Lect. univ. dr. Gabriela erbnoiu

An English handbook for students (MARKETING,

ECONOMIC FRAUD INVESTIGATION, BUSINESS

LAW AND BUSINESS CONSULTING)

Lect. univ. dr. Gabriela erbnoiu

An English handbook for students (MARKETING,

ECONOMIC FRAUD INVESTIGATION, BUSINESS

LAW AND BUSINESS CONSULTING)

Editura SITECHCraiova, 2014

Corectura aparine autorului.

2014 Editura Sitech Craiova Toate drepturile asupra acestei ediii sunt rezervate editurii. Orice reproducereintegral sau parial, prin orice procedeu, a unor pagini din aceast lucrare, efectuate fr autorizaia editorului este ilicit i constituie o contrafacere. Sunt acceptate reproduceri strict rezervate utilizrii sau citrii justificate de interes tiinific, cu specificarea respectivei citri.

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Descrierea CIP a Bibliotecii Naionale a RomnieiERBNOIU, GABRIELA

An English handbook for students (MARKETING, ECONOMIC FRAUD INVESTIGATION, BUSINESS LAW AND BUSINESS CONSULTING) /Gabriela erbnoiu. - Craiova : Sitech, 2014

Bibliogr.ISBN 978-606-11-4303-0

651.7:336

ISBN 978-606-11-4303-0

5

PREFACE

This is a for- professionals handbook as well as a student- oriented

guide.

It is designed for classroom activities, as well as for self study and it

is the outcome of my accumulated professional experience and of my

doing a research work at London Guildhall University (London) and

University of Texas at Austin (USA), which were important points in my

career development.

I would like to thank Dr Diana Ionita- the Head of Modern

Languages Department at the University of Bucharest- for her pertinent

advise.

The author

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CONTENTS

CHAPTER 1

Globalization and Business.......page 9

CHAPTER 2

Ethics and Deontology in Business.page 13

CHAPTER 3

Managerial Accounting and Controlling...page 21

CHAPTER 4

Bureaucracy and Red Tape.. page 28

CHAPTER 5

Organizational Culture...page 37

CHAPTER 6

Management of Change...page45

CHAPTER 7

Setting up Own Business.page 50

CHAPTER 8

Types of Companies....page 61

Companies Alliances and Acquisitions

CHAPTER 9

Licensing and Franchising..page 73

CHAPTER 10

Types of Contracts...page 81

8

CHAPTER 11

A Perspective on Marketing..page 91

CHAPTER 12

Business Letters....page 106

CHAPTER 13

English Vocabulary Exercises ...page 117

9

CHAPTER 1GLOBALIZATION AND BUSINESS

Globalization is the process of international integration arising from the interchange

of world views, products, ideas, and other aspects of culture.1 Put in simple terms, globalization

refers to processes that promote world-wide exchanges of national and cultural resources.

Advances in transportation and telecommunications infrastructure, including the rise of

the Internet, are major factors in globalization, generating further interdependence of economic and

cultural activities. Globalization also implies the opening of local and nationalistic perspectives to a

broader outlook of an interconnected and interdependent world with free transfer of capital, goods,

and services across national frontiers. However, it does not include unhindered movement

of labor and, as suggested by some economists, may hurt smaller or fragile economies if applied

indiscriminately.

In 2000, the International Monetary Fund (IMF) identified four basic aspects of

globalization: trade and transactions, capital and investment movements, migration and movement

of people and the dissemination of knowledge.2 Further, environmental challenges such as climate

change, cross-boundary water and air pollution, and over-fishing of the ocean are linked with

globalization.

The Indicators of Globalization

There are three main economic and nancial indicators of globalization, these are:

international trade in goods and services

the transfer of money capital from one country to another

the movement of people across national borders.

There are many factors which have contributed to the growth of globalization, such as:

1. Technological change, especially in communications technology. For example, UK

businesses and data by satellite to India (taking advantage of the difference in time zones) where

1 Al-Rodhan, Nayef R.F. and Grard Stoudmann. (2006, 19 June). "Definitions of Globalization: A Comprehensive Overview and a Proposed Definition 2 International Monetary Fund . (2000). "Globalization: Threats or Opportunity." 12th April, 2000: IMF Publications

10

skilled but cheaper data handlers input the data and return it by satellite for the start of the UK

working day.

2. Transport is much cheaper and faster. This is not just aircraft, but also ships. The

development of containerization in the 1950s was a major breakthrough in goods handling, and

there have been continuing improvements to shipping technology since then.

3. Deregulation. From the 1980s onwards (starting in the UK) many rules and regulations in

business were removed, especially rules regarding foreign ownership. Privatisation also took place,

and large areas of business were now open to purchase and/or take-over. This allowed businesses in

one country to buy those in another. For example, many UK utilities, once government businesses,

are owned by French and US businesses.

4. Removal of capital exchange controls. The movement of money from one country to

another was also controlled, and these controls were lifted over the same period. This allowed

businesses to move money from one country to another in a search for better business returns; if

investment in one's own country looked unattractive, a business could buy businesses in another

country. During the 1990s huge sums of money, mainly from the US, have come into the UK

economy.

5. Free Trade. Many barriers to trade have been removed. Some of this has been done by

regional groupings of countries such as the EU.

6. Consumer tastes have changed, and consumers are more willing to try foreign

products.The arrival of global satellite television, for example, has exposed consumers to global

advertising. Consumers are more aware of what is available in other countries, and are keen to give

it a try.

7. Emerging markets in developing countries

Almost every aspect of the economy is impacted by globalization.A large aspect and concern of

every economy is the many global influences that affect business.A business (also known

as enterprise or firm) is an organization engaged in the trade of goods, services, or both

to consumers.3 Businesses are predominant in capitalist economies, where most of them

are privately owned and administered to earn profit to increase the wealth of their owners.

Businesses may also be not-for-profit or state-owned. A business owned by multiple individuals

may be referred to as a company, although that term also has a more precise meaning. Also a

business is the work of buying or selling products or services for money.4

3 Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 29 4 Macmillan English dictionary for advanced learners, International Student Edition

11

Globalization may have a great deal of influence on many businesses throughout the world.

The impact may be stronger on some businesses, especially large businesses, but weaker on others.

There are a number of effects of globalization on businesses. Some provide opportunities

while others may provide threats to businesses.

The effects of globalization on businesses are:

Increasing competition: More and more foreign businesses have entered local markets so

the competition has been intensified.

Meeting consumer needs in more effective ways: Consumers have choices for products

and services. They can buy the best products for the best prices

Being able to enjoy economies of scale: Businesses can enjoy as large scale of production

in the whole world. Their production costs can thus be reduced.

Affecting the choice of location: Businesses can choose the most favorable place for

production or business operation. The production of Motorola company in China can reduce

the production costs of labor and eliminate the tariff restrictions of exports.

Increasing mergers or joint-development opportunities in the world market: Businesses

have more partners worldwide. They can join together to produce goods and services or to

penetrate foreign markets.

In conclusion, the continuous global trends are unseeingly affecting all businesses throughout

this economy. These global trends cause a constant need to accommodate, which is applying

more costs and frustration to all businesses. Outsourcing opens doors for many businesses to

gain access in a foreign market, but not all businesses can handle and maintain activity in these

economies.

DICUSSION POINT

Modern capitalism has always been global in its orientation but now global production networks reach across the world and violate basic human rights at work. News of these violations are not new. In the 1990s the Nike CEO was forced to declare that Nike had become synonymous with slave wages, forced over-time and arbitrary abuse (Cushman, 1998). The garment industry has become worried about the risk of sweatshop stigma (Bartley and Child, 2007). Nokia were found to be including Congolese and Rwandan warlords using slave labour in their supply chain (Smith and Mantz, 2006). In 2010 the managers of H&M were dismayed to learn of a deadly fire that had engulfed a suppliers factory in Bangladesh and that workers had been locked inside (Vallas, 2012). One of Apples and Sonys contractors (Foxconn) was found to have working conditions so poor

12

that 18 workers threw themselves from the tops of the company's buildings, resulting in 14 deaths (Moore, 2012). Even more recently Primark and other major retailers have admitted to sourcing clothing from a factory that collapsed in Bangladesh killing 1129 people (Butler, 2013). This organizational behaviour shocks us.

