Management Report on Governance and
Regulation
Law, government, and economics has an effect on the value
creation of all businesses. The law provides organizations with many business
entities to enter into, such as a sole proprietorship, partnership,
corporation, or a limited liability corporation (Bagley, C.E., 2008). These
business structures are selected by the organization in order to suit their business
strategy. Government regulates business activities in very different ways
according their industry specific needs. The IRS, Department of Revenue, Department of
Transportation, Department of Health, FDA, EPA, and the FCC are regulatory
bodies that create standards for business operations. The market and the economy also have
substantial influences on businesses and their value creation.
The Law’s Influence on Value Creation
Creating a viable business entity is one of the most
important activities an organization takes in the first steps of starting a
company. The organization must decide
whether they should become a corporation, a limited liability corporation, a
partnership, or even to be a sole proprietor. The ramifications of taxation and
liability are different for each entity and the variety of business entities
created must align with the goals, mission and vision of business (Bagley,
C.E., 2008). Laws are not just meant to
bind organizations they also help to create business opportunities (Bagley,
C.E., 2006). The enforcement of
contracts and laws such as antitrust laws, intellectual property rights, information
technology, environmental regulations, product safety standards, and legal
recourse all help to create independent business practices (Bagley, C.E.,
2006). The enforcement of contract law
promotes interdependence and cooperation among businesses (Bagley, C.E.,
2006). These laws help to not only protect
the business entity from undue fines or litigation, but also helps to create
financial and economic opportunities. The
opportunities arise from the competitive advantages created from holding
intellectual property rights, licensing, and contracts.
Economic
Value Creation
The laws help to create a level playing field for
businesses within the market and within industries. The market is in effect created by
organizations, buyers, sellers, and customers are held contractually through agreements
(Bagley, C.E., 2006). When businesses
are subject to the same regulations they are forced to create the means for
their own competitive advantages in order to be profitable. The economy
has a major impact on business activities.
When the economy is low businesses tend to tighten up and go to lean
production methods to control costs and reduce waste. When economies are bustling businesses strive
to keep up with demand. Corporate
strategies must take these economic times into consideration when formulating
their practices in order to remain profitable.
The global economy is no different. The global market has made financial
integration among other countries reality (Walter, A., & Sen, G.,
2009). It is these economic results that
create political connotations that change opinions and power (Walter, A., &
Sen, G., 2009). One political
connotation is that economic policies create change in the distribution of
wealth (Walter, A., & Sen, G., 2009).
The economic value of trade policies and exchange rates are what, economists
claim, maximizes national and global welfare through trade agreements (Walter,
A., & Sen, G., 2009). Organizations
and stakeholders must consider the global ramifications of their actions along
with their personal and organizational goals.
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Governmental Factors of Value Creation
The government has a large role that affects the business
environment (Bagley, C.E., 2006). The
lobbying activities made by corporations, interest groups, and organizations
such as; the National Restaurant Association, the Tavern League, the National
Rifle Association, and AARP advocate what legislation helps their
interests. Each industry group aims to
get legislators to hear their troubles and through financial support the lobbyists
go up against governmental legislation and regulatory bodies to make laws that
create efficient markets and economic prosperity (Bagley, C.E., 2006).
Economics and Value Creation
AARP’s mission statement
is reported by Hastley as being “dedicated to enhancing quality of life for all
as we age, leading positive social change, and delivering value to members
through information, advocacy, and service” (2011, para. 16). It is special interest groups such as these
that lead to policy change. Walter, A.,
and Sen, G. state that “economic policies are almost invariably politicized
because different choices have different effects on the distribution of wealth”
(2009, pg. 2). These changes result in
economic and political connotations that change opinions and lead to creating
power (Walter, A., & Sen, G., 2009).
Economics affects trade policies and exchange rates. The global market has made financial
integration among countries possible (Walter, A., & Sen, G., 2009). Economists claim that using the comparative
advantage theory is what maximizes national and global welfare through free
trade agreements (Walter, A., & Sen, G., 2009).
Value creation sometimes comes at a cost. For example, agribusiness lobbyists have
supported bills that help to regulate food labeling objectives (Hastley, G.,
2011). At a cost to manufacturers
regulations like this have been created to be a check and balance for
maintaining truth in advertising and informing the public of the contents of
their product. These legislative
initiatives have created a level playing field for organizations in their
industry to differentiate themselves from others in the industry. Some industries, like the oil industry, lobby
for less regulations and governmental intervention in order to create value for
themselves within their industry at a cost to the environment. It is political strategies like this example
that creates competitive advantages for industry giants like big oil. In cases like this one can see how laws
liberate organizations (Bagley, C.E., 2006).
Ethical Ramifications
Keith, Pettijohn, and Burnett believe that ethics is not
just based “societal implications” but also is “based on their economic and
business implications” (2008, pg. 83). Unethical activities not only creates a
less profitable business but it also creates a negative image (Keith, N.K.,
Pettijohn, C.E., & Burnett, M.S., 2008).
Together this also hampers employee relations, job performance, and job
satisfaction of the employees (Keith, N.K., et. al., 2008). The perception of a company is what
influences behaviors, so in order to change the perception of an organization
an organization can advertise.
Advertising serves many purposes. It displays companies in a positive light to
sell their goods or services (Murphy, P.E., 1998). Advertising also serves the agencies creating
the ads. Their creative differentiation attracts new customers and retains
current customers (Murphy, P.E., 1998).
Advertising also serves the media through the payment for ad placements
this supports their business of entertainment and educating society (Murphy,
P.E., 1998).
It is this web of connectedness that builds customer
trust (Snyder, W.S., 2008). Advertising
needs to have truth, fairness, taste and decency (Snyder, W.S., 2008). The
advertising industry is a $200 billion industry that is estimated to support 21
million jobs nationwide (Snyder, W.S., 2008).
Ethics is vital to an industry of this size. Advertising is what helps to shape attitudes,
behaviors, and priorities of society (Srivastava, V., & Nandant, T.,
2010). Snyder defines ethics as “the
moral standards and principles, against which behavior is judged” (2008, pg.
62).
Conclusion
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