The conflict of interest is one of the most important issues in the field of corporate governance, as it is one of the reasons why corporate governance has become an issue as discussed . We have seen and heard many cases of companies failed because of conflicts of interest between principal and agent, but according to me it can definitely be the case that those who hold the total equity of the company are tempted to lose sight of the mission of the company itself and be groped by something that can bring benefits to the person even though it damages the business.Is not Enron an example of how it is possible to disalign the interests of a corporation which SHOULD have the so discussed object of human needs satisfaction, to pursuit own interests?
In my opinion, no even if the person is the owner of his own business, his interests are not always aligned with it because sometimes he wants to increase his profit and only his, he might not care for the profit of the firm as a whole. He might have other sort of investments that bring him money so he isn't concerned with enhancing his own company. This doesn't mean that this is the case every time, there are certain owners that care about their business a lot and do all they can to maximize its profit and the profit of other stakeholders. To sum up, it depends. There are owners who care and those who don't.
Actually I don't think that an owner will always have a interest align with the company. Let's make an example, we know that companies use to tie interest of their worker to interest of the company, trough different tools, in this case I suggest to think about stock option, now suppose that suddenly the company goes in bankruptcy, value of the shares fall down, and value of the company too. Let's say that I am an investor, and I want to maximise my profits so I decide to buy this whole company ( becoming the owner) with the intent to sell it when its will be back to the origin or even more over, I will use the strong will of company's workers and other shareholders to push up the value of the firm. Then I will sell it. I have achieved my interest, the company has been used by me, I have my profit, they have their success. The interest of both parties has been satisfied even though they were different and not aligned. The fact that interest are not align doesn't mean that it is always a bad thing.
I think that when someone decides to "procreate" an organization, because of his business idea, the interest of the company and the person's interest are aligned, because the company represents the person himself. The individual wants that his product/service is accepted by consumers and he hopes that it could last as much as possibile (forever is enough?). The owner organizes his company in order to achieve his goals, and when the firm reaches good results, such as high sales and high profits, the individual will be happy and satisfied: the satisfaction and the happiness could be transferred to the employees and the other people within the organization. So, I think that having aligned interests represents the best solution.
From my point of view, it is always hard to consider a sole proprietor's interests as the one of the company itself. Taking the example of the so called "Chinese boxes", in this case we are talking about firms that exist just to hide the owner who is behind them. Can we conclude that the interest of these companies is really the one that pursue their owner? A common reference about this subject could be the case of Olimpia s.p.a. It was part of the Tronchetti Provera's Group and formally the main shareholder of Telecom s.p.a. before being sold by Tronchetti Provera himself.
Actually I believe that a individual will have his interests aligned with those of the firm itself only in the case of a small firm that has been founded by him. Instead, when the company's dimensions increase, a individual is interested in owning the total equity of a company simply because his main concern is profit maximization, without considering the interests of all the other actors involved in the company's activity. In large companies, a sole proprietor is compelled to delegate the management of the firm to qualified managers, because he has not the skills necessary for managing well a firm. So, in this case the firm's interests are a set of all the stakeholders' interests, and do not coincide with the interest of the individual.
According to my opinion, when an individual is the only owner of a company so he/she holds all the equity of it, his/her interest coincides with the interests of the company. Because, if this company is the only that he/she holds and the only source of revenues of course he/she will be interested to let it going well. So, I can conclude saying that the interest of both will coincide
According to me if we talk about sole proprietorship, meaning a business entity that is owned and run by one individual and in which there is NO LEGAL DISTINCTION between the owner and the business the interests of the prorpietor MUST be alligned with those of the company because he IS the company. In fact in this situation the owner is in direct control of all elements of the firm and he is LEGALLY ACCOUNTABLE for any kind of losses and debt as weel as he is the only beneficiary for profits. So no AGENCY PROBLEM occurs.
In my humble opinion I could hardly understand the reason why an individual who bears the entire risk of the business, having the 100% of the company, would perform misaligning interest with respect to the company he owns. However I suspect that if a misalignement of interests will ever happens to be, the reason for this might be OUTSIDE the company itself. To put in short, it might be the case that some other and unknown reasons exist.
Maybe the outbreak of the financial crisis can provide us an exceptional example of fully owned companies in which there exists a conflict of interests between the owner and the company. Let us consider this basic example related to the banks. Full owner = STATE, or in other words We taxpayers, and "bad companies (bad banks)" set up to clean the balance sheets of irresponsible banks. In this case the State fully owns bad companies set up incurring high risks at the expense of taxpayers.
I think that when a business is completely owned by a single owner, many are the advantages that such business can benefits. As You have discuss in class, first of all there are no problem linked with the Agency theory. We know that the complexity of the structure and the fragmentation of the owners is positively related to such theory according to which the principals/owners and the agents/managers have different interests which in really few case are aligned each others. This can create conflict of interest, misunderstanding and opposition of values which bring the need to develop and improve the role of monitoring the agents throughout the firm. While, if the 3 mechanism of governance within the organization are characterized by a trivial structure, so if the principal and the agent may coincide, it means that the need of monitor and control really diminishes and so the duty to support agency cost. The contractual relation established in the firm among principals and agents in a situation like that doesn't affect performance. According to me too, the single owner has no reason to make his interests different from that of the business.
Without taking into account any of the theories, I was thinking about this fictional case in order to help me answer the question:
1. Suppose I'm the son of a rich enterpreneur who owns the total equity of a huge company who produces medical prosthesis, he founded in..let's say.. 1950. The company interest was simple, doing profit by helping others. 2. My father soon retires and leaves the entire business to me. I suddenly become the owner. Despite my father, I do not "love my creature" and have a non-precised scope but investing and gaining more and more money. 3. At that time, company's vision could be summarized as "Let your life be better and start running again". 4. By the way, through a personal contact in the American Congress radicated in the american military machine, I am proposed a huge R&D contract for the american MoD, followed by the production of biotechnological prosthesis that can sooner put back injured soldiers on the field while achieving even better physical performance than it was before the incident. 5. As a positive answer wil duoble my profits over the next decade and my brand equity is relatively not relevant at this time, I accept the job.
What I've done accepting this job? The industry is the same, and if possible I will continue producing and selling prosthesis to health systems around the world for civillian purposes, making their life better. BUT I'm also helping soldiers to fight wars, seriosly harming people which lifes will be soon destroyed... Obviously, that's unless they can afford one of my prosthesis. Wow.. Scale economy of suffering.
Now, core doubt is: When inheriting the company, did I become the company? A) In this case the company's interest cannot be misalinged with mines, so they can change along with people within them and the answer to Professor's question is YES. B) While if the company has a stand alone life (I think this of Institution, for example), which make them live and say something to people just existing, also without knowing who is Steve Jobs' substitute, the answer cannot be other than NO.
Well, my propensity is for a sound NO, answering to the original question. But my collectivistic view of institution/corporation may deviate me from the right path. So, what do you think guys?
Oh, another fun case to support the "No" (way less creative, by the way):
Imagine I am a strong oligopolistic multinational ICT company, and I decide to ABSORB an entire business entity with the sole scope of removing this small yet dangerous competitor from my industry. In order to achieve this goal I will transfer all the useful skills and know-how and then leave it decay loosing mkt share year after year through lack of investments and operative loss.
How could this interest be even merely near to what is the company one? I acquired the company only to destroy it. And I can't think about a company born to be deliberately made sink... oh, wait, unless... but that's another story :D
Again, I see a clear "no, they do not always align" as the possible answer.
Actually, I think that it is possible true but it is not always true. For example, in the case of company has a large number of employee. The people who hold total equity can not manage all activities of the firm. The boss have to delegate authorities for some Very Important Person (VIP) whose his/her believe. This lead to the his/her interest have to share with those VIP. And then, the operation of the firm now not only server for boss's interested but also for interested of VIP groups.
Hey guys while studying I was confused with the 3 theories regarding the one of the shareholders, the one of stakeholders and the organic one. Which one is the most important and better than the others?
I personally prefer to focus on the Organic one, because relationship are the most important thinks also within an organization to engage in nonlinear and successful process, which bring internal and external equilibrium. By focusing on relationship leaders became to see their organizations more organically. Only by following the Organic theory it could be possible to integrate the first and second one.
From my point of view, the answer to this question is No. Even if we know from the theory that in a sole proprietorship there are no principal-agent problem ( since the principal is also the agent), I believe that it is not always true that when an individual owns the total equity of a company his interest is aligned with that of the company itself. In fact, it can be possible in a small company. When the company is big the owner can have different interests and sometimes can happen that he loses sight of the mission of the company, or better, it can be tempted due to the dimensions of his business. I mean, for example he can be attracted by other interests that allow him to increase his own profits while the same interest can destroy value for the company. The most of the time, the reality is pretty different from the theory, isn't it?
I share most of the statements expressed by my colleagues, and if we take the sole proprietorship, we know that the legal entity is the physical person (the sole proprietor), and since the activity is operated by one individual, as a consequence, the interests of the proprietor will be completely alligned with the goals of the firm. Instead, if we take different forms of business entities, like a corporation, there could be agency problems due to the separation of ownership and management. The company has big dimension and size, there are a lot of stakeholders which could have a lot of different interests that will be hardly alligned with those of the owner.
I do not think that the owner's interest are always aligned with those of the compnay. For example,after many years of activity, an owner may want to maximize short run profits without considering the long run objectives of the firm, Maybe because he became sick and tired of leading the azienda, and so he want to quit as soon as possible without caring if he is destroying firm value. in this case the objectie of the company with those of the owner are at opposite poles.
I believe that the interest of an individual that owns the total equity of a company is not always aligned with the one of the company itself. I agree with many previous replies and in my opinion manage the business is what keeps the interest of the owner aligned with the one of the company. The closer is the owner to the activity of run the business, the more he will care about the company - and indeed in the small firms usually interests are aligned. There are other cases instead, like the ones of the large firms, in which the owner is so far from the governance that his focus is no longer on the company itself, but just on earning profits.
I personally think, as many other replies, that it could be the case the interest of the owner may be different from that of the firm itself. Look what happened to Parmelat and Enron, two situations where the owners' interests were focused in achieving short-term profits to the detriment of the firm life.
Infact all these people who had preferred to satisfy their interests rather than those of the company are not within the organization anymore. I think that when someone wants to maximize his utility shouldn't be a entrepreneur or a director/manager: the problem is that we can not know a priori what are a person's interests.
Cristina Parrella said... It depends because someone could decide to invest on it for different reasons that are not caring about the company itself but for others like employees it will be more important the company performance because they feel part of it as they are working in it. So the performance of the firm will ensure them the job and will increase a sense of security for them.
In my opinion, it is likely that there will be an alignment of interests when the one who runs the firm is also the owner of it. Of course exceptions exist and I think that first of all it depends on what is the objective of the firm. If the objective is that of generating profits, probably it will be always (or almost) aligned with the owner's interest. However if the objective is that of creating value for customers, it could be the case tha the owner loses interest in it, finding for example a shortcut to achieve higher and short-term profits, meanwhile destroying value for the customers.
We can recognize a general rule, that is: whenever there may be a conflict of interest (necessary an sufficient condition) in the holding there is a problem of alignment between personal and firm's profit. The first case when it comes to "personal vs firm's profit" that comes into my mind is the case of fraudolent bankruptcy, that is probably the more extreme case. The other extreme case may be an entrepeneur who cares too mutch about stackeholders at all level outside the firm: safety and social responsibility is as noble as it may be costly and may undermine the competitiveness of the firm (of course this is more a logical than a practical case, but it may become a real threat when there is a powerful group of stackeholders and the owner is unable to put before the firm's interest). We can think at an infinite number of cases where even the sole proprietor may damage the interest of the firm, and all of them may be found in their "hidden agendas". Moreover the more the person is influent in the firm, the more the conflict of interest is dangerous for the firm as a whole.
i think if someone owns the total shares of a company most times his interest coincides with the company's interest. but it depends, the divergence happens mainly when it takes place a misalignment between short-term-interest of shareholder (investor) and long-term-interest of the company. for example the company's management decides to reinvest huge capital in order to finance the building of a new plant (that will upgrade business in 5 years) while the shareholder would have preferred to earn dividends soon.
As highlighted from my colleagues, the case of sole proprietor is actually very difficult to understand and create a "general rule" related with the alignment between the interest of the owner and the company itself. first of all we should distinguish the case in which the owner has decided that the life of the company must coincide with his own natural life. in this scenario, the interests are aligned, because the owner knows that when he will retire or die, the company will be liquidated. When the end of the company's life is know (not in the case of death, of course) in the last period many irrational actions could take place (delay in payments, distruption of value etc). On the opposite, we could have the case where the owner would pass the ownership to someone, like a heir or simply would sell it. In these cases the company must survive after the first owner, and this mean that all the actions and strategies must always consider the long term sustainability. The alignment will change and also the governance of the company exactly for this necessity to survive for a longer period than the human life. This is what happen in the cases of the familiar and old companies (from Barilla to the small grocery shop in town)
I'm thinking to the example of football teams in which the interest of the firm (wins matches) is more align with the interests of supporters rather than the interest of the owner (maybe gain political influence or public image). Therefore my answer is no.
revising my notes, a more formal approach can be adopted in replying to this question. Therefore the answer is: It depends from the point of view used. According to the shareholder theory, the firm is an object from which to obtain the expected benefits, so it would be a non-sense to suspect any kind of misalignment of interests. However according the view of Team Production Theory the shareholder is not perceived as the owner of the firm, but as holder of shares and this would be sufficient to assume that the interest of the shareholder might not be aligned with that of the firm. Think of a Bank holding shares and ask about its intention: is the bank going to keep those shares as "available for sale" or as "investment"?
No even if the person is the owner of his own business, his interests are not always aligned with it. Sometimes the owner wants to enhance his own profit by having investments that bring him more money so he doesn't care for empowering his own company. However, this is not the case every time, sometimes the owner care a lot about his business and does everything to increase its profits. So in conclusion, it depends.
It depends because the owner may decide to reinvest on the firm for different reasons may be for own benefits and may be for public benefits like employees , So the performance of the firm will depend on the way of manage.
This issue is a two-sided sword. On the on hand side, the owner has any interest in ensuring that the company is making good profit, which also means that the owner is enriching himself as the firm grows. Thus, if interests are aligned, company and owner are striving into the same direction.