What is your response to these facts? Do you want to find out more for yourself about how companies treat their workers? Does this organizational behaviour influence your buying behaviour? Do you want to make a change in management for the future? If yes, how would you do this? For example, would you boycott a companys goods?

Word list 1. globalization 2. ongoing 3. combination 4. political 5. economic 6. technological 7. sociocultural 8. force 9. politician 10. hampering 11. prosperity 12. interdependence 13. accelerate 14. driving force 15. business 16. mass media 17. consumer 18. financing 19. capital 20. regulate 21. relationship 22. guarantee 23.rights 24. fibre optic communication 25. interconnectedness 26. interaction

Bibliography

http://www.businessdictionary.com/definition/globalization.html

http://en.wikipedia.org/wiki/Globalization

http://wiki.answers.com/Q/Factors_affecting_globalisation

http://www.oup.com/uk/orc/bin/9780199213993/hamilton&webster_ch01.pdf

http://en.wikipedia.org/wiki/Business

13

CHAPTER 2 ETHICS AND DEONTOLOGY IN COMPANIES

Deontology is a form of moral philosophy centered around the principles of eighteenth

century philosopher Immanuel Kant. Its name comes from the Greek words deon and logos,

meaning the study of duty. This school of ethics is based on the notion that people have the duty to

always obey moral rules, regardless of any positive outcomes that can come from breaking them.5

The basis of deontology is to assess a persons character by how well he or she follows

moral rules, even if by doing so, tragic results occur. It is in direct contrast to consequentialism, a

form of ethics that determines the morality of actions by the results they produce. Consequentialism

favors the Good over the Right, while deontology always advocates the Right over the Good.

The deontological model of ethics determines the correctness of a moral action by

determining if it follows moral norms. There is no subjectivity and a moral rule is always be obeyed

without any thought. For instance, Kant gave the example that it is wrong to lie even if it could save

a persons life.

Deontology is an ethical theory that the morality of an action should be based on whether that

action itself is right or wrong under a series of rules, rather than based on the consequences of the

action6.

In most businesses the model of corporate governance has changed from the shareholder to

stakeholder model. There have been implemented new laws and regulations such as the Federal

Sentencing Guidelines for Organizations (FSGO) and the Sarbanes-Oxley Act. Despite all these

efforts, there still remains a tension between business and ethics. The reason will become clear in

the light of consequentialism (utilitarianism) and non-consequentialism (deontology) debate in

classical ethical theory. One approach to business ethics is that morality is embedded in the success

of business. But some unethical behaviors are included in and some moral obligations are excluded

from the maximization of profits. The upshot is that in some cases there is a stark contrast between

the greatest good and the rights of all individuals. The pursuit of profits relatively easily escapes the

observance of the moral obligations and there must be some moral force to prevent business

practices from unethical behaviors.

Employees who exhibit a duty-based ethic usually justify their behaviors in terms of

honoring company policy or satisfying their customers. Although there are more than a dozen major

5 Stanford Encyclopedia of Philosophy: Deontological Ethics; Larry Alexander et. al.; November 2007 6 "Morality and the Meaning of Life"; Joseph Ellin; 1995

14

ethical paradigms, the duty-based approaches emphasize the satisfaction of expectations as the

major contributor to their behavior: It's just what they have to do7.

1. Duty-Based Ethics In general, a duty-based ethic -- called deontology by philosophers -- focuses on the act and

not its consequence. The morally binding nature of a deontological norm derives from the actor's

obligation to perform some act in some specified manner, sometimes voluntarily and sometimes

not. Duty-based approaches are heavy on obligation, in the sense that a person who follows this

ethical paradigm believes that the highest virtue comes from doing what you are supposed to do --

either because you have to, e.g., following the law, or because you agreed to, e.g., following an

employer's policies. It matters little whether the act leads to good consequences; what matters is

"doing your duty."

2. Typical Employee Profile Although no person perfectly locks into a single ethical profile, and every person is a unique

human and not a textbook case, it's possible nevertheless to derive some general statements about

how a deontologist functions in the workplace. An employee who very strongly adheres to a duty-

based ethic usually presents as an "inside the box" thinker. He will do what his boss told him to do,

because he is required to honor his boss's directives. Even if the employee recognizes that the boss's

commands are irrational or counterproductive, he will still comply. He will also be conscientious

about details, usually following a procedure through to completion without taking shortcuts,

because that's what the company expects of him.

Example: Accounts Payable Clerk

Consider an accounts payable clerk. This person is responsible for reviewing invoices and

expense reports, ensuring that they conform to policy and then issuing prompt payment. If company

policy required original receipts to justify the items on the expense report, and the employee

submitted photocopies only, a clerk with a duty-based ethic may reject the report and require the

originals even though other clerks may simply process the report without question. The clerk acts in

this manner because he believes he has a duty to follow the full and literal policy that the employer

had imposed, irrespective of whether the need for originals instead of copies made any difference.

Example: Customer Service Manager

The manager of a retail store with a posted merchandise return policy may choose to honor

the policy or to make exceptions, depending on the circumstances of a particular return. Managers

with a strong duty-based ethic will typically hold closely to the literal text of the policy and make

7 Internet Encyclopedia of Philosophy: Ethics; James Fieser; June 2003 BBC: Ethics

15

fewer exceptions, because she views upholding her employer's policy as her job. Consequentialists -

that is, people who favor evaluating the outcome of an act rather than the act itself - may be more

willing to grant exceptions to keep customers happy.

3. The importance of ethics in bussines- a practical approach In order to exemplify the importance of ethics we choose to illustrate the bussines policy

that Google promotes regarding its employees8.

Its no surprise that the employee benefits of Google are among the best in the landfree

haircuts, gourmet food, on-site doctors and high-tech cleansing toilets are among the most talked-

aboutbut in a rare interview with Chief People Officer Laszlo Bock we found out that the latest

perk for Googlers extends into the afterlife.

This might sound ridiculous but weve announced death benefits at Google. We were

scheduled for a talk on Googles widening age-gap (the oldest Googler is currently 83); I wanted to

know how child- and healthcare benefits have evolved as the company has scaled.

Instead, Bock, who joined the company in 2006 after a stint with General Electric, blew me

away by disclosing a never-before-made-public-perk: Should a U.S. Googler pass away while

under the employ of the 14-year old search giant, their surviving spouse or domestic partner will

receive a check for 50% of their salary every year for the next decade. Even more surprising, a

Google spokesperson confirms that theres no tenure requirement for this benefit, meaning most

of their 34 thousand Google employees qualify.

One of the things we realized recently was that one of the harshest but most reliable facts

of life is that at some point most of us will be confronted with the death of our partners, Bock says.

And its a horrible, difficult time no matter what, and every time we went through this as a

company we tried to find ways to help the surviving spouse of the Googler whod passed away.

The case-by-case do-goodery was formally implemented in 2011. In addition to the 10-year pay

package, surviving spouses will see all stocks vested immediately and any children will receive a

8 www.wikipedia.org the benefits og googles employs

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$1,000 monthly payment from the company until they reach the age of 19 (or 23 if the child is a

full-time student).

What makes the death benefit notable isnt just its generosityGoogle is, of course, far

from cash-strappedbut rather that, unlike most employee perks on Google campuses that aim to

increase happiness, creativity and productivity, providing death benefits is a no-win for the

company. Obviously theres no benefit to Google, Bock concedes. But its important to the

company to help our families through this horrific if inevitable life event.

Google has been anticipating the major life events of their employees since day one.

According to Bock, Sergey Brin got the ball rolling when the company had fewer than 100

employees, suggesting that the company could provide a nanny to each working mom or dad on

staff. The company does have on-site child care but has raised its monthly fees significantly in

recent years.

In maternity and paternity leave, however, Google benefits are at the head of the pack:

according to a company spokesperson, new dads enjoy six weeks of paid leave while moms can

take 18 weeks after the birth of a child. (Even better for the cash-strapped new parents: stocks will

continue to vest on your leave).

