Management 16
CHAPTER 1
Corporation – an artificial being created by operation of
law, having the right of succession and the powers,
attributes, and properties expressly authorized by law
or incident to its existence.
 Artificial being – a corp. is a juridical person
whose personality is separate and distinct from
its owners.
 Created by operation of law – it will come to
existence trough a charter or grant from the
state.
 Right of succession – a corp. can continue to
exist even in death, incapacity or insolvency of
any stockholder or member.
 Power, attributes, and properties – it is
authorized to do activities within the purposes
of its creation. It has its own traits, and
operates based on what has been expressly
provided in the charter.
STOCKHOLDES OF A CORPORATION
 Management – party given the authority to
implement the policies; group of people
running the day-to-day activities of the
corporation; composed of decision makers; the
ones entrusted by the stockholders to do some
maneuverings for the corp. to reach its
destination.
 Creditors – party who lend the corporation
goods, services or money.
 Shareholders – people who invest their capital
in the corporation.
 Employees – people who contribute their skills,
abilities and ingenuity to the corporation.
 Clients – party considered to be the very reason
for the existence of the corp.; buyers of the
corp.’s product or services.
 Government – taxes that the corporations are
paying; buyer of product of some corp.
 Public – the latter provides the citizens with the
essentials such as goods, services, employment
and tax money for public programs.
PURPOSES OF A CORPORATION
 Early stage survival – how to gain momentum
especially when its entry is during crisis, for it to
withstand the hostile environment of
commercialism.
 To increase profit – the social responsibility of
business is to increase profit.
 To offer vital services to the general public –
there are services that are hard for the
government to offer to the vast majority of
people without the help of private enterprises.
 To offer goods and services to the mass market
– meeting the needs of the lower income class
group by offering them something at a price
they can afford.
SHAREHOLDERS, BONDHOLDERS AND DIRECTORS
Shareholders – have claims for the dividends; artificial
or natural persons that are legally regarded as the
owners of the corporations.
Rights of the Shareholders
 Right to vote
 Right to propose
 Pre-emption right
 Right to liquidating dividends
Bondholders – have claims in the form of interest
earned via long-term agreement; defined as a person or
entity that is a holder of a currently outstanding bond.
Board of Directors – the collegial body that exercises
the powers of all corp. formed under the corp. code;
formed by the stockholders and they will act as the
governing body of the corp.
Duties of the BOD
 Governing the organization by establishing
broad policies and objectives
 Selecting, appointing, supporting and reviewing
the performance of chief executive
 Ensuring the availability of adequate financial
resources
  Approving annual budgets
 Accounting to the stakeholders the
organization’s performance
MULTINATIONAL AND TRANSNATIONAL CORP.
- Characterized as business entities that have
their management headquarters in on country,
and operate in several other countries known as
host countries.
Multinational Corp. – more focused on adapting their
products and service to each individual local market.
Transnational Corp. – enterprises which own or control
production or service facilities outside the country in
which they are based; any corporation that is registered
and operates in more than one country at a time.
CORPORATE GOVERNANCE
- Process and structure used to direct and
manage the business and affairs of the
company towards enhancing the business
prosperity and corporate accountability with
the ultimate objective of realizing long-term
shareholder value whilst taking into account the
interests of other stakeholders.
- The joint responsibility imposed on the BOD
and management to protect shareholders right
and shareholder’s value.
- System whereby shareholders, creditors and
other stakeholders of the corporation ensure
that management enhances the value of the
corporation as it competes in an increasingly
global market place.
- Concerned with holding the balance between
economic and social goals and between
individual and communal goals.
- Structures and processes which companies are
directed and controlled.
FUNDAMENTAL OBJECTIVES 0OF CORPORATE
GOVERNANCE
Improvement of Shareholders Value – better relations
will lead to an increase in shareholder’s wealth.
Conscious Consideration of the Interests of Other
Stakeholders – greater internally-generated resources
in improving its commitment in meeting its
environmental, community, and social obligations.
WHAT GOOD GOVERNANCE PROMOTES
Transparency – vital with respect to corporate
governance due to the critical nature of reporting
financial and non-financial information; failure in
transparency issues could lead to many things, scaring
off investors is one; a thing huge concern in government
setting since it entails giving out of information.
Accountability – the recognition and assumption of
responsibility for the decisions, actions, policies,
administration, governance and implementation of
programs and plans of the corporation and people
involved, including the obligation to report, explain and
be answerable for its resulting consequences.
- Set a policy
- Set goals
- Disclose credible information
Prudence – “care, caution and good judgment as well as
wisdom in looking ahead.”
BENEFITS OF GOOD GOVERNANCE
Reduced Vulnerability – improved system of internal
control; greater accountability, protection of corporate
resources, better profit margins; capability to attract
investors; reduce the cost of loans or credits
Marketability – easy access to capital in financial
markets which helps the company survive in an even
more competitive environment; more attractive in open
market.