Looking at the other side of the coin, in case the company is at an economic breaking point, the owner might just want to get out of the circle to save his personal wealth in order not to go bankrupt on a personal basis, meaning a devestating loss, not only of the company, however, also for himself.
Thus, in the situation that the company is doing well, the owners interests can be perfectly aligned with those of the firm, and if the company if looking at bankruptcy, the interests could not be more different.
Consequently, it cannot be stated, that the interest of the owner and the firm are 'always' in line. It depends on the economic and financial situation of the company and the personal interests of the owner.
I think that the owner interest is usually alligned with the company itself. First of all, because the owner is interested to gain a profit, because if his company succeeds, he will earn more, thus he will do all his best to make his business profitable, And the second factor is phsycological to my mind: when the company is yours you consider it like something very important for you, lile your own creation and the product of your efforts, and you are enthusiastic to work a lot, because of feeling of independence and responsibility for your "child".
I believe that it is possible to do it. A clear example of firms that satisfy human needs destroying value are the ones that operate in the so called "controversial markets". As a matter of fact, cigarettes producers such as Philipp Morris or Marlboro satisfy a human need (people's urge to smoke) while destroying (worsening) a crucial human value (humans' health). If their work and products were totally "fair" and out of this consideration, why would they have to add enormous cubital advices on their cigarette packs by law? The same idea concerns other markets such as the arm one, the drug market and so on.
Yes, I think that it is possible for the firms to destroy value rather than create it. I agree with Lorenzo: cigarette or alcohol industries are likely to destroy, or at least reduce value. In fact,on the one hand they satisfy human needs, but on the other hand they destroy, or better, reduce value since thei reduce not only a single human's health, but also the health of the entire community. In this sense, I believe that companies operating in this particular sector can destroy value. Furthermore, in my opinion companies can even create and destroy value at the same time. An example is given by the enviromental pollution, a concept also known as "negative externality" Sometimes can happen that companies, while producing goods or services fundamental for us, produce pollution that, of course, reduces the wellness of society.
I agree with you guys and I think that it is possible to satisfy human needs destroying value. I would like to provide the example of fast food companies like McDonald's, a world-wide firm that use aggressive marketing campaign for its unhealthy food. It's an other case of a firm that impose negative externalities, that make huge profits, but at the same time does not pay for the social costs resulting from the consumption (abuse) of the products offered. The value that is destroyed in this situation is of course in terms of population health. What could be a solution? In my opinion a solution to these behaviours could be to impose to such companies to pay for these costs (diseases, pollution, climate change and so on).
Of course a firm can produce income but at the same time can destroy value. In Italy we have an example with Ilva firm. In February 2007, Emilio Riva was sentenced to three years in prison, and Claudio Riva to 18 months, for neglect of work safety procedures and violation of anti-pollution regulations violations in the management of the Taranto coke plant. So they destroyed a lot of value.
I completely agree with all my collegues, but I'd like to add something that I remember from our past study experiences. Sometimes we've talk also about theories suggesting that in some cases firms can create value for stakeholders but also destroy the value of the firm itself. Just think about diversification or conglomeration. For sure economies of scale and other elements are definetely positive for the firm, but the expansion of corporate activities can also lead to agency problems between inside and small stockholders for example,or to geographic problems if the diversification is based on a geographic element. The effects can also be revealed on financial market, since investors can be "confused" about the real value of the "new" firm and this can lead to a depreciation of the firm,decreasing its value.
I don't think satisfy human needs destroying value. Apple is a good sample in the situation, they are increasing the value for their own product by satisfy human need.
in my opinion , it's possible that human needs destroy values , such as IKEA cutting down 600-year-old trees to use for flat pack furniture from forests in karelia , Russia , obviously this action destroys environmental value even if this wood uses for essential purpose like furniture.
I think that both human needs and values destroy the other one. Human being are increasing their needs, that sometimes are very useless (an example, do we really need a plasma TV, a car for each family member, a cellular phone that is able to do everything? No, we don't need them, we WANT them. And it is caused by the marketing, and the increasing number of advertising that make us believe that we have innumerable needs.) and it causes the loss of some "social values", and the value of the money: we spend our money for thing that we do not need. On the other hand, it's true that a lot of firms produce goods and services that satisfy human needs destroying value: the best examples are McDonald's, like Francesco said, and the pollution, like Federica said. I do not agree with the example of the alcohol and the cigarettes, because also in this case I don't think that smoking or drinking are needs, they are ADDICTIONS.
Yes it is possible. Value destroyed can be both tangible, like a natural landscape in favour of an hotel or other buildings, and intangible, like technology that has allowed us to reach everyone in any place into the world, but it has destroyed interpersonal relationship.
totally agree with Silvia, and the rest of my collegues,
The main issue is the persective under which we consider "satisfying human needs". For example, we may say that "social acceptance" may be one of the main human needs but the most slippery side of this broad view is how the realization of human needs/social acceptance may be manipulated by market leaders. A very clear example may be Facebook itself: by satisfying the basic human need of communication and contact is destroying the natural skill of interaction with people around us.
I agree with Francesca but I don't think only market leaders are manipulating our needs and habits; I think most of the faults of these problems should be commissioned to the Governments which allow the firms to act in this way; A big example of that is Monsanto, which created the OGM organisms; Many studies stated that OGM organisms are very very dangerous for human's health; then why don't stop this firm? Why Governments are allowing them to satisfy human needs (by satisfying almost all the food demand) but leave these firms to destroy value by damaging human's health? Yes of course Marketing manipulates our habits but is not the only on doing that.
Of course it is possible to satisfy human needs destroying value. I want to provide you a clear example. I'm sure everyone of us has at home at least a P&G product. Well, you should know that many of those products contain palm oil, and that P&G destroyed forests in Indonesia in order to make palm oil plantations. In doing so, the habitat of orangutans has been destroyed. There was also a petition launched by Greenpeace!
Having a look on these comments I'd rather ask wheter there are firms that satisfy human needs adding value (apart from the recurring example of Apple). I am thinking on companies that do not add value on their products only but on their entire sphere of stakeholders.
I complitely agree with your idea of value as : environment safeguard, workplace safety and people well being and heath.However I'd like to focus on another kind of value distruction : ECCESSIVE COMPETITION BETWEEN FIRMS. According to me a reasonable rate of competiton betweem organizations is good for self-assessment and to be motivaed to reach more challenging goals. The BENCHMARK tool for ex. seems to be good for comparing results reached by different firms and find out weaknesses and strenght so that to be able to work on them. But what about when firms set up real struggles between themselves in order to STEAL customers to each other rather than COOPERATING and putting their capabilites togheter in order to deliver better value?
Well, Lorenzo, there are a lot of companies that care about the environment and the sustainability: some examples could be Canon, H&M, and Novamont. They produce their product with a low environmental impact and do not destroy any value. Sometimes it's not important adding value, what matters is to satisfy the needs.
I really would like to focus on one of the comments, since directly involved in the issue. Ilva is the most important firm in Europe specialized in manufacturing of steel. If for ex we discuss about the satisfaction of human needs from the point of view of clients and the destruction of value (in terms of profit) from the perspective of the firm, the owners of such factory have been able to generate the opposite situation, by focusing on satisfying their own needs, in terms of profitability, in terms of domination in their sector of production at an european level, and at the same time without take in consideration the negative externalities that from the beginning have "convict" the population of the city (which is considered only a "little reality" in respect to what the outcomes and the services of the factory can produce). The values which, for years, have been destroyed here , are not the profitability or the competitive advantage reached , which only in the last time has been affected, but the Life of the current and surely the next and the next generations. So as previously discussed when we spoke about the aim of a firm, this is the BEST example to understand how if a firm is only oriented to the generation of financial wealth, the result could be in some case only a disequilibrium of the firm itself or the relationship with customers but, in some case the results could be I can say CRUCIAL. It's important to satisfy human needs, but it's much more important to make them satisfied by working within the barrier of health and respect for human beings. It's not the same situation of the Industry of Cigarettes, customers can choose if destroy their value here, anyone force them to consume such goods, but, has someone did ever ask to citizen if they would live together the externalities of such factory?
Cristina, I've been long time interested in Taranto, Brindisi and Civitavecchia (my home town) cases. I did several studies and discussed (even protested) a lot about the externalities of such blackmailing businesses. They give us a common value, such as work (wich means food) or energy, at the price (to be added to the economical one) of deaths, cancers and allergies. I cannot do anything but agreeing with you.
Maybe we have to ask ourselves, case to case, if this was a matter of choice or not(?), if it is avoidable or not(?), if this kind of blackmailing businesses are malicious or not(?). I have a particularly pessimistic view of human beings' nature, so I may have my very own answers to this issues, but it is when a former President of the Republic, Ciampi, shamelessly says "Civitavecchia è stata la vittima sacrificale scelta per dare energia a metà del paese [and for the other half the winner is...Brindisi!], a qualcuno doveva pur toccare" that you understand that things are way more complex and delicated than they may appear at a first glance. Values overlap and there is no simple way out from these huge businesses to stop destroying (lifes and) values in the short term.
That said, I'm aligned with the trend of the answers saying that YES, it is possible to satisfy human needs (wether frivolous or vital) destroying even the most common and shared values, such life and wealth.
I read the comments above and I agree with those who think that it is possible to satisfy human needs destroying value but I would like to add something on the matter. Indeed I think that often the problem is related to human rationality. Let's think about Mc Donalds again, it's true that it uses a lot of marketing and sales instruments to attract people but we all know that fast food is not healty, so why we still eat it? Probably because we are not always rational. Sometimes we don't care how many studies have shown the correlation between that kind of food and heart deseases for example. Thus, even if I think that firms should not take advantage from irrationality behaviour of customers, I also think that we (as customers) should try to act more rationally and boicot those companies that offer us something that destroy the most important value, that is life. The same reasoning could be done also for the environment choosing, whenever possible, those companies which care for the Earth. I know it's a pretty utopian reasoning but maybe this could be the only way to make firms act differently.
First i would say that i totally agree with Aurora when she speaks about the responsibilities that also customers have in these situation because of the (unexploited) power that they have in influencing the firm's behavior.
Secondly i have another interesting example of firms that create value (profits) destroying other kind of values (people's wellness). I'm thinking to the whole gambling industry. This activity clearly creates value for the owners destroying at the same time value for the users (even if they're not always aware about that!), leading to very poor life conditions or even to suicides.
What i find interesting is the fact that, as Gian Marco said, there are always a lot of interests behind these activities, and in this case the interests are not only privates. If we think to how much money the State gets each year form the gambling industry (about 8 billions euros) we understand how ALL THE STAKEHOLDERS are involved in this cycle of value destruction and sometimes the firms are not the only ones to blame.
What about IBM's evolution (revolution) recently occured? Could it be a good example of firm that satisfy human needs (in this case NEW human and BUSINESS needs) adding value to both Task and external environment?
I completely agree with my colleagues and I also believe that it is possible to satisfy human needs destroying value. This value destruction could be related to human health (unhealthy foods,cigarettes, alcohol) or about environmental pollution and physical destruction of the landscape.
I completely agree with my collegues saying that it cold be possible satisfaying human needs while destroying value. For exemple, recently companies like Shell (remember the scandal in Nigeria) are trying to take care of their impact on environment since customers and other stackholders, thanks to the web, are more and better informed about what is going on all over the world. Infact Shell has a section in its web site completely dedicated to Evironment&Society in which it explain what sustainability means for them.
Yes, it is possible to destroy values. Think about tobacco industries. They totally destroy moral values in my opinion. For example, on the cigarette boxes, you can see written "smoke kills", but they keep on selling this product. They sell a product that increases the "smoking pleasure", indeed they sell the fastest way to stimulate human weaknesses.
Today many companies have an interst in environment safeguard and human wellness (also from different points of view, such as customers, workers and the same human being in its wide definition).What I think is that these are weak attempts which mask the real interst of the firm: profit. An example is the effort of some companies to reduce environment contamination such as Winni's eco-friendly detergents. The idea is good but their high prices are not competitive , too expensive for the major part of customers. It's very difficult to satisfy each part of the market without destroying value. A trade-off of values seems inevitable!
I read the previous comments and I can only agree with the majority of you. Especially with Gian Marco D’Urso when he say that we can do anything to counteract the “value” that such firms offer us. There is only a trade-off between works and pollutions. But on my view, there is another big differentiation between the value that the firms deliver. There are firms that try to create value in the country in which they operate and firms that transfer the value from the country in which produce to the country in which they sell. A good example can be the oil production, in fact the exploitation, the impoverishment of the lands and the pollution caused by the extraction and processing of the oil remain in a country, with the destruction of value. Conversely, this value is bring in the country where the product with its value is sold. So I disagree with Lucia Parlanti when she talks about Shell that is trying to take care of their impact on environment. Because for Shell be “environment friendly” is only a way of doing marketing and persuade people that Shell create value and does not destroy it.
Of course there is a big problem related on sustainability in satisfying needs, even if firms create value we should consider the different value that they create on short and long term. Even if to create value means to satisy customers demand and increase profit for the firm what about the consequences on the long term? I think that firms are myope and they don't care about it but it means that on the long term there will be a huge problem related to scarce resources and other issue such as pollution and so on. Even if firms such as multinationals are starting to be oriented to focus on these aspects I'm wondering if this is a real strategy that they re trying to implement or it is just another marketing strategy? Because if not they are for sure continuing to destroy value in the large sense even if they cannot see it now
yes of course, it is the topic of many currents of thought like non consumerism and decroissance (serge latouche). it is a debate very discussed in modern societies. it opposes scarce resources to nearly unlimited needs. the man can destroy value satistaing needs both producing dangerous products both producing over natural possibilities.
Yes, it is possible especially when the satisfied needs are from those don't feel the value destroyed, and viceversa. This is very common in the globalized market, were you destroy in Amazonia to sell in Europe etc. For sure we know that we are increasing this disruption but is in the human behavior doesn't care about something very far. This dis-alignment of interest feed the global economy and allows all these stuffs
Not only it is possible to satisfy human needs destroing value at the same time, but also it is easyer way. The first effect of industrialization (industrial revolution) was a massive movement from campaign toward cities. People into firms worked long hours and had little or no protection. Those people who lived during the industrial revolution are those who payed the price of progress. Emil Zola in France and Charles Dikens in Great Bretain provide a vivid image of what were the working conditions of those years. Of course first with the advent of trade unions and with social conflicts things have changed and in 1930 the economic debate lightened the importance of welfare in the economy. For the first time progress and welfare were seen as two sides of the same coin. Today we have realized not only that social responsibility is a must (especially for big companies) but also that the green economy realize cost savings. Firms pays great attention to environmentally friendly products and people prefere those products among others. Summarizing from mere progress to welfare progress to green economy, the focus is encreasingly converging toward solutions oriented to a social responsibility. Progress without responsibility is a leaky ship.
