People always make decisions. And these decisions have a great impact on how we live. This means we can never avoid making decisions because it is part of who we are. Many economic experts assume that consumers are rational decision-makers. They always have to consider the best possible outcome before making the decision to but of certain consumer products. Consumer behaviors tend to impact the real economy if they are made simultaneously by a large number of households.
Firms make decisions too. When there is a need to open another office and expand their territory, the board of directors and other stakeholders meet to come up with the best line of action, mainly based on the available data. And when they want to raise the prices of their products, it is also important to consider other market activities, including the analysis of competitors. Corporate behavior tends to directly or indirectly impact the economic statures of nations and communities they operate in.
An excellent example of corporate behavior is the events leading to and the aftermath of the 2008/2009 economic crisis that affects the global economy. It is hard to forget because the effects are still being felt even today. It all began with a bubble in the housing markets that represented it as the best investment opportunity. Financial markets become too light, and financial institutions lessened their regulations to lending funds. Most gave out loans to borrowers without proper background checks to the ability of these people to repay. And the price of houses dropped abruptly to levels that made it hard for lenders to recover their money. As things become worse, depositors started panicking and rushed to withdraw their money from banks, further crippling these firms. Many big corporations fell because of this.
A great lesson: "Any deficiency in the corporate governance structure can potentially threaten financial structures' stability across the globe."
Every corporation is founded on a specified mission and vision. Generally, any organization's most critical objective is to serve a social and economic goal, however simple it may sound. It is the economic goals of a corporation that prevails. Some experts have wondered whether there could be a process to make corporations accountable for their actions and decisions. Corporate behavior does not just begin and end with gains or losses, the firms count, but to how they impact society in general too. For instance, many people lost their livelihood after the fall of Lehman and Brothers and the financial crises that followed. A million-dollar question is who would be held accountable for this. A corporation should always act within the limits of the low. It is quite interesting to observe that if there is a lack of compliance and a corporation engages in criminal activities, nobody will be prosecuted and punished.
It is crucial to understand the impacts of corporate behavior on society. When bad things happen because of poor decisions from firms, there should be someone to hold accountability. As an economic study student, this is one of the most important subjects you will be looking at. The study of corporate behavior is to understand why firms behave in the way they do under certain circumstances and get solutions for when an economy fails.
Importance of corporate behavior
Corporate behavior can be defined as a company's actions or group who are making decisions as a single body. It defines the ethical strategies of a company and describes its image. Corporate behavior has so much to do with how consumers perceive an organization and its products. This factor is crucial to a business's success, right from the initial setup to its development. Corporate behaviors play various roles in different aspects of a business, apart from helping firms overcomes any problems they face. For instance, increasing globalization, language barriers, and many other issues can likely increase for organizations, which leads to major problems since the daily operations of a business may be interrupted.
Corporate behaviors may come in as a remedy for such issues as managers can improve flexibility to overcome them. Also, in the imperfect business environments that define the modern economy, businesses struggle to remain on top in terms of quality and productivity. If there were perfect markets, then such issues would not be of much concern to many. But since it only exists in theory, businesses and markets have to make decisions that improve their reputations with consumers. Corporate behavior can fix these issues since they allow managers and firm officers to empower their employees because they are the ones who can make real change.
There is both positive and negative corporate behavior. In a positive corporate behavior, employees feel happy and content about their work and can give their best for the course. This means firms that can leverage on treating their employees with the best intentions reap the best from them. Many firms go to the extent of sponsoring some of their employees for higher studies and important training. They have learned the value of investing in people as a way of getting the most from them. This is very beneficial for management since it could lead to the creation of effective teams that will do their best to grow the business. It can also be pivotal in decreasing labor turnover, helping the organization in employee retention, especially for those viewed as valuable.
Another major importance of corporate behavior is strengthening relations within organizations between individuals, teams, and the entire firm. It makes things move more efficiently, considering employees will be happy and content with what they do. Managers will have an easy time managing those under them because of good relationships. For instance, instead of using force to get results, a firm could implement an incentivization strategy where employees are rewarded based on their performance. It also reflects the values of the business and the degree of its ethical behaviors.
Businesses are not only for generating revenues and profits for themselves but for society as a whole.
