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Management 16

CHAPTER 1 PURPOSES OF A CORPORATION

Corporation – an artificial being created by operation of  Early stage survival – how to gain momentum
law, having the right of succession and the powers, especially when its entry is during crisis, for it to
attributes, and properties expressly authorized by law withstand the hostile environment of
or incident to its existence. commercialism.
 To increase profit – the social responsibility of
 Artificial being – a corp. is a juridical person
business is to increase profit.
whose personality is separate and distinct from
 To offer vital services to the general public –
its owners.
there are services that are hard for the
 Created by operation of law – it will come to
government to offer to the vast majority of
existence trough a charter or grant from the
people without the help of private enterprises.
state.
 To offer goods and services to the mass market
 Right of succession – a corp. can continue to
– meeting the needs of the lower income class
exist even in death, incapacity or insolvency of
group by offering them something at a price
any stockholder or member.
they can afford.
 Power, attributes, and properties – it is
authorized to do activities within the purposes SHAREHOLDERS, BONDHOLDERS AND DIRECTORS
of its creation. It has its own traits, and
operates based on what has been expressly Shareholders – have claims for the dividends; artificial
or natural persons that are legally regarded as the
provided in the charter.
owners of the corporations.
STOCKHOLDES OF A CORPORATION
Rights of the Shareholders
 Management – party given the authority to
implement the policies; group of people  Right to vote
running the day-to-day activities of the  Right to propose
corporation; composed of decision makers; the  Pre-emption right
ones entrusted by the stockholders to do some  Right to liquidating dividends
maneuverings for the corp. to reach its
Bondholders – have claims in the form of interest
destination.
earned via long-term agreement; defined as a person or
 Creditors – party who lend the corporation
entity that is a holder of a currently outstanding bond.
goods, services or money.
 Shareholders – people who invest their capital Board of Directors – the collegial body that exercises
in the corporation. the powers of all corp. formed under the corp. code;
 Employees – people who contribute their skills, formed by the stockholders and they will act as the
abilities and ingenuity to the corporation. governing body of the corp.
 Clients – party considered to be the very reason
Duties of the BOD
for the existence of the corp.; buyers of the
corp.’s product or services.  Governing the organization by establishing
 Government – taxes that the corporations are broad policies and objectives
paying; buyer of product of some corp.  Selecting, appointing, supporting and reviewing
 Public – the latter provides the citizens with the the performance of chief executive
essentials such as goods, services, employment  Ensuring the availability of adequate financial
and tax money for public programs. resources
 Approving annual budgets Conscious Consideration of the Interests of Other
 Accounting to the stakeholders the Stakeholders – greater internally-generated resources
organization’s performance in improving its commitment in meeting its
environmental, community, and social obligations.
MULTINATIONAL AND TRANSNATIONAL CORP.
WHAT GOOD GOVERNANCE PROMOTES
- Characterized as business entities that have
their management headquarters in on country, Transparency – vital with respect to corporate
and operate in several other countries known as governance due to the critical nature of reporting
host countries. financial and non-financial information; failure in
transparency issues could lead to many things, scaring
Multinational Corp. – more focused on adapting their off investors is one; a thing huge concern in government
products and service to each individual local market. setting since it entails giving out of information.
Transnational Corp. – enterprises which own or control Accountability – the recognition and assumption of
production or service facilities outside the country in responsibility for the decisions, actions, policies,
which they are based; any corporation that is registered administration, governance and implementation of
and operates in more than one country at a time. programs and plans of the corporation and people
involved, including the obligation to report, explain and
CORPORATE GOVERNANCE
be answerable for its resulting consequences.
- Process and structure used to direct and
- Set a policy
manage the business and affairs of the
- Set goals
company towards enhancing the business
- Disclose credible information
prosperity and corporate accountability with
the ultimate objective of realizing long-term Prudence – “care, caution and good judgment as well as
shareholder value whilst taking into account the wisdom in looking ahead.”
interests of other stakeholders.
- The joint responsibility imposed on the BOD BENEFITS OF GOOD GOVERNANCE
and management to protect shareholders right
Reduced Vulnerability – improved system of internal
and shareholder’s value.
control; greater accountability, protection of corporate
- System whereby shareholders, creditors and
resources, better profit margins; capability to attract
other stakeholders of the corporation ensure
investors; reduce the cost of loans or credits
that management enhances the value of the
corporation as it competes in an increasingly Marketability – easy access to capital in financial
global market place. markets which helps the company survive in an even
- Concerned with holding the balance between more competitive environment; more attractive in open
economic and social goals and between market.
individual and communal goals.
- Structures and processes which companies are Credibility - when a company is credible, investors’ trust
directed and controlled. comes next; where investors’ trust is in, money follows;
when there is money there is flexibility.
FUNDAMENTAL OBJECTIVES 0OF CORPORATE
GOVERNANCE Valuation – embracing corporate governance principles
and practices affects corporate financial and non-
Improvement of Shareholders Value – better relations financial value of the enterprise.
will lead to an increase in shareholder’s wealth.
CHAPTER 2 Purpose: division of work among members of the
organization, and the coordination of their activities.
Organizations: Their Political, Structural and
Economical Structure Structure – defines tasks, responsibilities, work roles
and relationships and channels of communication.
Organizations – complex adoptive systems t hat use
people, tasks and technologies to achieve specified Objectives of an Organizational Structure
goals and objectives.
- Accountability for areas of work
The structure and management of organizations will - Coordination of different parts of the
differ depending on the following: organization and different areas of work
- Effective and efficient organizational
- Sector they operate in performance
- Stakeholder configuration - Monitoring the activities of the organization
- Particular strategic goals and objectives they set
- Flexibility in order to respond to changing
themselves environmental factors
ORGANIZATIONAL THEORY - Social satisfaction of members