It's difficult to find the edges of what is creation or destruction of the value, it depend on the value perseption of the customer. Print a book could be considered creating value even if in doing that you sacrifice a wood without planning a sustainable impact on the environment? Smoking cygarettes can be considered value distruction even if a smoker accept the risk to get a cancer only for the pleasure of few moments?
I do strongly believe that, sometimes, value destruction in one than more occasions has been proofed to be a way to achieve personal interests. Financial literature provides us with an endless number of examples. For example, betting on an imminent default of a company through financial derivatives is one the the best way to gain profit at expense of the value creation of a targeted firm. Another example can be found when a top manager does extract private benefit for his family at the expense of the company for which he is working for, given the fact that his position is temporarily held.
Guys, put aside moral or ethical values. On one hand the consumption of cigarette is the result of a conscious choice, on the other hand an oil spill in the Ocean is the result of a misconduct. The first example cannot be linked to the idea of value destruction simply because consumer demand that good (for them smoking is valuable), whereas the second example is clearly linked to value destruction since nobody would ever live in a contaminated place.
I compleate agree with you, but I would like to focus on a slightly different issue. Capitalism is the economic system of buying and selling based on the exploitation of human labor, which is the sole source of value. The elimination of labor power from production is destroying the source of all value, and thus, destroying surplus value, which is the source of all profits stolen from the worker by the capitalist.
There are different types of destroying value which I would like to outline in the following:
1. Apple is a good example of this phenomenon. As soon as they release a new iPhone for example, they destroy the perceived value of the previous version. Prices of the 'old' version drop considerably, people are pre-ordering in amounts that the websites have to shut down because of overload and fans are camping in from of the stores for days to be the first ones to have to new phone. The company knows that with the release of the new product, they are destroying the value of the 'old' product, without physically destroying it.
2. Gold mines and deforestation are another example of destroying and creating value simultaneously. Searching for gold, involves using chemicals that often end up in natural rivers, destroying wild life and nature with an immense impact on the environment. At the same time, the gold is being transformed into a consumer good - creating value! The same counts for products made of wood. Here, the forests are being cut down, creating problems for clean air and increasing the green house effect. And at the same time, consumers are receiving products made of wood that have high value for their lives.
Of course. We could speak about Enron, Parmalat and many other like Riva and Ligresti families. In all these cases the ultimate controlling party of each firm has followed its private interest. Callisto Tanzi and his top management have manipulated accontant books to cover losses in Parmalat balance. In the case of Ligresti family we find a lot of transaction among firm and family to satisfy the interest of the family and its members. All these actions have bring to a slow deteriorioration of firms caused a lot of damages to thousand of shareholders
If you work in intellegent way - analysing market, counting your costs and satisfying human needs - it is not possible to destroy value, because you will always recieve customers positive feedback what is a profit and long-term interest. But, if you act according to your own interests neglecting the company and human needs - of course you destroy value.
Companies do not always provide information on their value creation purpose. In order to support this statement, I believe that Volkswagen's mission statement is a valuable example. In fact in its mission, “The Group’s goal is to offer attractive, safe and environmentally sound vehicles which can compete in an increasingly tough market and set world standards in their respective class.”, Volkswagen merely describes the main features of its products, while doesn't broaden its definition to a larger range of values. In fact, this mission does not focus on some essential aspects, as customers or its pursued philosophy.
No, the mission of listed companies can also lack information about what type of value the firm wants to create. In addition to the example provided by Luigi, I found that also the Fiat Group's mission statement lacks this kind of information. Take a look: "The Group designs, engineers, manufactures, distributes and sells vehicles for the mass market under the Fiat, Alfa Romeo, Lancia, Abarth and Fiat Professional brands and Chrysler brands such as Chrysler, Jeep, Dodge and Ram brand vehicles and vehicles with the SRT vehicle performance designation, as well as luxury cars under the Ferrari and Maserati brands".
I absolutely agree with my colleagues. I will provide the example of the american oil producer Chevron. In this case, it sounds better as a wish rather than a company's mission. "At the heart of The Chevron Way is our Vision to be the global energy company most admired for its people, partnership and performance". Chevron has also been legally forced to pay 8 billions of dollars as result of the Lago Agrio (Equador) disaster together with Texaco, in order to respect all the wishes stated by its mission statement.
I think that the missions of listed companies rarely contain toward what kind of value creation the governance is oriented and nor how to create it. In fact, most of the time they are just something catchy and appealing designed with the only purpose of luring customers. To better understand how sometimes they just want to be catchy, consider the mission of Disney: "To make people happy"
"We safeguard reliable transactions and authenticity. We are the technology leader, trusted partner, and preferred provider of products, services, and solutions in all our markets. We act with intercultural excellence and entrepreneurial drive." Giesecke & Devrients mission statement is being kept rather general and is keeping the true intentions of the company in the shade. Somebody, who does not know the firm and its goals, cannot tell by the statement, what their intentions are and which products or services they offer to which customer group.
Keeping the mission as general a possible leaves the firm as much space for interpretation as possible, ensuring a broad view to target a broad customer base.
I could take the example of Apple. On their site they don't provide any info about mission or value but recently Tim Cook, the CEO, have spoken about some guide linees behind the philosophy of the firm from which we can discover the firm orientation of Apple policy. This is an extract of his words during a recent meeting:
"We believe that we are on the face of the earth to make great products and that's not changing. We are constantly focusing on innovating. We believe in the simple not the complex. We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution. We believe in saying no to thousands of projects, so that we can really focus on the few that are truly important and meaningful to us. We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot. And frankly, we don't settle for anything less than excellence in every group in the company, and we have the self-honesty to admit when we're wrong and the courage to change. And I think regardless of who is in what job those values are so embedded in this company that Apple will do extremely well."
If we look instead at the italian system, we can find often a clear orientation toward shareholders satisfaction and social value creation, especially in big firms where there is also the state as shareholders. In other cases, where there is a family as ultimate controlling party we know that the ultimate interest of the firm is obviously whose of the family members, thus the value creation is linked to the family interest.
If an individual owns the total equity of a company we can talk also about family business. So we can have two situations. In the first case, family wealth is maximized with respect to the firm’s wealth: the idea is that the business is functional for running the family, so in this case the interest of the family will be different from the company. In the second case, all earnings are reinvested in the firm, so there are little or no dividends: the idea is that the family develops itself through the firm. In this case the interest can be aligned.
In my personal perspective, Almost company produce products to meet the customers needs and to do the mission of listed companies always contain toward what kind of value creation the governance is oreinted, for example Apple being increase the innovation in their product, Ipone, iPad is always to make value creation to satisfy customers demand. Another good example is Microsoft, they oftent update version for their products like Microsoft office, window operation system to increase value creation for customer, ......
According to me here we can go back to the issue of the "objective of the firm". The mission reflect in any sense what the business want to reach thanks to its performance and its relation with customers. According to you guys, is it only a coincidence that we have to analyze a listed company in our discussion? or such companies have the duty to develop a mission statement much more transparent in order to provide greater informations to investors? (and even respect regulation about transparency).
No, I don't think it's a concidence. In fact, in my opinion, listed companies can exploit their mission statement, if it leans towards sustainability, to capture a larger range of investors. Nowadays awareness about socially and environmentally aware behaviour is taken into account by a large market share. Still, an adequate mission statement represents a competitive advantage for any company for its success in the market, even for those which aren't listed. In fact, consumers are becoming more aware on the importance of sustainability of their purchases.
I agree with Luigi in this answer ,but since we are talking about social sustainability with reference to the attention paid by firms to environmental issues,I'd like to ask you another question: do they REALLY care about it (so about pollution and so on) or even in this case firms are trying to satisfy the human need of "being more responsible"? For example H&M launched the eco-conscious glamour collection, but it really cares about the negative effect of production on the environment or just understood that consumers are becoming more involved in this matter and is trying to catch it as an advantage to make more profits?
I agree with both Luigi and Federica. I think that sometimes firms take advantage of the trends of the moments. The green marketing is diffusing very fast and the focus on the sustainability is becoming more and more important, but I do not think that all the firms that talk about it face the situation. More controls are needed. The control authorities have to do their job and protect the consumers's needs and rights. But there is a other question: who controls the controllers?
I do not know if listed companies accomplish transparency constraints by means of their mission statement only. Information about listed firms which are useful for investors mainly come from companies' financial reports and public communications. If I was an investor, I would probably look on them rather than reading the mission statement. As a consequence, false information coming from listed firms' public documents can be very misleading and unfair.
I agree with Lorenzo, in my opinion it is true that the mission statement should be as trasparent as possible, and this should of course be a duty of companies, but probably is not the mission statement the document that should provide important information to potential investors. A mission statement is much more concerned in informing stakeholders about what is the business and what the company is trying to accomplish on behalf of customers, in few words: it's the reason why the company exists. Companies, generally tend to communicate with potential investors through a specific page in their web site, called 'Investor Relations' which include information like historical quotes, financial data, dividends and growth objectives.
As a reply for Silvia, in my opinion the controllers (as we told in the previous lecture) are those who take advantage from the firms they control...so basically the problem is that in many cases controls are TOTALLY absent and this raiased by Silvia is a critical point that should be discussed in my view.
Actually there are more and more people very careful with responsibility and sustainability issues so if companies pursue these issues they will acquire many customers and if they don’t follow sustainability and responsibility they could lose their customers. So I think that they try to make more profit (or don't lose it) and they don't care about environmental issues.
Totally agree with Chiara. I'm not saying that there are no companies really concerned on social responsability and environmental sustainability issues, but I believe that many of those firms paying more and more attention to such issues don't really care about it. For them it is only a mean in order to approach better their customers and the community around them, and finally make more profits. That's their aim! they hardly care of satysfing the human need of being more responsible.
It's for these reasons that there is the NEED of higher controls. I agree with Federica when she says that the controls are totally absent. Listed companies are able to influence the market, the consumers' behaviours, the prices etc. If there's something that is not correct, there will be a lot of repercussions, and the past instructs us that the consequences are always bad.
I agree with you guys. Nonetheless, I am not sure that worldwide customers already have such a high sense of responsibility. Chinese people pay less attention to sustainability issues than european ones. There is still a lot to do as consumers. On the other side, concerning companies, the institution of CSR (corporate social responsibility) has definitely had a great impact since firms have understood that their reputation is strictly linked with thier whole stakeholder carefulness.
Answering to Federica Sabato i would say that there is nothing wrong in doing something good for the society and also good for the firm. In fact i do really think that the objective of sustainability is sustainable over the long term only as long as it is profitable. Business organizations can't really afford not making profits.
That's why sustainability is not just an objective for the firms, but it should be also for the customers (for us!). the more customers will care about this issue, the more it will be profitable for the firm and so it will represent a sustainable business strategy on the long term.
Good question Cristina. According to me big firms ( listed) should provide any kind of information not only to shareholders but also to stakeolders due to the fact that the impact of their activity concern the collectivity and social wellness.
I complitely agree with Lorenzo and Francesco.I think that mission statement is the last element an investor would look at when deciding where to invest his money. The mission statement is just like a "motto" for the company,it basically define : target customers, products realized by the firm and what peculiarities of the service/ good produced distinguish it from those of competitors. ( what is according to the company its competitive advantage). The assumption that mission statement is just a Motto which does not imply a real effort by the firm in reaching what is reported inside it, is given by the fact that mission statements are almast all VERY SIMILAR one to each other in goals and values reported. Especially in huge multinational firms where each investor has provided a very little slice of total capital , the investor' interests are only concerned with firms RETURNS rather than with sustainability or other issues on the grounds that he knows he couldn't do anything to change things inside the organization.
QUESTION: We are considering so far the influence that the mission statement has on the external users of it (e.g. investors). What about the function of the mission statement INSIDE the firm? Is it important for the internal stakeholders of the firm (e.g. the employees)? Can it influence the management or the governance of the firm?
I believe that if internal stakeholder believe in the mission stated by the firm, they will be more likely to develop a sense of ownership towards the firm itself. This way, they wouldn't only be motivated by their salary, but also by the feeling of contributing to something they believe in. While this may sound quite unlikely for most italian firms, it is more diffused in other countries, as Germany, where employees are even involved in the decision making process, this way contributing to the mission statement in first person.
Of course it is an important aspect that we have to consider if we want to enhance the quality of the business. Employees should feel part of the firm and managers should understand that a cooperative relationship with them will enhance their productivity. It's important that employees share the mission because in this way they could be embassedor of the firm creating a very good reputation.
Of course the mission and the vision play a key role both inside and outside the company's boundaries. A clear and shared mission among employees generates awareness about long term goals that puts the base for everyday actions inspiring people, increasing productivity and creating a sense of belonging to the firm and a common shared interest in the final scope that in turn benefits of this accordance.
Surely, the mission statement of a firm influences the internal stakeholders. If the employees of a firm (in the case we are considering) believe in the mission statement and feel part of the firm itself, they will do better their jobs, allowing to the firm to reach its primary objective in a proper manner. Furthermore, employees should share the mission in order to be aware about the goals that the firm would reach in the long and short term, in such a way to align their actions with them. Howevere, in my opinion company too must encourage employees to support the mission statement and to involve them in the decison making process like in the other countries.
I think that it's a very good point and maybe it is underestimated by some companies. Always following the aim of pursuing the objective of the firm satisfying the interests of the different stakeholders, the mission should be the milestone in the creation of the firm's CULTURE. One of the main goal of managers should be that of developing and spreading a sense of belonging and common values, that should be shared by all INTERNAL stakeholders. The effect on the entire business could be that of improving the performance of employees and reducing the staff turnover within the company and to become more credible for external stakeholders.
I think that when someone decide to work in a company is because that organization has something he/she believes in. It's important to create a series of ideas, beliefs and values that helps people who work within a organization to do better their job. If the internal environment is safe and if employees share the mission, people work not only to get a salary but also because they enjoy it.
