary based on responses to the last two exercise. Be sure to refer back to the answers from the last two exercises, as well as the examples you provided in this slide when weighing student response.Now that you have an understanding of some of the ethical concerns faced by businesses and organizations, please answer the following questions based on your own values and ethics: What would you do if your manager asked you to force billings for sales of a new product in your territory in order to make the sales numbers look better for this quarter?Answers will vary based on individual values, but of course the correct answer should be that the sales should only be reported specifically when the sale occurs. Sometimes customers may ask to be pre-billed for consulting work because it is included in their budget for the current fiscal year. In some cases the manager will have to accept the billing and the funds, but can place the funds received into an escrow account, and only report the actual sales when the work occurs.

Assessing Ethical BehaviorSimple Steps in Applying Ethical JudgmentsGather the relevant factual informationAnalyse the facts to determine the most appropriate moral valuesMake an ethical judgment based on the rightness or wrongness of the proposed activity or policy8

Lets look at some simple steps in applying ethical judgments:First, it is important to gather the relevant factual information. This could include the example of a customer requiring a billing prior to work being provided in a consulting situation.Second, we need to analyze the facts to determine the most appropriate moral values to apply. In our example of the prepayment for consulting fees, we find that the customers fiscal year is ending, they have budgeted the money for this year, and will lose it if the billing is not presented by your firm right now, and your firm will lose the opportunity for this work.And finally we will make an ethical judgment based on the rightness or wrongness of the proposed activity or policy. In our example, we could say it is wrong to accept money for work we have not yet performed. However, we can bill the customer in advance, noting this on the invoice. When the money is received, we can create an escrow account in our accounting system and place the funds there, like a pre-paid receivable, and as the work is performed per a plan we have submitted to the client, which the client has approved, we internally bill the work and send a client a report on hours worked against their prepayment for services.

Teaching Tips:In your teams, please think of an example of a business situation that may require an ethical assessment. Then apply the three steps we have just reviewed to the problem. We will then share the situations with the class.Answers will vary based on the situation, but make sure the student teams apply the three steps you reviewed in this slide to the situation, and assist them or have the class assist them in determining the most appropriate ethical business behavior.

Assessing Ethical BehaviorEthical Norms and the Issues They EntailUtility: Does a particular act optimize the benefits to those who are affected by it? Do all relevant parties receive fair benefits?Rights: Does the act respect the rights of all individuals involved?Justice: Is the act consistent with whats fair?Caring: Is the act consistent with peoples responsibilities to each other?

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Now lets examine the Ethical Norms that we can use when gathering information. We can examine the issue we are facing in terms of:Utility: Utility answers the question, Does a particular act optimize the benefits to those who are affected by it? and the question, Do all relevant parties receive fair benefits?.Rights: Rights answers the question, Does the act respect the rights of all individuals involved?.Justice: Justice answers the question, Is the act consistent with whats fair?.Caring: Caring answers the question, Is the act consistent with peoples responsibilities to each other?.

If we return to our example of the prepayment for consulting services by one of our customers, lets apply these four ethical norms:Utility: The answer to these two questions is yes in this case. The customer receives the ability to deduct the expense during his or her current fiscal year and the consulting firm receives the revenue.Rights: The answer to this question is yes. The fiscal calendar year of the customer is respected as is the right for the consultant to receive payment.Justice: The answer is yes because the customer is paying a fair price, and is just paying in advance. The consultant is receiving payment in advance for agreed-upon services.Caring: The answer is yes because the consultant is putting the money in escrow, or is holding it and only taking it into its books as it provides the services, while the customer is receiving the right to pay in advance and thus take a tax advantage during the current fiscal year.

Teaching Tips:Please join again with your same class team. In your team please refer back to one of the ethical issues you picked in our earlier discussion. Please discuss your example through the use of these norms. Lets share our examples with the class.Answers will vary but can build upon examples presented earlier in this slide.

Company Practices and Business EthicsEncouraging Ethical Behavior Involves:Adopting written codes of conduct and establishing clear ethical positions for the conduct of businessHaving top management demonstrate its support of ethical standardsInstituting programs to provide periodic ethics trainingEstablishing ethical hotlines for reporting and discussing unethical behavior and activities

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A company can encourage ethical behavior in a number of ways. These include:Adopting written codes of conduct and establishing clear ethical positions for the conduct of business. These codes can include rules of conduct, for example not allowing employees to accept gifts from suppliers or customers.Having top management demonstrate its support of ethical standards. This can include having management be very public in its manner of following the rules established for employees, as in not accepting gifts, trips, event tickets, etc.Instituting programs to provide periodical ethics training. This can include providing media training for key managerial employees so if they are contacted by the media during a potential crisis or product recall situation, they will know exactly what to say. Establishing ethical hotlines for reporting and discussing unethical behavior and activities. This practice encourages employees to call in and report on or discuss unethical behavior or activities in an anonymous manner.Teaching Tips:In your same team, please choose one of the four ways firms encourage ethical behavior. Please discuss and describe an example of your choice. Please share your example with the class.Answers will vary but could build on the examples listed above in this slide.

Social ResponsibilitySocial ResponsibilityThe overall way in which a business attempts to balance its commitments to relevant groups and individuals (stakeholders) in its social environmentOrganisational StakeholdersGroups, individuals, and organizations that are directly affected by the practices of an organization and, therefore, have a stake in its performance11

Lets discuss the concept of social responsibility. Social responsibility is the overall way in which a business attempts to balance its commitments to relevant groups and individuals, or stakeholders, in its social environment.

Who are stakeholders? They include groups, individuals, and organizations that are directly affected by the practices of an organization and therefore have a stake in its performance.