This way, they have to consider ethical issues with every decision taken. Companies strive to portray positive corporate behaviors, which facilitates a strong brand image creation. Social media and the internet have created a global marketplace where firms can easily meet consumers and vice versa. Branding using these channels has become of the primary methods of generating more revenues for the company. This leads to strengthening the importance associated with corporate behavior.
Factors influencing corporate behavior
PESTLE factors have a far-reaching influence on corporate behavior. They cause many changes in the way organizations to operate. However, the nature of change depends on the factors that cause change. These factors include political, economic, social, technological, legal, and environmental.
Politics plays a huge role in the growth and development of an economy. The major economies of the world are seen as great because they operate under political stability. But those operating in bad political environments, like those in developing nations, are faced with hardships in terms of growth. Whatever the case, any changes in, for example, government legislation influences corporate behavior. It could impact the organizational structures of firms as they will be compelled to change how they operate to meet these changes. Some employees may not take these changes very well, which could lead to good employees' loss. Some of the changes may be good for the company. When the great recession happened, governments rushed to create/implement fiscal and monetary policies to save the economy. Survival depended much on how companies implemented these laws. Those who were not lucky enough failed or were sold to bigger organizations.
Since there are no perfect markets in any economy, there are always up and downs within economies. The study of business cycles leads to the understanding and prediction of what may happen next in the economy. For instance, experts know and expect that constant upward growth is followed by negative growth. They will, therefore, advise businesses according to available data. Recession is a good example of an economic factor that can affect corporate behavior. It follows a peak where the economy is at its best with low rates of unemployment and deflation. When a recession hits, businesses are forced to reduces jobs. Such actions affect corporate behaviors since business teams would not have the right skills and ideas for effective operation. The 2013 National Business Ethics Survey of the US workforce report indicated that economy and misconduct are not interdependent. This was always the traditional view. According to the report, even though the economy grew between 2011 and 2013, business misconduct was very low.
The world is changing rapidly, with consumers growing more demanding by the day. Significant changes in trends and the market is a social issue that affects corporate behavior. For instance, a company may be compelled to change their products or services to keep up with new trends. Consider when compact cassettes were used to store are record audio and video. Companies producing these products flourished, just before Blue-ray discs came in to change the market. And before long, digital storage formats like flash disks and memory cards took over the market. Such changes force businesses to come up with better solutions. And when they come, employees are forced to learn new skills within a short time to meet these changes' demands. Also, the changes could alter the relationship between employees and management.
Technological and scientific intentions have taken the world by storm. A few years ago, companies relied on physical marketing strategies and print/broadcast media. It was the right way of reaching the masses. But since social platforms came up, the new media has become the trend. Even though some adverts still come through audio-visual and print media (still powerful tool), companies are focusing more on social media content. A company that does not have a website has very low chances of growth and development. Also, implementing these changes could mean more virtual meetings and less physical contact between employees and management. Relationships between these parties could weaken because fewer face conversions, which is never a good thing.
The change in public policy affects even the private sector. When there are changes, legislative rules, like a tax increase, could increase production costs. Companies want to get the best from their investments, which is why the changes may affect them heavily. They will have to change their organizational structures to cover these extra costs. Measures could include increasing product prices, which could affect consumption as some consumers may not be happy with the costs. The way a firm reacts to these issues can be the difference between success and failure.
When new businesses come into play, they have to comply to set environmental policies. Many policies have been implemented to prevent damage to the environment. Other decisions to reduce pollution from corporates may mean making hard decisions. For instance, more employees may be asked to telework as a way to reduce the number of those traveling physically to offices, reducing carbon dioxide emissions. This may seem like a good idea, but it leads to isolation due to reduced communication, weakening corporate behavior in the process.
Stakeholders and shareholders are crucial to the growth and development of an organization. And they influence corporate behavior. Firms that adopt the stakeholder theory easily appeal to their stakeholders because they show more care and commitment. This leads to stronger corporate behavior within a firm and reduces the need to change stakeholders.
Corporate behavior is a vital aspect of economic development that is influenced by many a factor.
Apart from the ones discussed above, organization structure, the grouping of people to accomplish their work, also plays a crucial role. Corporate behavior does not only help in understanding how firms react to issues and the steps they take to accomplish their goals. In this introduction, we have tried to highlight why corporate behavior is important, mostly to economics students.
Author: James Hamilton