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Media and Journalism ModuleBusiness and Economics For Reporters

7. How Companies Work

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This week’s lesson

• In-depth look at the workings of companies

• Information to use to understand what is going on in individual businesses

• Consider the forms of business:• private vs public companies• sole proprietors• partnerships• trusts

• An analysis of company structure• Strategic planning• SWOT analysis

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Types of Business

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Types of businesses

• Most businesses operate under one of four main different legal forms. • different registration, tax and legal implications for each type

• within individual countries there are slight variations on the type.

• Important considerations when establishing a business:• protection of personal assets• the set-up cost of the tax structure• legal liability• superannuation• worker’s protection insurance - Workmen's insurance, National Provident Fund

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Types of businesses

• The four main types of business structures are:• Sole trader: an individual trading on their own• Partnership: an association of people or entities carrying

on a business together• Trust: an entity that holds property or income for the

benefit of others• Company: a legal entity that is established through

ownership shares. • A company, or corporation, is considered a distinct

legal entity, that can be sued, forced to pay taxes, etc., just like a person. Unlike proprietorships and partnerships businesses, a company business exists separately from its owners. As such, the owners have limited liability. Owners cannot be held personally responsible for company debts – the owners can only lose the value of their ownership shares, but no more.

• Each form has certain advantages and disadvantages. • often operate in different kinds of markets• most firms with large amounts of money invested in

factories and equipment are organised as companies.

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Sole Traders

• A Sole Trader is a self-employed individual who:• Has the sole responsibility for managing the business• Is entitled to all the profits of an enterprise• Owns all the assets of the business• Is responsible for all the losses that a business makes

• Is liable for all the debts incurred by the enterprise - this means that their personal assets are at risk if the business fails pay it's creditors.

• A sole trader may trade under a business name.• This is the easiest form of business to setup and is used by very small businesses and those starting out in business.

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Partnership

• two or more people are in a business relationship together with the view to making a profit.

• Individual country’s law can restrict the number of partners in a partnership.

• The essential elements of a partnership are:• All individuals share the risks and rewards • Each partner is entitled to share the net profits - not

necessarily equal shares• Partners are jointly and severally responsible for all the

debts and obligations without any limit • including loss and damages arising from wrongful acts or omissions

• Partners have equal rights to make decisions • All individuals share the ownership of the assets of the

business• Some businesses have “sleeping partners”

• provide funding or other resource to the business• they agreed not to be involved with the day to day running of

the business• reserve the right to be consulted on fundamental matters such

as borrowing and substantial creditors

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Trust

• Trusts are:• A complicated business form • Many different types of trusts• Perceived as a means to obscure the ownership of assets or flow of money

• Trusts are used:• To own and operate a business on behalf of multiple families

• To hold multiple families' passive investments (incl. shares or property)

• To hold multiple families' interest in a partnership business

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Trust

• The tax implications of trusts complicated by the variations and requirements of each type:• Income accumulated will be taxed at the highest marginal income tax rate

• Flow-through taxation applies, so that income distributed by the structure will be taxed in the hands of the recipient at their income tax rate.

• Flexibility to distribute income (e.g. franked dividends) to any one or more of the parties

• In terms of asset and liability in trusts:• Protected from claims by creditors of the beneficiaries

• Beneficiaries are protected from claims by creditors of the structure

• Assets are protected from claims by future spouses of principals and children

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Private and public companies

• Challenge for business journalists is finding out:• information about businesses• the people who are operating them• the other businesses that they might own

• who their partners are• what real estate they are interested in, etc.

• Next week - how to gather information relating to companies

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Private and public companies

• Company - difference between private and public companies• A private company has:

• different disclosure rules than a public company and thus finding information out about private companies can be challenging

• Note that every country has slightly different rules governing private and public companies

• Next week - how to find out exactly what the rules apply to a company you are researching

• A business which is run as a private limited company will be owned and operated by the company itself. • The company is recognised in law as having a personality which is separate from the person or persons who formed the company and/or the directors and shareholders

• The type of private limited company generally in use is that limited by shares, where members' liability is limited to the amount unpaid on shares held by them.

