==== Objective(s)... ====
Corporations seem to be very poorly understood by many people. This page is an attempt to capture some initial Observations or Opinions that may crystallize into Positions representing some of the views held by this community's participants. This relatively cautious approach is intended to allow community participants to state their own diverse opinions as input to any resulting discussions.
===== Some 'Introduction' points...=====
* Fundamentally, a Company is a legal Entity, sometimes called a "fictional person". Like an Individual, a Company may spend money (incur Expenses), receive money (earn Revenue), and is required to pay Taxes on the difference (the Income). These activities are reported annually in financial statements that include a "Profit or Loss" statement of the period's Income and a "Balance Sheet" statement of the value of the owned Assets.
* Additionally, both Individuals and Companies may incur Liabilities (e.g. Borrowing), or own various Assets (such as Property). Items of these types are listed on the Balance Sheet(s) of the financial statements.
* After paying Income Taxes, residual monies can be 'saved' as "Retained Earnings", or can be disposed of in others ways. This is where one fundamental difference emerges between Individuals and Companies. Specifically, Individuals have the sole discretion to decide how to dispose of their residual monies. Companies, on the other hand, are ultimately owned by a Group of Individuals. Since Individuals almost always have different views of how to use the residual Profits, there needs to be a decision making process. Whatever that process is, it is always implemented by responsible Individuals acting in accordance with the the Authority they have been granted to conduct the business of the company. These individuals are generally the companies Executive Managers and Directors, whose responsibilities and authority (needed to meet those responsibilities) should be documented.
* A fundamental aspect of the 'authority' given to responsible people to act either individually or collectively, is that they are accountable for their actions. Effectively, this means that "Companies do not make decisions.", but rather that the various Individuals engaged in managing the business, make the necessary decisions, always acting within their authority, be it as single Individuals or as a Group.
: There is a risk that this page may provoke considerable controversy, given the various snippets of opinions that are scattered across many of the pages here at CommunityWiki. If anything is found to be provocative, polite discourse should be used as a prefered method of dissent.
== Definitions (rough, adjust if not correct) ==
A simplified summary of a Company's 'accounting' perspective ...
: Income (Corporate) = Revenues - Expenses
:: Revenues = Sum of the actual prices of Goods and Services sold
::: (Revenues is preferrable since 'Returns' generally has other connotations in business)
:: Expenses = All Costs , including; Wages, Rents, Travel, ... and many more, including ...
::: Costs = All costs for external Good and Services
::: Wages = The sum of the all Employees' (Individuals) compensation. Note that common usage of Wages may imply a distinction of hourly paid rates versus Salaries (monthly pay, fixed regardless of hours worked)
: Earnings (EBITDA (Earnings Before Income(tax), Depreciation & Expenses)).
: Profit (or Loss) = Income - (Taxes + ...)
:: Profits (After Tax Earnings) are the funds available to compensate its Owners via "Dividend" payments.
: "Retained Earnings" are monies that are finally left (if any) to re-invest in growing the business.
* According to JosefSchumpeter's concept of an EntrePreneur, the entrepreneur is entitled to the Profits of a business enterprise as compensation for taking all of the Risks of managing the enterprise, paying everyone else regardless of whether the result is a Profit or a Loss, and hence deserves to get these 'left-overs'. Some other aspects of Schumpeter's thinking include ...
** The reward of Employment is Wages.
** The reward of Business is Profit.
** The reward of Land is Rent.
** The reward of Capital is Interest.
: Price = (Consumer) Price
: Abundance = Community Income
* not sure why this item is included or what its role is in CorporateGoals, unless this is intended to lead into the relative complicated WhatIsEconomy sub-topics of 'price', 'supply & demand', ...
== Discussions ==
In considering various aspects of CorporateGoals, it may be hepful to consider that Corporations can be every bit as diverse and different from each other, as can Individuals. The following cases may yield insights. ...
* One way to understand CorporateGoals may be to contrast them with IndividualGoals.
** Ideally, employment is "mutually beneficial" to both the Company and its individual emplyee(s).
** In the worst of cases, it becomes adversarial, as is evident in disagreements between various "stakeholders" such as ...
*** Shareholders & Management
*** Management & Labour (evident in certain instances of Union negotiations).
*** The Company & its Suppiers of both (Materials or component parts) & (Services = Employees & Contractors)
*** The Company & its Regulators (government agencies)
* Another way to strive for understanding that is common in Engineering efforts, is to consider the Ideal case and any Limiting cases.