But the link between maternity benefits and retaining employees is clear. According to a

2008 report by the Bureau of Labor Statistics, more than 60 percent of men and women in the work

force have kids under the age of 6, so anticipating their needs can mean keeping new parents on-

board and, most importantly, engaged.

Google People experts use three methods to tap into the needs of employees: an annual

survey called Googlegeist that measures the temperature of employees in every department and

analyzes data to identify emerging trends, employee resource groups (read: clubs) where like-

minded employees share ideas that are funneled up to HR (Bock says the most active are the

Grayglers, the self-titled club for over-the-hill Googlers), and email aliases that run the gamut

from financial advice to childcare options to caf feedback.

Google gets a lot of press for its perks, Bock says, but hes loath to even use that word.

People say youre Google, of course you can offer these crazy things, but from where Bock sits,

its not even about the money. There is, of course, research that show employee benefit programs

like ours can improve retention, and appear to improve performance on some level, he says.

But it turns out that the reason were doing these things for employees is not because its important

to the business, but simply because its the right thing to do. When it comes down to it, its better to

work for a company who cares about you than a company who doesnt. And from a company

standpoint, that makes it better to care than not to care.

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4. The importance of ethics in economics The good life is not detached from social and economic behaviour, but embedded

in daily practices. These are often characterised, at least partially, by scarcity and its accompanying

contingencies for human life and well-being uncertainty,human fallibility, and power. From a

virtue ethics perspective, the idea of thegood in the economy can only be developed by studying

specic economic practices; it cannot be dened outside the context of time, location, agents, and

activity. As I have explained, virtue ethics is not a universal ethics but a contextual one, and so its

application to economics needs to be contextual too. Nevertheless, there are a few general

characteristics of virtue ethics that nd parallels in economic theory. The starting point is

MacIntyres (1987) useful conceptof practice, understood as an open system, subject to uncertainty,

scarcity, humanfallibility, and power. An economic practice may be dened as a set of continued

economic activities that create value added among related, committed agents. In the course of these

activities, sufcient external value is realised to sustain the practice over time. This understanding

of economic practices requires that agents are led by motivations and reasons that belong to the

particular practice and that cannot be made too instrumental for the pursuit of ends outside that

practice. Instrumental behaviour may undermine the basis of a practice, and so will erode the

meaning of this practice for its participants. This perspective leads to a characterisation of economic

agents as reective instead of calculative9 and as trustworthy instead of merely credible. In other

words, from a virtue ethics perspective, agent rationality needs to be meaningful and not

opportunistic10. This understanding of economic practices as concerned with meaningful interaction

between agents (that is, motivated and guided by shared values), enables the economist to provide a

fuller description, explanation, and to some extent also prediction, of economic behaviour than is

possible in utilitarian or deontological ethics. The economic theory that seems most compatible with

virtue ethics is the capability approach developed by Sen and others.Capability theory lends itself to

a characterisation of virtues, by considering them as ethical capabilities (van Staveren, 2001). Of

course, the idea of ethical capabilities is not new: Adam Smith recognised the importance of

virtuous character traits for the functioning of markets in his Theory of Moral Sentiments. One of

these he characterised as sympathy,about which he remarked that it is not motivated by self-

interest: Sympathy, however, cannot, in any sense, be regarded as a selsh principle11 . Ethical

capabilities may be understood as a moral guide for decision making, and as a moral intuition rather

9 see Davis, 2003, The Bourgeois Virtues: Ethics for an Age of Commerce, p. 114 10 see van Staveren, 2001, , The Values of Economics: An Aristotelian Perspective, pp. 149152 11 Smith, 1984, The Theory of Moral Sentiments, p. 317

18

than as desire, calculation, or rules. Daniel Kahneman has shown how important the capability of

intuition.

Of course, older theories, such as institutional economics in the tradition of Veblen (1931),

also acknowledge intrinsic values; but these are often closer to deontology than to virtue ethics.

Beyond Utilitarianism and Deontology is in making economic choices in an uncertain context: The

central characteristic of agents is not that they reason poorly but that they often act intuitively. And

the behavior of these agents is not guided by what they are able to compute, but by what they

happen to see at a given moment12. This contextualised understanding of rationality not only

allows for partially contingent behaviour (depending on what one happens to see), but also enables

the economist to recognise behaviour patterns that are likely to have a moral basis in addition to a

social and cultural one. It is this combination of factors that guides agents and gives meaning to

their behaviour for themselves by expressing their identity, and for others by recognising

coherence in the social, cultural and moral patterns of the behaviour of others. This role of meaning

in economic practice enable an agent to be perceived as trustworthy by other agents, as someone to

engage in economic relationships within a context of uncertainty, fallibility, and power. Hence,

economic practices, like other social practices, entail checks and balances, and employ the trialand-

error mechanism of nding a mean between deciency and excess, although power relations may

limit the adaptation process towards the mean. One suchsocial mechanism is the intrinsic

motivation of agents. It is intrinsic motivation, rather than extrinsic motivation (such as wages,

prots, or status) that drives agents to contribute to the value added of a practice, as Bruno Frey

(1997) has suggested. When extrinsic motivation becomes dominant, feelings of responsibility will

be reduced, as well as ones commitment and teamwork. When only prot counts, rm performance

may suffer from reduced productivity and less commitment to innovation and joint learning. When

intrinsic motivation is crowded out in an economic practice, whether it is a rm, a trading

relationship,or a public service, the practice itself will be undermined. Too much regard for

extrinsic reward will constrain the value added in the practice and eventually the practice itself.

Reputation is another social mechanism providing checks and balances in economic practices.

When some people reduce their commitment to a valued practice this may trigger resentment by

others and reduce the commitment of others to that practice. For example, excessive monetary

rewards for top-managers may frustrate workers who are denied wage increases with the argument

that a pay rise would reduce the rms competitiveness. Such a situation will likely reduce labour

productivity, increase labour turnover, and generate negative media coverage about the rms

12 Kahneman, 2003, Maps of bounded rationality: psychology for behavioral economics, American Economic Review p. 1469

19

management. Trust is a third social mechanism that helps to keep the balance in an economic

practice. A joint commitment to the values in a practice creates trust among agents.This helps

reduce transaction costs, increase collective action, and strengthen mutual bonds.Trust replaces the

need for contracting and monitoring. Of course, transaction costs are not only reduced by trust, but

may be reduced, to some extent, by the exertion of power for example, through credible threats. In

some of the social capital literature it is generalised trust between weakly connected agents that is

likely to generate efciency gains. But such trust depends on a shared belief in the values

underlying the practice they are engaged in. Economic practices thus require a delicate balance

between excess and deciency. Too much focus on external rewards will undermine the basis of the

very practice itself, but too little concern with external value will drain outside resources and

threaten the continuity of the practice13. This is how virtue ethics help to create a balance in

economic practices, through the trial-and-error search for a virtuous mean that will let a practice

continue and the agents engaged in the practice ourish. Let me illustrate this balancing act with an

example from a recent study by Kees Cools (2005) on 25 cases of corporate fraud, including

WorldCom, Enron, and Ahold. The study could not nd any signicant differences in corporate

governance between the fraud rms and a control group. Apparently, no rules had been broken. The

study did reveal, however, signicant differences in leadership. The fraud CEOs had acquired icon

status, as corporate celebrities, which led, as in a Greek tragedy, to hubris (pride) and unrealistically

high targets, driven by the CEOs desire to sustain their icon status through stock market success.

The fraud rms had on average 18% yearly growth targets, compared to 7% for the non-fraud rms

in the same sector. But the hubris undermined the moral practices in the fraud rms, resulting in an

average loss of value of 29% on the day the frauds became public. Interestingly, the study also

found that the stock market had sensed the destructivestrategy of excessive external value xation

well before the fraud was discovered. An average of 40% of the market value of the rms had

already been lost in the year prior to the detection of the fraud. Thus, even though stock markets do

not meet MacIntyres criterion of a moral practice, they seem quite effective as a check against vice.

Virtue ethics understands morality as arising in economic practices through endogenous

mechanisms that make morality an integral part of agent motivations,reasons, and ends. This does

not require an authority to enforce moral rules that tell people what to do. Instead, morality as virtue

relies upon the internal social mechanisms embedded in economic practices, such as reputation,

responsibility and trust.