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Private and public companies

• Fundamental differences of detail:• A private company director need not be specifically qualified

or experienced. • A private company can just have one director who may also be

the only shareholder• A public limited company must have at least 2 directors and at

least 2 shareholders• A private limited company's resources can be used to assist in

the purchase of shares of the company when someone wishes to leave the company.

• A private company is prohibited from offering to issue its shares to the public at large

• Fewer provisions regulating directors dealings with the company if the company is a private company

• Private companies up to a certain size can be permitted to file abbreviated accounts with the register of companies

• Only private companies can avoid holding an annual general meeting

• Only a private limited company can dispense with the formalities of holding general meetings by having a signed resolution in writing

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Private and public companies

• Public companies are subject to more scrutiny. • they are ‘public’• the country’s legislation will contain requirements for a public company regarding issues such as:• holding meetings, • preparing financial statements and • publishing director’s reports

• Office holders in public companies have special obligations and must meet certain conditions

• A public limited company may:• have its shares listed on the Stock Exchange• companies listed on the Stock Exchange must comply with the requirements of the Stock Exchange as to the publication of information about its affairs

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Key Players Company structure explained

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Basic company structures

• When investigating companies you need a good understanding of the basic company structures and the legal and financial obligations of the office-bearers

• Usually a company consists of:• the legal officers required by law (in most countries this will be at least one company director and a company secretary)

• a number of other positions which are required to run the business

• The number and organization of the other positions needed will depend on the size of the company• the same functions need to be performed regardless of the size

• For Example:• in a small company all the human resources, marketing, sales, and financial tasks might be performed by the director

• in a larger company there may be whole divisions devoted to these tasks

BER,Ppt7.ppt 16http://www.manimak.com.mk/eng/aboutus.htm

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The Board of Directors

• A group of directors who act on behalf of shareholders in supervising a public company

• Board’s responsibility – to identify an organisation’s direction and goals

• Management’s responsibility - to decide how to achieve those goals

• Specifically, the board works to:• set and review the medium and long term goals of the organisation• approve budgets;• monitor business performance• approve large investments and any major financial decisions• evaluate the performance of the key employee such as the Chief

Executive Officer (CEO)• monitor controls to ensure major risks are identified and managed• challenge the assumptions of management • ensure there is accurate financial reporting and the organisation

complies with all aspects the law• ensure the continuing development of the executive management

team, appropriate remuneration of it and succession planning• communicate with shareholders and other stakeholders

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The Board of Directors

• All decisions are made collectively by the board and directors share equal responsibility for those decisions

• A board may appoint committees to review issues and make recommendations to the board e.g. finance and audit committee, human resources committee.

• An ideal board considers the skills and experience needed to govern the company both now and in the future and selects people who have experience in the issues and opportunities the company is facing.

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Chairperson

• The Chairperson is considered the "first among equals“• appointed by fellow board members - not shareholders

• The chairperson acts as the link between the board and the CEO or company

• Note: In Fiji the Government often appoints the Board and nominates the Chairperson to a Government Commercial Company or Statutory Authority.

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Director

• A legal office bearer required by most company legislation • Responsible for ensuring that the company complies with

legal obligations and meets the purpose for which the company was formed

• In private companies the Directors are usually the owners of the company

• In public companies, the Directors govern companies on behalf of the shareholders who elect them. All directors must comply with basic legal requirements under the relevant Companies Acts.

• Four main duties for directors: • to act with all the care and diligence• to act in good faith in the best interests of the company and

for a proper purpose - ‘fiduciary duty’• to not improperly use their position for personal gain or to

the detriment to the company• to not improperly use the information they gain in the course

of their director duties for personal gain or to the detriment to the company

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Management roles

• The following key management roles exist in most companies.

• Note that the size of the company will determine whether in fact there are separate people performing these roles

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Chief Executive Officer

• Most senior executive in the company. • The terms ‘Chief Executive Officer’ and ‘Managing

Director’ (MD) are often used interchangeably. • Technically a MD sits on the board of directors plus

heads the company as the most senior and most highly paid executive.

