As effort to find ways to fix the negative impacts of financially management, this paper take KOCH as example of being stay riveter to avoid financially management trap. This paper also discussed how China should learn from the lesson of western financially management. 1 . Why does financially management matter and the accompanying problematic Familiarization is changing the underlying mechanism of economy, as well as reshaping society in various ways, among which, companies’ financially management has most direct influence on everyday life.
That is because, on one hand, most individuals are employed by a company, so the familiarization of companies’ management would directly affect their employment security and career development. On the other hand, apart from being employee, one is very likely also private investor nowadays. The values public companies hold, as well as the way they’re governed by management, have great impact on individual’s investment.
Since it closely related to everyday lives of average individuals, I select financially management as theme of this assignment work, based on the reading of section five of the Familiarization at work, key text and commentary (Return, et al, 2008) that focuses on impact of 1 This assignment work is based on reading of section five-“Current debates: questioning financially management’ of Familiarization at work, key text and commentary (Return, 1. , et al, 2008). Familiarization on modern corporate management.
The negative economic and social impact of financially management has been deeply discussed in the reader as well. It includes four discourses that tailored the observations of financially management into each of their own theoretical & historical framework wherein a specific aspect of financially management is described and certain reasons of it are concluded. Those descriptions from multiple perspectives are quite different whilst have some overlaps, and the ultimate reasons concluded have some logical connection as well.
Neil Flintiest (1 says entry point is the trend among IIS giant firms of diversification across industries, which he attributed to the evolution of the conception of control: Concept of finance control is as successor of the conception of direct control of competitors, manufacturing conception of control and the latest conception of sales and marketing control. From the standpoint of an economic sociologist, he argued that anti-trust law and that outsider manager who’s with finance background played important role during this shift in conception.
Flintiest’ s theory not only explained “the conglomerate merger boom of the sass” but also fits for ‘the subsequent dismantling of the conglomerates in the 1 9805″ (Return, et al 301 Laconic and Sullivan (2000) also noticed the dismantling of giant companies in the 1 sass and took it as their entry point. They understood it as companies’ strategy of “downsizing” with the purpose to “distribute” as much dividends to shareholders as possible.
They viewed this “downsize and distribute” strategy as a major shift from the traditional “retain and reinvest” strategy. Driver of this change is management inside of companies just as in Eighteen’s theory, rather than outside shareholders. Laconic and Sullivan explained this ideology of maximizing shareholder value by associating it with agency theory: Because 2 9587070 | Guying us senior corporate managers, where incanted by stock options, have the motivation to push high stock price and distribute dividend by all means.
How management would perform under the corporate governance principle of maximizing shareholder value was well demonstrated by Proud et al(. Through their case study of GE under Jack Welch, who was icon of success among businesses. They argued that the huge success of GE under Jack Welch as actually established on the basis of “an undisclosed business model which combined earnings from industrial businesses in GE industrial with sales growth from financial services in GE capital” (Return, teal 344).
This specific case is quite demonstrative about how management can achieve success at stock market by spinning their narratives along with sophisticated manipulation. Despite of different aspects which the above discourses describe of financially management and the different reasons concluded, those discourses had reached common ground that such financially management s in the interest of few, rather than the overall society. It “enables the success of some giant firms in financial terms but drives the failure of America” (Return, et al 307).
Its negative outcomes include job loss, weakened competitiveness and narrative manipulation. F-listen (1990) pointed out that the denationalization and loss of manufacturing jobs in IIS in 1 sass are outcomes of the finance conception of control When companies were focusing on buying and selling assets rather than production and market, so as to pursuit short-run profit, it is inevitable that US manufacturing falls and a rage amount of jobs are eliminated.
Laconic and Sullivan (2000) attributed the loss in employment to the down size strategy. In addition to that, they argued that the distribute orientation jeopardized US companies’ innovation ability, which is the main reason of that they Were beaten by their Japanese counterparts who was focusing on innovation. What’s more, Laconic (2011) pointed out that the distribute-oriented strategy also increases the income inequality in US. Proud et al. Ridiculed that the price of Gee’s 3 undisclosed magic business model is actually “value destruction”, and Welch s responsible for that management was encouraged to fabricate stories that has little to do with real moves. However, it has to be pointed out, in regard to job loss, which is much related with the bargaining dynamic between workforce and management, two empiricism, Saddler and Coaching (2002) argued that impact of familiarization remains uncertain, at least in the German Auto industry, as the situation is complex where different interests and logics of action must be balanced (Return, et al 334). . Stay private: An atypical option against financially management Those discourses also share some common views that financially management is doted in shareholder’s pursuit to short-term profit and management’s motivation to meet the shareholder’s requirement thereby to serve their own interests. This logic relies on the mechanism of stock market: Shareholders value is delivered by the appreciation Of share price and dividends while performance of management is evaluated by share price and their narratives. And eventually management realize their own interests via stock option.