Teaching Tips:Please form a team with a different student in the class. In your team, please discuss one way in which a business could act in a socially responsible manner. Please discuss which type of organization stakeholder might be affected by the social responsibility of the company.Answers may vary, but could include addressing local pollution with a group of citizens who are impacted by the pollution; donating a portion of the organizations profits to a group of people who are in need, such as the homeless, AIDS victims in Africa, etc.

The Stakeholder Model of ResponsibilityCustomersBusinesses strive to treat customers fairly and honestlyEmployeesBusinesses treat employees fairly, make them a part of the team, and respect their dignity and basic human needsInvestorsBusinesses follow proper accounting procedures, provide information to shareholders about financial performance, and protect shareholder rights and investmentsSuppliersBusinesses emphasize mutually beneficial partnership arrangements with suppliersLocal and International CommunitiesBusinesses try to be socially responsible12

Major corporate stakeholders include the following:Customers: Businesses work to treat customers fairly and honestly. For example, car dealers are required to disclose financing deals to customers within their advertising.Employees: Businesses treat employees fairly, make them feel like they are part of the team, and respect their dignity and basic human needs. For example, a multinational corporation would commit to paying fair wages to employees in third-world developing countries and to not allowing children to work in sweat shops.Investors: Businesses follow proper accounting procedures, provide information to shareholders about financial performance and protect shareholder rights and investments. For example, a large publicly held consulting firm would report the prepayment for services by their customers as a pre-paid receivable asset in its accounting statement to shareholders.Suppliers: Businesses emphasize mutually beneficial partnership arrangements with suppliers. For example, Mercury SUVs promote the fact that they have Microsoft Sync technology in their vehicles. Microsoft is a supplier to Lincoln Mercury.The local and international communities in which the company operates: Businesses try to act in a socially responsible manner. For example, Microsoft has established the Bill and Melinda Gates Foundation, which offers medical assistance to eliminate malaria in Africa and meeting other United Nations Millennium Goals.

Teaching Tips:In your student teams, please choose one stakeholder and one ethical issue that might affect that particular stakeholder. Discuss how the company should act toward the stakeholder your team has chosen. We will then share these with the class.Answers will vary but must include one of the five stakeholders discussed in this slide and can build on examples provided or contain additional examples of social responsibility to different stakeholder groups.

Contemporary Social ConsciousnessThe Concept of AccountabilityThe expectation of an expanded role for business in protecting and enhancing the general welfare of society13

Accountability is important in this electronic age. It is the expectation of an expanded role for business in protecting and enhancing the general welfare of society.What does this mean? It could mean, for example, that a company has a duty to place information on its website about product content, potential side effects from its use, or potential harm that could come if the product is not used properly, like not following directions for use or instructions on installation or assembly.

Teaching Tips:In your teams of two, please choose an example of how an organization could protect or enhance the general welfare of society. After your team discussion, you will share your examples with the class.Answers will vary but could expand on other ways an organization could be accountable for society such as product packaging, health warnings, labeling, assembly instructions, etc.

Areas of Social ResponsibilityResponsibility Toward the EnvironmentProperly disposing of toxic wasteEngaging in recyclingControlling air, water, and land pollution Green Marketing The marketing of environmentally friendly goodsIncludes a number of strategies and practices:Production processesProduct modificationsCarbon offsetsPackaging reductionSustainabilityGreenwashing: Using advertising to project a green image without substantially altering processes or productsFederal Trade Commission (FTC) started hearings in January 2008 regarding green marketing claims14

Responsibility toward the environment is an important area of social responsibility for an organization. This can include:Properly disposing of toxic waste from manufacturing processes.Engaging in recycling of materials. This could include making sure computers that are outdated are recycled through appropriate state-level, prison-industry recycling programs.Green marketing, which includes the marketing of environmentally friendly goods such as power saving computers and monitors, flex fuel vehicles, etc. Such strategies can include a number of practices including:Production processes.Product modifications, such as the addition of flex fuel capabilities for cars.Carbon offsets that reduce the carbon footprint consumers and producers leave on the planet.Packaging reduction, for example, eliminating the foil wrapper from Hershey candy bars and just using paper.Sustainability, such as a product that is made from recycled plastics. Green marketers need to be aware of green washing or the use of advertising to project a green image without substantially altering the processes or products they produce. The Federal Trade Commission started holding hearings in January 2008 regarding false green marketing claims. Teaching Tips:What is an example of a product that uses green washing?BP was accused of promoting its company as being environmentally friendly with no backing for that claim. The company was charged in 2000 with not disclosing that a subcontractor was dumping toxic waste in Alaska. Other examples from the BP case in the introduction to this chapter can also be presented as well as other examples from current affairs.

In your student teams, choose one of the green marketing strategies and practices we have just discussed and provide an example. We will then share the examples with the class. Answers may vary but can include those from the slide or those presented in the text.

Areas of Social Responsibility (contd)Responsibility Toward CustomersInvolves providing quality products and pricing products fairlyConsumerismSocial activism dedicated to protecting the rights of consumers in their dealings with businesses Basic Consumer Bill of RightsTo possess safe productsTo be informed about all relevant aspects of a productTo be heardTo choose what to buyTo be educated about purchasesTo receive courteous service15

Other examples of areas of social responsibility for a company include:Responsibility toward customers: This involves providing quality products and pricing products fairly.Consumerism: This includes social activism dedicated to protecting the rights of consumers in their dealings with business.The basic consumer bill of rights, which includes the rights:To possess safe products.To be informed about all relevant aspects of a product.To be heard.To choose what to buy.To be educated about purchases.To receive courteous service.

