The foundations of business activity

1. SOME FUNDAMENTALS OF
BUSINESS
(Why a worldview really does matter in business)

2. Essay Slide Set Outline
• The Basic Point. Business involves exchange among human beings in community. That
exchange has existential AND economic meaning and involves both abstract and concrete
elements.
• The Necessity of Exchange. For a variety of individual, interpersonal and institutional
reasons, exchange is inevitable – and carries with a variety of choices and complexities.
• The Dynamics of Exchange. Exchange is a complex and challenging process.
• The Humanity of Exchange. Exchanges of goods and services are not merely mechanical
– they are woven into the fabric of human behavior.
• The Complexity of Exchange. No trading relationship is simple.
• The Terms of Exchange. All exchanges take place within a background of both shared and
unique value and power positions.
• The Facilitation of Exchange. Continuing exchange involves the assistance of various
individuals and institutions.
• The Stabilization of Change. Exchange relationships over time rely on cultural and
institutional support.
• The Adjudication of Exchange. Differences of interests and perspectives regarding the
trading relationship lead to a need to resolve conflicts.
• The Morality of Exchange. Exchange requires judgments about what is fair.
• The Issues of Exchange. All that we have said up to this point raises significant questions
whose resolution requires an ethical system embedded in a worldview.

3. The BASIC POINT
Existential Abstract Business is essentially about
exchange between individuals
Exchange and groups and how such
exchange is created and
Concrete Economic facilitated.
• The fundamental characteristics of exchange between
human beings demand a worldview.
– Exchanges between people are both existential (they reflect
and shape who we are as people) and economic (they reflect
and shape what we need as people).
– Exchanges between people are both abstract (they reflect and
shape our ideas and ideals as people) and concrete (they
reflect and shape our interests and industry as people)

4. The NECESSITY of exchange
• Human beings by nature and culture were created to
be partners in exchange
– Institutional factors
• Resource shortages require decisions about distribution
• Comparative and absolute advantage and specialization
encourage trading
– Interpersonal factors
• Dependency on others leads to trading
• Specialized roles means farmers and factory workers trade
• Hierarchy leads to owners and employees trading
– Individual factors
• Protection, procreation and productivity all require trading
• Identity and affirmation are derived from trading roles

5. The DYNAMICS of exchange and their
worldview implications
• The phases of exchange
• The humanity of exchange
• The complexity of change
• The terms of exchange
• The facilitation of exchange
• The stabilization of change
• The adjudication of exchange
• The termination of change
• The morality of exchange
The idea of developing a trading relationship, even in “simple”
cultures, raises a variety of issues. These issues can be addressed
formally (cultural norms and structures such as laws and courts) or
informally (group expectations and individual aspirations). Building
an on-going trading relationship

6. The PHASES of exchange
• Exchanges are dynamic
– they exhibit patterns of
creation, maintenance,
change, and
termination.
• Exchanges have life-
cycles or phases and PHASES OF
each carries different EXCHANGE
demands. Successful
exchange relationships
require sensitivity to the
ethical demands at each
stage of the
relationship.

7. The PHASES of exchange
• During the creation stage of
exchange relationships there Creation
needs to be a shared concern for
mutual rewards.
• During the maintaining stage of
exchange relationships there
needs to be a shared contribution
to mutual responsibility.
PHASES
• During the changing stage of Termination OF Maintenance
exchange relationships there EXCHANGE
needs to be a shared
commitment to mutual
responsiveness.
• During the terminating stage of
exchange relationships there
needs to be a shared Change
continuation of mutual respect.

8. The HUMANITY of exchange
• Key human
elements of CULTURAL NORMS
exchange
– The role of ASPIRATIONS (what I want
aspirations and for and from myself)
expectations
EXPECTATIONS (what others
– The role of want for and from me)
cultural norms
– The role of justice DISTRIBUTIVE (Social) JUSTICE
PROCEDURAL (Administrative) JUSTICE
RESTORATIVE (Compensatory) JUSTICE
RETRIBUTIVE (Corrective) JUSTICE

9. The HUMANITY of exchange
• Exchange interests (either individual or
mutual) may be compatible,
competing, or clashing.
• There are potential wins and YOU YOU
losses, and certain costs, in every WIN LOSE
exchange.
• Successful exchange relationships I Compatible Competing
require both parties to the WIN interests interests
exchange to magnify compatible
(win-win) interests wherever I Competing Clashing
possible, manage competing LOSE interests interests
interests (so that win-loss situations
are seen as fairly distributed), and
minimize clashing (lose-lose)
interests.