This is in concert with what Door(2002) argued one of the way familiarization manifest ,is that stock market as a market increasingly dominate ‘corporate intro in determining corporate strategies’, and fluctuations in the stock market is ‘as a determinant of business cycles’. 2 For this reason, a number of the largest and most powerful companies choose to stay away from stock market, offering samples to study how companies prevent themselves from being financially managed in the midst of the tide of familiarization.
By staying private, 2 If nationalization: the increasing dominance of the finance industry in the sum total of economic activity, of financial controllers in the management of corporations, of financial assets among total assets, of marketwise securities ND particularly equities among financial assets, of the stock market as a market for corporate control in determining corporate strategies, and of fluctuations in the stock market as a determinant of business cycles’. Ronald Door, former COED consultant and Professor at the London School of Economics and political Science. Door 2002) 4 companies are able to eliminate distraction and keep focusing on long-term. Decisions of merger and acquire are made on productivity and market base. Shareholders incline to retain earning to reinvest to fuel long-term growth and return. Without pressure to meet short-term earnings targets, management are given freedom to scheme and execute long-term strategy, putting emphasis on innovation to enhance competitiveness, other than to be narrative to fabricate glossy quarter and annual reports. Also, employment is usually stable among private companies.
As Charles Koch, Chairman of the Board and CEO of Koch Industries, the largest US private company, said: ‘Our status as a private company allows us to maintain a consistent focus on creating long-term value without the pressure public companies face to deliver on quarterly, short-term earnings forecasts’. One may argue that Ewing private losses instant access to large amounts of capital. While it is true, private companies can also raise capital by offering stock ownership to outside parties or to employees.
The value of a private company’s stock is determined by private valuation with specific terms that investors have to accept before they join, which means, shareholders are necessarily a group who share common goals of the company’s long-run development, and they’ll made long-term commitment to their investment. This is just in contrast to the normal conception of “shareholder value”. In fact, Koch Industries, where I had been working, is exemplary for impasse who want avoid the financially management trap.
The company started in 1940 as a small oil refiner and has grown to an industrial giant with sale revenue over 1 15 billion US dollars, larger than the sum of Google and Boeing. KOCH’s development history could be viewed as reverse side of financially management behavior that described by above discourses. Different to the Flintiest (1990)g’s finance concept of control, the company has not done any divestment for finance purpose through the entire history. The nature of the diversification across its various business lines is production ND/or market based.
And just as Charles Koch 5 9587070 | Issuing indicated, Koch family has been executing retaining profits for reinvestment to consistently drive the growth. This is opposite to the “downsize and distribute” strategy described by Laconic and Sullivan (2000). The company is very patient on businesses that don’t generate short term profit but indeed with promising prospect. Employment in the company is stable with low level of turnover in my personal experienced, mainly because long terminated management culture. 3.
China needs to be alert on its stock market Since those discourses are IIS/EX. Focused, they explicitly offer warning to China, who’s not completely financially, yet underway. In fact, problematic has already emerged and concentrated at two sectors: real estate market and public stock market. There’s a growing number of Chinese companies who are diversifying their businesses by entering markets what they think give high return. Their primary option usually is real estate, due to the soar of housing price in the past decade.
Quite a lot of new enters of real estate market are from manufacturing, which is increasingly suffering rise of cost, mainly by labor wage. With the admonishment of low-cost based competitive advantage, there’s comes a popularity of denationalization among Chinese companies. On the contrast, few are seen to address the challenge by enhancing innovation ability. This makes the prospect of China industry upgrade gloomy. Figure 1: Number of public companies: US vs.. Chinas had been working at fiber division of KOCH industrials, Shanghai, through 2007-2012.
Source: world Bank. 6 6000 5000 4000 US 3000 China 2000 1 ooh 2005 2006 2007 2008 2009 201 0 201 1 2012 Administration also needs to be alert on the unhealthy stock market. Since the opening of the stock exchanges in Sheehan (1990) and Shanghai (1992), a wave of “stock fever” has swept the population. During recent years, rooted in the over modernization and constrained familiarization, the .NET Asians to list has been running high among Chinese companies in past decade.
From figure 1 , the number of domestic public company had doubled during the period through 2005 to 2012, meanwhile on the contrast, the number in US shirked by 20%. Accompanied with the expansion of the group of public companies is a growing number of newly listed companies are proving to eave significant accounting deficiencies or being vessels of outright fraud. This is a distinctive feature of China stock market, which is criticized of being increasingly become a place where company owners to rake in dough. Going public, is not process but destination; not approach but goal.
Executives of companies in the queue for listing draw on the language and emotions at road show to sell their narrative on company’s prospect. In most cases, the narrative promises made before listing had never been delivered after listing, as executives had already cashed out and did not care about company anymore. Such tendencies are extremely harmful as speculation and fraud are 5 Modernization refers to the proportion of currency-based commodities and labor trade in a country’s total output, as well as the change in the proportion.