Management 30060

Semester 1: September 2026 starting

Define an economic good

A good or service that requires limited resources and creates value for someone

Define economic activity

The use of scarce resources to produce, exchange and distribute goods and services

Define management

The set of decisions through which people acquire, allocate, and integrate resources to create value

Why do organisations matter?

They make it possible to accomplish things that individuals could not do alone

Give reasons why organisations matter:

RSSCC

• Risk - large projects require sharing risk across multiple investors

• Scale - too large for one individual to ever accomplish (e.g. one person couldn’t deliver 1M amazon packages)

• Specialization - different people know different things (one person cant be lawyer + engineer + accountant)

• Coordination - interdependent tasks need alignment (e.g. engineer designs a car, factory builds it. an organisation provides rules, communication systems to make sure everyone’s work fits together)

• Continuity - the activity must survive beyond individuals (organizations allow activities to continue over time even as the individual people swap out)

What is the business firm QUESTION MARK GO BACK TO SLIDES WHAT ABOUT HTE PROFIT MOTIVE? COULDNT THIS ALSO DESCRIBE NON PROF AND STATE?

A legal entity engaged in the production of economic goods and services

What four main resources do individuals contribute to the business firm?

• Work

• Capital

• Knowledge

• Time

Why is a firm known as also a human system?

Because a firm exists because people bring different resources and decisions into one organized system

What are the different types of people involved in a firm and what do they contribute?

• Employees: skills, effort, ideas

• Managers: decisions, coordination

• Partners: knowledge, access, technology

• 
  

• Investors: capital, patience

• Founders: initiative, risk, purpose

EMP IF… ur one of the different types of people involved in a firm #employed

What are the ‘partners’ to a firm?

The co-owners who share the losses, ownership, management reponsibilities and profits of a firm

loml? nah loml -P. dats the grind. lom-reroute-p. to make partner you cant find the loml u would get lomped

What does a firm coordinate?

A firm brings resources (people, capital, knowledge, technology) together that would otherwise remain separate

What are the three types of firms?

• Business firms

• Non-profits

• State/public organisations

Many organisations coordinate resources and produce services without being business firms.

What does a business firm do?

Produce goods/services for profit

(profit distribution possible)

What is profit distribution?

The way a business allocates its net earnings to its (POS) partners, owners or shareholders instead of keeping the money inside the company.

_{capitalist POS…}

What does a non-profit do?

Produce goods/services without profit distribution. They are private and mission-driven.

_{(e.g. WWF and Bocconi)}

What does a state/public organisation do?

Provides services, regulates, stabilises economic activity

(public authority: e.g. the EU)

What are the four forms of a firm?

What is a partnership?

A business owned and managed by two or more partners

Advantages of a partnership:

• Simple: cheap and fast with minimal paperwork

• Trust-based

• Direct control + Fast decision-making

Disadvantages of a partnership:

• Profit and control are split among partners

• Partners bind each other + Personal liability extends beyond investments

  • Partners are personally responsible for all business debts and legal actions

• Difficult to scale (next flashcard)

• Lack of continuity

  • A general partnership can dissolve / face instability upon the death/withdrawal of a partner

Why is a partnership difficult to scale up?

• Partnerships cannot issue stock to publicly raise capital

• Larger businesses face more exposure. This means taking on risk, which partners may resist because their personal assets remain fully exposed

• A business model built entirely on the personal dynamics of 2-3 people can break when introducing middle management / new departments and locations

When does a partnership work best?

• Few people

• High trust

• Low complexity

• Limited risk

Why would a large global firm be better run as a corporation than a partnership?

It needs:

• Large amounts of capital

• Limited liability

• Continuity: Stable ownership beyond individual people

• Formal decision-making structures

• Ability to scale across countries

Why do corporations prevail?

• Can pool capital: many investors can finance large operations

• Survive over time: as the organisation can continue beyond founders

• Limited risk: Shareholders risk invested capital, not personal wealth

• Decision-making: clear rules for decisions when ownership is shared

What are the four core features of the corporation?