Teaching Tips:In your student teams, choose one of the basic rights of consumers presented in the basic consumer bill of rights. Then in your team, discuss three products that have or have not granted that right to consumers. Also discuss how they did or did not accomplish providing this right.Answers will vary.

Areas of Social Responsibility (contd)Unfair PricingCollusion: When two or more firms agree to collaborate on such wrongful acts as price fixingPrice gouging: Responding to increased demand with overly steep (and often unwarranted) price increasesEthics in AdvertisingTruth in advertisingMorally objectionable advertising16

Two other areas of social responsibility include unfair pricing and ethics in advertising.1. Unfair pricing includes:Collusion: Collusion occurs when two or more firms agree to collaborate on such wrongful acts as price fixing. This practice has been outlawed for years by the Robinson-Patmann Act. An example is when airlines charge the same fare to the same destination.Price gouging: This occurs when businesses respond to an increased demand with overly steep and often unwarranted price increases. Anytime there is a natural disaster or act of war, stores may engage in this practice by allowing the demand for the products they have within their stores to drive prices much higher than would be normal for certain items. 2. Ethics in advertising includes:Providing truth in advertising, and not making false claims when stating product benefits.Avoiding morally objectionable advertising such as ads for womens undergarments, condoms, etc.

Teaching Tips:In your student teams, please list an example of unfair pricing and ethics in advertising. Discuss the strategies that were applied and be prepared to discuss these with the class.Answers will vary based on the product or company chosen, but must include either collusion or price gouging, such as occurred after Hurricane Katrina. Answers to the ethics in advertising issue must deal with truth in advertising or morally objectionable advertising. These answers could include examples from the text such as Victorias Secret ads, ads for condoms or ads promoting sexuality.

Areas of Social Responsibility (contd)Responsibility Toward EmployeesLegal and social commitments to:Not practice illegal discriminationProvide a physically and socially safe workplaceProvide opportunities to balance work and lifeProvide protection for whistleblowers (an employee who discovers and tries to put an end to a companys unethical, illegal, or socially irresponsible actions by publicizing them)Responsibility Toward InvestorsProper financial management (no insider trading)Proper representation of finances17

Responsibility toward employees and investors includes both legal and social commitments to:Not practice illegal discrimination in hiring, job duties, firing, etc.Provide a physically and socially safe workplace, meeting OSHA and the Americans with Disabilities Act standards.Provide opportunities to balance work and life, such as providing fitness opportunities at work or memberships at gyms.Provide protection for whistleblowers (an employee who discovers and tries to put an end to a companys unethical, illegal or socially irresponsible actions by publicizing them with the media).

In addition, responsibility toward investors includes:Proper financial management, including no insider trading.Proper representation of finances, such as we discussed earlier in our prepaid consulting services example.

Teaching Tips:In your student teams please choose one of the legal or social commitments toward employees and provide an example of it. We will share these with the class.Answers will vary, but need to be from one of the above mentioned legal and social commitments.

Please give an example of insider trading. What is it and who has done this?One answer could be trading securities or stocks with knowledge of upcoming financial reports prior to their release to the public. Martha Stewart is an example of someone who was convicted of insider trading.

Implementing Social Responsibility (SR) ProgramsArguments Against SRThe cost of SR threatens profits.Business has too much control over which SR issues would be addressed and how SR issues would be addressed.Business lacks expertise in SR matters.Arguments for SRSR should take precedence over profits.Corporations as citizens should help others.Corporations have the resources to help.Corporations should solve problems they create.

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There are arguments for and against an organizations implementation of a social responsibility program.

Lets first examine the arguments against implementation of social responsibility programs:The cost of social responsibility programs threatens profits. Or, essentially, why should we spend money we dont have to? This is truly a short-term business perspective.The business or organization would have too much control over which programs would be addressed and how they would be addressed. In this argument, people believe that business would not choose the most appropriate socially responsible project to fund, and only fund those that enhance its image and reputation.The business or organization lacks expertise in social responsibility matters. There is a new trend toward what is called philanthrocapitalism, whereby businesses are learning how they can apply their for-profit frameworks to the non-profit sector.

Next we will examine the arguments for the implementation of social responsibility programs by business:Social responsibility should take precedence over profits.Corporations as citizens should help others, or those less fortunate.Corporations have the resources to help. This is true of many multinational corporations. Examples include Warren Buffet and Bill Gates and the combining of their foundations to address those less fortunate.Corporations should solve problems they create. This position believes that corporations will continue to cause problems or continue to be socially irresponsible, and hence need to implement social responsibility programs to fix what they have broken.

It is important to note that the United Nations developed its Millennium Development Goals (http://www.un.org/millenniumgoals/), which were formed to end world poverty and hunger by 2015. There are eight specific goals to achieve the overarching development goal. The eighth goal specifically addresses the development of partnerships with businesses and other organizations to assist in meeting employment goals to help end poverty and thus hunger.

Teaching Tips:In your student teams, please choose an argument either for or against the implementation of social responsibility programs and choose an example from current or past business news that supports your position. We will then share our team positions with the class.Answers will vary but should show direct evidence to the arguments for and against implementation of social responsibility programs as stated above in this slide.

Approaches to Social ResponsibilityObstructionist StanceA company does as little as possible and may attempt to deny or cover up violationsDefensive StanceA company does everything required of it legally but no moreAccommodative StanceA company meets its legal and ethical requirements and also goes further in certain casesProactive StanceA company actively seeks to contribute to the well-being of groups and individuals in its social environment19

These different arguments for or against social responsibility programs by businesses take four stances. Lets examine them:Obstructionist stance: With this stance, the company does as little as possible and may attempt to deny or cover up violations.Defensive stance: In the defensive stance, a company does everything required of it legally, but no more.Accommodative stance: A company taking an accommodative stance meets its legal and ethical requirements and also goes further in certain cases.Proactive stance: With this stance, a company actively seeks to contribute to the well-being of groups and individuals in its social environment.