- Attempts to explain how organizations work by Dimensions of Organizational Structure


defining the common features that - Allocation of individual tasks and
organizations share by collecting data and by responsibilities, job specialization and definition
analyzing them, assessing “what works where – - Formal reporting relationships, levels of
and why”. authority and spans of control
- Enables the manager to see that his or her - Systems for communication of information,
organization and its problems are rarely wholly integration of effort and participation
unique. - Grouping together of sections, departments,
- Help us explain what is happening in our own divisions and larger units
organization to identify possible solutions to its - Delegation of authority and procedures for
challenges, issues and problems, provided the monitoring and evaluating the action
solutions selected take into account cultural
- Motivation of employees through systems for
and other key aspects and are not simply performance appraisal
‘broad-brush’ or replica implementations based
on what is done elsewhere. Consequences of Structural Deficiencies

Three criteria for effective organizations: - Low motivation and morale


- Late and inappropriate decisions
- They must be organized for business - Conflict and lack of co-ordination
performance - Poor response to new opportunities and
- Their structure should contain the least external exchange
number of management levels - Rising costs
- Organizational structure should facilitate
training and testing of future organization Principles of Organizational Design and Controls
leaders
 Simple structure – little hierarchy or control
ORGANIZATIONAL STRUCTURE exercised by the chief executive
 Machine bureaucracy – best at mass produced
- Pattern of relationships among positions in the
tasks and is characterized by many layers of
organization among members of the
management and formal procedures
organization.
 Professional bureaucracy – some parts of the Advantages
administration is set by independent
professional bodies  Suitable for international companies
 Divisionalized form of bureaucracy – applies  Corporate strategic control with
more to multinational or industrial corporations production and marketing
independence at divisions
 Adhocracy – need constantly to innovate and
respond to quickly changing markets Matrix – grouping of projects and functions
Types of Organizational Structure Advantages
Functional – grouping of major functions  Combines vertical and lateral lines of
communication and authority
Advantages
 Stability and efficiency with flexibility
 Increases utilization and coordination of and informality
groups  Emphasizes that project aims are all-
 Increases development and career important
opportunities
Disadvantages
Disadvantages
 Potential conflict between project
 Encourages sectional interests and leader and functional leaser regarding
conflicts resources
 Difficult for organization to adapt to  Project may be jeopardized if project
product/service diversification members as well as leaders enter the
conflict on opposite sides
Product/Service – grouping by service/product
 Does not tolerate diversification well
Advantages
CENTRALIZATION AND DECENTRALIZATION
 Increases diversification Centralized – when all the power for decision making
 Adaptability increased rests at a single point in the organization ultimately in
Disadvantage the hands of one person or group

