Page 147 - Introduction to Business

CHAPTER 3 Business Governance, Ethics, and Social Responsibility 121

on the frontline of dealing with business governance issues. In addition, many large
corporations in the United States have active philanthropic foundations, which hire
employees to administer grant programs. In recent years, the General Electric Com-
pany Foundation has made annual philanthropic grants of about $46 million, while
the General Motors Corporation Foundation has made annual grants of about $41
million.
Opportunities for careers in business governance, ethics, and social responsibil-
ity have also been expanding rapidly in accounting, law, and consulting firms. The
Sarbanes-Oxley Act in particular has sharply increased the demand for accounting
firm auditors. Finally, some governmental agencies such as the U.S. Securities and
Exchange Commission have, because of Sarbanes-Oxley and other legislation,
recently experienced major increases in their personnel budgets and are actively hir-
ing employees across a wide range of functions. Top federal agencies like the SEC
offer excellent long-term career opportunities or the chance to gain valuable short-
term experience that then can be applied to a career in the private sector.

Summary

LEARNING OBJECTIVE 1 LEARNING OBJECTIVE 2
Describe the differences among sole proprietorships, Explain the basic roles of corporate boards of direc-
partnerships, and corporations. tors and officers.
There are various forms of business governance struc- Once legally established, all corporations are required
tures. The simplest form is the sole proprietorship, to have a board of directors. Boards of directors are
where individuals are responsible for running the busi- responsible for all major policy decisions of the corpo-
ness. One problem with this form of business structure ration, including the hiring of corporate officers who
is that the person running the business is usually per- run the company on a day-to-day basis. Inside direc-
sonally liable for any business debt. Partnerships are a tors are individuals who already work for the corpora-
more complicated business structure involving two or tion, such as the CEO, while outside directors are typi-
more people linked together in a partnership agreement cally prestigious individuals not employed as officers of
in running the business. Personal liability issues also the company. Boards of directors and corporate officers
arise in partnerships, although it may be possible to operate under a legal doctrine known as the business
structure partnerships so that some partners have more judgment rule, which means that they should give their
limited liability. Partnerships may also have an easier work their best business judgment. The doctrine, how-
time obtaining funding than sole proprietorships. ever, does not require corporate directors or officers to
The vast majority of dollar volume business in the always make good decisions; they only must use their
United States is done via the corporate form of busi- best judgment to make decisions.
ness organization. Corporations are different from
LEARNING OBJECTIVE 3
other forms of business organizations in that the cor-
poration itself is a legal “person,” or entity, separate Discuss the basic dynamics of the shareholder model
of business governance and the problems engen-
from the individuals involved in setting it up or run-
dered in major corporations today because of the
ning it. This means that the corporate entity is respon-
separation of ownership and control.
sible for its own debts or liabilities and that a wall, or
“veil,” exists between the corporation and its share- The shareholder model of business governance oper-
holders, protecting them from any personal liability for ates from the basic premise that the purpose of a busi-
company debt or activities. This limited liability feature ness is to maximize financial returns for its sharehold-
is immensely helpful to corporations in raising capital; ers. Under this model of governance, if it’s legal and
the most investors risk is the money they put in. Corpo- best for the pocketbooks of company shareholders for
rations, though, are treated as separate tax entities, and the company to reincorporate in a place like the Cay-
dividends paid to shareholders of these companies man Islands, the company should take such action. In
continue to be subject to some level of double taxation. large public corporations, however, there is often a

Copyright 2010 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.