Today, a business can be perceived as a formulation of different factors brought together to produce goods and services required by society. This formulation can take a wide array of forms. Additionally, the internal structure of the business varies greatly. Business as a formulation, or as a system, brings together various factors that are arranged differently due to existing rules, laws, and, sometimes, the entrepreneurs and creativity. Among the factors that contribute to the formation of a business is natural capital, which includes land, labor, capital, and manager’s entrepreneurship.
The component of management is extremely helpful to entrepreneurship. Management can regulate all other factors and their output. The arrangement of all these factors forms the business structure, while business structure directly determines the success of a business.
Firms’ success is not determined solely by the internal relationship of all factors of production utilized. The success or failure of a business is determined to a great extent by the environment in which it operates. The business environment contains factors such as the natural (physical and biological features), human factors, (such as buyers, and the society in which the business operates, competitors, creditors among others) and government policy. Government policy is probably the most important external factor that regulates the operations of firms. This occurs specifically in large businesses that have been incorporated through the company’s law. It comes in for regulation and control to ensure fair play in the business environment.
Large firms have their share capital traded in capital markets. This provides a means of acquiring capital for such firms. Due to human nature and in order to ensure that the public is not defrauded, the government creates some regulations for players in the market. These regulations ensure that there is minimal loss of capital by firms and the public. They also ensure that shareholders participate fully in decision making, and their views are incorporated in strategic planning.
Corporate performance can be viewed as the level or extent to which the business is growing. It shows the general health of a business. Businesses with high corporate performance are the ones that have taken organizational strategies that help a firm grow (boost sales). It also refers to all steps that are undertaken by firms to remain successful and competitive in the business.
Corporate performance is influenced by internal as well as external factors of firms’ environments. In a given country, there are both physical and institutional factors that influence corporate performance either positively or negatively. This is the case in America and Britain. There are various structural formations other than institutional ones that regulate corporate performance in any country.
In both Britain and America, many steps have been taken for centuries that were aimed at boosting transparency in the corporate environment. This was done to provide checks and balances and ensure reduced fraud and improved management. With age, some of these rules and regulations become restrictive to a point of limiting growth. The structures and institutions of these two countries were made to favor and pursue transparency and equitability as these factors are very important for development. However, this may become disastrous after a given level of development has been achieved.
In these two countries, the rights of citizens come first. These include employees, management, and entrepreneurs. There are many rules that expound on the rights of employees and their working environment. For example, employees should work in large and safe places. In the process of attaining this, firms incur extra costs in production through the acquisition of large spaces. This makes the output from these firms less competitive, especially in terms of price. This has worked to limit the development of firms and has also led to the collapse of others. Major companies have fallen due to reduced demand for their products among many other factors. An example of these businesses is Enron and Maxwell. Another instance where regulatory mechanisms of these two nations limited corporate performance through omission was in the events leading to the economic downturn of 2008.
It was the mandate of regulatory institutions to control the financial system, or else the majority of firms would fail. In the circumstances leading to the European credit crunch, all regulatory mechanisms did not avail the information about the possibilities of government bonds to failing. This worsened the situation in Europe, which spread to Britain. On the other hand, financial regulatory institutions in the US failed to enforce the law that requires strict evaluation of credit details of citizens before providing loans. This led to the excessive provision of loans, which led to massive losses to banks. In this case, regulatory structures failed and the consequences of this were devastating to corporate performance.
In the above situation, firms had implemented the right mixes of management and production techniques to produce and market their goods. However, due to the financial crisis, the demand for products was very law and very few products were sold. Firms make a profit through sales, and this is how shareholders have a return on their investment. In the period of economic crisis, many shareholders and investors left annual general meetings empty-handed.
However, these two countries do not always suffer from similar problems as they have been very different since their inception. Britain is a European country, and Europeans have learned to follow rules and strict etiquette for a long time. This is the reason why their companies’ laws, statutes, and institutions are complicated. However, despite these laws being complicated and very restricting, they have learned to accept it. This limits entrepreneurial creativity in terms of structure and composition of firms. On the other hand, it has sometimes worked to reduce the number of take-overs in firms compared to America. Few firms are taken over due to bankruptcy among other effects of inadequate regulation.
America is considered the home of laissez-faire. In this system, everybody is allowed to make their own choices and experience the consequences. Most firms in the US are registered under Delaware laws. This gives more freedom of expression of entrepreneurial creativity. Institutions and the structure that oversees this system ensure that it is left as basic as stated in books. However, it has not been utilized to deliver the results intended by the authors. Many entrepreneurs have undertaken excessive risks that led to the loss of capital. An example of this is the situation before and during the financial crisis. Firms, and especially banks, misused the freedom given to them for unintended reasons. In other related instances, firms have misused this freedom by making wrong choices that have led to the bankruptcy of take-overs. The rate of firms’ take-over in the US is very high, which can be attributed directly or indirectly to reduced regulation. The structural and institutional freedom, in this case, have worked to reduce the possibility of improving corporate performance.
Most firms in the US today are complaining about over-regulation. This is because structures and institutions are being put in place to ensure that the actions of corporations are responsible. As firms try to organize themselves to produce and sell more, the regulator is trying to establish guidelines in this process. Concerns are being raised over possible overreaction of regulators due to previous abuse of freedom. A good example is bulky laws that were brought forward. Some of them have an indefinite potential to become even bigger. Dodd-Frank law that was introduced in 2010 is one of such laws. It was brought forward to prevent the recurrence of the 2008-2009 economic crisis. The steps to achieve this are outlined well in the law. However, many concerns are raised about some of the strategies outlined. The strategy of sizing down large financial firms is worrying. This is because there are some ventures in the economy that need such large firms. However, some strategies, such as the ones aimed at boosting transparency, seem justified.
The single most contentious issue about the law is its size. Despite the document being around 850 pages, it allows adding more details by regulators, an example of which is “Volcker rule”. This possibility makes the document itself and the structures to enforce it even bigger. Furthermore, much detail made it particularly hard for firms to comply with the law as it is ambiguous in its current form. This creates a great threat related to undermining corporate performance.
In the UK, the case is not better. Despite the existing etiquette and numerous regulatory structures, new regulations are introduced every day. With their current rate of firms’ success and lower take-over rate compared to that of the US, the status quo does not seem bad. However, a large number of regulatory institutions need to improve their oversight abilities to deal with emerging issues. The capital market that had many individual players is changing, and corporate players are coming in. Additionally, corporate shareholders are also increasingly having their way because of their large shares. This has led to reduced returns for individual shareholders due to manipulation of firms by corporate shareholders. Structural and institutional regulators have to respond effectively to these issues to raise the level of transparency in firms and increase the income of individuals.