• Legal personality: can own assets, contracts, debts

• Limited liability: shareholders risk their investment and no more

• Transferable shares: ownership can move

• Centralised management: managers run the firm

What do corporations solve?

• Scale

• Capital accumulation

• Continuity

• Risk sharing

What do corporations make necessary? (the trade-off)

• Control problems

• Accountability issues

• Governance needs

• Stakeholder tensions

What is firm purpose?

Definition of why the firm exists beyond simply “making money” - outlines to whom, or what, the firm should be responsible

Why firm purpose?

• Gives the firm direction

• Supports decision-making

• Builds trust with stakeholders

How can purpose help profits?

When a company truly understands and expresses its prupose, it functions with the focus and strategic discipline that drive long-term profitability

What are the two distinct approaches to firm purpose?

• Stakeholder theory of the firm

• Shareholder theory of the firm

What is stakeholder theory of the firm?

The prupose of a firm is to serve all stakeholders, including shareholders

What is stakeholder theory of the firm?

The purpose of a firm is to serve shareholders (only)

Define stakeholder

Persons and groups that affect, or are affected by, an organization’s decisions, policies, and operations

Define shareholder/stockholder

Individuals or organizations that own shares of a company’s stock - they ‘own’ the company

Define stake

Interest or claim on a business enterprise

Purpose, obligations, and priority of interests by the Shareholder theory of the firm:

• Purpose: to make profits/serve shareholder’s interests

• Managers and board of directors have obligations to shareholders only

• Priority of interests: Owner’s interests take precedence over others’ interests

Purpose, obligations, and priority of interests by the Stakeholder theory of the firm:

• Purpose: to create value for society/serve all stakeholders’ interests - create other kinds of value in addition to profit

• Obligations: Managers and BOD have obligations to all stakeholders, and accountability is towards key shareholders

• Priority of interests: All stakeholders’ interests must be taken into account

Who developed the shareholder theory?

Milton Doctrine: stated the ‘social’ responsibility of firms is to increase its profits

Who developed the stakeholder theory of the firm?

Edward Freeman: stated business can be understood as a system of how we create value for stakeholders

What are the two main pairs of types of stakeholders?

• Market v.s. Nonmarket

• Internal v.s. External

Define market stakeholders

Stakeholders who engage in economic transactions with the company

Define non-market stakeholders

Stakeholders who do not engage in economic transactions with the company but are nonetheless affected by or affect its actions

Give some examples of stakeholders in a businesss firm:

• Employees

• Customers

• Shareholders

• Suppliers

• Governments

• Creditors

Define internal and external stakeholders

Internal: Stakeholders who are employed by the firm

External: Stakeholders who are not employed by the firm

Employees are the main internal, and there is some debate on whether shareholders are internal too.

What are the core arguments of the stakeholder theory of the firm?

• Descriptive: Managers direct their energies toward all stakeholders, not just owners

• Instrumental: Good relationships are a source of value for the firm (e.g. cared-for employees work harder)

• Normative: Any individual, who makes a contribution, or takes a risk, has a moral right to some claim on the corporation’s rewards

What does stakeholder analysis consist of:

(1) The identification of relevant stakeholders and (2) understanding their interests and the power they have to assert their interests

What are the 4 key questions of stakeholder analysis?

• Who are the relevant stakeholders?

• How are coalitions likely to form? (??)

• What are the interests of each stakeholder?

• What is the power of each stakeholder?

Define stakeholder coalition

(Temporary) alliance by stakeholders who share interests

What is stakeholder interests and give some examples

The nature of each group’s stake.

Employees: fair compensation

NGO: Protect environment

Customers: Good quality at fair price

Sharehodlers: Dividends

Define stakeholder power

Ability to use resources to make an event happen or to secure a desired outcome

What types of power can stakeholders have?

• Voting power (usually shareholders)

• Economic power (suppliers, customers, employees(e.g. trade union))

• Legal power (shareholders)

• Political power (governments)

• Informational power - access to valuable data (customers, activists (?), etc)

What are the two types of shareholders?

• Individual

• Institutional

Who are individual investors

People who directly own stock shares issued by companies (aka “main street” investors)

Who are institutional investors?

