governing business activity

7/27/2019 Governing Business Activity

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Section 1 Introduction to the World ofBusiness

Section 2 Local Small Business ActivitySection 3 Global Competition and BigBusiness Activity: TNC & MNC

Section 4 Whose Interests Should GovernBusiness Activity?


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Whose Interests Should

Govern Business Activity?


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In this section, we ask three main questions,

1. What are the positive and negative contributions of

large business to people?2. Which groups have an interest in the business and

have some power to get what they want from the

business?

3. Which of these groups should have a say in runningthe business?


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Part 1 The Impact of Business and GlobalSociety

Part 2 The Main Stakeholders of a Business

Part 3 Who Should Run Business? ThreeViews


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1.1 The Case FOR Big Business

Argument 1: It provide employments, skills

Argument 2: It generates wealth

Argument 3: Economies of scale lower the cost of living.


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Argument 4: It benefits the Host National Economys

Balance of Payments

Argument 5: Financial capability in conducted longterm R&D that benefits all mankind.


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Argument 1: Big business replaces jobs of homecountry producers, destroying communities.

Argument 2: Big business can easily avoid paying tax

through transfer pricing.


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Argument 3: Large spending on global advertising andmarketing.

Argument 4: Big business shift costs onto others.


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Argument 5: Big businesses are controlled by people whodo not have to face the consequences of their decisions.

Conclusion:big businesses have big impact on our lives. So, what rightshould people have to govern business? Who should governbusiness?


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Stakeholder means

- Any individual or organisation that has an interest

in a particular business.- There are 2 type of stakeholders

1. Private Stakeholders

2. State Stakeholders


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- All private individuals or organisations with aninterest in the business.

- There are 2 kinds of private stakeholdersa. Internal

b. External


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Who should govern the business?


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Three different views:

1. The Shareholders view

2. The Stakeholders view3. The Local Communitys view


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- Managers of a firm must only take into accountshareholders views in all decisions.


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The arguments:

1. Rewarding the risk taking of the businesss legal

owners.2. Friedman, a famous economist, says, the only

social responsibility of a business can have is to its

shareholders.


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How shareholders governed business improvesbusiness performance and benefits society

1. Clarity of goals, competitive survival, growthof national economy.


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2. Business costs, consumer prices, affordability

3. Business costs, profitability, government taxrevenues.


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Conclusion

If firms need only to care about the interests oftheir owners/shareholders, then

1. firms can survive better2. consumers get lower prices

3. governments get more tax revenue4. higher tax revenue indicates that governments

spending on public facilities would increase,thus benefiting the local community.


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- Managers of a firm will take into account all

stakeholders view in making decisions.- The believe businesses will work more

successfully if the interests of these different groupsare all taken into account.- There are even argument that formal legislation

should be set to ensure that stakeholders views are

taken into account for all businesses decisions.- However, this has been strongly opposed by

business interests in general.


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How shareholders governed business improvesbusiness performance and benefits society?

1. Better reputation, retention and recruitment.


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2. Learning from stakeholders gives a competitiveedge

- Simon Zadek, businesses can learn about future

trends in society by talking to different kinds oforganisation from the usual corporate contact.

3. Partnerships with publicly trusted stakeholders give

a competitive edge.


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- Managers of a firm will take into account localcommunitys view in making decisions.


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The Case for Community-Governed Business

- The view began in the last 20 years, when big businesses- dominate the world economy

- intimidate and compete with local businesses- dominate employment in many local communities

- disrupt local communities by closing down factories/offices

- dominate the places to spend money in local communities

- dominate the sources of finance for small business

- are powerful enough to influence local and national politiciansto make the rules in the interests of big business


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Thus, as a result, the local community havebecome dependent on the big businesses

- for their livelihood (job and income)- for what they buy (the supply)- for borrowing money (loans, credit)

Conclusion- Unless something is done about dependency, it

doesnt matter whether businesses are governed bytheir shareholders or by all stakeholders.


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Bypassing the Power of Big Business

through Community Based Business


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- Third Sector organisations expanding with 2 maintrends.

1. Social and Economic Development- Local people setting up community

business which is either not-for-profitor profit sharing.

- i.e. cooperatives

2. Political Developments- Local people began to support NGOs

rather than traditional politicalparties.


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What is the best way to make sure that the

employee will be likely to make the right

decision? .

Source: Monks, R. A. G. & Minow, N. (2008), Corporate Governance, 4thed., pg. 348


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Robertson, J., 1998, Transforming EconomicLife: A Millennial Challenge, Green Books,

Devon.

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