** Ideally, emplyment is "mutually beneficial" to the Company and its individual employees.
* Another situation that may provide interesting insights may arise from considering the case of a new startup company. This could start with the simplest interesting case of the first two "employees" (since the lesser case of a single employee can be considered to be just a 'self-elmployed' Individual).
== Observations ==
Part of the reason that I/we are uncomfortable with Corporations, is because they seem like gigantic entities that control our lives, which we can never create, which we can never actually be part of: Only serve, like living batteries, seen in the matrix.
Further, we have few opportunities to talk about them, strengthening the disconnect.
=== General comments ...===
[new:HansWobbe:2006-04-04 14:09 UTC]
Since I have completly reversed my stance on this subject since ceasing to be an “employee” and becomming an “employer” ( I really, really like the German terms for these concepts which literally translate to “workTaker & workGiver!); I'll focus my thoughts by stating one of the dramatic reversals.
* "Corporataions should not be taxed" is my current view that replaced "Corporations should pay more tax".
** The position that corporations should pay more taxes was based on the assunmption that if Companies, paid more, Individuals would pay less. As an individual employee, this seemed a good change. Now, I appreciate that
*** (1) There is no effective limit to taxation that will satisfy a governement, so there is no way to balance the contributions of the Individual versus the Company. Governments will merely tax both to the extent that they can.
*** (2) Corporations do not "consume" money. The have no choice but to eventually recycle it. Since all Companies are ultimately owned by Individuals, it may make more sense to tax the Individual that eventually benefits. This becomes really obvious when a company does not hire people simply because it can't afford do so because it is paying taxes instead. (Theoretically Income Taxes are only levied on Net Income, making this a non-issue, but consider Amortization, which causes a company to be taxed on money it has spent and does't have.
** ... more later ...
* Corporations are owned and managed by groups of people, who must always be accountable according to the principles of good Governance.
** In this respect, there should be little difference in the way that decisions that are made in a Corporate organization or by any other Group.
[new:LionKimbro:2006-04-04 20:50 UTC]
I personally view the taxation of corporations the same as I view the taxation of individuals: You're paying dues for being part of the club. And, the government does not consume money either- it's not like they throw it into a furnace. (Well, okay, they ''do,'' but they just mint more elsewhere. ;) )
As for good governance: I don't think it's so much "The way they make decisions," so much as it is: who gets to participate in that decision making, and what their motives are. There's at least ''some aspect'' of public control in the government. Almost none, in the corporations, which work very hard to insulate themselves from government. (It seems very dangerous, to me!) As an outsider, the difference in control seems minimal: they are both "vastly inaccessible." But, that's why I believe in things like a DemocracyOfGroups.
But I feel like we're diverging from: "Corporations...poorly understood by many people." I'm really interested in what you think about Corporations as Corporations; Not so much: "Should they be taxed or not?" I suspect that if I had your view of Corporations, of your model of the situation, then that would be a deeper insight.
[new:HansWobbe:2006-04-05 00:55 UTC]
The preceding short paragraph "As for good governance..." presents me with considerable challenges, in that it appears to me to make several strong assertions in a very small block of text, making the information content extremely dense. Let me start with the wording of just the first sentence. The statement ...
* I don't think it's so much "The way they make decisions," so much as it is: who gets to participate in that decision making, and what their motives are.
... causes me some confusion since I think that "The way they make decisons" is in may ways equivalent to "who gets to participate in that decision making, and what their motives are."
That being said, I think we should explore some of the implications of this statement further. Specifically, for example ...
* Who gets to participate.
** In most types of Corporations, this is extremely well defined (especially so in publicly-traded corporations, in contrast to Private ones or those classified as "Not For Profit".) Consider...
*** Companies generally have Shareholders, the sum of whose "equity" interests is always 100% of the Corporation's Assets. This is generally true of all companies whether they are large or small, public or private. Let's focus on the large, public ones initially, if only because their decision-making methodologies are easier to fathom from an outsider's perspective.
*** The shareholders elect members to represent them on a Board Of Directors.
*** The Board in turn elects a Chairman, to who the Chief Executive Officer reports. This is probably the first "employeee" and it is this person's job to manage any specialists that the Company may need.
