Log in / Register
Home arrow Management arrow Strategic Management in the 21st Century. Corporate Strategy


The advent of the stock market and the large-scale exchange of shares brought new complexities to corporate organizations. For example, in 1711, the South Sea Company, a British joint-stock company, came into existence. It assumed England's debt that had resulted from the War of Spanish Succession. In return, it was given a monopoly to trade in Spain's South American colonies. There was great speculation about the value of the company, and this speculation ultimately resulted in an economic bubble, the South Sea Bubble of 1720, which caused financial ruin for many. To control such speculation, the Parliament of Great Britain enacted the Bubble Act of 1720, forbidding all joint-stock companies not authorized by a royal charter. Throughout this process of corporate evolution, the nature of management shifted from "a fellowship of personal acquaintances to that of an impersonal collective."40 As ownership became increasingly distributed and diffused through shares changing hands in the stock market, the ownership and control of companies became separated. Logistics' considerations made it challenging for shareholders to deal directly with the intricate decisions involved in operating a multiproduct, multifunction, mass-production-based business operation. The inability of one person or shareholders to manage a complex organization gave rise to specialists. Capital budgeting, marketing, labor and personnel relations, production, engineering, and a number of other functions required the skills of specialists. With this division of labor, the decision-making authority became vested increasingly in career executives, professionals who had well-honed skills, but little ownership stake in the companies they managed. Diffused ownership was no longer in control, and the executives became arbitrators for the collective enterprise, allocating priorities among management, shareholders, creditors, suppliers, employees, competitors, consumers, regulators, and other interested segments of the society, such as local, regional, national, and international communities. This resulted in the broadening of corporate motivations and objectives.41

The issue of ethical dilemma is compounded by the separation of ownership and control. This separation creates an agency relationship that emerges when one or more persons, the principal(s), hire another person or persons, the agent(s), to perform a service.42 The principal(s) hire the agent(s) for their specialized competencies, and delegate decision-making responsibilities to them for which the agents are compensated in some manner. The agency relationship that exists between shareholders and corporate executives can be problematic. In modern, publicly traded corporations, the ownership of shares is highly diffused and shareholders have limited direct control. As a result, problems may emerge due to the divergence of interests of shareholders and executives. Goals pursued by the agents may conflict with those desired by the principals. For example, shareholders may be willing to assume significant risk to seek maximum returns for their investment within a reasonable period of time. In contrast, agents may implement strategic decisions that maximize their personal welfare and minimize their personal risk, thereby enhancing their job security and compensation and protecting their reputation. The divergence of interests gives rise to managerial opportunism on the part of agents that can involve guile or cunning or deceitful behavior. It is difficult for principals to predict agents' behavior in advance or even to monitor it past the corporate veil.43 The ever-increasing scale of scandals being witnessed and the unending waves of shameful malfeasance and larceny attest to the prevalence of managerial opportunism.

While criticizing corporate executives for not fulfilling their responsibilities to their stakeholders, many have also called for an increased emphasis on education regarding ethics in our institutions of learning. There is a need to build among corporate managers the capacity to resist the temptation to engage in unethical behavior. The Association to Advance Collegiate Schools of Business (AACSB International) acknowledges that "In addition to providing a return to owners, business is charged with other straightforward tasks—acting lawfully, producing safe products and services at costs commensurate with quality, paying taxes, creating opportunities for wealth creation through jobs and investments, commercializing new technologies, and minimizing negative social and environmental impacts."44 In reality, the "straightforward tasks" listed in this quote seem anything but straightforward or easy. Adequacy of return to owners is assessed not merely in terms of the magnitude of return, but also in terms of the time taken to generate it. Immediacy is emphasized by shareholders and other stakeholders, but again, the perception of adequacy arises from the expectations of others. In most cultures and in particular those observed in the Western world, "the lack of early and attractive returns threatens the job security of corporate leadership. Yet, other considerations, such as producing safe products, enhancing quality, creating wealth, commercializing new technologies, and minimizing adverse social and environmental impact may demand time or require reduced pace of activity."45 There are a number of sources that give rise to the constraints of time. For example, "corporations compete with each other in the market place to meet the needs and demands of their consumers, and other stakeholders, in a timely manner. If a corporation fails to do so, its competitors step in before it can and the need for its efforts disappears, compromising the opportunities for its executives to meet their responsibilities across the board."46 Indeed, an ethical dilemma is characterized by the need to (1) choose between equally desirable or equally unsatisfactory alternatives, (2) assign different or competing priorities and responsibilities to alternatives, or (3) solve a problem that has no satisfactory solution. "The dilemma may emanate from the decision maker's system of values, principles, or sense of duty, and may be exacerbated by uncertainties of outcome or consequences resulting from the choice, assignment, or solution."47

Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
Business & Finance
Computer Science
Language & Literature
Political science