Decentralized - power is dispersed among many


 Encourages service conflicts
people/groups; distributed
Geographical – nationalized service develops regions,
Advantages
areas or district authorities

Advantage  Frees top management of routine every


day decisions to concentrate on
 More responsive to local/regional strategic responsibilities
issues  Decisions are more local, quicker, more
responsive to clients
Disadvantage
 Increased awareness of cost
 Can lead to localities/regions conflicting effectiveness through the organization
with each other  Increased motivation and satisfaction
by junior management
Divisional – grouping of services and/or geography and
functionality
Disadvantages - Design of work organization

 Requires good communication and Formal


adequate control to and from the
center  Line – vertical flow of authority
 Need for center to  Functional – between specialists n advisory
coordinate/integrate positions and line management teams
 Can lead to inequity in treatment of  Staff – personal assistants to senior members
clients
 Need individuals willing to take on Span of Control – number of direct reports. Influencing
additional responsibilities factors:

Large organizations lean towards:  Nature of organization, complexity of work,


range of possibilities
 Less centralization  Ability and personal qualities
 More specialization  Time available to spend with subordinates
 More rules and procedures to be followed  Ability and training of subordinates
 Effectiveness of coordination, communication,
LEVELS OF THE ORGANIZATION
control systems
Technical Level – concerned with specific operations  Physical location of subordinates
and defines tasks, with actual jobs to be done, and with
performance of the technical function FACTORS AFFECTING ORGANIZATIONAL STRUCTURE
SELECTION IN MULTINATIONAL CORPORATIONS
Managerial Level –concerned with the coordination and
integration of work, at the technical level - The structure in a multinational company
defines the architecture of the business
Community Level – concerned with the broad competence, functional relationship and
objectives and the work of the organization as a whole management functions.
- External organizational environment that would
MINTZBERG’S NINE DESIGN PARAMETERS
influence the organizational structure is the
- Design means ‘turning those knobs’ that economic, political and legal, socio-economic,
influence the division of labor and coordinating technological and natural factors.
mechanisms thereby affecting how the - External factors that affect the organization
organization functions. (next page: BASIC structure are the economic factor which
COMPONENTS OF ORGANIZATIONAL provides information about the market size and
STRUCTURE) the competitor’s strategy and the manner in
which the organization should be structured to
ORGANIZATIONAL RELATIONSHIPS meet the company’s objectives.
- Organization structure is also affected by
Work Design – decisions on the methods of groupings various political and legal factors.
will consider: - The company also has to pay due importance to
the various socio-economic factors and the
- Need for coordination
psychographic and demographic factors as all
- Identification of clearly defined divisions of
the factors have direct impact on the
work
organizational culture
- Economy
- Technological factor is again one of the
- Process of managing activities
influential factors while selecting the
- Avoiding conflict
organizational structure or a multinational
organization.
- The organizational structure is further affected
by the size and the nature of the company.
- The company’s product range and services also
has a direct impact on the organizational
structure of the company
- The strategy that a company is using should be
an indicator of which organization structure to
adopt.

BASIC COMPONENTS OF ORGANIZATIONAL


STRUCTURE
Groups Design Parameters Related Concepts
Design of Positions Job specialization Basic division of labor
Behavior formalization Standardization of work content
System or regulated flows
Training and indoctrination Standardization of skills
Design of Unit grouping Direct supervision
Superstructure Administrative division of labor
System of formal authority,
regulated flows, informal
communication, and work
constellation
Organogram
Unit size System of informal communication
Direct supervision
Span of control
Design of Lateral Planning and control systems Standardization of output
Linkages System of regulated flows
Liaison devices Mutual adjustment
Systems of informal communication,
work constellations and ad hoc
decision processes
Design of Decision Vertical Decentralization Administrative division of labor
Making Process Systems of formal authority,
regulate flows, work constellations
and ad hoc decision processes
Horizontal Decentralization Administrative division of labor
Systems of informal communication,
work constellations and ad hoc
decision processes
REGULATION Disadvantages of Planned Economic Activity