13see McCloskey, 2006, The Bourgeois Virtues: Ethics for an Age of Commerce, for a study along this line on the virtue of prudence versus other virtues in the economy

20

HOMEWORK

Definition of DEONTOLOGY : the theory or study of moral obligation

Business ethics are moral principles that guide the way a business behaves. The same principles that determine an individuals actions also apply to business Read more on : http://businesscasestudies.co.uk/anglo-american/business-ethics-and-corporate-social-responsibility/what-are-business-ethics. Write an essay on Corporate governance-good practices

References and Resources

1. Stanford Encyclopedia of Philosophy: Deontological Ethics; Larry Alexander; November 2007

2. Internet Encyclopedia of Philosophy: Ethics; James Fieser; June 2003 BBC: Ethics

3. "Morality and the Meaning of Life"; Joseph Ellin; 1995 4. Davis, 2003, The Bourgeois Virtues: Ethics for an Age of Commerce (Chicago: University

of Chicago Press) 5. Van Staveren, 2001, The Values of Economics: An Aristotelian Perspective (London:

Routledge 6. Smith,Adam 1984, The Theory of Moral Sentiments (Indianapolis: Liberty Fund). 7. Kahneman,D. 2003, Maps of bounded rationality: psychology for behavioral economics,

American Economic Review 8. McCloskey, D. 2006, The Bourgeois Virtues: Ethics for an Age of Commerce (Chicago:

University of Chicago Press).

9. www.wikipedia.org

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CHAPTER 3 MANAGERIAL ACCOUNTING AND CONTROLLING

The American Accounting Association defined accounting in 1966 as the process of

identifying, measuring and communicating economic information to permit informed judgments

and decisions by users of the information.

On one hand, the management control is the process through which managers use their

power to influence other members of the organization to implement strategies, to realize goals and

objectives and, on the other hand, it integrates facts on long, medium and short terms, having well

determined implications in human factors, objectives and assignments. This is an important

definition because: it recognizes that accounting is a process: that process is concerned with

capturing business events, recording their financial effect, summarizing and reporting the result of

those effects, and interpreting those results; it is concerned with economic information: while this is

predominantly financial, it also allows for non-financial information; its purpose is to support

informed judgments and decisions: this emphasizes the decision usefulness of accounting

information and the broad spectrum of users of that information.

Management accounting is now implicated with: value-based management, non-financial

performance measurement systems, quality management approaches, activity-based costing and

management and strategic management accounting in order to help managers to increase the value.

The Institute of Management Accountants has recently updated its definition as follows:

"management accounting is a profession that involves partnering in management decision making,

devising planning and performance management systems, and providing expertise in financial

reporting and control to assist management in the formulation and implementation of an

organization's strategy"14. The Institute of Certified Management Accountants, states "A

management accountant applies his or her professional knowledge and skill in the preparation and

presentation of financial and other decision oriented information in such a way as to assist

management in the formulation of policies and in the planning and control of the operation of the

undertaking15".

14 "Definition of Management Accounting". Institute of Management Accountant. 2008. 15 Clinton, B.D.; Van der Merwe, Anton (2006). "Management Accounting - Approaches, Techniques, and Management Processess". Cost Management (New York: Thomas Reuters RIA Group) (May/Jun).

22

Management accountants therefore are seen as the "value-creators" amongst the

accountants. They are much more interested in forward looking and taking decisions that will affect

the future of the organization, than in the historical recording and compliance (score keeping)

aspects of the profession. Management accounting knowledge and experience can therefore be

obtained from varied fields and functions within an organization, such as information management,

treasury, efficiency auditing, marketing, valuation, pricing, logistics, etc.

The meaning: Management accounting also known as management control is one of the

classical and most fundamental aspects of business administration. Also the management

accounting and controlling refers to that methods of controlling costs to make the business more

efficient and therefore increasing its profits. Management accounting combines accounting, finance

and management with the leading edge techniques needed to drive successful businesses.

Chartered management accountants:

Advise managers about the financial implications of projects.

Explain the financial consequences of business decisions.

Formulate business strategy.

Monitor spending and financial control.

Conduct internal business audits.

Explain the impact of the competitive landscape.

Bring a high level of professionalism and integrity to business.

The management accounting skills set:

Management accounting and controlling requires the followings skills:

Analysis they analyse information and using it to make business decisions.

Strategy they formulate business strategy to create wealth and shareholder value.

Risk they identify and manage risk.

Planning they apply accounting techniques to plan and budget.

Communication they determine what information management needs and explain the

numbers to non-financial managers.16

16Management Accounting and Control Systems. John Wiley.2010

23

Planning Purpose: Managerial accountants plan future activities for the company in order

to maximize the financial benefits received and minimize financial consequences. Financial benefits

include revenues and gains on fixed asset sales. Financial consequences include expenses, capital

expenditures and income tax liability. Financing activities require interest payments from the

company. Managerial accountants work with management to minimize interest requirements.

Also the purpose of management control processes is to carry out the strategies arrived at in

the strategic planning process and thereby to attain the organizations goals. In that sense,

management control is a mechanism that enables managers to make informed decisions. The aim of

this activity is to build an understanding of this central role of management accounting and control

systems within the organizational context.

Controlling Purpose: Management accountants control department activities in order to

evaluate the performance of each area. This allows management to determine if the actual activities

tie in with the planned activities for each department or each capital expenditure. If management

accounting information systems are to be useful for strategic purposes, that is, to help managers

increase the likelihood that they can achieve their strategic goals and objectives, their designs and

use must follow from firms' missions and competitive strategies.

Management Accounting and controlling is the mechanism which can be used by managers as a

vehicle for the overview of the whole internal structure of the organization to facilitate their control

functions within an organization.

Role within a corporation: Consistent with other roles in today's corporation, management

accountants have a dual reporting relationship. As a strategic partner and provider of decision based

financial and operational information, management accountants are responsible for managing the

business team and at the same time having to report relationships and responsibilities to the

corporation's finance organization.17 The activities management accountants provide inclusive of

forecasting and planning, performing variance analysis, reviewing and monitoring costs inherent in

the business are ones that have dual accountability to both finance and the business team. Examples

of tasks where accountability may be more meaningful to the business management team vs. the

corporate finance department are the development of new product costing, business driver metrics,

sales management score carding, and client profitability analysis. Conversely, the preparation of

certain financial reports, reconciliations of the financial data to source systems, risk and regulatory

17 Taking Control of IT Costs". Nokes, Sebastian. London (Financial Times / Prentice Hall): March 20, 2000,p 253

24

reporting will be more useful to the corporate finance team as they are charged with aggregating

certain financial information from all segments of the corporation.

In corporations that derive much of their profits from the information economy, such as

banks, publishing houses, telecommunications companies and defense contractors, IT costs are a

significant source of uncontrollable spending, which in size is often the greatest corporate cost after

total compensation costs and property related costs. A function of management accounting in such

organizations is to work closely with the IT department.18

Given the above, one widely held view of the progression of the accounting and finance

career path is that financial accounting is a stepping stone to management accounting. Consistent

with the notion of value creation, management accountants help drive the success of the business

while strict financial accounting is more of a compliance and historical endeavor.

The role of management accounting systems is also highlighted in the case of mergers and

acquisitions, which are a typical way of extending operations to foreign countries.

The Management Control acts through the following phases in sequence:

1) planning, where for any companys unit a set of objectives must be defined, that is of

specific expected results, which need to be: understandable, agreed, measurable in extent

and time, reachable, consistent with one another and with the available resources,

2) programming, where a program is drawn up in order to get the planned objectives, taking

into account the internal and external restraints to the company,

3) result checking, where it is measured whether each companys unit has achieved or not the

assigned objectives,

4) shifting analysis, where the possible shifting between objectives and results is analyzed and

5) corrective action implementation, in order to optimize the units behavior against the

planned objectives.

The distinction between traditional and innovative accounting practices is perhaps best

illustrated with the visual timeline (see sidebar) of managerial costing approaches presented at the

Institute of Management Accountants 2011 Annual Conference.