Totally agree with all of you, the mission has a pivotal role also for the employees as stakeholders. In particular we've seen that if employees are more motivated the relationship with customers can be better and so the firm has more chances to achieve its goal of satisfaction. So firms MUST involve everybody in sharing their ideas,especially "internal "stakeholders.
As far as I am concerned, mission statement ought to drive managers in their decision - making process. However, considering it as a unique element provides a too simplified corporate landscape. As a matter of fact, we should consider more documents now. I am referring to ethical codes of conduct, internal rules and CSR documents.
In my opinion the vision/mission, internally, doesn't have a real impact on the productivity of workers. Probably affects only when you decide to apply for it particular firm. For sure would be but at the end employees care first of all about their job and their salary. Could be interesting a survey that shows if employees know the vision and mission of their company and how many times per week they check the institutional website. More than a vision (that has more effect on investors), probably are the human interactions inside the structure that can make the difference on productivity.
Truth be told mission statement, to me, is very often just a sum of beautiful and hypocrite words used to describe firms activities and to underline ethical values, that top managers never own... external users, as smart investors usually do, don't really care about it; they prefer to focus their attention on how real world inside the firm is in order to understand future scenarios, and often do this through internal stakeholders lences...
I believe that a mission statement is mainly a way for a company to explain how the firm should serve its customers. However, it does not mean that the mission statement influences external users only, because for example a specific and sharply focused mission can be able to motivate workers, and more motivated workers can work harder in order to satisfy the customers' needs.
In my opinion. the mission statement is much more useful for customers (and partners in the widest sense), because "insiders" (e.g. employees) should have a stronger system of incentives within the firm rather than the mission itself. But of course the mission statement/vision of a firm could have an influence in terms of attractiveness for the best workers and qualified employees who are external to the firm, so probably will have a utility for "future" employees rather than "present" employees.
I truly think that the mission statement of a firm is useful for both internal and external actors. It not only reflects in what extent the company wants to influence customers and other stakeholders' perception, but it can also be addressed to employees and other internal actors. The mission statement defines what an organization is, why it exists, its reason for being and for these reasons it is a driver of the firm culture as well as essential for for superior organizational performance results.
I do agree with the ones of you who think that the mission statement, if correctly written, can have an influence on the internal and the external of the firm. In particular i think the missiopn should also be a way to clearly communicate to the managers the objectives of the firm and the way the firm should reach them, in order to start aligning the interests of the management with the interests of the firm (even if the conflict of interest will not be eliminated).
Complitely agree with you.The mission statement represents the Motto of a company and very often it's used not only as a way to clarify to external public objectives and goals to be reached but also as a pivotal motivation tool for employees, provided that it's clear and significant, and so can help firm to reach higher performance results. Because of its great importance companies should try to better diversify their mission statements so that to really make emplyees ,who are the heart of the firm, feel part of an organization rather than another.
The relevance of the mission statement for internal purposes is given to the fact that the "cohesion" among the different parts of the firm has to be found. So, making sure everybody clearly understands the mission statement would let the firm go smoothly across the tough goal of survival, development and growth.
I completely agree with Luca and I believe that the mission statement of a firm is valuable for both external and internal stakeholders, but in a different way. Nowadays, companies more and more try to attract potential employees to work for them and they carefully evaluate how much a potential worker fit with the internal culture of the company. In this sense, the mission statement is of course useful for future employees, but also employed people often work for companies because they believe in them and they feel part of the organization, in order to reach a common and shared goal. In conclusion, the mission doubtless inspires internal people and create a sense of belonging.
In my opinion, the mission statement is more used to describe the company and to lure the external actors, in fact most of the times it is something catchy and vague and rarely related to the activities and to the core business of the company. However, there are exceptions in which the mission statement really expresses the values and the characteristics of a company and of its internal actors, and so it is used by them as a model to follow.
Totally agree with all of you. We have seen how motivated employees can improve the company's relationship with customers and make them satisfied, so it is essential that the mission of the company is primarily shared within the same. I think this also helps, as suggested, to strengthen the company's image, creating a strong brand image.
In many successful companies the vision statement is packaged by employees in final products and services contributing to differentiate them from competitors items. Anyway I think that if no vision statement is spreaded from the top-down of the company management, this process is completely ineffective.
Totally agree with you guys, especially with the last comment. It should be the case consumers start to think in a critical way. A company operating in a sustainable way should be sustainable also 'inside '.
I would like to ask you an opinion on the fact that Italian companies have hight debt and little equity. Prof Di Carlo told me that according to the letarature Italian laws is the major cause. Do you think there is something cultural at the basis of this? In sense, savers prefer to deposit money in banks rather than buy shares of a company? Thus for a company is easier to borrow from banks rather than from savers directly...
Agnelli-Berlusconi-De Benedetti-Della Valle model of entrepreneurship is died. If you try to search further information you will find their name in the board ( or in the ownership) of a lot of listed ( and non) italian firms. If who produces shoes sits also in the board of a bank and of a national newspaper and so on, why should he take money from the public?
Yes I think there is also a cultural explanation on the base of this behaviour. Many famous italian firms that were born as family business now cope with many levels of internal corruption or a too deep separation between ownership and control that allows everyone to pursue only his own interest. Due to business scandals and bankrupticies they experienced in previous periods savers are more suspicious, they have lost their trust in them while banks are still stable institution.
If we consider this actual period I think that the situation of our country does not help the situation. The crises and the pessimis of Italian people is a crucial aspect for our economic and financial situation. We do not have faith and hope for the future, we don not trust in our government and Italy is not the competitive Nation that was a few years ago. I think that it's for all these reasons that families do not buy shares or bonds, and the consequence is the fact that companies are forced to invest elsewhere or ask money to banks.
The main reasons are that in Italy (as in other latin countries) the financial market is not developed as in anglosaxon countries, and firms are usually not "public companies". For these reasons, firms are financed by banks and not from investors, and this leads to a high credit costs for Italian companies. So, in response to your question, yes! I believe there is something cultural that characterizes the italian capitalistic model.
I think it's not just about what we prefer to buy, but what we can actually buy. if the 55% of a company is owned by one group you, as an individual, can obviously buy just up to a certain limit (45% in this examples!). This kind of concentrated ownerships obviously lead to the fact that firms are forced to prefer loans from the banks, rather than from shareholders, being the shareholders much less than in the usa companies.
additionally asking money to shareholders would mean asking money mainly to theirselfes (in the case of big majority shareholders) bearing the major part of the risks. On the other hand, asking loans to the banks the risk is born by the firm (legal separated entity from the owners) and so it can probably more easily spread among the other shareholders (even with unclear or illegal financial transactions).
Yes, the typical situation of italian companies is the one in which we have an high level of debts and a little amount of equity. As Nardi said, surely it is due to our laws and regulations, but even other reasons can be found. One of that derived from the fact that nowadays people is more likely to deposit their saving in banks rather than to use it in buying shares of a company. In particular, due to the crisis people tends to be pessimistic and they do not trust in the government anymore, and if we consider also tha italian fiscal legislation that does not encourage investments, we can easily understand why companies have an unbalanced relationship between debt and equity.
Yes Nardi , as professor told you the problem is mainly related with italian tedious legislation , but culture plays an important role too. One of the reasons why Italy is not between the most higly-developed countries is because of our RISK ADVERSE attitude and our rejection towards every situation in which uncertainty exists.Take as example our terrible political class: people keep voting the same politicians because bad performance is better than "ignote" performance by new probably unknown political actors. Regarding this topic the situation is similar: putting your savings in banks gives you VERY low but quite fixed interests rates , buying shares,on the other hand makes your capital gains depending on the firm performnce and put the owner in the condition of facing a higher risk.
To me, one of the main reason why Italian companies hugely rely on debt as a main source of financing is because the simply are too small to be publicly listed. And the reason why they are too small is clearly demonstrated by the fact that they are family business enterprises.
Yes, it is both part of the culture and of the jurisdiction. In fact, Italy is to be considered a debt-centered market, in that in case of bankruptcy debt holders have the strongest protection by the law. On the other hand, countries as the U.S. are market centered, as their jurisdiction gives more importance to shareholders.
I agree with Federeica moreover I think that financing with debt allows owners to maintain their ownership and control over the firm. They prefer istitutional shareholders to other kinds of categories that could result more active in exercise their decision making power.
I agree with Nardi and with most of you guys. In fact, from the practice of business we can point out how the italian listed companies usually prefer to raise money via debts. By the way, I think that one of the main reasons of this fact, that is not been stressed enough, is that in Italy the shares of the listed companies are in the hands of powerful families. As a result, they do not want to use the market and issue new shares to raise money, because doing so would imply a stock dilution !
well, I think this issue is something cultural; as we said today, in Italy the ownership of a firm is in the majority of the times of a family and, if the firm needs an increase of assets, it is very difficult that a family takes the risk to do it, even because it has to invest a large amount of money that most of the times is not affordable. Another reason can be thought in the fact that, in terms of population, Italy is an old country, where the average age is high; this leads to a propensity of saving higher than in other european countries; old people tend to save more than to Invest in shares or other ways of investment; moreover, Italy, in general, is not an optimistic country, and sometimes, the uncertainty about the future, leads people to save money rather than invest them and this brings a huge increase of savings.
It is clear that the italian fiscal legislation has not encouraged the capital usage in the last years. Even though some attempts have been made , trying for example to introduce the possibility to deduct from taxable income the funds that are used to increase the assets of the company, the resistence to use private equity lasts..In my opinion the cultural factor has been deeply influenced by the actual aspect of a taxation system which favours this status-quo. As Pier Paolo has said the familiar ownership structure of many italian fims and even more the uncertainty about the future play an important role. In this precarious economic system it is not so easy to find investors ( expecially externals) available to risk their own money and resources without a warranty system provided by the law.
In Italy firms prefer debt rather than equity. Some portions of debt can be deducted from the taxes, so debt is less expensive than equity. But I think that with an higher level of debt we will have an higher Financial Risk. Financial managers should think of the firm debt-equity decision as a trade-off between interest tax shields and the cost of financial distress.
I gues the economic system would be better of if investing directly in companies were incuraged. It is really strange that such simple policies are not adopted. We are among the reachest countries in the world but considering that this welth is immobilized it can be the case to promote policies in fostering investment circulation. Nardi Gjergji
Nardi actually we(Italy) on my point of view are on The edge of the cliff, near bankruptcy, and our politicians prefer to speak of the weather, that should use their voice in Europa, austerity now is the worst thing that we can do, but they als have to do some reform to allow to the economy to circulate again. Now there are no possibilities to invest in Italy, cause burocracy, taxes, and also no profit in investing. They are not interested in Italy they are interested in their own sake. Italy for them is like parmalat for tanzi
Hostile takeovers are rare in Italy because usually firms are controlled by families that own more than 50% of equity. So it can be difficult for external parties to make takeovers.
I agree with Michele and in addition I think also that hostile takeovers are very rare because of the family members are inside the board of directors and between the managers of the companies. Moreover the external parties that would make takeovers are not motivated because there is a sort of pessimism, before starting they already know they will fail but also because usually the families that control firms in italy are very powerful, thus the external parties are also worried about doing something against those families.
I do agree with both of you. I think in Italy we could talk of something like RELATIONAL ECONOMY, so where the people that have the highest economical (and political) power are strictly connected between them. In such a situation it is very difficult a hostile takeover.
After all competition is not part of the Italian culture....
Dear Nguyen, I presume that your stay in Italy has also given you an interesting historical perspective. Once upon a time, Italy was divided in regional counties each of one under the control of an important families. In Florence you had "De' Medici" , in Mantua "the Gonzaga", in Verona the 'Scaligeri', then you had the Pope and so on and so forth. So as you can understand, in this country the concept of 'business' is strictly correlated with that of 'family', which, among other objectives, pursues the goal of keeping out those who do not belong to the family. Therefore there is no surprise at noticing that business is just a matter of family.
I am not Italian, but the family businesses are very famous for Italian companies. Thus, I would also vote for this answer concerning your question. When a firm is being owned by a family, the stakes are divided between generations. It is not only a view of keeping the business alive, however, also about keeping the family pride and hard work of generations that makes the acting of the various managers different from companies in public hand or with a non-family background. Families are more likely to find a solution avoiding hostile take-over, as it also is a matter of pride to keep the family business in the family.
In Italy a big number of companies are family-owned , while in the US mostly are public. And there are other sygnifical differences between the so called Anglo-American model ( the unitary system) and the Italian model of the Corp. Governance.
Yes, hostile takeover rarely happen in Italy because the controlling family own more than the 50% of the shares. Preemptive and reactive defenses present several difficulties for hostile bidders. Some defenses make the target company less appealing by raising the acquisition costs or lowering the company's value. Others significantly lengthen the acquisitions process, giving the target company’s management more time to prevent the hostile takeover.
Guys, I am wondering about the theories that we have studied, when we apply on the real company. How to know exactly while some theories is conflict or the real figure is not perfect like hypothesis.
Is it always true that when an individual owns the total equity of a company his/her interest is aligned with that of the company itself? Why?
ReplyDeleteThe conflict of interest is one of the most important issues in the field of corporate governance, as it is one of the reasons why corporate governance has become an issue as discussed . We have seen and heard many cases of companies failed because of conflicts of interest between principal and agent, but according to me it can definitely be the case that those who hold the total equity of the company are tempted to lose sight of the mission of the company itself and be groped by something that can bring benefits to the person even though it damages the business.Is not Enron an example of how it is possible to disalign the interests of a corporation which SHOULD have the so discussed object of human needs satisfaction, to pursuit own interests?
DeleteIn my opinion, no even if the person is the owner of his own business, his interests are not always aligned with it because sometimes he wants to increase his profit and only his, he might not care for the profit of the firm as a whole. He might have other sort of investments that bring him money so he isn't concerned with enhancing his own company.
DeleteThis doesn't mean that this is the case every time, there are certain owners that care about their business a lot and do all they can to maximize its profit and the profit of other stakeholders.
To sum up, it depends. There are owners who care and those who don't.
Actually I don't think that an owner will always have a interest align with the company. Let's make an example, we know that companies use to tie interest of their worker to interest of the company, trough different tools, in this case I suggest to think about stock option, now suppose that suddenly the company goes in bankruptcy, value of the shares fall down, and value of the company too. Let's say that I am an investor, and I want to maximise my profits so I decide to buy this whole company ( becoming the owner) with the intent to sell it when its will be back to the origin or even more over, I will use the strong will of company's workers and other shareholders to push up the value of the firm. Then I will sell it. I have achieved my interest, the company has been used by me, I have my profit, they have their success. The interest of both parties has been satisfied even though they were different and not aligned. The fact that interest are not align doesn't mean that it is always a bad thing.
