Corporate social responsibility, as defined in Chapter 5, is the obligation of a corporation to generate wealth through methods that avoid harm to, safeguard, or improve societal assets. In the Welch era, did GE fulfill this duty? Could it have performed better? What actions should it have taken? According to point a, during Welch’s era, GE did fulfill its societal obligations by fulfilling its tax responsibilities and similar tasks. Does GE under Welch exemplify a more limited perspective on corporate social responsibility similar to Friedman’s belief that the sole responsibility is to maximize profits within legal boundaries?
Both individuals were skilled at making money and achieving financial success, but their perspectives on this matter differed. I believe that Welch’s viewpoint was not in alignment with Friedman’s perspective. Additionally, in terms of complying with the “General Principles of Corporate Social Responsibility” outlined in the corresponding chapter section, I think that under Welch’s leadership, GE demonstrated a strong commitment to these principles. Welch emphasized the importance of integrity at GE, making ethical decisions a priority.
What are the advantages and disadvantages of prioritizing shareholders over employees and other stakeholders? Is it problematic to view employees only as a production cost? Should GE have adjusted its priorities?
I believe the benefits of giving shareholders a higher priority than employees and other stakeholders include their larger investments in the company. Shareholders possess partial ownership, so their motivation for success is naturally stronger. Conversely, employees rely solely on their work at the company, therefore considering it less significant. Similarly, stakeholders primarily derive benefits from the company.
Some disadvantages may include the increased control and power that they possess. I believe it is reasonable to consider them as costs incurred in the production process because they are the ones responsible for the work and should receive compensation from the company. They have effectively maintained their competitive position and strength. The period of Jack Welch’s leadership at GE, from 1981 to 2001, was marked by his emphasis on GE becoming either the top or second-best in all industries or divesting from them. He divested from businesses with limited potential for growth, such as TVs and toaster ovens.
He turned the financial-service provider GE Capital into a dominant force and made a foray into the broadcasting industry by acquiring RCA Corp., the owner of NBC TV network. Concurrently, he downsized GE by laying off over 100,000 employees, which accounted for a quarter of the company’s workforce. Additionally, numerous well-paying manufacturing jobs were relocated to less expensive, non-union locations abroad. Consequently, Jack Welch gained the moniker ‘Neutron Jack,’ likening him to the nuclear weapon that caused casualties while sparing buildings.
The number of employees at GE decreased from 402,000 at the end of 1980 to a low point of 220,000 in the mid-1990s. Jack Welch believed that it was necessary to make GE a more efficient company in order to ensure profitability in light of high inflation and strong competition from Japan.
By 2000, the employee count had risen to 314,000, largely due to acquisitions. Analysts viewed GE’s performance under Jack Welch as highly successful (See Exhibits III and IV). In 2000, the company’s earnings reached US$12.7 billion, which was eight times higher than its reported profit of US$1.5 billion in 1980.
By the year 2000, General Electric’s shares had increased by approximately 5,096% (including dividends), which equated to a compound annual growth rate of around 21.3% from the day Jack Welch assumed leadership. Analysts believed that while most top executives lost their effectiveness within a decade, Welch was an exception who continued to drive GE to impressive levels of success over a span of 20 years. Similar to the changing seasons, Welch had specific rhythms and rituals in his management approach at GE. In addition to his monthly teaching sessions at the Crotonville academy, he clearly communicated his monthly programs (see Exhibit V).
Despite some positive aspects, the Welch Era of GE had its flaws. The company encountered various obstacles, such as criminal indictments tied to military contracts and disagreements with environmental organizations. GE was accountable for polluting the Hudson River with PCBs (Poly-Chlorinated Biphenyls), resulting in a $460 million dredging plan endorsed by the U.S. Environmental Protection Agency to restore the river’s condition. Additionally, analysts expressed concerns about Jack Welch’s extensive dependence on GE Capital, the financial services division, for expanding the company.
By 2000, the division accounted for half of the company’s profits. Nevertheless, GE faced criticism for its inadequate support of women and minorities in senior management roles. Some argue that Jack Welch’s handling of political and social pressures was a significant weakness, as demonstrated by the European Union vetoing the proposed merger between GE and Honeywell, as well as the Bush Administration ordering GE to address pollution in the Hudson River at a cost of $460 million. Chapter 5 Exam Case Questions 1: Identify different stakeholder groups in each case study and analyze their importance.
According to the stakeholder model, the primary stakeholders in each case study can be determined by analyzing facts from the case study. In the case of Thomas Alva Edison and J. P. Morgan from 1947 to 1931, the founding stakeholders were Edison and Morgan themselves. Edison established the Edison Electric Light Company to manufacture light bulbs and electrical equipment. However, despite his brilliance as an inventor, he was not successful as a manager. Subsequently, J. P. Morgan took charge and reorganized the business, which is now known as General Electric. Under Morgan’s leadership, the company expanded its operations by introducing new electrical appliances, jet planes, silly putty, and more.