18 Taking Control of IT Costs". Nokes, Sebastian. London (Financial Times / Prentice Hall): March 20, 2000,p 210

25

Traditional standard costing , used in cost accounting dates back to the 1920s and is a

central method in management accounting practiced today because it is used for financial statement

reporting for the valuation of income statement and balance sheet line items such as cost of goods

sold and inventory valuation. Traditional standard costing must comply with generally accepted

accounting principles and actually aligns itself more with answering financial accounting

requirements rather than providing solutions for management accountants. Traditional approaches

limit themselves by defining cost behavior only in terms of production or sales volume.

In the late 1980s, accounting practitioners and educators were heavily criticized on the

grounds that management accounting practices (and, even more so, the curriculum taught to

accounting students) had changed little over the preceding 60 years, despite radical changes in the

business environment. In 1993, the Accounting Education Change Commission Statement

Number19 4 calls for faculty members to come down from their ivory towers and expand their

knowledge about the actual practice of accounting in the workplace.6 Professional accounting

institutes, perhaps fearing that management accountants would increasingly be seen as superfluous

in business organizations, subsequently devoted considerable resources to the development of a

more innovative skills set for management accountants.

Traditional vs. innovative practices

19 Clinton, B.D.; Matuszewski, L.; Tidrick, D. (2011). "Escaping Professional Dominance?". Cost Management (New York: Thomas Reuters RIA Group) (Sep/Oct).

26

Variance analysis is a systematic approach to the comparison of the actual and budgeted

costs of the raw materials and labor used during a production period. While some form of variance

analysis is still used by most manufacturing firms, it nowadays tends to be used in conjunction with

innovative techniques such as life cycle cost analysis and activity-based costing, which are designed

with specific aspects of the modern business environment in mind. life-cycle costing recognizes that

managers' ability to influence the cost of manufacturing a product is at its greatest when the product

is still at the design stage of its product life-cycle (i.e., before the design has been finalized and

production commenced), since small changes to the product design may lead to significant savings

in the cost of manufacturing the products.

Activity-based costing (ABC) recognizes that, in modern factories, most manufacturing

costs are determined by the amount of 'activities' (e.g., the number of production runs per month,

and the amount of production equipment idle time) and that the key to effective cost control is

therefore optimizing the efficiency of these activities. Both lifecycle costing and activity-based

costing recognize that, in the typical modern factory, the avoidance of disruptive events (such as

machine breakdowns and quality control failures) is of far greater importance than (for example)

reducing the costs of raw materials. Activity-based costing also deemphasizes direct labor as a cost

driver and concentrates instead on activities that drive costs .Other approach that can be viewed as

innovative to the U.S. is the German approach (GPK). Although it has been in practice in Europe

for more than 50 years, neither GPK nor the proper treatment of 'unused capacity' is widely

practiced in the U.S. Thus GPK and the concept of unused capacity is slowly becoming more

recognized in America, and "could easily be considered 'advanced' by U.S. standards".20One of the

more innovative accounting practices available today is resource consumption accounting (RCA).

Resource consumption accounting has been recognized by the International Federation of

Accountants as a "sophisticated approach at the upper levels of the continuum of costing

techniques" because it provides the ability to derive costs directly from operational resource data or

to isolate and measure unused capacity costs. Resource consumption accounting was derived by

taking the best costing characteristics of the German management accounting approach GPK, and

combining the use of activity-based drivers when needed, such as those used in activity-based

costing. With the resource consumption accounting approach, resources and their costs are

considered as "foundational to robust cost modeling and managerial decision support, because an

20 Clinton, B.D.; Van der Merwe, Anton (2006). "Management Accounting - Approaches, Techniques, and Management Processess". Cost Management (New York: Thomas Reuters RIA Group) (May/Jun).

27

organization's costs and revenues are all a function of the resources and the individual capacities

that produce them.

Conclusion:

Management control is a core business function and exists as a separate, well established

discipline within the management field. The extension of this discipline to business ethics and its

partial merging with legal risk management has been one of the more important developments in

international business of the last two decades.

Management accounting and controlling is one of the most important activity in a company.

This kind of activity requires expertise in financial reporting, important knowledge, also involves

partnership in management decision making, devising planning and performance management

systems.

Management accounting and controlling helps managers to find out if in their company,

their employees are confident, if they commit or not offences, illegal acts connected to

management accounting .

Bibliography:

Management Accounting and Control Systems. John Wiley & Sons, 21.09.2010 Clinton, B.D.; Van der Merwe, Anton (2006). "Management Accounting - Approaches,

Techniques, and Management Processes". "Definition of Management Accounting". Institute of Management Accountant. 2008. Sharman, Paul A. (2003. "Bring On German Cost Accounting".

28

CHAPTER 4 BUREAUCRACY AND RED TAPE

A bureaucracy is a group of specifically non-elected officials within a government or other institution that implements the rules, laws, ideas, and functions of their institution2122.In other words, a government administrative unit that carries out the decisions of the legislature or democratically-elected representation of a state23.

Bureaucracy may also be defined as a form of government: "government by many bureaus, administrators, and petty officials24. A government is defined as: "the political direction and control exercised over the actions of the members, citizens, or inhabitants of communities, societies, and states; direction of the affairs of a state, community, etc25."

On the other hand democracy is defined as: "government by the people; a form of government in which the supreme power is vested in the people and exercised directly by them or by their elected agents under a free electoral system26", thus not by non-elected bureaucrats. Term "bureaucracy" was created from words: fr. bureau desk or office and gr. kratos rule or political power.

Development

Bureaucracies date back to ancient societies across the globe. Yet Weber was the one who tried to give a definition of bureaucracy and that led to the Weberian bureaucracy.

Weberian bureaucracy has its origin in the works by Max Weber (1864-1920), a notable German sociologist, political economist, and administrative scholar who contributed to the study of bureaucracy and administrative discourses and literatures during the late 1800s and early 1900s. Max Weber belongs to the Scientific School of Thought, who discussed such topics as specialization of job-scope, merit system, uniform principles, structure and hierarchy. His contemporaries include Frederick Taylor (1856-1915), Henri Fayol (1841-1925), Elton Mayo (1880-1949), and later scholars, such as Herbert A. Simon (1916-2001), Dwight Waldo (1913-2000), and others27.

21 Wilson, Woodrow (1887). "The Study of Administration". Political Science Quarterly 2 (2): 197222. 22 Bureaucracy @ Merriam-Webster.com - http://www.merriam-webster.com/dictionary /bureaucracy 23 Democracy versus bureaucracy by Richard W. Rahn, The Washington Times, December 5, 2011 24 Bureaucracy @ Dictionary.com - http://dictionary.reference.com/browse/bureaucracy 25 Government @ Dictionary.com - http://dictionary.reference.com/browse/bureaucracy 26 Democracy @ Dictionary.com - http://dictionary.reference.com/browse/bureaucracy 27 Jeong Chun Hai @Ibrahim. (2007). Fundamental of Development Administration. Selangor: Scholar Press.

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Bureaucratic administration means fundamentally domination through knowledgeMax Weber

Weber described many ideal types of public administration and government in his magnum opus Economy and Society (1922). His critical study of the bureaucratisation of society became one of the most enduring parts of his work2829. It was Weber who began the studies of bureaucracy and whose works led to the popularization of this term30. Many aspects of modern public administration go back to him, and a classic, hierarchically organized civil service of the Continental type is called "Weberian civil service"31. As the most efficient and rational way of organizing, bureaucratization for Weber was the key part of the rational-legal authority, and furthermore, he saw it as the key process in the ongoing rationalization of the Western society.

Weber listed several precondititions for the emergence of bureaucracy32. The growth in space and population being administered, the growth in complexity of the administrative tasks being carried out, and the existence of a monetary economy requires a more efficient administrative system. Development of communication and transportation technologies makes more efficient administration possible but also in popular demand, and democratization and rationalization of culture resulted in demands that the new system treats everybody equally.

Weber's ideal bureaucracy is characterized by hierarchical organization, delineated lines of authority in a fixed area of activity, action taken on the basis of and recorded in written rules, bureaucratic officials need expert training, rules are implemented by neutral officials, career advancement depends on technical qualifications judged by organization, not individuals.