Lets take a look at this from a visual standpoint.

Managing Social Responsibility ProgramsSocial responsibility must start at the top and be considered as a factor in strategic planning.A committee of top managers must develop a plan detailing the level of management support.One executive must be put in charge of the firms agenda.The organization must conduct occasional social auditssystematic analyses of its success in using funds earmarked for its social responsibility goals.20

Managing social responsibility programs involves a number of steps. Lets review these:Social responsibility must start at the top of the corporation and be considered as a factor in strategic planning.A committee of top managers must develop a plan detailing the level of management support.One executive must be put in charge of the firms social responsibility agenda.The organization must conduct occasional social audits or systematic analyses of its success in using funds earmarked for its social responsibility goals.

Teaching Tips:Please join with another class member. In your team, please develop an example of how you believe a company should initiate and manage a social responsibility program.Answers will vary. Each team should provide evidence from the four steps provided in this slide.

Social Responsibility and the Small BusinessLarge Business versus Small Business Responses to Ethical IssuesDifferences are primarily differences of scaleMore issues are questions of individual ethicsEthics and social responsibility are decisions faced by all managers in all organisations, regardless of rank or size21

Now we are going to discuss social responsibility and the small business. We take it for granted that large, multinational firms must be socially responsible in the 21st century. But how can a small business be socially responsible?

The differences between how large and small businesses respond to ethical issues are primarily difference of scale. In general, more issues are questions related to individual ethics.

Ethics and social responsibility are decisions faced by all managers in all organizations, regardless of rank or size.

Teaching Tips:In your student teams, choose a small business that you know in your community. Then discuss together how this small business could or does address social responsibility based on the information you have learned today from Chapter 2.The answers will vary based on the small business chosen. However, as this slide states, ethical and social responsibility are decisions faced by all managers in all organizations, regardless of rank or size. Student answers should reflect back on the concepts from this chapter.

Part 2: Entrepreneurship, New Ventures and Business Ownership22BUSINESS MANAGEMENT 061TOPIC 2: BUSINESS ETHICS AND BUSINESS OWNERSHIP

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L E A R N I N G O B J E C T I V E SAfter reading this chapter, you should be able to:Define small business, discuss its importance to the economy and explain popular areas of small business.Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.Describe the business plan and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.23

In this chapter we will examine entrepreneurship, new ventures and types of business ownership. We will define small business, discuss its importance to the U.S. economy, and explain popular areas of small business. We will explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities. Additionally, we will describe the business plan and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises. We will discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.

Teaching Tips:Ask the class to engage in the following way with the each objective:

Objective 1: Define small business, discuss its importance to the U.S. economy, and explain popular areas of small business.Please take out a piece of paper and write down one example of a small business that you visit frequently. Then write down why you think it is important for this small business and others like it to be part of the U.S. economy. Now join with another student and share your response. Each pair of students will share their responses with the class.Responses will vary.

Objective 2: Explain entrepreneurship and describe some key characteristics of entrepreneurial personalities and activities.Please remain in your teams from Objective 1. I would like each team to provide a description of entrepreneurship and make a list of 5 key characteristics of an entrepreneur. Once you have completed your description and five examples, join with another team and share your answers with your combined team. Each team will then tell the class its best example of a characteristic of an entrepreneur and why this characteristic is important.Answers will vary. You can reserve judgment on characteristics until you have completed reviewing the chapter with the students.

Objective 3: Describe the business plan and the start-up decisions made by small businesses and identify sources of financial aid available to such enterprises.Please form new pairs of two students. Each pair will write down its answer to the following question, What is the purpose of a business plan?.Answers should include:It is needed to obtain financing.It is needed to plan how the small business will operate.It is needed to decide how the small business will sell its products or services.Other answers may also apply.

Objective 4: Discuss the trends in small business start-ups and identify the main reasons for success and failure among small businesses.Please combine with another pair of students. Take a moment and answer the following questions:What are two main reasons for success and failure among small businesses?How does a recession affect a small business?Once you have completed your answers, please share them with your team. Each team will them report their answers to the entire class.Answers will vary and could include such areas as web-based businesses, small restaurants, etc. Reasons for the success and failure could include not enough business planning or an inappropriate business plan, inadequate financing for the business, etc. You can also tell the students that they need to review their answers after you have completed review of the entire chapter. 23

L E A R N I N G O B J E C T I V E S (contd)After reading this chapter, you should be able to:Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each.Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations.Explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership.24

We will also explain types of companies that businesses can form and the advantages and disadvantages of each. These include sole proprietorships, partnerships and cooperatives, corporations, and different types of corporations. We will also explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership.

Teaching TipsObjective 5: Explain sole proprietorships, partnerships, and cooperatives and discuss the advantages and disadvantages of each.In your teams, please choose one of the three types of small businesses in Objective 5. Please list two advantages and disadvantages of each.Answers will vary. If you choose, you can hold off on providing the right answers until later in the class when you review this material.

Objective 6: Describe corporations, discuss their advantages and disadvantages, and identify different kinds of corporations.In your student teams, please think of two types of corporations and write down one advantage and one disadvantage of each. We will share our answers with the class.Answers will vary but should include the major types of corporations such as C corporation, sub chapter S and others. You can wait to see if their advantages and disadvantages are correct once you get to that point in the chapter.