*** The Board may also hire additional Officers of the corporation; employees that may have a joint reporting relationship to the CEO and to the Board.
** Cascade down through the rest of the corporation's employees and you have the full cast of characters that may participate in "decision making" acticities of various types.
* '' got to pause here ... more later''.
== Opinions ==
Feel free to add Opinions to this section of the page.
As various Opinions are colleced, we should be able to cluster them into related Perspectives or Scenarios that it may be possible to compare and contrast.
=== HansWobbe's opinions current include ... ===
* "The major (sole?) purpose of a Business is to earn Income."
** Income = Revenue - Expense.
*** This simple equation becomes an important consideration when delving into how Corporate Decisions are made.
* A Company is a Group of Individuals who choose to work together since it is more beneficial for each Individual to participate as a Group member than any other practical alternative the Individual employee can achieve. In wiki terms, employees all enjoy the RightToLeave.
[new:BillSeitz:2006-04-18 11:15 UTC]
I think the Government '''does''' burn money in a furnace. In the sense that money taken by force creates a NegativeSumGame. Whereas voluntary transactions are generally PositiveSumGame-s.
I think the problems that Lion associated with the Corporation are really about really Big corporations, and the StateCapitalism that they co-evolve with.
See WebSeitzWiki:MarketDistortion and WebSeitzWiki:SustainableCapitalism
''Alas, those are -- temporarily I hope -- BrokenLinks as of 2006-09-19.''
''See Wiki:ZeroSumGamers Wiki:ZeroSumGame, Wiki:WinWin, ZeroSumGame, NonZeroSumGame.''
[new:LionKimbro:2006-04-18 15:16 UTC]
I disagree, and point to the TragedyOfTheCommons paper.
"Mutual Coercion Mutually Agreed Upon" is the basis of most society, and this includes taxation.
[new:PatrickAnderson:2006-04-20 17:54 UTC]
Hans, in the equation:
* Income = Revenue - Expense.
Would you say Wages are a Revenue or an Expense?
[new:HansWobbe:2006-04-20 18:47 UTC]
From the perspective of a Company (this CorporateGoals page's) ...
"Generally Accepted Accounting Principles" (and probably all company Financial Statements, at least in the western world that I am familiar with) class Wages as an Expense. In general, the monies that a Company receives in exchange for the Goods and Services it provides, are Reveneues, while all of the Costs it pays to produce those Goods and Services are classed as Expenses. Obviously, the "left over" is the Income (also called Profit or Loss depending on whether its a +ve or a -ve amount).
* One interesting difference in the treatment of Income between an Individual and a Corporation, is that while both are recoginized as tabale ''(?)'' Entities and are therefore Taxed, Individuals generally have very few Expenses that they are allowed to deduct by the Tax authorities of their respective countries, while Corporations are allowed to deduct all of their Costs that generate Income.
From the perspective of a Wage earner, I suppose Wages are a Revenue item, although most Tax authorites strive to treat them as Income, ignoring some relatively obvious employment expenses such as; transportation costs to & from work, business attire costs, ...
[new:PatrickAnderson:2006-04-23 16:32 UTC]
So CorporateGoals are to minimize Wages, while IndividualGoals are to maximize Wages. I wonder what CommunityGoals are wrt Wages.
|| ||Corporate || Individual || Community||
||Wage ||minimize || maximize || ???????? ||
||Competition||minimize || ???????? || maximize ||
[new:HelmutLeitner:2006-04-24 06:15 UTC] I wonder what the result of this discussion will be. If the fundamental corporate goal were the mimizations of wages, then corporations would close down and no coporations would be founded.
All organisations change all the time according to actual goals. They spend money (and increase wages) when they go for new goals. If they feel they have to cut down expenses (e. g. increase profits) they will look at wages and expenses for reductions, and to new products or services for increasing returns. Changes to the corporate structure are also connected to returns and expenses, short-term and long-term. It is a complex optimisation problem that can't be reduced to a single parameter.
Understanding corporation means to understand that often corporations follow silly strategies and that most of the time there is no corporate mind that has a complete overview. Instead various parts within a corporation (dpeartments or single persons) may follow their own interests to the disadvantage of the whole.
[new:HansWobbe:2006-04-24 13:55 UTC]
One of Henry Ford's most important innovations as a 'industrialist' was to "pay the highest wages possible". Most of the companies that view their emplyees as an assset strive to do this, as do all 'employee owned' companies.