The decisive reason for the advance of bureaucratic organization has always been its purely technical superiority over any other form of organization

Max Weber While recognizing bureaucracy as the most efficient form of organization, and even

indispensable for the modern state, Weber also saw it as a threat to individual freedoms, and the ongoing bureaucratization as leading to a "polar night of icy darkness", in which increasing rationalization of human life traps individuals in the aforementioned "iron cage" of bureaucratic, rule-based, rational control33. In order to counteract bureaucrats, the system needs entrepreneurs and politicians.

In Max Weber's "Economy and Society", Weber describes six bureaucratic values that are vital in obtaining a functioning and self-sufficient business. These six characteristics include

28 Richard Swedberg; Ola Agevall (2005). The Max Weber dictionary: key words and central concepts 29 George Ritzer (29 September 2009). Contemporary Sociological Theory and Its Classical Roots: The Basics 30 Marshall Sashkin; Molly G. Sashkin (28 January 2003). Leadership that matters: the critical factors for making a difference in people's lives and organizations' success 31 Liesbet Hooghe (2001). The European Commission and the integration of Europe: images of governance 32 Kenneth Allan; Kenneth D. Allan (2 November 2005). Explorations in Classical Sociological Theory: Seeing the Social Worl 33 Enchanting a Disenchanted World: Revolutionizing the Means of Consumption, Pine Forge Press, 2004,

30

imperial positions, rule-governed decision making, professionalism, chain of command, defined responsibilities, and bounded authority (Weber 956-958). Although many of these values seem to collide and be seemingly similar to each other, they are unique with individualized qualities.

Imperial positions should be utilized for three main purposes. The first is every day activities must be maintained by official positions (Weber 956). These positions are needed for a successful bureaucratic business. The second purpose is for those who hold these positions to disseminate orders in a specific and stable manner (Weber 956). Finally, the third purpose is for methodical provision, which is used for the constant fulfillment of these specified duties (Weber 956). The imperial positions are on the top of the communication hierarchy and determine the methods as to which the information is shared throughout the organization.34

Furthermore, professionalism is another important aspect of a successful bureaucratic business that Weber goes on to describe. A sense of professionalism in the workplace creates a distinguished atmosphere creating the opportunity for workers to achieve their utmost potential (Weber 957). This feeling yields a drive in the workplace because the workers want to perform well for those in command thus creating a positive overall attitude in the workplace.

Yet another Weberian value is chain of command. Everyone in the organization must know whose directives they should follow. The hierarchy of power is exemplified through salaries (Weber 958-965). Those that have higher salaries in turn have more power in the decision-making process. Those in power make decisions and relay these decisions to an associate who will then tell a manager, who will then tell his employees, and so on. The chain of command is extremely important to a bureaucratic business because it sets up a specific ladder that allows for information and important decisions to be relayed swiftly and efficiently.

When employees are asked to give examples of things they think of as being bureaucratic, they frequently cite the following35:

Each department has its own agenda, and departments dont cooperate to help other departments get the job done.

The head of a department feels responsible first for protecting the department, its people and its budget, even before helping to achieve the organizations mission.

There is political in-fighting, with executives striving for personal advancement and power.

Ideas can be killed because they come from the "wrong" person. Ideas will be supported because they are advanced by the "right" person.

People in other departments spend so much time protecting their "turf" that they dont have time to do the work they are responsible to do.

34 Richard Swedberg; Ola Agevall (2005). The Max Weber dictionary: key words and central concepts 35 http://www.bustingbureaucracy.com/excerpts/effects.html

31

They are treated as though they cant be trusted.

They are treated as though they dont have good judgment.

They are treated as though they wont work hard unless pushed.

Their work environment includes large amounts of unhealthy stress.

Promotions are more likely to be made on the basis of politics, rather than actual achievements on the job.

Top managers are dangerously ill-informed and insulated from what is happening on the front lines or in "the field.36"

Information is hoarded or kept secret and used as the basis for power.

Data is used selectively, or distorted to make performance look better than it really is.

Mistakes and failures are denied, covered up or ignored.

Responsibility for mistakes and failure tends to be denied, and where possible, blame is shifted to others.

Policies, practices and procedures tend to grow endlessly and to be followed more and more rigidly37.

Quantitative measurements are favored over qualitative measurements, so the concentration is on quantities of output, with less and less concern for quality of output.

Both employees and customers are treated more as numbers than people. Personal issues and human needs are ignored or discounted.

In Karl Marx's theory of historical materialism, the historical origin of bureaucracy is to be found in four sources38: religion, the formation of the state, commerce, and technology.

According to Marx's analysis, the earliest bureaucracies consisted of castes of religious clergy, officials, and scribes operating various rituals, and armed functionaries specifically delegated to keep order. In the historical transition from primitive egalitarian communities to a civil society39 divided into social classes and estates, occurring from about 10,000 years ago, authority is increasingly centralized in, and enforced by, a state apparatus existing separately from society. This

36 http://www.bustingbureaucracy.com/excerpts/effects.html 37 Liesbet Hooghe (2001). The European Commission and the integration of Europe: images of governance 38 Draper, Hal. 1979. State and Bureaucracy. Vol. 1 of Karl Marx's Theory of Revolution New York: Monthly Review Press. 39 Watson, Tony J. 1980. Sociology, Work and Industry. Routledge

32

state formulates, imposes and enforces laws, and levies taxes, giving rise to an officialdom enacting these functions. But the growth of trade and commerce adds a new, distinctive dimension to bureaucracy, insofar as it requires the keeping of accounts and the processing/recording of transactions, as well as the enforcement of legal rules governing trade. A fourth source of bureaucracy inheres in the technologies of mass production, which require many standardized routines and procedures to be performed. This type of bureaucracy is nowadays often called a technocracy, which owes its power to control over specialized technical knowledge.

In Marx's theory, bureaucracy rarely creates new wealth by itself, but rather controls, coordinates, and governs the production, distribution, and consumption of wealth. The bureaucracy as a social stratum derives its income from the appropriation of part of the social surplus product of human labor. Wealth is appropriated by the bureaucracy by law through fees, taxes, levies, tributes, licensing etc. Bureaucracy is therefore always a "cost" to society, but this cost may be accepted insofar as it makes social order possible, and maintains it.

Advantages

Bureaucracies emerged as society moved into its most developed form, the state. As such, it provides the possibility for government to function effectively and efficiently, leading the larger and larger societies, with increasingly complex and diverse ways of life for its citizens. Beyond government, numerous other social organizations, both in the public and private sectors have developed bureaucratic forms of leadership, which have succeeded in advancing the goals of their organizations.

Some specific advantages of bureaucracies include:

Standardization40 of procedures creates the ability to easily pass knowledge to future workers as well as facilitating better communication among colleagues.

Division of labor creates economies of scale within organizations, enhancing productivity. Formal hierarchy can also increase efficiency, as there is a clear chain of command

eliminating the potential for some conflicts. Impersonal relationships also lead to easier dismissal of workers, which contributes to

greater efficiency41.

Despite many actual and potential drawbacks, bureaucracy is the most ubiquitous form of dividing labor among members of an organization, town, state, or nation. It is indeed the hallmark of modern society throughout the world. While bureaucracies may not always function in the ideal form that Weber described, when the people working within the structure live for the sake of others rather than for self-centered pursuits the bureaucratic system offers the most efficient method of maintaining a social institution.

40 Weber, Max. [1947] 1997. The Theory of Social and Economic Organization. Free Press. 41 Albrow, Martin. 1970. Bureaucracy. London: Pall Mall Press. Originally published in de Grimm, Baron, and Diderot. 1813. Correspondance littraire, philosophique et critique, 1753-69. 4: 146, 508.

33

Even a non-degenerated bureaucracy can be affected by common problems:

Overspecialization, making individual officials not aware of larger consequences of their actions;

Rigidity and inertia of procedures, making decision-making slow or even impossible when facing an unusual case, and similarly delaying change, evolution, and adaptation of old procedures to new circumstances;

The phenomenon of "group thinking": zealotry, loyalty, and lack of critical thinking regarding the organization which is viewed as "perfect" and "always correct" by definition, making it unable to change and realize its own mistakes and limitations;

Disregard for dissenting opinions, even when such views suit the available data better than the opinion of the majority;

The Catch-22 phenomenon (named after the novel by Joseph Heller): as bureaucracy creates more and more rules and procedures, their complexity raises and coordination diminishes, facilitating the creation of contradictory rules.