Objective 7: Explain the basic issues involved in managing a corporation and discuss special issues related to corporate ownership.In your student teams, discuss what you think is one of the basic issues involved in managing a corporation. We will share these with the class.Answers will vary.

Whats in It for Me?By understanding the material discussed in this chapter, youll be better prepared to:Understand the keys to entrepreneurial success, including business planningDiscuss the reasons for success or failureEvaluate the advantages and disadvantages of different kinds of ownership25

Whats in this for you?By understanding the material discussed in this chapter, youll be better prepared to:Understand the keys to entrepreneurial or small business success, including the elements of business planning.Discuss the reasons for the success or failure of a small business.Evaluate the advantages and disadvantages of different kinds of ownership.

Teaching Tips:Which of these three points will be most interesting to you and why? Discuss in your teams, and we will share with the class.Answers will vary.

What Is a Small Business?Small Business DefinedA business that is independent (not part of a larger business) and that has relatively little influence in its market.The Importance of Small Business in the EconomyJob creationInnovationContributions to big businessSuppliers of specialized services and raw materialsSellers of larger firms products26

First, lets define a small business:A small business is one that is independent or not part of a larger business, and that has relatively little influence in its market.There are a number of reasons why small business is important in the U.S. economy. Lets see if the points you discussed earlier are among these reasons:Job creation: Did you know that more than half of all new jobs created in the U.S. are by small businesses?Innovation: Most new innovative product or service ideas come from small businesses.Contributions to big business: Small businesses are suppliers of specialized services and raw materials to big business. They are also retailers or distributors of the larger firms products or services.Teaching Tips:Please return to your student team and the list you prepared of the types of small businesses you discussed. Please review your response as to why you believe your small business example is important to the U.S. economy. Please provide a connection to the three key reasons from our review of the chapter. We will share the answers with the class.Answers will vary.

FIGURE 3.2: Small Business by Industry

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Lets take a look at the number of small businesses by industry in this graph.Services represent 50.07% of all small businesses.Retail stores represent 13.06%.Construction firms represent 12.70%.Wholesalers represent 6%.Finance and insurance businesses represent 4.11%.Manufacturing represents 4.4%.Transportation represents 2.76%.Other types of small business make up the remaining 6.90%.

Teaching Tips:In your student teams, please think of three examples of small businesses that provide services.Answers will vary.

EntrepreneurshipEntrepreneurshipThe process of seeking business opportunities under conditions of riskEntrepreneurOne who accepts the risks and opportunities of creating, operating and growing a new businessSmall Business OwnerA person who independently owns a business that has relatively little impact in its market 28

Lets define some terms relating to entrepreneurship:Entrepreneurship is the process of seeking business opportunities under conditions of risk.An entrepreneur is someone who accepts the risks and opportunities of creating, operating and growing a new business.A small business owner is a person who independently owns a business that has relatively little impact in its market . Teaching Tips:In your student teams, please give an example of each one of the three definitions we just reviewed.Answers will vary.

Entrepreneurial CharacteristicsSuccessful Entrepreneurs:Are resourceful.Are concerned about good customer relations.Desire to be their own boss.Can deal with uncertainty and risk.Are open-minded.Rely on networks, business plans, and consensus.Have different views on how to succeed, to automate a business, and when to rely on experience or business acumen.

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A successful entrepreneur has a number of characteristics that make him or her successful. Lets review some of these. Successful entrepreneurs:Are resourceful.Are concerned about good customer relationships.Desire to be their own boss.Can deal with uncertainty and risk.Are open-minded.Rely on networks, business plans and consensus.Have different views on how to succeed, to automate a business, and when to rely on experience or business acumen.

Teaching Tips:Please join with another class member. In your team please review the list you made earlier of entrepreneurial characteristics, when we were discussing learning objectives for this chapter. First, see how on target you were. Second, prepare a list of the characteristics that apply to you. Lets share our examples with the class.Answers will vary but can build upon examples presented earlier in the discussion of the chapter learning objectives and from the list on this slide.

Starting and Operating a New BusinessCrafting a Business PlanConveys a description of the business strategy for the new venture and how it will be implementedA business plan should address:The entrepreneurs goals and objectivesThe strategies that will be used to obtain themThe implementation of the chosen strategiesPreparing a Business PlanSetting goals and objectivesSales forecastingFinancial planning

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Now we will turn our attention to starting and operating a new business. The first step is to craft a business plan. A business plan conveys a description of the business strategy for the new venture and how it will be implemented. It should also address three key areas:The entrepreneurs goals and objectives.The strategies that will be used to obtain them.The implementation of the chosen strategies.

How do we prepare a business plan?We set goals and objectives.We forecast sales of our products or services.We undertake financial planning.

In addition, there are three key questions every business plan should answer. These will be easy for you to remember:Where is the business now? How did it get to this point?Where do we want to go with the business? (This addresses the first item we discussed earlier.)How are we going to get where we want to go? (These address the second and third items we reviewed earlier.)

Teaching Tips:In your same team, please think of an idea for a new business. In your team, please answer the three questionswhere are we now (or where is the idea now), where do we want to go with this new business (what are our objectives) and how are we going to get there (what strategies will we use). Please share your example with the class.Answers will vary.

Starting the Small BusinessBuying an Existing BusinessLess risk in purchasing ongoing, viable businessFranchisingAdvantagesProven business opportunity for franchiseeAccess to management expertise of franchisorDisadvantagesStart-up costs for franchise purchaseOngoing payments to the franchisorManagement rules and restrictions on the franchisee31

Lets examine different ways of starting a small business. One way is to buy an existing business. This provides for less risk because it is an ongoing, viable business.Another method is franchising. Franchising involves either buying an existing franchise, such as a fast food restaurant or store, etc., or buying the franchise to start a new branch or site for an existing franchise. Lets look at the advantages and disadvantages of franchising. Advantages include:A franchise is a proven business opportunity for the franchisee.The franchise provides access to the management expertise of the franchisor.