Credibility - when a company is credible, investors’ trust
comes next; where investors’ trust is in, money follows;
when there is money there is flexibility.
Valuation – embracing corporate governance principles
and practices affects corporate financial and non-
financial value of the enterprise.
CHAPTER 2
Organizations: Their Political, Structural and
Economical Structure
Organizations – complex adoptive systems t hat use
people, tasks and technologies to achieve specified
goals and objectives.
The structure and management of organizations will
differ depending on the following:
- Sector they operate in
- Stakeholder configuration
- Particular strategic goals and objectives they set
themselves
ORGANIZATIONAL THEORY
- Attempts to explain how organizations work by
defining the common features that
organizations share by collecting data and by
analyzing them, assessing “what works where –
and why”.
- Enables the manager to see that his or her
organization and its problems are rarely wholly
unique.
- Help us explain what is happening in our own
organization to identify possible solutions to its
challenges, issues and problems, provided the
solutions selected take into account cultural
and other key aspects and are not simply
‘broad-brush’ or replica implementations based
on what is done elsewhere.
Three criteria for effective organizations:
- They must be organized for business
performance
- Their structure should contain the least
number of management levels
- Organizational structure should facilitate
training and testing of future organization
leaders
ORGANIZATIONAL STRUCTURE
- Pattern of relationships among positions in the
organization among members of the
organization.
Purpose: division of work among members of the
organization, and the coordination of their activities.
Structure – defines tasks, responsibilities, work roles
and relationships and channels of communication.
Objectives of an Organizational Structure
- Accountability for areas of work
- Coordination of different parts of the
organization and different areas of work
- Effective and efficient organizational
performance
- Monitoring the activities of the organization
- Flexibility in order to respond to changing
environmental factors
- Social satisfaction of members
Dimensions of Organizational Structure
- Allocation of individual tasks and
responsibilities, job specialization and definition
- Formal reporting relationships, levels of
authority and spans of control
- Systems for communication of information,
integration of effort and participation
- Grouping together of sections, departments,
divisions and larger units
- Delegation of authority and procedures for
monitoring and evaluating the action
- Motivation of employees through systems for
performance appraisal
Consequences of Structural Deficiencies
- Low motivation and morale
- Late and inappropriate decisions
- Conflict and lack of co-ordination
- Poor response to new opportunities and
external exchange
- Rising costs
Principles of Organizational Design and Controls
 Simple structure – little hierarchy or control
exercised by the chief executive
 Machine bureaucracy – best at mass produced
tasks and is characterized by many layers of
management and formal procedures
  Professional bureaucracy – some parts of the
administration is set by independent
professional bodies
 Divisionalized form of bureaucracy – applies
more to multinational or industrial corporations
 Adhocracy – need constantly to innovate and
respond to quickly changing markets
Types of Organizational Structure
Functional – grouping of major functions
Advantages
 Increases utilization and coordination of
groups
 Increases development and career
opportunities
Disadvantages
 Encourages sectional interests and
conflicts
 Difficult for organization to adapt to
product/service diversification
Product/Service – grouping by service/product
Advantages
 Increases diversification
 Adaptability increased
Disadvantage
 Encourages service conflicts
Geographical – nationalized service develops regions,
areas or district authorities
Advantage
 More responsive to local/regional
issues
Disadvantage
 Can lead to localities/regions conflicting
with each other
Divisional – grouping of services and/or geography and
functionality
Advantages
 Suitable for international companies
 Corporate strategic control with
production and marketing
independence at divisions
Matrix – grouping of projects and functions
Advantages
 Combines vertical and lateral lines of
communication and authority
 Stability and efficiency with flexibility
and informality
 Emphasizes that project aims are all-
important
Disadvantages
 Potential conflict between project
leader and functional leaser regarding
resources
 Project may be jeopardized if project
members as well as leaders enter the
conflict on opposite sides
 Does not tolerate diversification well
CENTRALIZATION AND DECENTRALIZATION
Centralized – when all the power for decision making
rests at a single point in the organization ultimately in
the hands of one person or group
Decentralized - power is dispersed among many
people/groups; distributed
Advantages
 Frees top management of routine every
day decisions to concentrate on
strategic responsibilities
 Decisions are more local, quicker, more
responsive to clients
 Increased awareness of cost
effectiveness through the organization
 Increased motivation and satisfaction
by junior management
 Disadvantages
 Requires good communication and
adequate control to and from the
center
 Need for center to
coordinate/integrate
 Can lead to inequity in treatment of
clients
 Need individuals willing to take on
additional responsibilities
Large organizations lean towards:
 Less centralization
 More specialization
 More rules and procedures to be followed
LEVELS OF THE ORGANIZATION
Technical Level – concerned with specific operations
and defines tasks, with actual jobs to be done, and with
performance of the technical function
Managerial Level –concerned with the coordination and
integration of work, at the technical level
Community Level – concerned with the broad
objectives and the work of the organization as a whole
MINTZBERG’S NINE DESIGN PARAMETERS
- Design means ‘turning those knobs’ that
influence the division of labor and coordinating
mechanisms thereby affecting how the
organization functions. (next page: BASIC
COMPONENTS OF ORGANIZATIONAL
STRUCTURE)
ORGANIZATIONAL RELATIONSHIPS
Work Design – decisions on the methods of groupings
will consider:
- Need for coordination
- Identification of clearly defined divisions of
work
- Economy
- Process of managing activities
- Avoiding conflict
- Design of work organization
Formal
 Line – vertical flow of authority
 Functional – between specialists n advisory
positions and line management teams
 Staff – personal assistants to senior members
Span of Control – number of direct reports. Influencing
factors:
 Nature of organization, complexity of work,
range of possibilities
 Ability and personal qualities
 Time available to spend with subordinates
 Ability and training of subordinates
 Effectiveness of coordination, communication,
control systems
 Physical location of subordinates
FACTORS AFFECTING ORGANIZATIONAL STRUCTURE
SELECTION IN MULTINATIONAL CORPORATIONS
- The structure in a multinational company
defines the architecture of the business
competence, functional relationship and
management functions.