Jack Welch took over General Electric in 1981 and executed a plan to enhance the company’s performance. This involved closing or selling off underperforming business divisions and reducing the workforce, aiming to establish General Electric as one of the leading companies in their industries. Welch’s choices had a notable effect on the company’s profit. Additionally, General Electric showcased its commitment to the market capitalism model by effectively maintaining profitability and fulfilling its societal responsibilities, including tax payments and involvement in philanthropy and community initiatives.
Welch advocated for pensions that complied with legal requirements for both stakeholders and employees. However, the specific details of each case study do not align with the competitive markets model of market capitalism. General Electric underwent significant changes under Welch’s leadership, such as the mass layoff of tens of thousands of employees who were considered underperformers and did not fit the company’s criteria. Furthermore, GE’s manufacturing facility in New York was found to be discharging a cancer-causing chemical called PCB into the Hudson River.
General Electric, after a long struggle with the government’s Environmental Protection Agency, was held responsible for pollution and compelled to cover the expenses of the cleanup. In addition, during Welch’s tenure, GE allocated its pension fund to stakeholders including employees and retired workers. The company also engaged in philanthropic endeavors and established foundations to support nonprofit organizations and provide college grants.
What specific facts in each case study do not align with the stakeholder model of competitive markets? GE’s pension plans covered existing stakeholders, employees, and retired workers, but GE refused to increase benefits for retirees. Instead, Welch converted the surplus of the pension fund into profits for the company. Only under pressure from unions and pensioners did GE finally raise pensions from 15 to 35 percent. Additionally, which theory of ethical behavior from the fourteen discussed in chapter 8 could best explain the firm’s behavior?
Is this theory in line with the competitive market model of market capitalism? Please explain your response. The Proportionality Ethic, demonstrated by Welch through his decisions, prioritized the company’s profit and his own personal gain (such as higher pension plans and benefits for himself). However, every decision had its consequences, such as the burden of increasing pension benefits and the cost of pollution cleanup. Another consequence was the rise in unemployment among GE employees, as Welch believed it would benefit the company without considering the well-being of those who were laid off. 7.
Is the firm’s philosophy on corporate social responsibility consistent with the market capitalism model in each case study? Please explain your answer.
Yes, General Electric maintained its position as one of the leading companies due to its continued profitability and commitment to stakeholders. General Electric remained competitive in its industry and actively worked towards increasing profits and market presence. 8. Is the firm’s philosophy on corporate social responsibility consistent with the stakeholder model in each case study?
Yes and no. General Electric, under the influence of Welch, engaged in philanthropy and funded nonprofit organizations. However, they remained greedy by only distributing the minimum required by law for pensions and fighting liability for pollution from their manufacturing plant. In terms of the government’s role in each case study, they held GE’s manufacturing plants accountable for polluting the Hudson River.
GE declined to cover the expenses associated with removing the hazardous substances and initiated a campaign aimed at convincing the general public that these chemicals posed no harm. This conflict significantly impacted the company, as it resulted in the public being divided and taking partisan stances. Consequently, consumers exclusively patronized establishments whose owners shared their supportive position. When analyzing each case study, it is essential to determine whether any particular business practices displayed exceptionally innovative or notably flawed qualities. Please explain your response. Despite the unfortunate layoffs of numerous employees, GE experienced an improvement in efficiency.
Decisions were expedited due to the elimination of multiple layers of presidency in the decision-making process. GE’s locomotive plant experienced a decrease of slightly over 50%, while increasing inventory by approximately threefold. The concept of corporate social responsibility refers to a corporation’s responsibility to generate wealth while avoiding harm to, protecting, or enhancing societal assets. Libertarians, on the other hand, advocate for maximum freedom and liberty in individuals’ actions and use of property, without interference from others, particularly the government.
Social Darwinism is the philosophy that uses evolution to explain the dynamics of human society and institutions. It suggests that rich individuals and dominant companies are morally superior due to the concept of “survival of the fittest” in the social realm. Ultra vires, a Latin phrase, refers to acts that go beyond the powers granted to a corporation by law. A trustee is an individual who acts as an agent for a company and holds a position of power over not only stockholders but also customers, employees, and communities.
Service principle is the conviction that managers contribute to society by ensuring companies are profitable, and that collective success of many managers would solve significant social issues. Friedmanism, on the other hand, holds that a corporation’s sole obligation is to maximize profits within the boundaries of the law. A value chain is a series of coordinated actions that enhance the worth of a product or service. Civil regulation entails regulations implemented by nonstate actors, which are established on social norms or standards enforced through social or market sanctions.
External cost refers to a production cost that is not borne by a firm or its customers but by society. Extraterritoriality, on the other hand, involves the application of one nation’s laws within another nation’s borders.
Soft laws, which are found in nonbinding international conventions, encompass philosophy, policy, and principle and gradually become accepted as guidelines for interpreting legally binding agreements. A norm is a standard that develops over time and is enforced through social sanctions or laws.
A principle is a standard used to guide conduct, also referred to as a rule, natural law, or truth. Codes of conduct are formal statements outlining aspirations, principles, guidelines, and rules for corporate behavior. Sustainability reporting is the practice of corporations publishing information about their economic, social, and environmental performance. Fair trade involves providing adequate wages to small, marginal agricultural producers in developing nations to enable sustainable farming and labor practices. A management standard is a model that organizations can employ to achieve specific goals.