Pensions, mutual funds, insurance companies and university endowments who own stock (aka “wall street” investors)

What is a public limited company?

• Offers shares to the general public

• Limited liability

• All listed companies are public

• Demanding document filing requirements

What is a private limited company?

• Does not offer shares to the general public

• The number of members is often limited

• Document filing requirements are not as demanding

  • Much more limited reporting obligations as the general public has no right/need to collect information

What are shareholder’s legal rights?

• To receive dividends, if declared

• To vote on:

  • Members of boards of directors

  • Major mergers and acquisitions

  • Charter and bylaw changes (?)

  • Proposals by stockholders

• To receive annual reports on the company’s financial conditions

• To bring shareholder suits against the company and officers

• To sell their own shares of stock to others

Define corporate governance

Process by which a company is controlled or governed through systems of internal governance that determine overall strategic direction and balance sometimes divergent interests

What are the duties of the board of directors?

• Protect stakeholder interests - arguably top; all other duties are to achieve this

• Establish corporate objectives

• Develop strategy and broad policies

• Select top-level personnel to carry out these objectives

• Review management’s performance

• Investor relations

Are the most part of directors inside or outside/independent?

Majority outside - aka they didn’t work for the firm before becoming directors

If the BOD is meant to control managers, then the same person who is alr a manager shouldn’t be part of the BOD. This ensures no conflict of interest.

Talk about the one tier system:

• Common in the US

• One board only: executive board

• The executive directors and the supervisors (/the non-executive directors (?)) are combined in one management body

• e.g. Amazon

Talk about the two-tier system:

• Common in many EU countries

• Two boards: executive board (made up of CEO and other insiders) and supervisory board (made up of outsiders + independent chairperson, often of labor representatives)

• The directors and the supervisory board are two separate bodies

• e.g. Volkswagen

How does the board function

Through board committees and general sessions

What do these committees do

• Compensation comm. - approves salaries and other benefits of top managers

• Nominating comm. - recommends candidates for officers and directors

• Audit comm. - reviews financial reports, apooints auditors

• Specialised comm. (i.e. for CSR ??)

What are key features of effective boards?

• Select outside directors to fill most positions

• Hold open elections for members of the board

  • Multiple candidates compete for same board seat, i.e. shareholders choose among candidates

• Hold elections for all directors annually

  • So no individual director can be sure that they will be re-elected

• Appoint an independent lead director → splitting roles between CEO and board chairperson

• Diversify board membership (i.e. skills, gender, experience, age..)

What is the agency problem?

• Modern corporations have separated ownership and control

• Owners/shareholders do not manage day-to-day company operations which is left to managers/hired professionals

Examples of agency conflicts:

• Empire building: Managers pursue unnecessary acquisitions or expansions because running a larger company increases their prestige, power, or compensation - even if the projects destroy shareholder value

• Excessive perks: Executives use corporate resources for luxury offices, private aircraft etc that do not provide equivalent value to the company

• Short-termism: Executives cut research, maintenance, employee training to improve current earnings, while leaving the company with greater long-term costs

• Hidden risk-taking: Executives take risks beyond the board-approved level because they receive large rewards if the strategy succeeds but bear only limited personal losses if it fails

Define agency relationship

A contractual arrangement in which a principal delegates authority to an agent to perform a task and make decisions on the principal’s behalf

Primary function of boards is to keep a watch on managers

Who is the principal and the agent?

Principal: Owner/shareholder - wants long-term value

Agent: Manager/employee - may pursue private benefit

Who nominates and elects BoD members?

BoD nominates BoD members for election

Shareholders elect BoD members

Who is the chairperson?

• Organises board meetings, sets agenda, etc.

• May be independent or dependent, but independent highly encouraged

What are the interests of the shareholders, BoD, and managers?

Shareholders: (long-term) value appreciation

BoD: Re-election

Managers: High (short-term) compensation, perks e.g. nice office

_{conflict of interest between shareholders and managers}

How to align shareholders’ and managers’ interests through compensation?

