MBA PROGRAMCORPORATE PLANNINGCLASS PRESENTATIONS

GROUP 1:JOHN CHWEYAJOELEX ORORAJOYCE MUCHIRI

MARYANNE MUGAMI

UNIVERSITY OF EASTERN AFRICA BARATON

CAPITALISM, FREE ENTERPRISE, AND CORPORATION; THE LEGAL OBLIGATIONS OF DIRECTORS; BOARD ORGANIZATION; AND BOARD SELECTION.

The three cornerstones of western developed economic systems that have propelled their prosperity to unprecedented proportions are:

Capitalism, Free Enterprise and Competition.

In these economic systems, individuals are let free to employ their efforts in pursuing their individual best interests .This is what Adam Smith called ‘’an invisible hand of self interest’’ in his book written in1776 ‘The Wealth of Nations’’.

CAPITALISMAccording to Answers .com this is ‘’ an economic system in which the means of production and distribution are privately owned or corporately owned and development is proportionate to accumulation and reinvestment of profits gained in a free market.’’

It is ‘’an economic system based on a free market, open competition, profit motive and private ownership of the means of production.

Capitalism encourages private investment and business, compared to a government –controlled economy. Investors in these private companies (i.e. shareholders) also own the firms and are known as capitalists’

The capital of many investors is pooled together to provide huge amounts of investment capital which is necessary in funding big enterprises and projects.

This is an economic system where few restrictions are placed on business activities and ownership.

In this system governments generally have minimal ownership of enterprises in the market place. This system aims for limited restrictions on trade and minimal government intervention.’’

Due to this concept of free enterprising individuals attempt to pursue their individual self interests and objectives- competition for raw materials, labor, customers and capital cropped in.

Competition led to the survival of the fittest and this naturally weeds out the weakest competitors and promotes survival of the most successful. This has been the driving force in a free enterprise economic system.

With the development of these economic systems, Enterprises of a size and complexity not previously thought possible flourished.

Next question was how could these enterprises be managed in the best interest of the shareholders? The concept of corporate governance then emerged-laws and rules were formulated to control these enterprises.

Through agents-Board of Directors, CEOs and Employees/management .Corporate governance was born in publicly managed enterprises.

Through corporate governance individual and group interests are taken care of in a more harmonious manner.

EVOLUTION OF GOVERNANCE Invention of tools (technological development) and discovery of new sources of energy and machines led to increased productivity and this was followed by a revolution in electronics, communication, transport, medicine and all forms of manufacturing.

All these have led to the evolution of a mechanism of how we govern our affairs. Governance has evolved with the advancement of society-from simple groups (small) to large complex and far reaching groups/organizations.

The American and French revolutions of the 18th and 19th century climaxed the growth of governance complexity. Stratified smaller ruling classes emerged which accumulated wealth generated by the labors of the subservient population.

The rich nations became rich by colonizing the poor ones and exploited the abundant natural resources of the poor nations. Revolts emerged but they did not change the status quo-the rich remained rich and this led to oppression of the citizenry.

Out of the revolutions the modern concept of democracy was born- a rule of the people by the people and for the people

THE DEMOCRATIC EXPERIMENT.

Democratic governance as we know it today originated from the Greeks and Romans systems of governance and this led to the development of the English common law.

During the Renaissance era representative democracy was born which later influenced the American Revolution and the subsequent enactment of the American constitution which governs America up to today.

The American constitution had to be amended to include a Bill of Rights to protect the rights of individuals, states, and constraints on federal power.

The U.S.A has struggled over the years to have the current constitution where the rights of the minority are taken care of.

It is worth to note here that this type of governance has been almost a failure in most other parts of the world for instance Africa and South America.

However, good governance is a pre requisite in the economic prosperity and peace hence success of a society.

PLAYING BY THE RULES OF THE GAME

Businesses function in complex economic systems, each with its own characteristics environment.

