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