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DeleteI think that when someone decides to "procreate" an organization, because of his business idea, the interest of the company and the person's interest are aligned, because the company represents the person himself.
DeleteThe individual wants that his product/service is accepted by consumers and he hopes that it could last as much as possibile (forever is enough?).
The owner organizes his company in order to achieve his goals, and when the firm reaches good results, such as high sales and high profits, the individual will be happy and satisfied: the satisfaction and the happiness could be transferred to the employees and the other people within the organization.
So, I think that having aligned interests represents the best solution.
In my opinion the answer is YES, because in this particular case the company IS the individual and then it is logical that interests correspond.
DeleteFrom my point of view, it is always hard to consider a sole proprietor's interests as the one of the company itself. Taking the example of the so called "Chinese boxes", in this case we are talking about firms that exist just to hide the owner who is behind them. Can we conclude that the interest of these companies is really the one that pursue their owner?
DeleteA common reference about this subject could be the case of Olimpia s.p.a. It was part of the Tronchetti Provera's Group and formally the main shareholder of Telecom s.p.a. before being sold by Tronchetti Provera himself.
Actually I believe that a individual will have his interests aligned with those of the firm itself only in the case of a small firm that has been founded by him. Instead, when the company's dimensions increase, a individual is interested in owning the total equity of a company simply because his main concern is profit maximization, without considering the interests of all the other actors involved in the company's activity. In large companies, a sole proprietor is compelled to delegate the management of the firm to qualified managers, because he has not the skills necessary for managing well a firm. So, in this case the firm's interests are a set of all the stakeholders' interests, and do not coincide with the interest of the individual.
DeleteAccording to my opinion, when an individual is the only owner of a company so he/she holds all the equity of it, his/her interest coincides with the interests of the company. Because, if this company is the only that he/she holds and the only source of revenues of course he/she will be interested to let it going well.
DeleteSo, I can conclude saying that the interest of both will coincide
According to me if we talk about sole proprietorship, meaning a business entity that is owned and run by one individual and in which there is NO LEGAL DISTINCTION between the owner and the business the interests of the prorpietor MUST be alligned with those of the company because he IS the company. In fact in this situation the owner is in direct control of all elements of the firm and he is LEGALLY ACCOUNTABLE for any kind of losses and debt as weel as he is the only beneficiary for profits. So no AGENCY PROBLEM occurs.
DeleteIn my humble opinion I could hardly understand the reason why an individual who bears the entire risk of the business, having the 100% of the company, would perform misaligning interest with respect to the company he owns. However I suspect that if a misalignement of interests will ever happens to be, the reason for this might be OUTSIDE the company itself. To put in short, it might be the case that some other and unknown reasons exist.
DeleteMaybe the outbreak of the financial crisis can provide us an exceptional example of fully owned companies in which there exists a conflict of interests between the owner and the company.
DeleteLet us consider this basic example related to the banks.
Full owner = STATE, or in other words We taxpayers, and "bad companies (bad banks)" set up to clean the balance sheets of irresponsible banks. In this case the State fully owns bad companies set up incurring high risks at the expense of taxpayers.
I think that when a business is completely owned by a single owner, many are the advantages that such business can benefits. As You have discuss in class, first of all there are no problem linked with the Agency theory.
DeleteWe know that the complexity of the structure and the fragmentation of the owners is positively related to such theory according to which the principals/owners and the agents/managers have different interests which in really few case are aligned each others. This can create conflict of interest, misunderstanding and opposition of values which bring the need to develop and improve the role of monitoring the agents throughout the firm.
While, if the 3 mechanism of governance within the organization are characterized by a trivial structure, so if the principal and the agent may coincide, it means that the need of monitor and control really diminishes and so the duty to support agency cost.
The contractual relation established in the firm among principals and agents in a situation like that doesn't affect performance. According to me too, the single owner has no reason to make his interests different from that of the business.
Cristina Quaranta
Without taking into account any of the theories, I was thinking about this fictional case in order to help me answer the question:
Delete1. Suppose I'm the son of a rich enterpreneur who owns the total equity of a huge company who produces medical prosthesis, he founded in..let's say.. 1950. The company interest was simple, doing profit by helping others.
2. My father soon retires and leaves the entire business to me. I suddenly become the owner. Despite my father, I do not "love my creature" and have a non-precised scope but investing and gaining more and more money.
3. At that time, company's vision could be summarized as "Let your life be better and start running again".
4. By the way, through a personal contact in the American Congress radicated in the american military machine, I am proposed a huge R&D contract for the american MoD, followed by the production of biotechnological prosthesis that can sooner put back injured soldiers on the field while achieving even better physical performance than it was before the incident.
5. As a positive answer wil duoble my profits over the next decade and my brand equity is relatively not relevant at this time, I accept the job.
What I've done accepting this job? The industry is the same, and if possible I will continue producing and selling prosthesis to health systems around the world for civillian purposes, making their life better. BUT I'm also helping soldiers to fight wars, seriosly harming people which lifes will be soon destroyed... Obviously, that's unless they can afford one of my prosthesis. Wow.. Scale economy of suffering.
Now, core doubt is: When inheriting the company, did I become the company?
A) In this case the company's interest cannot be misalinged with mines, so they can change along with people within them and the answer to Professor's question is YES.
B) While if the company has a stand alone life (I think this of Institution, for example), which make them live and say something to people just existing, also without knowing who is Steve Jobs' substitute, the answer cannot be other than NO.
Well, my propensity is for a sound NO, answering to the original question. But my collectivistic view of institution/corporation may deviate me from the right path.
So, what do you think guys?
Oh, another fun case to support the "No" (way less creative, by the way):
DeleteImagine I am a strong oligopolistic multinational ICT company, and I decide to ABSORB an entire business entity with the sole scope of removing this small yet dangerous competitor from my industry. In order to achieve this goal I will transfer all the useful skills and know-how and then leave it decay loosing mkt share year after year through lack of investments and operative loss.
How could this interest be even merely near to what is the company one? I acquired the company only to destroy it. And I can't think about a company born to be deliberately made sink... oh, wait, unless... but that's another story :D
Again, I see a clear "no, they do not always align" as the possible answer.
Actually, I think that it is possible true but it is not always true. For example, in the case of company has a large number of employee. The people who hold total equity can not manage all activities of the firm. The boss have to delegate authorities for some Very Important Person (VIP) whose his/her believe. This lead to the his/her interest have to share with those VIP. And then, the operation of the firm now not only server for boss's interested but also for interested of VIP groups.
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Thuy Le
Hey guys while studying I was confused with the 3 theories regarding the one of the shareholders, the one of stakeholders and the organic one. Which one is the most important and better than the others?
DeleteI personally prefer to focus on the Organic one, because relationship are the most important thinks also within an organization to engage in nonlinear and successful process, which bring internal and external equilibrium. By focusing on relationship leaders became to see their organizations more organically.
DeleteOnly by following the Organic theory it could be possible to integrate the first and second one.
From my point of view, the answer to this question is No. Even if we know from the theory that in a sole proprietorship there are no principal-agent problem ( since the principal is also the agent), I believe that it is not always true that when an individual owns the total equity of a company his interest is aligned with that of the company itself. In fact, it can be possible in a small company. When the company is big the owner can have different interests and sometimes can happen that he loses sight of the mission of the company, or better, it can be tempted due to the dimensions of his business.
DeleteI mean, for example he can be attracted by other interests that allow him to increase his own profits while the same interest can destroy value for the company.
The most of the time, the reality is pretty different from the theory, isn't it?
I share most of the statements expressed by my colleagues, and if we take the sole proprietorship, we know that the legal entity is the physical person (the sole proprietor), and since the activity is operated by one individual, as a consequence, the interests of the proprietor will be completely alligned with the goals of the firm. Instead, if we take different forms of business entities, like a corporation, there could be agency problems due to the separation of ownership and management. The company has big dimension and size, there are a lot of stakeholders which could have a lot of different interests that will be hardly alligned with those of the owner.
DeleteI do not think that the owner's interest are always aligned with those of the compnay. For example,after many years of activity, an owner may want to maximize short run profits without considering the long run objectives of the firm, Maybe because he became sick and tired of leading the azienda, and so he want to quit as soon as possible without caring if he is destroying firm value. in this case the objectie of the company with those of the owner are at opposite poles.
DeleteI believe that the interest of an individual that owns the total equity of a company is not always aligned with the one of the company itself. I agree with many previous replies and in my opinion manage the business is what keeps the interest of the owner aligned with the one of the company. The closer is the owner to the activity of run the business, the more he will care about the company - and indeed in the small firms usually interests are aligned.
DeleteThere are other cases instead, like the ones of the large firms, in which the owner is so far from the governance that his focus is no longer on the company itself, but just on earning profits.
I personally think, as many other replies, that it could be the case the interest of the owner may be different from that of the firm itself. Look what happened to Parmelat and Enron, two situations where the owners' interests were focused in achieving short-term profits to the detriment of the firm life.
DeleteInfact all these people who had preferred to satisfy their interests rather than those of the company are not within the organization anymore.
DeleteI think that when someone wants to maximize his utility shouldn't be a entrepreneur or a director/manager: the problem is that we can not know a priori what are a person's interests.
Cristina Parrella said...
DeleteIt depends because someone could decide to invest on it for different reasons that are not caring about the company itself but for others like employees it will be more important the company performance because they feel part of it as they are working in it. So the performance of the firm will ensure them the job and will increase a sense of security for them.
In my opinion, it is likely that there will be an alignment of interests when the one who runs the firm is also the owner of it. Of course exceptions exist and I think that first of all it depends on what is the objective of the firm. If the objective is that of generating profits, probably it will be always (or almost) aligned with the owner's interest. However if the objective is that of creating value for customers, it could be the case tha the owner loses interest in it, finding for example a shortcut to achieve higher and short-term profits, meanwhile destroying value for the customers.
DeleteWe can recognize a general rule, that is: whenever there may be a conflict of interest (necessary an sufficient condition) in the holding there is a problem of alignment between personal and firm's profit. The first case when it comes to "personal vs firm's profit" that comes into my mind is the case of fraudolent bankruptcy, that is probably the more extreme case. The other extreme case may be an entrepeneur who cares too mutch about stackeholders at all level outside the firm: safety and social responsibility is as noble as it may be costly and may undermine the competitiveness of the firm (of course this is more a logical than a practical case, but it may become a real threat when there is a powerful group of stackeholders and the owner is unable to put before the firm's interest). We can think at an infinite number of cases where even the sole proprietor may damage the interest of the firm, and all of them may be found in their "hidden agendas". Moreover the more the person is influent in the firm, the more the conflict of interest is dangerous for the firm as a whole.
Deletei think if someone owns the total shares of a company most times his interest coincides with the company's interest. but it depends, the divergence happens mainly when it takes place a misalignment between short-term-interest of shareholder (investor) and long-term-interest of the company. for example the company's management decides to reinvest huge capital in order to finance the building of a new plant (that will upgrade business in 5 years) while the shareholder would have preferred to earn dividends soon.
DeleteAs highlighted from my colleagues, the case of sole proprietor is actually very difficult to understand and create a "general rule" related with the alignment between the interest of the owner and the company itself. first of all we should distinguish the case in which the owner has decided that the life of the company must coincide with his own natural life. in this scenario, the interests are aligned, because the owner knows that when he will retire or die, the company will be liquidated. When the end of the company's life is know (not in the case of death, of course) in the last period many irrational actions could take place (delay in payments, distruption of value etc).
DeleteOn the opposite, we could have the case where the owner would pass the ownership to someone, like a heir or simply would sell it. In these cases the company must survive after the first owner, and this mean that all the actions and strategies must always consider the long term sustainability. The alignment will change and also the governance of the company exactly for this necessity to survive for a longer period than the human life. This is what happen in the cases of the familiar and old companies (from Barilla to the small grocery shop in town)
I'm thinking to the example of football teams in which the interest of the firm (wins matches) is more align with the interests of supporters rather than the interest of the owner (maybe gain political influence or public image). Therefore my answer is no.
Deleterevising my notes, a more formal approach can be adopted in replying to this question. Therefore the answer is: It depends from the point of view used. According to the shareholder theory, the firm is an object from which to obtain the expected benefits, so it would be a non-sense to suspect any kind of misalignment of interests. However according the view of Team Production Theory the shareholder is not perceived as the owner of the firm, but as holder of shares and this would be sufficient to assume that the interest of the shareholder might not be aligned with that of the firm. Think of a Bank holding shares and ask about its intention: is the bank going to keep those shares as "available for sale" or as "investment"?
DeleteNo even if the person is the owner of his own business, his interests are not always aligned with it. Sometimes the owner wants to enhance his own profit by having investments that bring him more money so he doesn't care for empowering his own company.
DeleteHowever, this is not the case every time, sometimes the owner care a lot about his business and does everything to increase its profits.
So in conclusion, it depends.
It depends because the owner may decide to reinvest on the firm for different reasons may be for own benefits and may be for public benefits like employees , So the performance of the firm will depend on the way of manage.
DeleteThis issue is a two-sided sword. On the on hand side, the owner has any interest in ensuring that the company is making good profit, which also means that the owner is enriching himself as the firm grows. Thus, if interests are aligned, company and owner are striving into the same direction.
DeleteLooking at the other side of the coin, in case the company is at an economic breaking point, the owner might just want to get out of the circle to save his personal wealth in order not to go bankrupt on a personal basis, meaning a devestating loss, not only of the company, however, also for himself.
Thus, in the situation that the company is doing well, the owners interests can be perfectly aligned with those of the firm, and if the company if looking at bankruptcy, the interests could not be more different.
Consequently, it cannot be stated, that the interest of the owner and the firm are 'always' in line. It depends on the economic and financial situation of the company and the personal interests of the owner.
I think that the owner interest is usually alligned with the company itself. First of all, because the owner is interested to gain a profit, because if his company succeeds, he will earn more, thus he will do all his best to make his business profitable, And the second factor is phsycological to my mind: when the company is yours you consider it like something very important for you, lile your own creation and the product of your efforts, and you are enthusiastic to work a lot, because of feeling of independence and responsibility for your "child".