- External organizational environment that would
influence the organizational structure is the
economic, political and legal, socio-economic,
technological and natural factors.
- External factors that affect the organization
structure are the economic factor which
provides information about the market size and
the competitor’s strategy and the manner in
which the organization should be structured to
meet the company’s objectives.
- Organization structure is also affected by
various political and legal factors.
- The company also has to pay due importance to
the various socio-economic factors and the
psychographic and demographic factors as all
the factors have direct impact on the
organizational culture
- Technological factor is again one of the
influential factors while selecting the
 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
Design of Positions Job specialization
Behavior formalization
Training and indoctrination
Design of Unit grouping
Superstructure
Unit size
Design of Lateral Planning and control systems
Linkages
Liaison devices
Design of Decision Vertical Decentralization
Making Process
Horizontal Decentralization
Related Concepts
Basic division of labor
Standardization of work content
System or regulated flows
Standardization of skills
Direct supervision
Administrative division of labor
System of formal authority,
regulated flows, informal
communication, and work
constellation
Organogram
System of informal communication
Direct supervision
Span of control
Standardization of output
System of regulated flows
Mutual adjustment
Systems of informal communication,
work constellations and ad hoc
decision processes
Administrative division of labor
Systems of formal authority,
regulate flows, work constellations
and ad hoc decision processes
Administrative division of labor
Systems of informal communication,
work constellations and ad hoc
decision processes
REGULATION
- Administrative process of writing and passing
laws that, to a certain extent, restrain some
fundamental right of businesses.
- Can be distinguished from a principal legislation
by elected legislative body.
- Actions of imposing sanctions or penalties to
the extent permitted by law.
Forms:
- Legal restrictions promulgated by government
authority
- Self-regulation by an industry in which type of
business belong such a trade association
- Social regulation
- Market regulation
AREAS OF GOVERNMENT REGULATION OF BUSINESS
Relevant to the Existence of the Business
PLANNED ECONOMY – one where all major economic
decision are made under the control of the government
Advantages of Planned Economy
 Driven for Collective Benefits – a planned
economy eradicates the individual profit
motives as the driving force of production and
rests it in the hands of the government planners
to determine the appropriate production of
different sets of goods.
 Economies of Scale – makes the business the
sole beneficiary on the advantage of single
market, arbitrary pricing and unilateral product
offering
 Inherently Protected – not subject to major
downside of market economies and market-
oriented mixed economies. Does not suffer
from business cycles. Does not experience
crises of overproduction.
 Stability – long-term venture can be made
without fear of a market downward spiral which
can easily lead to abandonment of a project.
Disadvantages of Planned Economic Activity
 Inefficient use of resources
 Restraint of democracy in trade
Imposition of Legal and Administrative Barriers
- Identified and recurring legal and administrative
barriers to entrepreneurship common to ASEAN
countries:
 Disproportionate Licensing and
Regulatory System
 Excessive, Complex, and Arbitrary
Taxation
 Inadequate Banking System and Poor
Banking Practices
 Lack of Government’s Commitment to
Reduce Administrative Barriers
RELATIONS RELEVANT TO THE CONDUCT OF BUSINESS
Advertising – laws pertaining marketing and advertising
set in motion by the regulatory authority exist to
protect consumers and keep companies honest about
their products.
Employment and Labor – laws pertain to minimum
wages, benefits, safety and health compliance, working
conditions, equal employment opportunity, and privacy
regulations covers the largest area of subjects of all
business regulations.
Privacy – sensitive information usually collected from
employees and customers during hiring and business
transactions, and privacy laws prevent business from
disclosing this information freely.
Safety and Health – ensures that employers provide
safe and sanitary work environments through frequent
inspections and grading scale.
POLITICAL ENVIRONMENT OF THE BUSINESS
- The political environment in which the firm
operates will have a significant impact on a
company’s international operating activities.
 - 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.