Whose Interests Should Govern Business Activity?

In this section, we ask three main questions,

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 running the business?
1.

Part 1 The Impact of Business and Global Society

Part 2 The Main Stakeholders of a Business Part 3 Who Should Run Business? Three Views

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.

Argument 4: It benefits the Host National Economys Balance of Payments

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

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

Argument 2: Big business can easily avoid paying tax through transfer pricing.

Argument 3: Large spending on global advertising and marketing.

Argument 4: Big business shift costs onto others.

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

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

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

All private individuals or organisations with an interest in the business. - There are 2 kinds of private stakeholders a. Internal b. External
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Who should govern the business?

Three different views:

1. The Shareholders view 2. The Stakeholders view 3. The Local Communitys view

Managers of a firm must only take into account shareholders views in all decisions.

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.

How shareholders governed business improves business performance and benefits society
1.

Clarity of goals, competitive survival, growth of national economy.

2. Business costs, consumer prices, affordability

3. Business costs, profitability, government tax revenues.

Conclusion
If firms need only to care about the interests of their owners/shareholders, then
1. 2. 3. 4.

firms can survive better consumers get lower prices governments get more tax revenue higher tax revenue indicates that governments spending on public facilities would increase, thus benefiting the local community.

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 groups are 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 improves business performance and benefits society? 1. Better reputation, retention and recruitment.

2. Learning from stakeholders gives a competitive edge - Simon Zadek, businesses can learn about future
trends in society by talking to different kinds of organisation from the usual corporate contact.

3. Partnerships with publicly trusted stakeholders give a competitive edge.

Managers of a firm will take into account local communitys view in making decisions.

The Case for Community-Governed Business

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The view began in the last 20 years, when big businesses

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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 politicians to make the rules in the interests of big business

Thus, as a result, the local community have become 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 by their shareholders or by all stakeholders.

Bypassing the Power of Big Business through Community Based Business

Third Sector organisations expanding with 2 main trends.

1. Social and Economic Development - Local people setting up community business which is either not-for-profit or profit sharing. - i.e. cooperatives

2. Political Developments - Local people began to support NGOs rather than traditional political parties.

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, 4th ed., pg. 348

Robertson, J., 1998, Transforming Economic Life: A Millennial Challenge, Green Books, Devon.