• If the MD also holds the role of chairperson, the title used is Executive Chairperson.

• A CEO reports to the board but is not a part of it.• Manage the day to day operations of the company, its

people and resources.• supervise the work of other managers• implement strategy• ensure that the company’s structure and processes

adequately fit the strategy and culture that the board wants

• The board is responsible for selecting, appointing, appraising and, if required, terminating the employment of, the CEO

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Chief Executive Officer

• Relationship between the board and CEO crucial to the company’s success and to good corporate governance.

• CEO link between the board’s role in determining strategic direction and management’s role in achieving corporate objectives.

• Boards rely on CEO’s to implement strategy, communicate management’s perspective, alert them to growing issues and provide important information to discuss at board meetings.

• The CEO relies on the board for clear direction, mentoring and support.

• A good board will both challenge and support management.

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Company Secretary

• In the past - company secretaries had the role of administering the affairs of the company and the business of the board

• This role has now expanded to include an involvement with corporate governance policies and practices within the company

• Typical duties and responsibilities of a company secretary include:• Managing board processes – board papers and circulation

of agendas, minutes, discussion papers, proposals • Ensuring members’ and directors’ meetings are held and

records kept in compliance with company legislation• Ensuring statutory requirements • Provide advice to directors regarding their regulatory

and statutory requirements• Keeping statutory records up to date • Ensuring compliance with the constitution

•Company Secretary may be a member of the Board, •an employee or a full time consultant to the Board.

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Finance Manager

• Responsible for managing the financial risks of the business or agency

• Also responsible for:• financial planning• record-keeping• financial reporting to higher management

• This role may include communicating financial performance and forecasts and providing briefings to financial analysts and business journalists.

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Sales Manager

• Responsible for:• generating sales plans• ensuring that the goods or services produced by the company are being sold

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IT Manager

• Sometimes called Chief Information Office (CIO)

• Responsible for:• ensuring the business is technically equipped to operate

• In modern countries, this involves sophisticated computer networks, telecommunications, internet connections as well as decisions about the use of any proprietary or special software needed to streamline business operations.

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Human Resources Manager

• Responsible for:• Managing all aspect of personnel

•recruiting staff•training existing employees•preparing succession plans•managing non performing staff•arranging dismissals, etc.

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Marketing Manager

• Ensures the company is effectively targeting the right customers:• attract new customers• keep existing ones• grow the company by expanding to new areas

• Also responsible for the image of the company and its products and services and ensuring that new products are developed to meet changing demands.

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BREAK

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The Strategic Planning Process

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“Strategic planning is the process of developing and maintaining a strategic fit

between the organisation’s goals and capabilities and its changing marketing

opportunities.

It relies on developing a clear company mission, supporting objectives, a sound business

portfolio and coordinated functional strategies.”

Rodney Overton.

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Strategic planning

• The high level planning of all the activities (strategies) of a company to ensure competitive advantage and profitability• Forward looking process - where the company would like to be in 3

to 5 years time and planning the strategies to achieve these goals.

• Definition “the process by which a company develops vision and mission statements, organisational goals, company strategies, marketing objectives, marketing strategies, and finally a marketing plan.”

• Requires a balancing of the wants and needs of the key players in the organisation;• customers • owners • people • Competitors

• Issues to be considered include Porter’s five competitive factors:• Threat of entry of new competitors (new entrants)• Threat of substitutes• Bargaining power of buyers• Bargaining power of suppliers• Degree of rivalry between existing competitors

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Strategic Planning Framework

http://www.morassociates.com/strategic_thinking.html

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SWOT Analysis

• Valuable tool to highlight a firm’s:• Strengths• Weaknesses• Opportunities• Threats

• As journalists, you will find it a very powerful tool to use to assess a company. By performing a SWOT analysis you can often deduce reasons behinds actions that were not clear or understand more about why the company is acting in a certain way.

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Strengths

• The positive attributes:• tangible and intangible attributes internal to the company.

• Not always easy to assess from outside the company

• BUT answer the basic questions: • What does this company do well?• What resources does it have? • What advantages does this company have over its competition?