- Administrative process of writing and passing  Inefficient use of resources


laws that, to a certain extent, restrain some  Restraint of democracy in trade
fundamental right of businesses.
- Can be distinguished from a principal legislation Imposition of Legal and Administrative Barriers
by elected legislative body.
- Identified and recurring legal and administrative
- Actions of imposing sanctions or penalties to
barriers to entrepreneurship common to ASEAN
the extent permitted by law.
countries:
Forms:  Disproportionate Licensing and
Regulatory System
- Legal restrictions promulgated by government  Excessive, Complex, and Arbitrary
authority Taxation
- Self-regulation by an industry in which type of  Inadequate Banking System and Poor
business belong such a trade association Banking Practices
- Social regulation  Lack of Government’s Commitment to
- Market regulation Reduce Administrative Barriers

AREAS OF GOVERNMENT REGULATION OF BUSINESS RELATIONS RELEVANT TO THE CONDUCT OF BUSINESS

Relevant to the Existence of the Business Advertising – laws pertaining marketing and advertising
set in motion by the regulatory authority exist to
PLANNED ECONOMY – one where all major economic
protect consumers and keep companies honest about
decision are made under the control of the government
their products.
Advantages of Planned Economy
Employment and Labor – laws pertain to minimum
wages, benefits, safety and health compliance, working
 Driven for Collective Benefits – a planned
conditions, equal employment opportunity, and privacy
economy eradicates the individual profit
regulations covers the largest area of subjects of all
motives as the driving force of production and
rests it in the hands of the government planners business regulations.
to determine the appropriate production of
Privacy – sensitive information usually collected from
different sets of goods.
employees and customers during hiring and business
 Economies of Scale – makes the business the
transactions, and privacy laws prevent business from
sole beneficiary on the advantage of single
disclosing this information freely.
market, arbitrary pricing and unilateral product
offering Safety and Health – ensures that employers provide
 Inherently Protected – not subject to major safe and sanitary work environments through frequent
downside of market economies and market- inspections and grading scale.
oriented mixed economies. Does not suffer
from business cycles. Does not experience POLITICAL ENVIRONMENT OF THE BUSINESS
crises of overproduction.
- The political environment in which the firm
 Stability – long-term venture can be made
operates will have a significant impact on a
without fear of a market downward spiral which
company’s international operating activities.
can easily lead to abandonment of a project.
- Changes in government more often result in
changes in policy and attitudes towards foreign
business.
- One of the primary concerns to an investor
should be the stability of the target country’s
political environment.

CORPORATE SOCIA RESPONSIBILITY AND


ORGANIZATIONS

- CSR can be defined as the “economic, legal,


ethical and discretionary expectations that
society has of organizations at a given point in
time”.
- The concept of the CSR means that
organizations have moral, ethical and
philanthropic responsibilities in addition to their
responsibilities to earn a fair return for
investors
- The study of business ethics may be regarded as
a component of the larger study of CSR.
- The economic responsibilities cited in the
definition refer to society’s expectation that
organizations will produce goods and services
that are needed and desired by customers and
sell those goods and services at a reasonable
price.
- The legal responsibilities relate to the
expectation that organizations will comply with
the laws set down by the society to govern
competition in the marketplace
- The ethical responsibilities concern societal
expectations that go beyond the law.

CONTEMPORARY SOCIAL ISSUES

Environmental Issues – wasting natural resources and


contributing to environmental problems such as
pollution and global warming.

Global Issues – globalization leads to the exploitation of


developing nation’s workers, destruction of the
environment, and increased human rights abuses.
Globalization primarily benefits the wealthy and widens
the gap between the rich and the poor.

Technological Issues – manipulation of food


production.