DeleteIs it possible to satisfy human needs destroying value? If yes, which type of value?
ReplyDeleteI believe that it is possible to do it.
DeleteA clear example of firms that satisfy human needs destroying value are the ones that operate in the so called "controversial markets". As a matter of fact, cigarettes producers such as Philipp Morris or Marlboro satisfy a human need (people's urge to smoke) while destroying (worsening) a crucial human value (humans' health).
If their work and products were totally "fair" and out of this consideration, why would they have to add enormous cubital advices on their cigarette packs by law?
The same idea concerns other markets such as the arm one, the drug market and so on.
Yes, I think that it is possible for the firms to destroy value rather than create it.
DeleteI agree with Lorenzo: cigarette or alcohol industries are likely to destroy, or at least reduce value. In fact,on the one hand they satisfy human needs, but on the other hand they destroy, or better, reduce value since thei reduce not only a single human's health, but also the health of the entire community.
In this sense, I believe that companies operating in this particular sector can destroy value.
Furthermore, in my opinion companies can even create and destroy value at the same time. An example is given by the enviromental pollution, a concept also known as "negative externality" Sometimes can happen that companies, while producing goods or services fundamental for us, produce pollution that, of course, reduces the wellness of society.
I agree with you guys and I think that it is possible to satisfy human needs destroying value. I would like to provide the example of fast food companies like McDonald's, a world-wide firm that use aggressive marketing campaign for its unhealthy food. It's an other case of a firm that impose negative externalities, that make huge profits, but at the same time does not pay for the social costs resulting from the consumption (abuse) of the products offered. The value that is destroyed in this situation is of course in terms of population health. What could be a solution? In my opinion a solution to these behaviours could be to impose to such companies to pay for these costs (diseases, pollution, climate change and so on).
DeleteOf course a firm can produce income but at the same time can destroy value. In Italy we have an example with Ilva firm. In February 2007, Emilio Riva was sentenced to three years in prison, and Claudio Riva to 18 months, for neglect of work safety procedures and violation of anti-pollution regulations violations in the management of the Taranto coke plant. So they destroyed a lot of value.
DeleteLucio Trapani
I completely agree with all my collegues, but I'd like to add something that I remember from our past study experiences. Sometimes we've talk also about theories suggesting that in some cases firms can create value for stakeholders but also destroy the value of the firm itself. Just think about diversification or conglomeration. For sure economies of scale and other elements are definetely positive for the firm, but the expansion of corporate activities can also lead to agency problems between inside and small stockholders for example,or to geographic problems if the diversification is based on a geographic element. The effects can also be revealed on financial market, since investors can be "confused" about the real value of the "new" firm and this can lead to a depreciation of the firm,decreasing its value.
DeleteI don't think satisfy human needs destroying value. Apple is a good sample in the situation, they are increasing the value for their own product by satisfy human need.
DeletePerfect!!!
Deletein my opinion , it's possible that human needs destroy values , such as IKEA cutting down 600-year-old trees to use for flat pack furniture from forests in karelia , Russia , obviously this action destroys environmental value even if this wood uses for essential purpose like furniture.
DeleteI think that both human needs and values destroy the other one.
DeleteHuman being are increasing their needs, that sometimes are very useless (an example, do we really need a plasma TV, a car for each family member, a cellular phone that is able to do everything? No, we don't need them, we WANT them. And it is caused by the marketing, and the increasing number of advertising that make us believe that we have innumerable needs.) and it causes the loss of some "social values", and the value of the money: we spend our money for thing that we do not need.
On the other hand, it's true that a lot of firms produce goods and services that satisfy human needs destroying value: the best examples are McDonald's, like Francesco said, and the pollution, like Federica said.
I do not agree with the example of the alcohol and the cigarettes, because also in this case I don't think that smoking or drinking are needs, they are ADDICTIONS.
Yes it is possible. Value destroyed can be both tangible, like a natural landscape in favour of an hotel or other buildings, and intangible, like technology that has allowed us to reach everyone in any place into the world, but it has destroyed interpersonal relationship.
Deletetotally agree with Silvia, and the rest of my collegues,
DeleteThe main issue is the persective under which we consider "satisfying human needs".
For example, we may say that "social acceptance" may be one of the main human needs but the most slippery side of this broad view is how the realization of human needs/social acceptance may be manipulated by market leaders.
A very clear example may be Facebook itself: by satisfying the basic human need of communication and contact is destroying the natural skill of interaction with people around us.
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DeleteI agree with Francesca but I don't think only market leaders are manipulating our needs and habits; I think most of the faults of these problems should be commissioned to the Governments which allow the firms to act in this way; A big example of that is Monsanto, which created the OGM organisms; Many studies stated that OGM organisms are very very dangerous for human's health; then why don't stop this firm? Why Governments are allowing them to satisfy human needs (by satisfying almost all the food demand) but leave these firms to destroy value by damaging human's health?
DeleteYes of course Marketing manipulates our habits but is not the only on doing that.
Of course it is possible to satisfy human needs destroying value.
DeleteI want to provide you a clear example. I'm sure everyone of us has at home at least a P&G product. Well, you should know that many of those products contain palm oil, and that P&G destroyed forests in Indonesia in order to make palm oil plantations. In doing so, the habitat of orangutans has been destroyed. There was also a petition launched by Greenpeace!
Having a look on these comments I'd rather ask wheter there are firms that satisfy human needs adding value (apart from the recurring example of Apple).
DeleteI am thinking on companies that do not add value on their products only but on their entire sphere of stakeholders.
I complitely agree with your idea of value as : environment safeguard, workplace safety and people well being and heath.However I'd like to focus on another kind of value distruction : ECCESSIVE COMPETITION BETWEEN FIRMS. According to me a reasonable rate of competiton betweem organizations is good for self-assessment and to be motivaed to reach more challenging goals. The BENCHMARK tool for ex. seems to be good for comparing results reached by different firms and find out weaknesses and strenght so that to be able to work on them. But what about when firms set up real struggles between themselves in order to STEAL customers to each other rather than COOPERATING and putting their capabilites togheter in order to deliver better value?
DeleteWell, Lorenzo, there are a lot of companies that care about the environment and the sustainability: some examples could be Canon, H&M, and Novamont. They produce their product with a low environmental impact and do not destroy any value.
DeleteSometimes it's not important adding value, what matters is to satisfy the needs.
I really would like to focus on one of the comments, since directly involved in the issue.
DeleteIlva is the most important firm in Europe specialized in manufacturing of steel. If for ex we discuss about the satisfaction of human needs from the point of view of clients and the destruction of value (in terms of profit) from the perspective of the firm, the owners of such factory have been able to generate the opposite situation, by focusing on satisfying their own needs, in terms of profitability, in terms of domination in their sector of production at an european level, and at the same time without take in consideration the negative externalities that from the beginning have "convict" the population of the city (which is considered only a "little reality" in respect to what the outcomes and the services of the factory can produce). The values which, for years, have been destroyed here , are not the profitability or the competitive advantage reached , which only in the last time has been affected, but the Life of the current and surely the next and the next generations.
So as previously discussed when we spoke about the aim of a firm, this is the BEST example to understand how if a firm is only oriented to the generation of financial wealth, the result could be in some case only a disequilibrium of the firm itself or the relationship with customers but, in some case the results could be I can say CRUCIAL.
It's important to satisfy human needs, but it's much more important to make them satisfied by working within the barrier of health and respect for human beings. It's not the same situation of the Industry of Cigarettes, customers can choose if destroy their value here, anyone force them to consume such goods, but, has someone did ever ask to citizen if they would live together the externalities of such factory?
Cristina Quaranta
Cristina, I've been long time interested in Taranto, Brindisi and Civitavecchia (my home town) cases. I did several studies and discussed (even protested) a lot about the externalities of such blackmailing businesses. They give us a common value, such as work (wich means food) or energy, at the price (to be added to the economical one) of deaths, cancers and allergies. I cannot do anything but agreeing with you.
DeleteMaybe we have to ask ourselves, case to case, if this was a matter of choice or not(?), if it is avoidable or not(?), if this kind of blackmailing businesses are malicious or not(?). I have a particularly pessimistic view of human beings' nature, so I may have my very own answers to this issues, but it is when a former President of the Republic, Ciampi, shamelessly says "Civitavecchia è stata la vittima sacrificale scelta per dare energia a metà del paese [and for the other half the winner is...Brindisi!], a qualcuno doveva pur toccare" that you understand that things are way more complex and delicated than they may appear at a first glance. Values overlap and there is no simple way out from these huge businesses to stop destroying (lifes and) values in the short term.
That said, I'm aligned with the trend of the answers saying that YES, it is possible to satisfy human needs (wether frivolous or vital) destroying even the most common and shared values, such life and wealth.
Great guys!!!
DeleteI read the comments above and I agree with those who think that it is possible to satisfy human needs destroying value but I would like to add something on the matter. Indeed I think that often the problem is related to human rationality. Let's think about Mc Donalds again, it's true that it uses a lot of marketing and sales instruments to attract people but we all know that fast food is not healty, so why we still eat it? Probably because we are not always rational. Sometimes we don't care how many studies have shown the correlation between that kind of food and heart deseases for example. Thus, even if I think that firms should not take advantage from irrationality behaviour of customers, I also think that we (as customers) should try to act more rationally and boicot those companies that offer us something that destroy the most important value, that is life. The same reasoning could be done also for the environment choosing, whenever possible, those companies which care for the Earth. I know it's a pretty utopian reasoning but maybe this could be the only way to make firms act differently.
DeleteFirst i would say that i totally agree with Aurora when she speaks about the responsibilities that also customers have in these situation because of the (unexploited) power that they have in influencing the firm's behavior.
DeleteSecondly i have another interesting example of firms that create value (profits) destroying other kind of values (people's wellness). I'm thinking to the whole gambling industry. This activity clearly creates value for the owners destroying at the same time value for the users (even if they're not always aware about that!), leading to very poor life conditions or even to suicides.
What i find interesting is the fact that, as Gian Marco said, there are always a lot of interests behind these activities, and in this case the interests are not only privates. If we think to how much money the State gets each year form the gambling industry (about 8 billions euros) we understand how ALL THE STAKEHOLDERS are involved in this cycle of value destruction and sometimes the firms are not the only ones to blame.
What about IBM's evolution (revolution) recently occured? Could it be a good example of firm that satisfy human needs (in this case NEW human and BUSINESS needs) adding value to both Task and external environment?
DeleteI completely agree with my colleagues and I also believe that it is possible to satisfy human needs destroying value. This value destruction could be related to human health (unhealthy foods,cigarettes, alcohol) or about environmental pollution and physical destruction of the landscape.
DeleteI completely agree with my collegues saying that it cold be possible satisfaying human needs while destroying value. For exemple, recently companies like Shell (remember the scandal in Nigeria) are trying to take care of their impact on environment since customers and other stackholders, thanks to the web, are more and better informed about what is going on all over the world. Infact Shell has a section in its web site completely dedicated to Evironment&Society in which it explain what sustainability means for them.
DeleteYes, it is possible to destroy values. Think about tobacco industries. They totally destroy moral values in my opinion. For example, on the cigarette boxes, you can see written "smoke kills", but they keep on selling this product. They sell a product that increases the "smoking pleasure", indeed they sell the fastest way to stimulate human weaknesses.
DeleteToday many companies have an interst in environment safeguard and human wellness (also from different points of view, such as customers, workers and the same human being in its wide definition).What I think is that these are weak attempts which mask the real interst of the firm: profit. An example is the effort of some companies to reduce environment contamination such as Winni's eco-friendly detergents. The idea is good but their high prices are not competitive , too expensive for the major part of customers. It's very difficult to satisfy each part of the market without destroying value. A trade-off of values seems inevitable!
DeleteI read the previous comments and I can only agree with the majority of you. Especially with Gian Marco D’Urso when he say that we can do anything to counteract the “value” that such firms offer us. There is only a trade-off between works and pollutions.
DeleteBut on my view, there is another big differentiation between the value that the firms deliver. There are firms that try to create value in the country in which they operate and firms that transfer the value from the country in which produce to the country in which they sell. A good example can be the oil production, in fact the exploitation, the impoverishment of the lands and the pollution caused by the extraction and processing of the oil remain in a country, with the destruction of value. Conversely, this value is bring in the country where the product with its value is sold.
So I disagree with Lucia Parlanti when she talks about Shell that is trying to take care of their impact on environment. Because for Shell be “environment friendly” is only a way of doing marketing and persuade people that Shell create value and does not destroy it.
Of course there is a big problem related on sustainability in satisfying needs, even if firms create value we should consider the different value that they create on short and long term. Even if to create value means to satisy customers demand and increase profit for the firm what about the consequences on the long term? I think that firms are myope and they don't care about it but it means that on the long term there will be a huge problem related to scarce resources and other issue such as pollution and so on. Even if firms such as multinationals are starting to be oriented to focus on these aspects I'm wondering if this is a real strategy that they re trying to implement or it is just another marketing strategy? Because if not they are for sure continuing to destroy value in the large sense even if they cannot see it now
Deleteyes of course, it is the topic of many currents of thought like non consumerism and decroissance (serge latouche). it is a debate very discussed in modern societies. it opposes scarce resources to nearly unlimited needs.
Deletethe man can destroy value satistaing needs both producing dangerous products both producing over natural possibilities.
Yes, it is possible especially when the satisfied needs are from those don't feel the value destroyed, and viceversa. This is very common in the globalized market, were you destroy in Amazonia to sell in Europe etc. For sure we know that we are increasing this disruption but is in the human behavior doesn't care about something very far. This dis-alignment of interest feed the global economy and allows all these stuffs
DeleteNot only it is possible to satisfy human needs destroing value at the same time, but also it is easyer way. The first effect of industrialization (industrial revolution) was a massive movement from campaign toward cities. People into firms worked long hours and had little or no protection. Those people who lived during the industrial revolution are those who payed the price of progress. Emil Zola in France and Charles Dikens in Great Bretain provide a vivid image of what were the working conditions of those years. Of course first with the advent of trade unions and with social conflicts things have changed and in 1930 the economic debate lightened the importance of welfare in the economy. For the first time progress and welfare were seen as two sides of the same coin. Today we have realized not only that social responsibility is a must (especially for big companies) but also that the green economy realize cost savings. Firms pays great attention to environmentally friendly products and people prefere those products among others. Summarizing from mere progress to welfare progress to green economy, the focus is encreasingly converging toward solutions oriented to a social responsibility. Progress without responsibility is a leaky ship.