Disadvantages include:Start-up costs for the purchase of the franchise. These can run from $50,000 to the hundreds of thousands of dollars.Ongoing payments must be made to the franchisor.Management of the franchise places rules and restrictions on the franchisee.

Teaching Tips:In your student teams, pick a common franchise that you frequent and discuss either advantages or disadvantages of owning that particular franchise.Answers will vary but should reflect on the advantages and disadvantages just discussed.

Starting the Small Business (contd)Starting from ScratchDisadvantage: Higher risk of business failureAdvantage: Avoids problems of an existing businessQuestions to Be Answered:Who and where are my customers?How much will those customers pay for my product?How much of my product can I expect to sell?Who are my competitors?Why will customers buy my product rather than the product of my competitors?

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Lets review starting a business from scratch. First, the disadvantage is that there is a higher risk of business failure than if we purchase an existing business or franchise. Second, starting from scratch avoids problems that may be inherent in an existing business that we might purchase.There are a number of questions that need to be answered when starting a business from scratch:1. Who and where are my customers?2. How much will those customers pay for my product?3. How much of my product can I expect to sell?4. Who are my competitors?5. Why will customers buy my product rather than the product of my competitors?

Teaching Tips:In your same student teams, remember the idea you came up with for a new business a few minutes back. Now please answer the questions we just asked about your new business idea. These of course will only include your own ideas and best estimate. Answers will vary.

Financing the Small BusinessPersonal ResourcesLoans from Family and FriendsBank LoansVenture Capital CompaniesSmall-Business Investment Companies (SBICs)Minority Enterprise Small-Business Investment Companies (MESBICs) SBA Financial ProgramsGuaranteed loans and immediate loan programsManagement advice (SCORE and SBDCs)33

Once weve decided to start or buy a small business, we need to determine how we are going to finance the business. Here are some sources from which we can potentially obtain loans:Personal resources (i.e., our own money)Loans from family and friendsBank loansVenture Capital CompaniesSmall Business Investment CompaniesMinority Enterprise Small-Business Investment CompaniesThe Small Business Administration (SBA) and its financial programs. These include guaranteed loans and immediate loan programs, as well as management advice through its team of retired business executives (called SCORE) and from Small Business Development Corporations (SBDCs).

Teaching Tips:What is the first thing you need in order to obtain most of these types of financing?A business plan!

Trends in Small-Business StartupsEmergence of E-commerceCrossovers fromBig BusinessOpportunities for Minorities & WomenGlobalOpportunitiesBetterSurvival Rates34

Now we will focus on five largest growth trends for new small business startups.The first is the emergence of e-commerce. The Internet provides new ways of doing business, and entrepreneurs are jumping on board. Internet sales have increased from $55.7 billion in 2003 to $125.1 billion in 2007.Crossovers from big business is another big trend. What does this mean? It means that more people than ever are leaving big business to start their own small business with much success. Our text offers the example of John Chambers who turned Cisco into a huge Internet connectivity firm, after first spending years working for IBM and Wang.Opportunities for minorities and women within the small business market have grown rapidly. For example, African American small business owners own 1.2 million small businesses, an increase of 48% over the last five years. Hispanic American small business owners own 1.6 million small businesses, an increase of 31% over the last five years. Asian American small business ownership has grown 24% and Asian Pacific Islander American small business ownership has grown 64% both in the last five years. Nearly 11 million small businesses are now owned by women. Added together, these businesses generate $2.5 trillion in revenues each year.Women cited a number of reasons for starting their own small business. Lets review them:46% of the women started their own business to better control their own schedule.24% of the women saw a market opportunity and decided to pursue it.23% of the women were frustrated by the glass ceiling in wages at big companies.And the remaining 7% cited other reasons.Global opportunities represent another new market for small business owners, such as software development companies, consulting firms and higher education.44% of small businesses will succeed and remain in operation after 4 years, offering better survival rates than in the 1970s when nearly half of all new businesses failed.

Teaching Tips:In your student teams, think of a new idea for an e-commerce or Internet-based business. Discuss why you believe your business idea could succeed. Then we will share our ideas with the class.Answers will vary.

Reasons for Failure and SuccessFailurePoor managementNeglectWeak control systemsInsufficient capitalSuccessHard work, drive and dedicationProven conceptMarket demandManagerial competenceLuck

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There are a number of key reasons for the failure or success of any new business. Many new businesses fail due to:Poor management.Neglect.Weak control systems.Insufficient capital.

Reasons why new businesses succeed include:Hard work, drive, and dedication. Many small business owners spend 12 to 15 hours a day in the initial stages of their new business start up working to market, manage and promote their offerings.Market demand. You need to have a market to whom you can sell your product or service, and you need to add value to your product or service for it to be accepted in the marketplace.Managerial competence. If you dont understand why your general ledger accounting software does not balance, you have a problem!Luck!!!!

Teaching Tips:In your student teams, take one of the new business ideas you have discussed today and choose one of the small business failure reasons. Please discuss what you as the owner could do to make your business succeed if your firm were suffering from one of the elements of failure. We will share our ideas with the class.Poor Management: Join a local chamber of commerce and its CEO small-business roundtable to share with other managers. Or take classes at a local university or community college or the SBA.Neglect: Pay attention to your business during each and every day.Weak control systems: Attend seminars on business controls. Hire a consultant to evaluate your control systems. Get help from the SBA by working with a SCORE retired executive. Insufficient capital: Cut back expenses, look at and focus only on your core business.Answers will vary.

