The Corporation: Origins, Functions, and Responsibilities

Conception of the Corporation

Legal fiction: nexus of contracts; pool of capital. // Legal entity: social and economic organism; purposeful organization.

Origins of the Corporation

Private agreement among property owners to pool and increase capital. // Created by lawmakers to encourage investment in long-term, large-scale projects needed by society.

Functions of the Corporation

Maximize wealth for shareholders. // Provide goods and services; provide employment; create opportunities for investment; drive innovation.

Responsibilities to Society

None (fictional entities can’t have responsibilities). // Fulfill business purpose and act as a good corporate citizen.

Ethical Standards

Unclear: whatever shareholders want, or obey law and avoid fraud or collusion. // Obey law and follow generally accepted ethical standards.

Role of Shareholders

Principals/owners of the corporation with authority over its business. // Owners of shares; suppliers of capital with defined rights and responsibilities

Nature of Shareholders

Undifferentiated, self-interested wealth maximizers. // Diverse, with differing objectives, incentives, time horizons, and preferences.

Role of Directors

Shareholders’ agents, delegates, or representatives. // Fiduciaries for the corporation and its shareholders.

Role of Management

Shareholders’ agents. // Leaders of the organization; fiduciaries for the corporation and its shareholders.

Management’s Objective

Maximize returns to shareholders. //Sustain performance of the enterprise.

Management’s Time Frame

Present/near term (theory assumes the current share price captures all available knowledge about the company’s future). //Established by the board; potentially indefinite, requiring attention to near, medium, and long term.

Management Performance Metrics

Single: returns to shareholders. // Multiple: returns to shareholders; company value; achievement of strategic goals; quality of goods and services; employee well-being.

Strengths

Simple structure permits clear economic argument. // Consistent with law, history, and the realities facing managers.

Weaknesses

Principles do not accord with law or good management; shareholders have power without accountability. // Principles describe complex relationships and responsibilities; success is difficult to assess

The US

This model presents the board of directors and shareholders as the controlling parties.
Have a large and liquid capital markets (Germany too) and US have the Accounting standards defined by professional body. Also in the US, the Governance standards are established by Stock quotes (cotizaciones en bolsa) and Legislation.
To conclude, US are Mainly focused on shareholders.

Germany

Have also large liquid and capital market but Have Two-tiered board structure. Firstly the Management board that "runs the company" and Secondly the Supervisory board, that has up to 50% of labor representatives, "oversees the company”.The board structure is a legal requirement and its main difference with the US model is that the Public shareholder voting rights are somewhat limited.

China

Are in a Partial transition from communism to capitalism. The Government continues to be the primary owner. The main difference between the other models is that China have little foreign ownership.(poca propiedad extranjera) It protect societal concerns like the maintenance of employment or the protection of the industries from the foreign competition.Onther difference from the US model is that The Individual shareholders are minority owners with little voting power.

Japan

Japan

Japanese model main difference is that Have a strong Historical interconnections between companies. The are a Cross-ownership between clients, suppliers, affiliates and financiers.The japanese systems encourage business relationships and cooperation toward shared objectives And the Large boards are comprised mostly of executive directors.

The altruism and the business ethic economize on the contracting cost, and in the same time reducing the transaction cost.
The prices that consumers are willing to pay will be lower if shirking is expected, but if there are Seller-provided warranties reduces the risk of shirk and the price costumers is higher.
The good business performance is the first ethical exigency by maximizing a firm’s value. Firms that maximize value survive and are loyal to owners and stockholders. A good ethical behavior reduces transaction costs.