Red tape

Red tape is excessive regulation or rigid conformity to formal rules that is considered redundant or bureaucratic and hinders or prevents action or decision-making. It is usually applied to governments, corporations and other large organizations.

One definition is the "collection or sequence of forms and procedures required to gain bureaucratic approval for something, especially when oppressively complex and time-consuming"42. Another definition is the "bureaucratic practice of hair splitting or foot dragging, blamed by its practitioners on the system that forces them to follow prescribed procedures to the letter"43.

Red tape generally includes filling out paperwork, obtaining licenses, having multiple people or committees approve a decision and various low-level rules that make conducting one's affairs slower, more difficult, or both. Red tape can also include "filing and certification requirements, reporting, investigation, inspection and enforcement practices, and procedures44".

The origin of the term is somewhat obscure, but it is first noted in historical records in the 16th century, when Henry VIII besieged Pope Clement VII with around eighty or so petitions for the annulment of his marriage to Catherine of Aragon. A photo of the petitions from Cardinal Wolsey and others, now stored in the Vatican archives, can be seen on page 160 of "Saints and Sinners, a history of The Popes", by Eamon Duffy (published by Yale University Press in 1997). The documents can be viewed rolled and stacked in their original condition, each one sealed and bound with the obligatory red tape, as was the custom.

42 red tape: Definition from". Answers.com. Retrieved 2012-10-09. 43 What is red tape? definition and meaning". Businessdictionary.com. Retrieved 2012-10-09. 44Red Tape Reduction Initiative | Business". Gov.nl.ca. Retrieved 2012-10-09.

34

It appears likely that it was the Spanish administration of Charles V in the early 16th century, who started to use the red tape in an effort to modernise the administration that was running his vast empire. The red tape was used to bind the important administrative dossiers that had to be discussed by the Council of State, and separate them from the issues that were treated in an ordinary administrative way, which were bound by an ordinary rope. Most of the red tapes arriving to the Council of State were manufactured in the city of 's-Hertogenbosch in the Netherlands, because most of the important dossiers came from the Low Countries and Germany. The Spanish name for red tape "balduque" took the name from the Spanish translation of the city of 's-Hertogenbosch which is "Bolduque".

Although they were not governing such a vast territory as Charles V, this practice of using red tape to separate the important dossiers that had to be discussed, was quickly copied by the other modern European monarchs to speed up their administrative machines.

In this age of civil servants using computers and information technology, a legacy from the administration of the Spanish Empire can still be observed where some parts of the higher levels of the Spanish administration continue the tradition of using red tape to bind important dossiers that need to be discussed and to keep them bound in red tape when the dossier is closed. This is, for example, the case for the Spanish Council of State, the supreme consultative council of the Spanish Government. In contrast, the lower Spanish courts use ordinary ropes to bundle documents as their cases are not supposed to be heard at higher levels. The Spanish Government plans to phase out the use of paper and abandon the practice of using ordinary ropes.

The tradition continued through to the 17th and 18th century. Although Charles Dickens is believed to have used the phrase before Thomas Carlyle45, the English practice of binding documents and official papers with red tape was popularized in Carlyle's writings, protesting against official inertia with expressions like "Little other than a red tape Talking-machine, and unhappy Bag of Parliamentary Eloquence". To this day, most defense barristers' briefs, and those from private clients, are tied in a pink-colored ribbon known as "pink tape" or "legal tape". Government briefs, including those of the prosecution counsel, are usually bound with white tape, introduced as an economy measure to save the expense of dyeing the tape red. Traditionally, official Vatican documents were also bound in red cloth tape.

All American Civil War veterans' records were bound in red tape, and the difficulty in accessing them led to the modern American use of the term, but there is evidence (as detailed above) that the term46 was in use in its modern sense sometime before this.

Red tape reduction

The "cutting of red tape" is a popular electoral and policy promise.[citation needed] In the United States, a number of committees have discussed and debated Red Tape Reduction Acts.

45 p.1152, Brewer's Dictionary of Phrase & Fable, 17th Edition; Revised by J Ayto, 2005 46 Red Tape, North and South, in the Civil War". Civilwarhome.com. Retrieved 2012-10-09.

35

The European Commission has a competition that offers an award for the "Best Idea for Red Tape Reduction". The competition is "aimed at identifying innovative suggestions for reducing unnecessary bureaucracy stemming from European law47".In 2008, the European Commission held a conference entitled 'Cutting Red Tape for Europe'. The goal of the conference was "reducing red tape and overbearing bureaucracy" to help "business people and entrepreneurs improve competitiveness".48

READING COMPREHENSION

Excessive bureaucracy or red tape as it is often referred to is a derisive term for excessive regulation or rigid conformity to formal rules that is considered redundant or bureaucratic and hinders or prevents action or decision-making (Anti-Corruption Business Portal, Corruption Vocabulary). As a result, red tape imposes a disproportionate bureaucratic burden on firms and citizens. It can manifest itself through excessive or overly rigid administrative procedures, requirements for unnecessary licences, protracted decision-making processes involving multiple people or committees and a myriad of specific rules that slow down business operations. There is a broad consensus that unnecessary and excessive administrative requirements for complying with regulations create both incentives and opportunities for bribery and corruption.

Countries across the world have implemented reforms aimed at reducing bureaucracy. While in some countries such reforms are part of broader anti-corruption strategies, in others it primarily aims to improve service delivery or to increase competitiveness. There are a wide range of tools used by countries to reduce red tape, such as the establishment of one-stop shops, the use of data-sharing and standardisation, and reforms aimed at simplifying administrative procedures and cutting bureaucratic burden. ICTs and E-government have also been used to improve administrative regulations, and most importantly, to improve transparency and accountability. This answer analyses the case of Portugal, where extensive and ambitious reforms aimed at reducing bureaucracy have been implemented, and the case of Georgia, which is often referred to as a best practice example in reducing red tape and curbing bureaucratic corruption.

Write a summary of this excerpt and and add your own ideas.

HOMEWORK

Motto: We must cut through the red tape

Start from the definition of red tape given by the Cambridge dictionary and enlarge on the idea of how it reflects in Public administration.

Which difficulties encounter the entrepreneurs when they decide to set up their own business?

What alternatives would you offer if you had authority?

47 "Red Tape Reduction Initiative | Business". Gov.nl.ca. Retrieved 2012-10-09. 48 de beste bron van informatie over cuttingredtape. Deze website is te koop!". cuttingredtape.eu.

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RED TAPE=official rules and processes that seem unnecessary and delay results.

(Definition of red tape from the Cambridge Advanced Learners Dictionary & Thesaurus Cambridge University Press)

Bibliography:

1. Democracy versus bureaucracy by Richard W. Rahn, The Washington Times, December 5, 2011

2. Jeong Chun Hai @Ibrahim. (2007). Fundamental of Development Administration. Selangor: Scholar Press

3. George Ritzer (29 September 2009). Contemporary Sociological Theory and Its Classical Roots: The Basics. McGraw-Hill. pp. 3842.

4. Marshall Sashkin; Molly G. Sashkin (28 January 2003). Leadership that matters: the critical factors for making a difference in people's lives and organizations' success. Berrett-Koehler Publishers. p. 52.

5. George Ritzer, Enchanting a Disenchanted World: Revolutionizing the Means of Consumption, Pine Forge Press, 2004

6. http://en.wikipedia.org/wiki/Bureaucracy 7. Karl Marx: Hal Draper, Karl Marx's Theory of Revolution, Volume 1: State and

Bureaucracy. New York: Monthly Review Press, 1979. 8. Barry Bozeman (2000) Bureaucracy and Red Tape Prentice-Hall Publishing 9. OECD (2006) 'Cutting red tape; national strategies for administrative simplification' OECD

Editions, Paris.