• Suggested method:• start by evaluating the company’s strengths by area• Marketing• Finance• Manufacturing• Organisational structure.

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Strengths

• Some examples of strengths:• the positive attributes of the people involved in the business, including their knowledge, backgrounds, education, credentials, contacts, reputations, or the skills they bring

• tangible assets such as available capital, equipment, credit

• established customers• existing channels of distribution• copyrighted materials, patents, information and processing systems

• other valuable or unique resources within the business. When evaluating the strengths of a company aim to capture the

positive aspects that add value or offer it a competitive advantage.

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Weaknesses

• Factors that are within the company’s control that detract from its ability to obtain or maintain a competitive edge.

• Think about which areas might it improve? • As journalists you might know about a groundswell of

criticism about a company or an issue that is attracting a lot of bad press.

• Weaknesses may include:• lack of expertise• limited resources• lack of access to skills or technology• inferior service offerings• poor location of its business.

• These factors are under the control of the company, but are in need of improvement to effectively accomplish its objectives.

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Weaknesses

• Weaknesses capture the negative aspects internal to the business:• detract from the value it offers• places it at a competitive disadvantage

• Areas it needs to enhance in order to compete with its best competitor

• The more accurately you can identify the company’s weaknesses, the more valuable the SWOT will be for your assessment.

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Opportunities

• What opportunities exist in its market, or in the environment, from which it hopes to benefit?

• Reflect the potential that can be realized through implementing its marketing strategies.

• Opportunities may come from:• market growth• lifestyle changes• resolution of problems associated with current situations

• positive market perceptions about the business, or the ability to offer greater value that will create a demand for its services.

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Opportunities

• Try to establish some timeframes for the opportunities:• Does the opportunity you have identified represent an ongoing opportunity?

• Is it a window of opportunity? • How critical is its timing?

• Opportunities are external to its business. • If the company has identified "opportunities" that are internal to the organisation and within its control, it will want to classify them as strengths.

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Threats

• What factors are potential threats to the business?

• Threats include factors beyond its control that could place its marketing strategy, or the business itself, at risk

• These are also external:• the company may have no control over them, but it may benefit by having contingency plans to address them if they should occur

•

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Threats

• A threat can be:• a challenge created by an unfavourable trend

• a development that may lead to deteriorating revenues or profits.

• Competition – existing or potential• intolerable price increases by suppliers• governmental regulation• economic downturns• devastating media or press coverage• a shift in consumer behaviour that reduces its sales

• the introduction of a "leap-frog" technology that may make the company’s products, equipment, or services obsolete.

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Threats

• When looking at threats consider:• Anything that might make a company vulnerable

• What situations might threaten its marketing efforts?

• Classify its threats according to their "seriousness" and "probability of occurrence"

• When companies conduct SWOT analysis, the threats are used to help position the company and enable contingency plans to be prepared to counteract the threats.Part of this list may be speculative in nature, yet it will still add value to the SWOT analysis.

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The Planning Cycle

• The strategic planning process involves more than just planning

• Strategic planning is the part of the strategic management process which is concerned with identifying the companies long-term direction. It is a continuous, cyclical activity with three main phases: • planning - researching and analysing strategy and plans, generating ideas and choices

• documentation - documenting the plans • implementation and monitoring - taking action to achieve the agreed goals, and monitoring progress or non-achievement in order to adapt the future strategy.

www.businessperform.com/html/successful_plann...

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ClosureThe important thing is not to stop

questioning. Albert Einstein

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Summary

• Forms of managing a business, such as:• private vs. public companies• sole proprietors• partnerships• trusts

• Key stakeholders within a company• roles we can expect to find in any organisation - even if those roles were performed by one person in a small company or by separate and huge teams by a larger company.

• The Strategic Planning Process• Strategic planning• Practical tool to analysing a company by using the SWOT analysis technique.

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Coming up!

• Ways to find the information• Some information readily available and on the public record

• Others you will have to search in more complex and detailed ways

• Consider:• How companies communicate• Accessing information in the public domain• Public and private companies

• In coming weeks we’ll put all this background and toolkits that we have been providing together and look at preparing reports for some of the key business and economic beats.

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