1. Corporate social responsibility is defined in Chapter 5 as the corporate duty to create wealth by using means that avoid harm to, protect, or enhance societal assets. Did GE in the Welch era fulfill this duty? Could it have done better? What should it have done? a. In Welch’s era, GE fulfilled its responsibilities to society. So therefore, they did meet the needs of the social responsibility by paying taxes and such. 2. Does GE under Welch illustrate a narrower view of corporate social responsibility closer to Friedman’s view that the only social responsibility is to increase profits while obeying the law?
a. Well, both of them were the kinds to make money and make it well. I think his view was not closer to Friedman’s view. 3. How well did GE comply with the “General Principles of Corporate Social Responsibility” set forth in the section of that title in the chapter? a. I think that under Welch’s management, GE complied pretty well with the General Principles of Corporate Social Responsibility. Welch explained that, “if there was one thing I preached every day at GE, it was integrity. ” With that said, I think he performed ethically. 4.
What are the pros and cons of ranking shareholders over employees and other stakeholders? Is it wrong to see employees as costs of production? Should GE have rebalanced its priorities? a. I think the pros of ranking them higher than employees and other stakeholders is that they invested more into a company, shareholders have part ownership in a company so of course they would harder to be successful. To employees all they have is the work they get out of working at the company so to them it is not as important. As well with stakeholders, all that it is is that they gain benefits and such from the company.
Some cons might be that they have more control and power. I don’t think it is wrong to see them as costs of production because after all they are the ones doing the work and they need to be compensated in some way by the company. I think they did a good job at keeping their company within the competitive status along with being strong. The Welch Era at GE: 1981-2001 During the first five years as CEO, Jack Welch emphasized that GE should be No. 1 or No. 2 in all businesses or get out of them. He disposed off the businesses with low-growth prospects, like TVs and toaster ovens.
He expanded the financial-service provider GE Capital into a powerhouse. He also entered the broadcasting industry with the acquisition of RCA Corp. , the owner of NBC TV network. At the same time, he shed more than 100,000 jobs – a fourth of GE’s work force – through mass layoffs. Tens of thousands of other high paying manufacturing jobs were moved to cheaper, union-free locations overseas. Following this, Jack Welch was nick named ‘Neutron Jack’ after the nuclear weapon that killed people but left buildings largely intact.
The number of employees at GE dropped from 402,000 at the end of 1980 to as low as 220,000 in mid-1990s. Jack Welch felt that making GE a leaner company was necessary to ensure healthy profits in the wake of high inflation and stiff Japanese competition. By 2000, the number of employees went up to 314,000, mostly as a result of acquisitions. Analysts felt that GE under Jack Welch had performed very well (Refer Exhibits III and IV). The company’s 2000 earnings of US$12. 7 billion were 8 times more than the profit it reported in 1980 (US$1. 5 billion).
By 2000, its shares had risen about 5,096% (inclusive of dividends) or about 21. 3% p. a. from the day Jack Welch took over. Analysts felt that where most top executives lost their effectiveness in 10 years or less, Jack Welch was an exception, staying on the job and driving GE to elevated levels of accomplishment for 20 years. Like the seasons in the year, there were rhythms and rituals to how Jack Welch managed GE. Besides his monthly teaching sessions at the Crotonville2 academy, Jack Welch clearly laid out his monthly programs (Refer Exhibit V).
However, analysts felt that the Welch Era was not without flaws. GE had suffered major setbacks, in the form of criminal indictments relating to military contracts and battles with environmental groups. GE was blamed for the Poly-Chlorinated Biphenyls (PCB)3 contamination in the Hudson River. In early 2001, the U. S. Environmental Protection Agency endorsed a $460 million dredging plan to clean the river. Analysts also observed that Jack Welch relied too much on GE Capital, the financial services division for GE’s growth.
However, by 2000, the division had accounted for half of the company’s profits. Others pointed out that GE did not encourage women and minorities to take up top managerial positions. According to a few, Jack Welch’s biggest shortcoming was his handling of growing political and social pressures, as evidenced by the European Union’s veto of the proposed GE-Honeywell4 merger and the Bush Administration’s order GE to clean up the Hudson River at a cost of US$460 million. Chapter 5 Exam Case Questions 1. Identify several specific stakeholder groups in each case study and discuss their relevance.
According to the stakeholder model, which of these stakeholder groups in each case study would be considered primary stakeholders? Use facts from the case study to support your argument. The founding stakeholders are Thomas Alva Edison wih J. P. Morgan from 1947 to 1931. Edison started the Edison Electric Light Company to make light bulbs and electrical equipment. Although he was a brilliant inventor, Edison failed as a manager. J. P. Morgan took over and organized the now named General Electric business. The company expanded by introducing new electrical appliances, jet planes, silly putty, and more.
Jack Welch took over in 1981 and changed the General Electric system by closing or selling business sections that were failing and laying off thousands of workers to make sure they are either the number one or two business ranked in their industry. Welch made drastic changes that influenced the company’s profitability. 2. What facts specific to each case study are consistent with the market capitalism model of competitive markets? General Electric was consistent in remaining profitable and contributing to society by paying taxes, employing themselves in philanthropic and community activities.