• Pay-for-performance / high variable component

• Equity compensation (→ making managers shareholders)

What is equity pay?

A type of non-cash payment where a company gives employees an ownership stake in the business.

What are two problems with equity pay?

• Incomplete alignment: managers usually own only a small fraction of the firm. They receive the full private benefit of excessive perks but bear only their ownsership share (e.g. 1%) of the costs

• Insider trading: Managers have private information that they can use for trading (e.g. managers may sell right before negative information becomes public)

What are two methods of protecting shareholder interests?

• Financial disclosure is mandatory in annual company reports

• Insider trading (access to confidential company information being used to buy/sell stock) is illegal

• Shareholder activism (i.e. aggressive voting and campaigning)

Define Managers

Managers make decisions about the use of the organization’s resources and are concerned with planning, organizing, directing and controlling the organization’s activities to reach its objectives

What are the 4 main functions of management?

• Planning activities to achieve the organization’s objectives

• Organizing resources and activities to achieve the organization’s objectives

• Directing employees’ activities toward achievement of objectives

• Controlling the organization’s activities to keep it on course

What is a goal?

An attribute sought / a target to be achieved

• Profit

• Product quality

• Volume of sales

What are objectives

Measurable things derived from the mission

• Sales

• Market share

• Efficiency

• Growth

Define a mission statement

A declaration of an organization’s fundamental purpose and basic philosophy

Define organizing

The structuring of resources and activities to accomplish objectives in an efficient and effective matter

Define directing

Motivating and leading employees to achieve organizational objectives

Define controlling

Evaluating and correcting the activities to keep the organization on course e.g.

• Measuring performance

• Comparing present performance with objectives

• Identifying derivations from the standards and the cause

• Taking corrective action when necessary

What do top managers do?

Spend most of their time planning, and make the organization’s strategic decisions

(e.g. CFO CEO COO)

What does middle management do?

Responsible for tactical and operational planning to implement the general guidelines established by top management

(e.g. Plant managers, division managers)

What does first-line management do?

Supervise workers and the daily operations of the organization

(e.g. foreman, supervisor, office manager)

What does the CEO do

Manages the overall strategic direction of the company and represents the company to stakeholders

What does the CFO do

Manages the financial operations of the company and reports to the CEO

What does the COO do

Responsible for daily operations of the company and reports to the CEO

What is the most important function of each level of management?

Top managers: Planning

Middle managers: Organizing

First-line managers: Controlling

What 4 main skills do managers need?

• Technical expertise - Specialized knowledge and training (first line managers)

• Conceptual skills - The ability to think creatively in abstract terms (top management)

• Analytical skills - identify relevant issues and their importance level (top management)

• Human relation skills - the ability to deal with people inside and outside the organization (all management)

What might restrict individuals actions? (like what might stop them from being a rational consumer homo economicus)

• Income

• Time

• Memory

• Analytical abilities

What is the 6-step approach to company decision-making?

_{^{—end of slides 4}}

• Recognize and define the decision situation

• Develop options

• Analyze options

• Select the best option

• Implement the decision

• Monitor the consequences

How do organizations emerge?

Work becomes too complex → people specialise

but coordination becomes harder → structure becomes necessary

What is the organizing problem

Managers must divide the work (break a complex activity into manageable tasks and roles) and then put it back together (align the separate tasks so the firm delivers one coherent output)

Define specialization

Focusing people or units on a narrower set of tasks

Creates expertise but also boundaries

What are benefits of specialization?

• Speed - builds efficiency, and there’s reduced time switiching tasks

• Learning - repeated practice → improved skills

• Accountability - clearly defined roles make it easier to assign responsibility

• Professional expertise

What are costs of specialisation?

• Silos

  • Departments/teams within a company that work in separate “bubbles” and refuse to share ideas and resources

• Handover failures

• Local optimization - peak efficiency achieved within narrow domains, but ultimately harming performance of the overall organization e.g. IT team making a super secure verification system, but it kills the user experience

• Slower decisions - decisions involving several specialities require more coordination and approvals (esp when teams have conflicting priorities)