DeleteIt's difficult to find the edges of what is creation or destruction of the value, it depend on the value perseption of the customer. Print a book could be considered creating value even if in doing that you sacrifice a wood without planning a sustainable impact on the environment? Smoking cygarettes can be considered value distruction even if a smoker accept the risk to get a cancer only for the pleasure of few moments?
DeleteI do strongly believe that, sometimes, value destruction in one than more occasions has been proofed to be a way to achieve personal interests. Financial literature provides us with an endless number of examples. For example, betting on an imminent default of a company through financial derivatives is one the the best way to gain profit at expense of the value creation of a targeted firm. Another example can be found when a top manager does extract private benefit for his family at the expense of the company for which he is working for, given the fact that his position is temporarily held.
DeleteGuys, put aside moral or ethical values. On one hand the consumption of cigarette is the result of a conscious choice, on the other hand an oil spill in the Ocean is the result of a misconduct. The first example cannot be linked to the idea of value destruction simply because consumer demand that good (for them smoking is valuable), whereas the second example is clearly linked to value destruction since nobody would ever live in a contaminated place.
DeleteI compleate agree with you, but I would like to focus on a slightly different issue. Capitalism is the economic system of buying and selling based on the exploitation of human labor, which is the sole source of value. The elimination of labor power from production is destroying the source of all value, and thus, destroying surplus value, which is the source of all profits stolen from the worker by the capitalist.
DeleteThere are different types of destroying value which I would like to outline in the following:
Delete1. Apple is a good example of this phenomenon. As soon as they release a new iPhone for example, they destroy the perceived value of the previous version. Prices of the 'old' version drop considerably, people are pre-ordering in amounts that the websites have to shut down because of overload and fans are camping in from of the stores for days to be the first ones to have to new phone. The company knows that with the release of the new product, they are destroying the value of the 'old' product, without physically destroying it.
2. Gold mines and deforestation are another example of destroying and creating value simultaneously. Searching for gold, involves using chemicals that often end up in natural rivers, destroying wild life and nature with an immense impact on the environment. At the same time, the gold is being transformed into a consumer good - creating value!
The same counts for products made of wood. Here, the forests are being cut down, creating problems for clean air and increasing the green house effect. And at the same time, consumers are receiving products made of wood that have high value for their lives.
Of course. We could speak about Enron, Parmalat and many other like Riva and Ligresti families. In all these cases the ultimate controlling party of each firm has followed its private interest. Callisto Tanzi and his top management have manipulated accontant books to cover losses in Parmalat balance. In the case of Ligresti family we find a lot of transaction among firm and family to satisfy the interest of the family and its members. All these actions have bring to a slow deteriorioration of firms caused a lot of damages to thousand of shareholders
DeleteIf you work in intellegent way - analysing market, counting your costs and satisfying human needs - it is not possible to destroy value, because you will always recieve customers positive feedback what is a profit and long-term interest. But, if you act according to your own interests neglecting the company and human needs - of course you destroy value.
DeleteDo the mission of listed companies always contain toward what kind of value creation the governance is oriented? Make some examples
ReplyDeleteCompanies do not always provide information on their value creation purpose. In order to support this statement, I believe that Volkswagen's mission statement is a valuable example. In fact in its mission, “The Group’s goal is to offer attractive, safe and environmentally sound vehicles which can compete in an increasingly tough market and set world standards in their respective class.”, Volkswagen merely describes the main features of its products, while doesn't broaden its definition to a larger range of values. In fact, this mission does not focus on some essential aspects, as customers or its pursued philosophy.
DeleteGood!
DeleteNo, the mission of listed companies can also lack information about what type of value the firm wants to create. In addition to the example provided by Luigi, I found that also the Fiat Group's mission statement lacks this kind of information. Take a look:
Delete"The Group designs, engineers, manufactures, distributes and sells vehicles for the mass market under the Fiat, Alfa Romeo, Lancia, Abarth and Fiat Professional brands and Chrysler brands such as Chrysler, Jeep, Dodge and Ram brand vehicles and vehicles with the SRT vehicle performance designation, as well as luxury cars under the Ferrari and Maserati brands".
I absolutely agree with my colleagues. I will provide the example of the american oil producer Chevron. In this case, it sounds better as a wish rather than a company's mission.
Delete"At the heart of The Chevron Way is our Vision to be the global energy company most admired for its people, partnership and performance".
Chevron has also been legally forced to pay 8 billions of dollars as result of the Lago Agrio (Equador) disaster together with Texaco, in order to respect all the wishes stated by its mission statement.
I think that the missions of listed companies rarely contain toward what kind of value creation the governance is oriented and nor how to create it. In fact, most of the time they are just something catchy and appealing designed with the only purpose of luring customers. To better understand how sometimes they just want to be catchy, consider the mission of Disney: "To make people happy"
Delete"We safeguard reliable transactions and authenticity. We are the technology leader, trusted partner, and preferred provider of products, services, and solutions in all our markets. We act with intercultural excellence and entrepreneurial drive." Giesecke & Devrients mission statement is being kept rather general and is keeping the true intentions of the company in the shade. Somebody, who does not know the firm and its goals, cannot tell by the statement, what their intentions are and which products or services they offer to which customer group.
DeleteKeeping the mission as general a possible leaves the firm as much space for interpretation as possible, ensuring a broad view to target a broad customer base.
I could take the example of Apple. On their site they don't provide any info about mission or value but recently Tim Cook, the CEO, have spoken about some guide linees behind the philosophy of the firm from which we can discover the firm orientation of Apple policy. This is an extract of his words during a recent meeting:
Delete"We believe that we are on the face of the earth to make great products and that's not changing. We are constantly focusing on innovating. We believe in the simple not the complex. We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution. We believe in saying no to thousands of projects, so that we can really focus on the few that are truly important and meaningful to us. We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot. And frankly, we don't settle for anything less than excellence in every group in the company, and we have the self-honesty to admit when we're wrong and the courage to change. And I think regardless of who is in what job those values are so embedded in this company that Apple will do extremely well."
If we look instead at the italian system, we can find often a clear orientation toward shareholders satisfaction and social value creation, especially in big firms where there is also the state as shareholders. In other cases, where there is a family as ultimate controlling party we know that the ultimate interest of the firm is obviously whose of the family members, thus the value creation is linked to the family interest.
DeleteIf an individual owns the total equity of a company we can talk also about family business. So we can have two situations. In the first case, family wealth is maximized with respect to the firm’s wealth: the idea is that the business is functional for running the family, so in this case the interest of the family will be different from the company. In the second case, all earnings are reinvested in the firm, so there are little or no dividends: the idea is that the family develops itself through the firm. In this case the interest can be aligned.
ReplyDeleteLucio Trapani
In my personal perspective, Almost company produce products to meet the customers needs and to do the mission of listed companies always contain toward what kind of value creation the governance is oreinted, for example Apple being increase the innovation in their product, Ipone, iPad is always to make value creation to satisfy customers demand. Another good example is Microsoft, they oftent update version for their products like Microsoft office, window operation system to increase value creation for customer, ......
ReplyDeleteI do appreciate if you ask questions to each other
ReplyDeleteI am confused the answer of a question: 'What are the core value of a firm?' How do you think about it?
DeleteAccording to me here we can go back to the issue of the "objective of the firm". The mission reflect in any sense what the business want to reach thanks to its performance and its relation with customers.
ReplyDeleteAccording to you guys, is it only a coincidence that we have to analyze a listed company in our discussion? or such companies have the duty to develop a mission statement much more transparent in order to provide greater informations to investors? (and even respect regulation about transparency).
Cristina Quaranta
No, I don't think it's a concidence. In fact, in my opinion, listed companies can exploit their mission statement, if it leans towards sustainability, to capture a larger range of investors. Nowadays awareness about socially and environmentally aware behaviour is taken into account by a large market share. Still, an adequate mission statement represents a competitive advantage for any company for its success in the market, even for those which aren't listed. In fact, consumers are becoming more aware on the importance of sustainability of their purchases.
DeleteVery good, question and answer
DeleteI agree with Luigi in this answer ,but since we are talking about social sustainability with reference to the attention paid by firms to environmental issues,I'd like to ask you another question: do they REALLY care about it (so about pollution and so on) or even in this case firms are trying to satisfy the human need of "being more responsible"? For example H&M launched the eco-conscious glamour collection, but it really cares about the negative effect of production on the environment or just understood that consumers are becoming more involved in this matter and is trying to catch it as an advantage to make more profits?
DeleteI agree with both Luigi and Federica.
DeleteI think that sometimes firms take advantage of the trends of the moments. The green marketing is diffusing very fast and the focus on the sustainability is becoming more and more important, but I do not think that all the firms that talk about it face the situation.
More controls are needed. The control authorities have to do their job and protect the consumers's needs and rights.
But there is a other question: who controls the controllers?
I do not know if listed companies accomplish transparency constraints by means of their mission statement only. Information about listed firms which are useful for investors mainly come from companies' financial reports and public communications.
DeleteIf I was an investor, I would probably look on them rather than reading the mission statement.
As a consequence, false information coming from listed firms' public documents can be very misleading and unfair.
I agree with Lorenzo, in my opinion it is true that the mission statement should be as trasparent as possible, and this should of course be a duty of companies, but probably is not the mission statement the document that should provide important information to potential investors. A mission statement is much more concerned in informing stakeholders about what is the business and what the company is trying to accomplish on behalf of customers, in few words: it's the reason why the company exists. Companies, generally tend to communicate with potential investors through a specific page in their web site, called 'Investor Relations' which include information like historical quotes, financial data, dividends and growth objectives.
DeleteAs a reply for Silvia, in my opinion the controllers (as we told in the previous lecture) are those who take advantage from the firms they control...so basically the problem is that in many cases controls are TOTALLY absent and this raiased by Silvia is a critical point that should be discussed in my view.
DeleteActually there are more and more people very careful with responsibility and sustainability issues so if companies pursue these issues they will acquire many customers and if they don’t follow sustainability and responsibility they could lose their customers.
DeleteSo I think that they try to make more profit (or don't lose it) and they don't care about environmental issues.
Totally agree with Chiara. I'm not saying that there are no companies really concerned on social responsability and environmental sustainability issues, but I believe that many of those firms paying more and more attention to such issues don't really care about it. For them it is only a mean in order to approach better their customers and the community around them, and finally make more profits. That's their aim! they hardly care of satysfing the human need of being more responsible.
DeleteIt's for these reasons that there is the NEED of higher controls.
DeleteI agree with Federica when she says that the controls are totally absent. Listed companies are able to influence the market, the consumers' behaviours, the prices etc. If there's something that is not correct, there will be a lot of repercussions, and the past instructs us that the consequences are always bad.
I agree with you guys. Nonetheless, I am not sure that worldwide customers already have such a high sense of responsibility. Chinese people pay less attention to sustainability issues than european ones. There is still a lot to do as consumers.
DeleteOn the other side, concerning companies, the institution of CSR (corporate social responsibility) has definitely had a great impact since firms have understood that their reputation is strictly linked with thier whole stakeholder carefulness.
Answering to Federica Sabato i would say that there is nothing wrong in doing something good for the society and also good for the firm. In fact i do really think that the objective of sustainability is sustainable over the long term only as long as it is profitable. Business organizations can't really afford not making profits.
DeleteThat's why sustainability is not just an objective for the firms, but it should be also for the customers (for us!). the more customers will care about this issue, the more it will be profitable for the firm and so it will represent a sustainable business strategy on the long term.
Good question Cristina. According to me big firms ( listed) should provide any kind of information not only to shareholders but also to stakeolders due to the fact that the impact of their activity concern the collectivity and social wellness.
DeleteI complitely agree with Lorenzo and Francesco.I think that mission statement is the last element an investor would look at when deciding where to invest his money. The mission statement is just like a "motto" for the company,it basically define : target customers, products realized by the firm and what peculiarities of the service/ good produced distinguish it from those of competitors. ( what is according to the company its competitive advantage). The assumption that mission statement is just a Motto which does not imply a real effort by the firm in reaching what is reported inside it, is given by the fact that mission statements are almast all VERY SIMILAR one to each other in goals and values reported. Especially in huge multinational firms where each investor has provided a very little slice of total capital , the investor' interests are only concerned with firms RETURNS rather than with sustainability or other issues on the grounds that he knows he couldn't do anything to change things inside the organization.
ReplyDeleteQUESTION:
ReplyDeleteWe are considering so far the influence that the mission statement has on the external users of it (e.g. investors). What about the function of the mission statement INSIDE the firm? Is it important for the internal stakeholders of the firm (e.g. the employees)? Can it influence the management or the governance of the firm?
I believe that if internal stakeholder believe in the mission stated by the firm, they will be more likely to develop a sense of ownership towards the firm itself. This way, they wouldn't only be motivated by their salary, but also by the feeling of contributing to something they believe in. While this may sound quite unlikely for most italian firms, it is more diffused in other countries, as Germany, where employees are even involved in the decision making process, this way contributing to the mission statement in first person.
DeleteOf course it is an important aspect that we have to consider if we want to enhance the quality of the business. Employees should feel part of the firm and managers should understand that a cooperative relationship with them will enhance their productivity. It's important that employees share the mission because in this way they could be embassedor of the firm creating a very good reputation.
DeleteOf course the mission and the vision play a key role both inside and outside the company's boundaries. A clear and shared mission among employees generates awareness about long term goals that puts the base for everyday actions inspiring people, increasing productivity and creating a sense of belonging to the firm and a common shared interest in the final scope that in turn benefits of this accordance.
DeleteSurely, the mission statement of a firm influences the internal stakeholders. If the employees of a firm (in the case we are considering) believe in the mission statement and feel part of the firm itself, they will do better their jobs, allowing to the firm to reach its primary objective in a proper manner. Furthermore, employees should share the mission in order to be aware about the goals that the firm would reach in the long and short term, in such a way to align their actions with them.
DeleteHowevere, in my opinion company too must encourage employees to support the mission statement and to involve them in the decison making process like in the other countries.
I think that it's a very good point and maybe it is underestimated by some companies. Always following the aim of pursuing the objective of the firm satisfying the interests of the different stakeholders, the mission should be the milestone in the creation of the firm's CULTURE. One of the main goal of managers should be that of developing and spreading a sense of belonging and common values, that should be shared by all INTERNAL stakeholders. The effect on the entire business could be that of improving the performance of employees and reducing the staff turnover within the company and to become more credible for external stakeholders.