10. The HUMANITY of exchange
• This would seem more self-evident
here than it might be in the heat of
a bargaining situation.
– For instance, in labor strikes YOU YOU
WIN LOSE
we often have the situation
where both parties stand to
I Compatible Competing
lose, but engage in a bitter interests interests
WIN
conflict because of ego
needs.
I Competing Clashing
– In political situations we often LOSE interests interests
see a similar unfortunate
disposition on either side to
accept losses in order to
“prove a point” or not to be
seen as weak.

11. The COMPLEXITY of exchange
• Most exchanges have multiple
stakeholders.
– A stakeholder is a person or
organization who has an active interest
in or significant influence on the
process or outcome of the exchange.
– Successful exchange relationships
require patience and wisdom in dealing
with multiple interests/influences,
conflicting interests/influences, and
non-economic interests/influences.
– Choices and tradeoffs are required
because we have infinite demands
placed on finite resources.
– In almost every decision some
stakeholder interests are met while
others are not or are frustrated.

12. The TERMS of exchange –
comparative value, relative power.
• Exchanges involve both unique
and shared interests based upon
perceptions of comparative value
and relative power.
• Successful exchange relationships
require both parties to focus on
values that address both individual
and mutual interests, and ways to
negotiate differences in perceived
value and power.
– Failure to acknowledge and act on
the interests of others may work
once, or where there is a great power
imbalance.
– In the long run, no trading partner will
continue exchange where their values
and interests are not attended to in
some way.

13. The FACILITATION of exchange
• Ongoing exchange requires
the creation of a network or
Systematic
exchange context. Some call policing
this the “infrastructure of
exchange” and it involves Strategic
many elements: structures
– Shared values through culture
and communication Shared
– Strategic structures including values
money, banking, and credit
– Systematic policing through a
credible legal system and
enforcement capacity

14. The STABILIZATION of exchange
• Stability in exchange relationships can be accomplished
through a variety of structural or interpersonal arrangements,
each with its own strengths and weaknesses.
– Self-centered competition allows the terms of exchange to be
dictated by relative power differences among firms and
individuals.
• Those with the greater power (gained through force of talent, resource
access/ownership, strategy or guile, alliances and deals, and other such
means) are able to determine (and enforce) the terms of exchange over
those with less power.
• Such an arrangement encourages a potential useful economic outcome
(survival of the firms or individuals most capable of producing net-value
added for the market system) while also encouraging a potential harmful
ethical outcome (survival at whatever costs in terms of cheating,
gouging, monopolizing, bribing, ecological damage, etc.)

15. The STABILIZATION of exchange
• Stability in exchange relationships can be
accomplished through a variety of structural or
interpersonal arrangements, each with its own
strengths and weaknesses.
– Social tradition helps produce a close community AND
commercial alignment. That is, marketplace expectations
are reflective of societal norms.
• Our position in a social network determines our place in the
market.
• The upside is that exchange norms are reflective of and reinforced
by cultural and community norms, producing great stability.
• The downside is that there is little room to negotiate new exchange
norms, and “harmful” cultural/community practices (like classism
and racism and sexism) are perpetuated in the marketplace.

16. The STABILIZATION of exchange
• Stability in exchange relationships can be
accomplished through a variety of structural or
interpersonal arrangements, each with its own
strengths and weaknesses.
– Family bonds help build on family relationships by linking
occupation and financial support to blood and marriage
ties.
• Authority and responsibility become matters of kinship, not merely
economic matters of self interest.
• The stability produced by such a system comes at a personal cost
(like individual opportunity to challenge and change the system)
and an economic system cost as the competitive forces that lead
to rewarding greater efficiency and effectiveness are over-ruled by
non-economic family-emotional considerations.

17. The STABILIZATION of exchange
• Stability in exchange relationships can be accomplished
through a variety of structural or interpersonal arrangements,
each with its own strengths and weaknesses.
– Government control does raise the possibility that society’s interests
might be better represented in other than what others might consider
purely personal market place decisions.
• Thus, for example, workplace safety, which might be slighted by pure
market place competition, can be given greater weight in governmental
decisions.
• As another example, child labor, which might be advantageous
economically, could be limited because of greater non-economic interests
such as public health.
• The downside of such government control is found in the excessively
wasteful growth of government “red tape” and in the introduction of
political considerations into what some believe should be marketplace
determined matters (for example, waiting out a labor strike might be best
economically, but government rules might force a decision to settle that is
not economically sensible).