Welch promoted pensions for stakeholders and employees which met the standard requirements by law. 3. What facts specific to each case study are not consistent with the market capitalism model of competitive markets? General Electric changed drastically when Welch laid off tens of thousands of employees because they were the bottom 10% employees that did not fit within the company. GE’s manufacturing plant in New York was releasing a cancer causing chemical called PCB into the Hudson River.
After years of battling with the government’s Environmental Protection Agency, General Electric became liable for the pollution and was forced to pay the costs of the cleanup. 4. What facts specific to each case study are consistent with the stakeholder model of competitive markets? During Welch’s time, GE’s pension fund was distributed for stakeholders, employees, and even retired workers. General Electric contributed in philanthropic and community activities while creating foundations for nonprofit organizations and college grants. 5.
What facts specific to each case study are not consistent with the stakeholder model of competitive markets? Although GE’s pension plans covered existing stakeholders, employees, and retired workers, GE would not budge into increasing benefits for retirees. Welch turned the surplus of the pension fund into profit for the benefit of the company. Only after being pressured by unions and pensioners, GE finally increased pensions from 15 to 35 percent. 6. Which one of the fourteen different theories of ethical behavior detailed in chapter 8 could best describe the firm’s actual behavior?
Is this theory consistent with the market capitalism’s model of competitive markets? Explain your answer. Proportionality Ethic – Welch made decisions that were for the good of the company for profit and for himself (higher pension plan and benefits for himself). Every decision Welch made came with consequences including increasing pension benefits and paying for pollution cleanup. Another example would be increasing the unemployment population at GE because he thought it would be good for the company but he did not think about the good of the laid off employees. 7.
Would you characterize the firm’s philosophy concerning corporate social responsibility in each case study as being consistent with the market capitalism model? Explain your answer. Yes, General Electric remained one of the top ranked companies because of its consistent market in profitability and loyalty to its stakeholders. General Electric remained competitive with its businesses in their industry and sought out to keep increasing profit and marketability. 8. Would you characterize the firm’s philosophy concerning corporate social responsibility in each case study as being consistent with the stakeholder model?
Explain your answer. Yes and no because General Electric, under the influence of Welch, did “good” in terms of engaging in philanthropy, funding nonprofit organization and the like, they still managed to remain greedy by distributing no more than the law requires for pensions and battling liability over their manufacturing plant’s pollution. 9. What specific role, if any, did the government play in each case study? Was the government’s actions influenced in any way by the firm? A specific role that the government played was claiming GE’s manufacturing plants liable for polluting the Hudson River.
GE refused to pay the costs of removing the toxic chemicals and created a campaign to show the public that the chemicals are harmless. This battle influenced the company because it divided the public into taking sides. People only shopped at places where the store owner’s shared the same support position. 10. Were there any specific business practices in each case study that stood out as either tremendously innovative or remarkably flawed? Explain your answer. Even though it was depressing to layoff so many employees, GE’s efficiency increased.
Decisions were made faster because they were no longer passed down by layers of presidents to make a final decision. GE’s locomotive plant decreased a little over 50 percent but increase inventory about 3 times more. VOCABULARY The duty of a corporation to create wealth in ways that avoid harm to, protect, or enhance societal assets is known as corporate social responsibility. Libertarians are those who believe in the maximum freedom, or liberty, to act or use property without interference by others, especially government.
The philosophy that used evolution to explain the dynamics of human society and institution along with the idea of “survival of the fittest” in the social realm implied that rich people and dominant companies were morally superior is known as social Darwinism. Ultra vires is a Latin phrase denoting acts beyond the powers given the corporation by law. A trustee is one that is an agent of a company whose corporate role puts him or her in a position of power over the fate of not just stockholders, but of others such as customers, employees, and communities.
Service principle is the belief that managers served society by making companies profitable and that aggregate success by many managers would resolve major social problems. Friedmanism is a theory that the sole responsibility of a corporation is to optimize profits while obeying the law. A value chain is explained as the sequence of coordinated actions that add value to a product or service. Civil regulation is regulation by nonstate actors based on social norms or standards enforced by social or market sanctions.
External cost is a production cost not paid by a firm or its customers, but by members of society. Extraterritoriality is the application of one nation’s laws within the borders of another nation. Soft laws are statements of philosophy, policy, and principle found in nonbonding international conventions that, over time, gain legitimacy as guidelines for interpreting the “hard law” in legally binding agreements. A standard that arises over time and is enforced by social sanction or law is known as the norm.
A principle is known as a rule, natural law, or truth used as a standard to guide conduct. Codes of conduct are formal statements of aspirations, principles, guidelines, and rules for corporate behavior. The practice of corporation publishing information about its economic, social, and environmental performance is sustainability reporting. Fair trade is when payment of wages to small, marginal agricultural producers in developing nations sufficient to allow sustainable farming and labor practices. Management standard is a model of the methods an organization can use to achieve certain goals.