DeleteI think that when someone decide to work in a company is because that organization has something he/she believes in. It's important to create a series of ideas, beliefs and values that helps people who work within a organization to do better their job.
DeleteIf the internal environment is safe and if employees share the mission, people work not only to get a salary but also because they enjoy it.
Totally agree with all of you, the mission has a pivotal role also for the employees as stakeholders. In particular we've seen that if employees are more motivated the relationship with customers can be better and so the firm has more chances to achieve its goal of satisfaction. So firms MUST involve everybody in sharing their ideas,especially "internal "stakeholders.
DeleteAs far as I am concerned, mission statement ought to drive managers in their decision - making process. However, considering it as a unique element provides a too simplified corporate landscape. As a matter of fact, we should consider more documents now. I am referring to ethical codes of conduct, internal rules and CSR documents.
DeleteIn my opinion the vision/mission, internally, doesn't have a real impact on the productivity of workers. Probably affects only when you decide to apply for it particular firm. For sure would be but at the end employees care first of all about their job and their salary. Could be interesting a survey that shows if employees know the vision and mission of their company and how many times per week they check the institutional website.
DeleteMore than a vision (that has more effect on investors), probably are the human interactions inside the structure that can make the difference on productivity.
Truth be told mission statement, to me, is very often just a sum of beautiful and hypocrite words used to describe firms activities and to underline ethical values, that top managers never own...
Deleteexternal users, as smart investors usually do, don't really care about it; they prefer to focus their attention on how real world inside the firm is in order to understand future scenarios, and often do this through internal stakeholders lences...
I believe that a mission statement is mainly a way for a company to explain how the firm should serve its customers. However, it does not mean that the mission statement influences external users only, because for example a specific and sharply focused mission can be able to motivate workers, and more motivated workers can work harder in order to satisfy the customers' needs.
DeleteIn my opinion. the mission statement is much more useful for customers (and partners in the widest sense), because "insiders" (e.g. employees) should have a stronger system of incentives within the firm rather than the mission itself.
DeleteBut of course the mission statement/vision of a firm could have an influence in terms of attractiveness for the best workers and qualified employees who are external to the firm, so probably will have a utility for "future" employees rather than "present" employees.
I truly think that the mission statement of a firm is useful for both internal and external actors. It not only reflects in what extent the company wants to influence customers and other stakeholders' perception, but it can also be addressed to employees and other internal actors. The mission statement defines what an organization is, why it exists, its reason for being and for these reasons it is a driver of the firm culture as well as essential for for superior organizational performance results.
DeleteI do agree with the ones of you who think that the mission statement, if correctly written, can have an influence on the internal and the external of the firm. In particular i think the missiopn should also be a way to clearly communicate to the managers the objectives of the firm and the way the firm should reach them, in order to start aligning the interests of the management with the interests of the firm (even if the conflict of interest will not be eliminated).
DeleteComplitely agree with you.The mission statement represents the Motto of a company and very often it's used not only as a way to clarify to external public objectives and goals to be reached but also as a pivotal motivation tool for employees, provided that it's clear and significant, and so can help firm to reach higher performance results. Because of its great importance companies should try to better diversify their mission statements so that to really make emplyees ,who are the heart of the firm, feel part of an organization rather than another.
DeleteThe relevance of the mission statement for internal purposes is given to the fact that the "cohesion" among the different parts of the firm has to be found. So, making sure everybody clearly understands the mission statement would let the firm go smoothly across the tough goal of survival, development and growth.
DeleteI completely agree with Luca and I believe that the mission statement of a firm is valuable for both external and internal stakeholders, but in a different way. Nowadays, companies more and more try to attract potential employees to work for them and they carefully evaluate how much a potential worker fit with the internal culture of the company. In this sense, the mission statement is of course useful for future employees, but also employed people often work for companies because they believe in them and they feel part of the organization, in order to reach a common and shared goal. In conclusion, the mission doubtless inspires internal people and create a sense of belonging.
DeleteIn my opinion, the mission statement is more used to describe the company and to lure the external actors, in fact most of the times it is something catchy and vague and rarely related to the activities and to the core business of the company. However, there are exceptions in which the mission statement really expresses the values and the characteristics of a company and of its internal actors, and so it is used by them as a model to follow.
DeleteThis comment has been removed by the author.
ReplyDeleteTotally agree with all of you. We have seen how motivated employees can improve the company's relationship with customers and make them satisfied, so it is essential that the mission of the company is primarily shared within the same. I think this also helps, as suggested, to strengthen the company's image, creating a strong brand image.
ReplyDeleteIn many successful companies the vision statement is packaged by employees in final products and services contributing to differentiate them from competitors items. Anyway I think that if no vision statement is spreaded from the top-down of the company management, this process is completely ineffective.
DeleteTotally agree with you guys, especially with the last comment. It should be the case consumers start to think in a critical way. A company operating in a sustainable way should be sustainable also 'inside '.
ReplyDeleteI would like to ask you an opinion on the fact that Italian companies have hight debt and little equity. Prof Di Carlo told me that according to the letarature Italian laws is the major cause. Do you think there is something cultural at the basis of this? In sense, savers prefer to deposit money in banks rather than buy shares of a company? Thus for a company is easier to borrow from banks rather than from savers directly...
ReplyDeleteAgnelli-Berlusconi-De Benedetti-Della Valle model of entrepreneurship is died. If you try to search further information you will find their name in the board ( or in the ownership) of a lot of listed ( and non) italian firms. If who produces shoes sits also in the board of a bank and of a national newspaper and so on, why should he take money from the public?
DeleteYes I think there is also a cultural explanation on the base of this behaviour. Many famous italian firms that were born as family business now cope with many levels of internal corruption or a too deep separation between ownership and control that allows everyone to pursue only his own interest. Due to business scandals and bankrupticies they experienced in previous periods savers are more suspicious, they have lost their trust in them while banks are still stable institution.
DeleteIf we consider this actual period I think that the situation of our country does not help the situation. The crises and the pessimis of Italian people is a crucial aspect for our economic and financial situation. We do not have faith and hope for the future, we don not trust in our government and Italy is not the competitive Nation that was a few years ago.
DeleteI think that it's for all these reasons that families do not buy shares or bonds, and the consequence is the fact that companies are forced to invest elsewhere or ask money to banks.
The main reasons are that in Italy (as in other latin countries) the financial market is not developed as in anglosaxon countries, and firms are usually not "public companies". For these reasons, firms are financed by banks and not from investors, and this leads to a high credit costs for Italian companies. So, in response to your question, yes! I believe there is something cultural that characterizes the italian capitalistic model.
DeleteI think it's not just about what we prefer to buy, but what we can actually buy. if the 55% of a company is owned by one group you, as an individual, can obviously buy just up to a certain limit (45% in this examples!). This kind of concentrated ownerships obviously lead to the fact that firms are forced to prefer loans from the banks, rather than from shareholders, being the shareholders much less than in the usa companies.
Deleteadditionally asking money to shareholders would mean asking money mainly to theirselfes (in the case of big majority shareholders) bearing the major part of the risks. On the other hand, asking loans to the banks the risk is born by the firm (legal separated entity from the owners) and so it can probably more easily spread among the other shareholders (even with unclear or illegal financial transactions).
Yes, the typical situation of italian companies is the one in which we have an high level of debts and a little amount of equity. As Nardi said, surely it is due to our laws and regulations, but even other reasons can be found. One of that derived from the fact that nowadays people is more likely to deposit their saving in banks rather than to use it in buying shares of a company. In particular, due to the crisis people tends to be pessimistic and they do not trust in the government anymore, and if we consider also tha italian fiscal legislation that does not encourage investments, we can easily understand why companies have an unbalanced relationship between debt and equity.
DeleteYes Nardi , as professor told you the problem is mainly related with italian tedious legislation , but culture plays an important role too. One of the reasons why Italy is not between the most higly-developed countries is because of our RISK ADVERSE attitude and our rejection towards every situation in which uncertainty exists.Take as example our terrible political class: people keep voting the same politicians because bad performance is better than "ignote" performance by new probably unknown political actors. Regarding this topic the situation is similar: putting your savings in banks gives you VERY low but quite fixed interests rates , buying shares,on the other hand makes your capital gains depending on the firm performnce and put the owner in the condition of facing a higher risk.
DeleteTo me, one of the main reason why Italian companies hugely rely on debt as a main source of financing is because the simply are too small to be publicly listed. And the reason why they are too small is clearly demonstrated by the fact that they are family business enterprises.
DeleteYes, it is both part of the culture and of the jurisdiction. In fact, Italy is to be considered a debt-centered market, in that in case of bankruptcy debt holders have the strongest protection by the law. On the other hand, countries as the U.S. are market centered, as their jurisdiction gives more importance to shareholders.
DeleteI agree with Federeica moreover I think that financing with debt allows owners to maintain their ownership and control over the firm. They prefer istitutional shareholders to other kinds of categories that could result more active in exercise their decision making power.
DeleteI agree with Nardi and with most of you guys. In fact, from the practice of business we can point out how the italian listed companies usually prefer to raise money via debts. By the way, I think that one of the main reasons of this fact, that is not been stressed enough, is that in Italy the shares of the listed companies are in the hands of powerful families. As a result, they do not want to use the market and issue new shares to raise money, because doing so would imply a stock dilution !
Deletewell, I think this issue is something cultural; as we said today, in Italy the ownership of a firm is in the majority of the times of a family and, if the firm needs an increase of assets, it is very difficult that a family takes the risk to do it, even because it has to invest a large amount of money that most of the times is not affordable.
ReplyDeleteAnother reason can be thought in the fact that, in terms of population, Italy is an old country, where the average age is high; this leads to a propensity of saving higher than in other european countries; old people tend to save more than to Invest in shares or other ways of investment;
moreover, Italy, in general, is not an optimistic country, and sometimes, the uncertainty about the future, leads people to save money rather than invest them and this brings a huge increase of savings.
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DeleteIt is clear that the italian fiscal legislation has not encouraged the capital usage in the last years. Even though some attempts have been made , trying for example to introduce the possibility to deduct from taxable income the funds that are used to increase the assets of the company, the resistence to use private equity lasts..In my opinion the cultural factor has been deeply influenced by the actual aspect of a taxation system which favours this status-quo.
ReplyDeleteAs Pier Paolo has said the familiar ownership structure of many italian fims and even more the uncertainty about the future play an important role.
In this precarious economic system it is not so easy to find investors ( expecially externals) available to risk their own money and resources without a warranty system provided by the law.
In Italy firms prefer debt rather than equity. Some portions of debt can be deducted from the taxes, so debt is less expensive than equity. But I think that with an higher level of debt we will have an higher Financial Risk. Financial managers should think of the firm debt-equity decision as a trade-off between interest tax shields and the cost of financial distress.
ReplyDeleteLucio Trapani
I gues the economic system would be better of if investing directly in companies were incuraged. It is really strange that such simple policies are not adopted. We are among the reachest countries in the world but considering that this welth is immobilized it can be the case to promote policies in fostering investment circulation.
ReplyDeleteNardi Gjergji
Nardi actually we(Italy) on my point of view are on The edge of the cliff, near bankruptcy, and our politicians prefer to speak of the weather, that should use their voice in Europa, austerity now is the worst thing that we can do, but they als have to do some reform to allow to the economy to circulate again. Now there are no possibilities to invest in Italy, cause burocracy, taxes, and also no profit in investing.
DeleteThey are not interested in Italy they are interested in their own sake. Italy for them is like parmalat for tanzi
Hi guys, can you help me? What do you think are the reasons why "hostile takeover" usually happens in USA but rarely in Italy?
ReplyDeleteHostile takeovers are rare in Italy because usually firms are controlled by families that own more than 50% of equity. So it can be difficult for external parties to make takeovers.
DeleteI agree with Michele and in addition I think also that hostile takeovers are very rare because of the family members are inside the board of directors and between the managers of the companies. Moreover the external parties that would make takeovers are not motivated because there is a sort of pessimism, before starting they already know they will fail but also because usually the families that control firms in italy are very powerful, thus the external parties are also worried about doing something against those families.
DeleteI do agree with both of you. I think in Italy we could talk of something like RELATIONAL ECONOMY, so where the people that have the highest economical (and political) power are strictly connected between them. In such a situation it is very difficult a hostile takeover.
DeleteAfter all competition is not part of the Italian culture....
Dear Nguyen, I presume that your stay in Italy has also given you an interesting historical perspective. Once upon a time, Italy was divided in regional counties each of one under the control of an important families. In Florence you had "De' Medici" , in Mantua "the Gonzaga", in Verona the 'Scaligeri', then you had the Pope and so on and so forth. So as you can understand, in this country the concept of 'business' is strictly correlated with that of 'family', which, among other objectives, pursues the goal of keeping out those who do not belong to the family. Therefore there is no surprise at noticing that business is just a matter of family.
DeleteThank you, i found really interesting to know the historical part of this situation
Deletebecause firms are controlled by families which own 50% of equity. So it can be difficult for external parties to make takeovers.
DeleteI am not Italian, but the family businesses are very famous for Italian companies. Thus, I would also vote for this answer concerning your question. When a firm is being owned by a family, the stakes are divided between generations. It is not only a view of keeping the business alive, however, also about keeping the family pride and hard work of generations that makes the acting of the various managers different from companies in public hand or with a non-family background. Families are more likely to find a solution avoiding hostile take-over, as it also is a matter of pride to keep the family business in the family.
DeleteThis difference is due to the different ownership structure of the companies and the corporate Governance systems of the 2 countries.
DeleteIn Italy a big number of companies are family-owned , while in the US mostly are public. And there are other sygnifical differences between the so called Anglo-American model ( the unitary system) and the Italian model of the Corp. Governance.
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ReplyDeleteYes, hostile takeover rarely happen in Italy because the controlling family own more than the 50% of the shares.
ReplyDeletePreemptive and reactive defenses present several difficulties for hostile bidders. Some defenses make the target company less appealing by raising the acquisition costs or lowering the company's value. Others significantly lengthen the acquisitions process, giving the target company’s management more time to prevent the hostile takeover.
Guys, I am wondering about the theories that we have studied, when we apply on the real company. How to know exactly while some theories is conflict or the real figure is not perfect like hypothesis.
ReplyDelete