[new:PatrickAnderson:2006-09-20 15:30 UTC]
Hmm... Maybe Wages are a special kind of Expense?
When (or which) other Expenses would Corporations not strive to minimize?
When I say 'minimize' I don't mean "set to zero", but "strive for the lowest within constraints" - though discovering what constrains is not trivial.
Physical laws constrain humans to needs of Water, Food/Drug, Cloth, Shelter, Soap.
Owner profit increases as worker choice to fill needs decreases, because wages may then be lowered until alternate avenues are "worth it" for the worker.
This is why Land and Capital hoarding are standard practice of WhatIsEconomy.
[new:DavidCary:2006-09-20 00:53 UTC]
No. The corporate goal is to maximize Income.
People who invest a little money in a company *now*, hope that they will get lots of money in return, sometime in the future.
They don't generally ask too many questions about where that money comes from.
At first glance, since
* Income (Corporate) = Revenues - Expenses
, it may seem that reducing Expenses (such as wages) will increase Income.
Occasionally you read newspaper stories where exactly this happens -- hundreds of people are laid off, "saving" the company tons of money.
However, most CEOs are smart enough to see the indirect results of reducing wages. Imagine that all wages in one company were reduced to one penny per week per person, "saving" the company tons of money.
Practically every employee would immediately resign.
Then, because there is no one to talk to customers, take orders, deliver orders, etc., the Revenues of that company would also immediately plummet.
The result is that Income would quickly drop to zero.
So that is not a Income-maximizing strategy.
As you may have noticed, often companies hire *more* people, resulting in higher expenses (not only direct Wages, but also other expenses such as office space to put a roof over their heads, all the equipment they need to be productive, training costs, etc).
Companies do that in hopes that it will (indirectly) result in Revenues that increase even more than expenses were increased, which results in more Income -- which is their goal.
The CEO will do whatever she thinks will increase Income. In some cases, this requires increasing wages. In other cases, this requires decreasing wages.
From a purely financial point of view, hiring a worker, hoping that worker will bring in more revenue than he costs in salary, is the same as renting some machinery, hoping that people will pay more to buy the product that machinery stamps out, than the cost of the rent on the machine.
||Corporate || employee || Community||
||maximize Income || maximize Wages || ???????? ||
Of course, there are other things that are more important than increasing some integer in a bank account somewhere.
It is unfortunate that many of those things are intangible, making it all too easy to forget how important they are.
It is too easy to neglect to consider how those things will be effected by the decisions we make.
It is difficult to even measure how they have been effected by the decisions we already made.
Should I mention some of those "more important than money" things here?
:[new:HansWobbe:2006-10-07 16:48 UTC]
I would be interested in at least seeing a bit of a list.
I like your additional thoughts.
= Should this page move to another wiki? =
''If there are no objections, sometime after 2006-Oct-01 this page will move to some other wiki. If no one has a strong preference, I will flip my 3-sided coin and randomly pick [http://mdgwiki.com/ Millennium Development Goals Wiki] or [http://communitywiki.org/odd/ETerra/HomePage ETerra] or [http://clondyke.co.uk/index.php/Alternative_economies Clondyke] -- is there a better place for it?''
== Discussion ==
[new:PatrickAnderson:2006-09-20 15:30 UTC]
I'm curious why this page should be moved. Is the subject outside the goals of CommunityWiki? What are the goals of CommunityWiki?
[new:AlexSchroeder:2006-09-20 17:26 UTC]
I recently started reading a paper on the economics of free software development and it started by explaining what kind of community efforts are best solved by firms and what kind of community efforts are best solved by markets. It was an interesting topic and didn't seem off-topic to me, for a fuzzy definition of topic. I don't think this page has to go, unless there's a place where it would be more appropriate -- as envisioned in HubAndSpokeWikis.
[new:HansWobbe:2006-09-30 18:40 UTC]
I have no objections to this page being moved, but I feel that I should state that the material I posted to it, was intended for a few of the members of this particular community. I'm not at all sure how it may (or may not) apply to others if it is moved, and effectively becomes "out-of-context".
A few points from the past...
* Move it only as envisioned in HubAndSpokeWikis.
* If moved, it may be 'out-of-context.
* Try refactoring this page by using TransClusion.
** [[CorporateGoals_Cw]] is being tested as an externally generated component.
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