Langues Des Affaires Anglais Semestre 6

The organization of the company.

Introduction

In order to operate, a company must be organized and once it’s organized, it then needs purposes, aims and objectives to achieve. Once aims and objectives are set the company needs an internal structure in which individuals (employees) have specific functions so that the aims and objectives may be achieved.

1. The three entities

So as to operate, a company needs 3 entities: shareholders, a board of directors and the management.

A) Shareholders

They are individuals who own shares, also called stock, in a company in hopes of making a profit. If the company does well, they stand to make money based on how many shares they bought or own. However, if the company does bad, then the shareholder stands to lose his or her money. The shareholders are the ones who bring money to the company so they are the ones who own the company. A small business may have just one shareholder, the founder, while a public limited company may have thousands of individual and institutional investors (pensions, funds, insurance companies…). Their shares may be ordinary/common or preference/preferred.

A) Ordinary shares: they are shares in a company that are owned by people who have the right to vote at the company’s meetings and to receive part of the company’s profits after the holders (owners) of preference shares have been paid. They are shares that are bought and sold in the Stock Market. They can fluctuate.

B) Preference shares: on the contrary, they are not traded on the Stock Exchange. Holders receive a fixed dividend and their dividends must be paid before any other dividends can be paid. These fixed income can be very attractive compared to the fluctuating dividend payments from ordinary shares, they are steady.

The shareholders together share the risks and hope to share the profit which is divided among them; this is the dividend on their share or the return on their investment.

They don’t run the company but they want to be sure that the company is run efficiently. So they meet once a year at the Annual General Meeting. There, they elect representatives who will defend their interests. These representatives are the Board of directors and they are the people legally responsible for the company.

A) The board of directors

This board is composed of a Chairman and directors who are responsible to the shareholders and responsible for the general corporate policy of the company. The Chairman is the top of the organizational pyramid. He is elected by the Board and chairs the meetings of the Board who are either executives directors or high level managers of the company or none executives directors, people who bring their knowledge and experience to the Board. The directors decide on important matters at Board meetings, they present the company’s annual reports and accounts to shareholders for approval at the end of each pending year.

To operate properly, a Board of directors must be strong. They are 4 key contributors to the building of collective strength:

- The personality, style and role of the Chairman

- The culture and climate of Board meetings: openness, frankness, the size of the Board, how decisions are made, relationship amongst the directors.

- The people involved and how they come to be on the Board

- The degree of common purpose

There are a number of duties every director must comply with:

- To act in accordance with the company’s memorandum and articles of association and to use powers only for the purpose they were given.

- To promote the success of the company for the benefit of the shareholders

- To exercise independent judgment

- To avoid conflicts of interest

- Not to accept benefits from third parties

- To declare to the companies of the directors any interest a director had in a proposed transaction or arrangement with the company.

The Board of directors also appoints the management.

A) Management

Management has been described as getting things done by other people. Managers have responsibility for enabling an organization to achieve its objectives. They are therefore responsible for planning, organizing and controlling organizational activities. Managers set budgets, monitor those budgets and make sure that the budget is kept to (not overspending). In addition they manage resources, people, plant, materials,…

Peter Drucker, the well known American business professor and consultant, suggests in his book (An introductory view of management) that the work of a manager can be divided into:

- planning (setting objectives) (First of all, managers, especially senior managers, such as company Chairman and Directors, set objectives and decide how their organization can achieve them. This involves developing strategies and precise tactics and allocating resources of people and money.),

- Organizing. Secondly, managers organize; they analyze and classify the activities of the organization and the relations among them. They divide the work into manageable activities and then into individual jobs. They select people to manage these units and perform the jobs.

- Integrating (motivating and communicating, measuring and developing people. Thirdly, managers practice the social skills of motivation and communication. They also have to communicate objectives to the people responsible for obtaining them. They have to make the people who are responsible for performing individual jobs, form teams. They make decisions about pay and promotion as well as organizing and supervising the work of their subordinates, they have to work with people in other areas and functions. Fourthly, managers have to measure the performances of their staff to see to it that the objectives set to the organization as a whole and for each individual member are being achieved. Lastly, managers develop people, both their subordinates and themselves.

It’s generally the role of a company’s top managers to consider the needs of the future and to take initiative for innovation, as objectives have occasionally

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