18. The STABILIZATION of exchange
• Stability in exchange relationships can be accomplished
through a variety of structural or interpersonal arrangements,
each with its own strengths and weaknesses.
– Religious institutions have, throughout history, exerted their
influence over the philosophy and practice of business.
• Through teachings that specify the character and conduct of business and
economic activity, religious institutions can specify the responsibilities and
rights of various parties to economic exchanges.
• The advantage of this influence is that at its best it influences both the
hearts and minds of the parties to an exchange allowing participants to
practice exchange responsibility because they want to not because they
have to.
• The disadvantages are that (1) religious leaders might seek to direct the
thinking of their adherents in ways that are harmful to exchange
relationships, (2) conformity to religious rules may become superficial or
cosmetic whereby exchange participants conform to the letter of the “law”
but deny the “spirit” of the law, and (3) conflicts between various religious
institutions can lead to harmful exchange attitudes (exclusion,
segregation) and actions (favoritism).

19. The STABILIZATION of exchange
• Stability in exchange relationships can be accomplished
through a variety of structural or interpersonal arrangements,
each with its own strengths and weaknesses.
– Leadership preferences do have the advantage of personalizing
market place decisions.
• Here, exchange norms are determined by the character and
thinking of key commercial/community leaders.
• To the degree that leaders are thoughtful and creative and capable
of acting well then marketplace decisions are enhanced.
• The downside is that poor leaders (and even good or well
intentioned leaders) make poor decisions. Even good leaders can
be inconsistent, selfish and ignorant.

20. The ADJUDICATION of exchange
issues – force, negotiation, arbitration.
• Exchange relationships are dynamic. Over time the
interests/influence of the parties to the exchange and of
related stakeholder change.
• Successful exchange relationships require the ability to
anticipate, assess and act on these changes from a multi-
party, long-term perspective.
• Changes in values are often the most difficult to assess
because of their complexity, and because often these values
are masked by ambiguous actions and may even be unclear
to the parties holding those values.
• It is critical to continue to raise the question of values in an
exchange relationship in order to clarify and reinforce
intentions and commitments.

21. The TERMINATION of exchange
• No human exchange lasts forever. As parties to the
exchange grow and alter, the attraction between
parties tends to diminish over time.
• The ending of an exchange relationship in ways that
honor the previous relationship AND keep open the
possibilities of a new relationship is crucial.
• Conditions for constructive termination
– Communication (seeking to be understood AND to
understand)
– Honesty (integrity)
– Respect

22. The MORALITY of exchange
• Exchange raises issues of right and wrong, of appropriate
and inappropriate. These issues require “settling” at two
levels: the individual and the interpersonal levels.
• Individual (perceived) equity
– How do I weigh my felt privileges and responsibilities?
– How advantaged or disadvantaged do I feel?
• Interpersonal (distributive) justice
– Buyer beware approach (look out for yourself)
– Might makes right approach (power = advantage)
– Competitive approach (contest between positions)
– Clan/community approach (what is right for the group)
– Judicial approach (appeal to reason and precedent)
– Philosophical approach (appeal to principles and logic)
– Spiritual approach (appeal to God, His Word, and His agents)

23. The MORALITY of exchange
• Qualities of exchange morality
appraisal Rewarding Injuring
– An effective exchange is appraised
as Responsible Imbalanced
• Rewarding (we both gain) Responsive Insensitive
• Responsible (we both are obligated)
Renegotiable Inflexible
• Responsive (we both care about the
other)
• Renegotiable (we both are willing to
adjust)
– An ineffective exchange is appraised
as
• Injuring(one of us gains, or loses, too
much)
• Imbalanced (the reward/cost ratio is
unacceptable)
• Insensitive (we only care about
advantaging ourselves)
• Inflexible(we will not adjust to new
conditions)

24. Some ISSUES of exchange (whose
resolution would differ according to the worldview
applied)
• Should exchange arrangements be a private concern, a marketplace
matter, and/or a public issue?
• How can the differences between parties to the exchange be resolved?
• What is truth in exchange communication (performance claims,
advertising)?
• What performance warranties can be expected AND enforced?
• What, if any, are the boundaries to be placed on individual and
institutional autonomy in exchanges?
• What are the relative strengths and weaknesses of market-place vs.
nonmarket-place solutions to exchange needs, rights and issues?
• How do we weigh the costs and benefits accruing to the various parties to
an exchange?
• Under what conditions, if any, should one party to the exchange be
permitted to alter or negate the exchange agreement?