37

CHAPTER 5 ORGANIZATIONAL CULTURE

Organizational culture is the collective behavior of humans who are part of an organization and the meanings that the people attach to their actions. Culture includes the organization values, visions, norms, working language, systems, symbols, beliefs and habits. It is also the pattern of such collective behaviors and assumptions that are taught to new organizational members as a way of perceiving, and even thinking and feeling. Organizational culture affects the way people and groups interact with each other, with clients, and with stakeholders

Organizational culture refers to culture in any type of organization be it school, university, not-for-profit groups, government agencies or business entities. In business, terms such as corporate culture and company culture are sometimes used to refer to a similar concept.

Although the idea that the term became known in businesses in the late 80s and early 90s is widespread, in fact corporate culture was already used by managers and addressed in sociology, cultural studies and organizational theory in the beginning of the 80s.

The idea about the culture and overall environment and characteristics of organization, in fact, was first and similarly approached with the notion of organizational climate in the 60s and 70s, and theterms now are somewhat overlapping.

According to Schein (1992), culture is the most difficult organizational attribute to change, outlasting organizational products, services, founders and leadership and all other physical attributes of the organization. His organizational model illuminates culture from the standpoint of the observer, described by three cognitive levels of organizational culture.

At the first and most cursory level of Schein's model is organizational attributes that can be seen, felt and heard by the uninitiated observer - collectively known as artifacts. Included are the facilities, offices, furnishings, visible awards and recognition, the way that its members dress, how each person visibly interacts with each other and with organizational outsiders, and even company slogans, mission statements and other operational creeds.

Artifacts comprise the physical components of the organization that relay cultural meaning. Daniel Denison (1990) describes artifacts as the tangible aspects of culture shared by members of an organization. Verbal, behavioral and physical artifacts are the surface manifestations of organizational culture.

Rituals, the collective interpersonal behavior and values as demonstrated by that behavior, constitute the fabric of an organization's culture The contents of myths, stories, and sagas reveal the history of an organization and influence how people understand what their organization values and believes. Language, stories, and myths are examples of verbal artifacts and are represented in rituals and ceremonies. Technology and art exhibited by members or an organization are examples of physical artifacts.

The next level deals with the professed culture of an organization's members - the values.Shared values are individuals preferences regarding certain aspects of the organizations culture (e.g. loyalty, customer service). At this level, local and personal values are widely expressed within the organization. Basic beliefs and assumptions include individuals' impressions about the trustworthiness and supportiveness of an organization, and are often deeply ingrained within the organizations culture. Organizational behavior at this level usually can be studied by interviewing

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the organization's membership and using questionnaires to gather attitudes about organizational membership.

At the third and deepest level, the organization's tacit assumptions are found. These are the elements of culture that are unseen and not cognitively identified in everyday interactions between organizational members. Additionally, these are the elements of culture which are often taboo to discuss inside the organization. Many of these 'unspoken rules' exist without the conscious knowledge of the membership. Those with sufficient experience to understand this deepest level of organizational culture usually become acclimatized to its attributes over time, thus reinforcing the invisibility of their existence. Surveys and casual interviews with organizational members cannot draw out these attributesrather much more in-depth means is required to first identify then understand organizational culture at this level. Notably, culture at this level is the underlying and driving element often missed by organizational behaviorists.

Using Schein's model, understanding paradoxical organizational behaviors becomes more apparent. For instance, an organization can profess highly aesthetic and moral standards at the second level of Schein's model while simultaneously displaying curiously opposing behavior at the third and deepest level of culture. Superficially, organizational rewards can imply one organizational norm but at the deepest level imply something completely different. This insight offers an understanding of the difficulty that organizational newcomers have in assimilating organizational culture and why it takes time to become acclimatized. It also explains why organizational change agents usually fail to achieve their goals: underlying tacit cultural norms are generally not understood before would-be change agents begin their actions. Merely understanding culture at the deepest level may be insufficient to institute cultural change because the dynamics of interpersonal relationships (often under threatening conditions) are added to the dynamics of organizational culture while attempts are made to institute desired change.

Types of cultures:

Robert A. Cooke, PhD, defines culture as the behaviors that members believe are required to fit in and meet expectations within their organization. The Organizational Culture Inventory measures twelve behavioral norms that are grouped into three general types of cultures:

1.Constructive cultures Constructive cultures are where people are encouraged to be in communication with their

co-workers, and work as teams, rather than only as individuals. In positions where people do a complex job, rather than something simple like a mechanic one, this sort of culture is an efficient one.

1. Achievement: completing a task successfully, typically by effort, courage, or skill (pursue a standard of excellence) (explore alternatives before acting) - Based on the need to attain high-quality results on challenging projects, the belief that outcomes are linked to one's effort rather than chance and the tendency to personally set challenging yet realistic goals. People high in this style think ahead and plan, explore alternatives before acting and learn from their mistakes.

2. Self-Actualizing: realization or fulfillment of one's talents and potentialities - considered as a drive or need present in everyone (think in unique and independent ways) (do even simple tasks well) - Based on needs for personal growth, self-fulfillment and the realisation of

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one's potential. People with this style demonstrate a strong desire to learn and experience things, creative yet realistic thinking and a balanced concern for people and tasks.

3. Humanistic-Encouraging: help others to grow and develop (resolve conflicts constructively) - Reflects an interest in the growth and development of people, a high positive regard for them and sensitivity to their needs. People high in this style devote energy to coaching and counselling others, are thoughtful and considerate and provide people with support and encouragement.

4. Affiliative: treat people as more valuable than things (cooperate with others) - Reflects an interest in developing and sustaining pleasant relationships. People high in this style share their thoughts and feelings, are friendly and cooperative and make others feel a part of things.Organizations with constructive cultures encourage members to work to their full potential,

resulting in high levels of motivation, satisfaction, teamwork, service quality, and sales growth. Constructive norms are evident in environments where quality is valued over quantity, creativity is valued over conformity, cooperation is believed to lead to better results than competition, and effectiveness is judged at the system level rather than the component level. These types of cultural norms are consistent with (and supportive of) the objectives behind empowerment, total quality management, transformational leadership, continuous improvement, re-engineering, and learning organizations

2.Passive/defensive culturesNorms that reflect expectations for members to interact with people in ways that will not

threaten their own security are in the Passive/Defensive Cluster.

The four Passive/Defensive cultural norms are:

Approval Conventional Dependent AvoidanceIn organizations with Passive/Defensive cultures, members feel pressured to think and

behave in ways that are inconsistent with the way they believe they should in order to be effective. People are expected to please others (particularly superiors) and avoid interpersonal conflict. Rules, procedures, and orders are more important than personal beliefs, ideas, and judgment. Passive/Defensive cultures experience a lot of unresolved conflict and turnover, and organizational members report lower levels of motivation and satisfaction.

3.Aggressive/defensive culturesThis style is characterized with more emphasis on task than people. Because of the very

nature of this style, people tend to focus on their own individual needs at the expense of the success of the group. The aggressive/defensive style is very stressful, and people using this style tend to make decisions based on status as opposed to expertise.

1. Oppositional- This cultural norm is based on the idea that a need for security that takes the form of being very critical and cynical at times. People who use this style are more likely to question others work; however, asking those tough question often leads to a better product. Nonetheless, those who use this style may be overly-critical toward others, using irrelevant or trivial flaws to put others down.

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2. Power - This cultural norm is based on the idea that there is a need for prestige and influence. Those who use this style often equate their own self-worth with controlling others. Those who use this style have a tendency to dictate others opposing to guiding others actions.

3. Competitive - This cultural norm is based on the idea of a need to protect ones status. Those who use this style protect their own status by comparing themselves to other individuals and outperforming them. Those who use this style are seekers of appraisal and recognition from others.

4. Perfectionistic - This cultural norm is based on the need to attain flawless results. Those who often use this style equate their self-worth with the attainment of extremely high standards. Those who often use this style are always focused on details and place excessive demands on themselves and others.

Organizations with aggressive/defensive cultures encourage or require members to appear competent, controlled, and superior. Members who seek assistance, admit shortcomings, or concede their position are viewed as incompetent or weak. These organizations emphasize finding errors, weeding out "mistakes" and encouraging members to compete against each other rather than competitors. The short-term gains associated with these strategies are often at the expense of long-term growth

Mergers, organizational culture, and cul