Business OwnershipForms of Legal OwnershipSole proprietorship: Owned and operated by one personPartnership: Sole proprietorship multiplied by the number of partner-ownersCorporationChoice of Ownership FormBased on the entrepreneurs needs/desires for control, ownership participation, financing sources, and appropriateness of the chosen form for the industry in which the firm will compete36

There are a number of ways to structure and own a business.

There are three main forms of legal ownership:The first is sole proprietorship, which is owned and operated by one person.The second is a partnership, where there is more than one partner-owner, but the business the same status as a sole proprietorship.The third is a corporation.

Why choose one over the other?The type of ownership a small business owner chooses is based on the entrepreneurs needs/desires for control, ownership participation, financing sources and appropriateness of the chosen form for the industry in which the firm will compete.

Teaching Tips:In your student teams, refer back to your new internet business idea. What form of ownership would you choose? Please discuss this and we will share with the class.Answers will vary.

Sole ProprietorshipsAdvantages:FreedomSimple to formLow start-up costsTax benefitsFormation of cooperativesDisadvantages:Unlimited liability: Owners are responsible for all debts of a businessLimited resourcesLimited fundraising capabilityLack of continuity

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Lets examine the advantages and disadvantages of each type of ownership. We will start by looking at sole proprietorships. The advantages of a sole proprietorship include:Freedom. There are only the rules of the sole owner to follow.It is simple to form.There are low start-up costs.There are tax benefits, since income and expenses for a sole proprietorship flow through your personal income tax.The formation of cooperatives, meaning the ability to work with other sole proprietors.

There are also disadvantages of operating your small business as a sole proprietorship.The biggest disadvantage is that there is unlimited liability; in other words, the owners are responsible for all the debts or liabilities of a business.In addition, sole proprietors have limited resources unless, of course, they are millionaires!They have limited fundraising capability.There is also a lack of continuity, since they are the only person who knows the business.

Teaching Tips:In your same student teams, please revisit your example we just discussed. Please discuss which advantages or disadvantages would apply to your new internet business.Answers will vary, but should address the advantages and disadvantages just discussed.

PartnershipsAdvantages:More talent and moneyMore fundraising capabilityRelatively easy to formLimited liability for limited partnersTax benefitsDisadvantages:Unlimited liability for general partnerDisagreements among partnersLack of continuity

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Lets examine the advantages and disadvantages of partnerships. The advantages include:There is more talent and more money available when there is more than one person working in a business.There are more fundraising capabilities.Partnerships are relatively easy to form.There is limited liability for limited partners.There are also tax benefits.

The disadvantages of partnerships include:Once again, unlimited liability for any general partner in the firm.There may be disagreements among partners.There can also be lack of continuity.

Teaching Tips:Continue to address the same Internet business you have been discussing in your student teams. Please discuss whether a partnership would be a better form of organization for your new business than a sole proprietorship. Why or why not? We will share our answers with the class.Answers will vary but should focus on the advantages and disadvantages noted above.

Alternatives to General PartnershipsLimited PartnershipAllows for limited partners who invest money but are liable for debts only to the extent of their investmentsMust have at least one general (or active) partner, who is usually the person who runs the business and is responsible for its survival and growthMaster Limited PartnershipOrganisation sells shares (partnership interests) to investors on public exchange. Investors are paid back from profitsThe master partner retains at least 50 percent ownership and runs the business, while minority partners have no management voice

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There are also alternatives to general partnerships. We will discuss two of these here: the Limited Partnership and the Master Limited Partnership.The Limited Partnership:Allows for limited partners who invest money and who are liable for debts, but only to the extent of their investments.Must have at least one general or active partner, who is usually the person who runs the business and is responsible for its survival and growth.

The Master Limited Partnership differs in that:The organization sells shares or partnership interests to investors on a public exchange. Investors are paid back from the profits.The master partner retains at least 50% ownership and runs the business, while minority partners have no management voice.

Teaching Tips:Which form of partnership do you think is best for your new Internet business example if you had to choose? Why? Please discuss in your teams and then share with the class.Answers will vary but should be based on the information on partnerships just presented.

CooperativesCombine the freedom of sole proprietorships with the financial power of corporationsGroups of sole proprietorships or partnerships agree to work together for their common benefit40

Now lets look at cooperatives as a form of business. Cooperatives combine the freedom of sole proprietorships or partnerships with the financial power of corporations.Cooperatives are groups of sole proprietorships or partnerships that agree to work together for their common benefit.In the U.S., these are usually agricultural in nature.

Teaching Tips:Please think of one example of a cooperative.Ocean Spray cranberry growers, Florida citrus growers, and Wisconsin dairy cooperatives are some examples.

CorporationsCorporationFirms that have filed papers of incorporationCorporations may:Be small or largeSue and be suedBuy, hold, and sell propertyMake and sell productsCommit crimes and be tried and punished for themHave limited liability for individuals who form them41

Now we will examine corporations. First, lets define a corporation. A corporation is a firm that has filed papers of incorporation. There are 4.93 million corporations in the U.S. that account for 20% of all U.S. businesses, but generate 85% of all revenue.

Corporations may:Be small or large.Sue and be sued.Buy, hold and sell property.Make and sell products.Commit crimes and be tried and punished for them.Have limited liability for individuals who form them, but as we know from the past few years, CEOs of corporations can and do go to jail for committing fraud.

Teaching Tips:In your student teams, discuss the possibility of incorporating your new Internet business. Please share your discussion with the class.Answers may vary, but could address the issues of limited liability for the individuals forming the new internet corporation.