This has been likened to a game where participants compete within the rules of the game.

Governments act as referees to regulate the business environment through the use of infrastructures such as national defense, transportation systems; legal systems.

Governments act as referees to regulate the business environment through the use of infrastructures such as national defense, transportation systems; legal systems.

To maintain competitive markets through anti-trust and fair trade practices

•To regulate noncompetitive markets•To maintain a balance of power between capital and labor•To ensure an orderly capital markets

•To regulate noncompetitive markets•To maintain a balance of power between capital and labor•To ensure an orderly capital markets

By the last quarter of the 19th century, there emerged large industrial trusts which forced the US government to reduce the monopolistic tendencies of the period and hence the passing of anti trust laws and regulation of industrial standards for key industries

THE CORPORATION

The US Supreme Court under chief justice John Marshall made a ruling that defined a corporation in the Dartmouth College vs Woodward as follows:

‘A Corporation is an artificial being, invisible and existing only in the contemplation of the law. Being the mere creation of the law possesses only three qualities which the charter of its creation confers upon it……’

These qualities of a corporation can be summed as; immortality, individuality of the owners and perpetual succession of many persons who are considered as the same and may act as a single individual.

The corporation has become an attractive business entity due these features:

•It has unlimited life•Has a limited feature on its owners•Divisibility of ownership which allows for transfer of ownership without disruption of the structure of the organization.

THE TRUSTThe trusts were formed in the US during the Civil War when high tariffs were imposed by the government to protect the developing industries. Corporations were required to band together and form trusts in order to get tariff protection. There were: sugar, tobacco, oil, cattle and railroad among others.

ROLE OF CORPORATE GOVERNANCE

Corporations need governance just as nations do in order to be successful in their business endeavors.

Businesses that have prospered are those which have governed their affairs effectively .A successful corporate governance has these features:

•An efficient Board of Directors•A competent CEO hired by the B.O.D and given authority to run the business.

•A valid business concept created by the management•Appropriate implementation of the business concept•Systems to ensure the corporation meets the obligations of the stakeholders are met with integrity and in compliance with the laws of the land.

•Selection by the CEO of a good business /businesses to operate with the advice of the board’s consent.

•A valid business concept created by the management•Appropriate implementation of the business concept

•Systems to ensure the corporation meets the obligations of the stakeholders are met with integrity and in compliance with the laws of the land.•Fully and timely disclosure of the performance of business to its owners and to the investing community.

There is a distinction between a publicly owned corporation and a privately owned one.

In a publicly owned corporation the Board represents the interest of the owners while a privately owned enterprise is privately managed by the owners who take care of their own interests.

Thus a board of directors in a public corporation is very crucial if these corporations are to achieve the interest of the stockholders as well as the stakeholders.

CONCLUSION‘’Making capitalism out of socialism is like making eggs out of an omelet.’’-Vadim Bakatin

‘Capitalism without bankruptcy is like Christianity without hell’-Frank Borman

‘’The inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of miseries.’’-Winston Churchill

References

•Bacher,Christian (2007) Capitalism ,Ethics and the paradox of self exploitation (htt://books.google.co.uk/books.p.2•De George,Richard T. (1986) Business ethics p 104•Lash,Scott and Urry,John (2000) Capitalism.

•Obrinsky,Mark (1983) Profit Theory and capitalism, University of Pennsylivania Press,p. 1•Wolf, Enc(1982) Europe and people without History.•Wood,Ellen Mecksins (2002) The organs of capitalism.A long view.

•Freidman, Milton (1952) Capitalism and Freedom.•Marx, Karl (1886) Critical Analysis of Capitalist production.

•De Soto Harnando (2000) ,The mystery of Capital: Why capitalism triumphs in the West and fails everywhere Else. New York; Basic Books.ISBN 0-465-01614-6•Answers.com (2009) http//en.wiki.org/wiki/’’Capitalism’’,3 September 2009.