Thursday, September 25, 2008 Cortez: For Whom Corporations Exist By Jaime V. Cortez
THE recent financial turmoil experienced by large US companies brings to us the realization that no organization, despite its gigantic size, can claim invincibility in the chaotic world of business.
While internal efficiency and effectiveness are important in all functional areas of business, they may not be enough to keep the firm afloat.
Pro-actively managing in the context of the external environment, particularly in matters pertaining to economic fundamentals, can have impacts that are too enormous to ignore.
With the recent tide of events at the Wall Street, the continued existence, survival and growth of business corporations now become a central concern. A crucial question is brought to focus: "For whom do corporations exist?"
Traditional financiers normally emphasize the predominant role of stockholders in legitimizing corporate existence. Accordingly, since it is the stockholders who invested resources to organize corporations, it is but right and proper that their interests be prioritized. Thus in the narrow sense, the maximization of the bottom line figures, and in the broader sense, the maximization of shareholder wealth, become paramount.
This view, however, is in my opinion, very myopic.
The role that stockholders play in corporate life is very significant; nevertheless, this significance does not render insignificant the roles of other sectors who likewise have a stake in the life of corporations, thus the term "stakeholders."
And who are the stakeholders? These are the employees, the customers, the suppliers, the government, the community and the society (both local and global) at large. These are the sectors that affect corporations and which in turn, are affected by them.
When corporations close, employees are put to a disadvantage. Losing a job means losing one's earning power, at least in the short run. And losing one's earnings is translated into untold sacrifices to the employees' families and dependents in terms of failure to satisfy needs for food, shelter, clothing, education, health maintenance and other basic necessities of life.
When corporations close, customers are likewise put to a disadvantage. Fewer players in the industry mean a lesser number of products to choose from, less competition and a lower level of efficiency in market operations.
A corporation closing means a lost customer on the part of that firm's suppliers. And a lost customer would mean lower demand; lower demand to decreased scale of operations; and decreased scale of operations to probable downsizing and layoffs.
To the government, a corporation closing will obviously have repercussions to decreased taxes. It may also show its pangs in decreased employment opportunities; thus a multiplier of effects to community and society.
The closure of corporations is therefore not a simple matter of stockholders losing their investments and earning potentials. Consequently, social responsibility demands that stockholders look beyond their limited interests and consider the plight of other sectors, especially the less privileged ones.
In prudently managing their corporations, managers pursue not only their goals and objectives but also those of the countless people directly or indirectly dependent on these organizations for the various facets of their lives.
(Dr. Jaime V. Cortez is currently the Research and Planning Director of Holy Angel University, Angeles City. He also teaches at the Graduate School of Business. He can be reached at profcortez@yahoo.com.)