CorporationsAdvantages:Limited liability: The owners responsibility for the debts of a business is limited to their investment in a businessContinuityStronger fundraising capabilityDisadvantages:Double taxation of dividendsFluid controlComplicated and expensive to form

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Lets examine the advantages and disadvantages of forming a corporation. The advantages of incorporating include:Limited liability: The owners responsibility is limited to their investment in a business.Continuity.Stronger fundraising capability.

The disadvantages of incorporating include:Double taxation of dividends.Fluid control: The corporation will generally have a board of directors you need to serve.Corporations are complicated and expensive to form.

Teaching Tips:In your student teams, please choose a corporation with which you are familiar. Please discuss why you think this firm chose to incorporate. Then we will discuss our examples with the class.Answers will vary based on the corporation chosen, but should address advantages and disadvantages just discussed.

Types of CorporationsClosely Held (Private) CorporationPublicly Held (Public) CorporationSubchapter SCorporationLimited Liability Corporation (LLC)Professional CorporationMultinational (Transnational) Corporation43

There are many types of corporations. These can include both closely held, or what is called private corporations, and they can also include publicly held companies whose shares of stock are traded on a stock exchange.

Within these two types of corporations there are four other types of organization:Subchapter S Corporation: These firms are corporations and they are organized like a corporation but they are treated like partnerships for tax purposes. There are strict rules for eligibility.Limited Liability Corporation (LLC): This is a popular form of incorporation because owners are taxed like partners but have the limited liability of a corporation. Professional Corporation: These are usually doctors, lawyers, etc. Their corporate status provides limited liability, but an individuals negligent performance can make an individual within the firm liable.Multinational or Transnational Corporation: The stock of these corporations may be traded in stock markets in multiple countries and they may be managed in more than one country.

Teaching Tips:Please join with another class member. In your team, please come up with one example of a privately held corporation and a publicly held corporation. Lets share our answers.Answers will vary.

Managing a CorporationCorporate GovernanceThe roles of shareholders, directors, and other managers in corporate decision making and accountabilityCorporate governance is established by the firms bylaws and involves three bodies:Stockholders (shareholders): Investors who buy ownership shares in the form of stockThe board of directors: Group elected by stockholders to oversee corporate managementCorporate officers: Top managers hired by the board to run the corporation

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Managing a corporation involves what is called corporate governance. This includes the roles of shareholders, directors, and other managers in corporate decision making and accountability.Corporate governance is established by the firms bylaws and involves three bodies:Stockholders or shareholders: These are investors who buy ownership shares in the form of stock.The board of directors: This is a group elected by stockholders to oversee corporate management.Corporate officers: These are a group of top managers hired by the board to run the corporation.

Teaching Tips:Do you think small, privately held corporations or small businesses issues shares of stock and have these three forms of corporate governance? Why or why not?Yes, any small business can incorporate as a C corporation and must then have bylaws and must issue shares of stock to the key investors, which may be only one or two people. In addition, they must have a board of directors and top managers, and they must meet and keep minutes of their board meetings.

Stockholders: Owners of CorporationsStock: A share of ownership in a corporationDividends: Profits distributed among stockholders45

If you are not familiar with stocks and their dividends, lets define them briefly:Stock is a share of ownership in a corporation.Dividends are profits distributed among stockholders.

Teaching Tips:Please take a minute and share with your student partner whether you own any stock or have owned it in the past and if you have received dividends.Answers vary.

Special Issues in Corporate OwnershipJoint Ventures and Strategic Alliances:Strategic alliance: Two or more organizations collaborate on a project for mutual gainJoint venture: Partners share ownership of a new enterpriseEmployee Stock Ownership PlansAllows employees to own a share of the corporation through trusts established on their behalfInstitutional InvestorsControl enormous resources and can buy huge blocks of stock

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There are some special issues in corporate ownership that we will discuss. The first of these is the concept of joint ventures and strategic alliances.A strategic alliance is the collaboration of two or more organizations on a project for mutual gain. A joint venture is a new enterprise in which partners share ownership.

The second of these are Employee Stock Ownership Plans or sometimes called ESOPs. An ESOP allows employees to own a share of the corporation through trusts established on their behalf.

The third issue is institutional investors. Institutional investors control enormous resources and can buy huge blocks of stock.

Teaching Tips:In your student teams, please choose one of the three special issues we have just reviewed. Then please give two examples of the type of special issue, for example, the name of two organizations that fit that form.Answers will vary.

Special Issues in Corporate Ownership (contd)Mergers, Acquisitions, Divestitures and Spin-Offs:Merger: Two firms combine to create a new companyAcquisition: One firm buys another outrightDivestiture: Strategy whereby a firm sells one or more of its business unitsSpin-off: A firm sells part of itself to raise capital47

Mergers, acquisitions, divestitures and spin-offs are another special issue in corporate ownership.Lets look at each one:A merger is achieved when two firms combine to create a new company.An acquisition occurs when one firm buys another outright.A divestiture is a strategy used whereby a firm sells one or more of its business units.A spin-off occurs when a firm sells part of itself to raise capital.

Teaching Tips:Please work with a student partner and choose one form of this last special issue we have just reviewed. In your team, please come up with two examples of the type of issue your team chose. We will share our answers with the class.Answers will vary. Examples could include:Merger: Miller-Coors.Acquisition: When Coors purchased all of The Stroh Brewing Company.Divestiture: When Pepsi sold off the Doritos brand.Spin-off: Johnson Diversy, which was spun off of S.C. Johnson Company because it was in the industrial and not personal sector of the business.