The human element is the core of business. Business needs people as owners, managers, employees, and consumers. People need business for the production of goods and services and the creation of jobs. Whether business is transacted in Mexico, Canada, or Nigeria does not matter. Businesses may be operated differently and the objectives of businesses may differ, but the universal element in all business activities is people

Owners

People who own a business, as well as those who invest money in one, do so because they expect to earn a profit. Most of the giant corporations, such as General Motors, Eastman Kodak, Dow Chemical, Du Pont, and Exxon, are owned by large numbers of people. General Motors has over 1.2 million shareholders (owners) and 820,000 employees. When making decisions, the professional managers in business organizations need to consider the owners and what they expect from the business.

Managers

The person responsible for operating the business may be the owner (an owner- manager, also called an entrepreneur) or a professional manager employed by the owner. Both types of managers seek to achieve profit, growth, survival, and social responsibility.
The owner-manager sets his or her own objectives, whereas a professional manager attempts to achieve objectives set by others. The professional manager is accountable to the owners of the business, who judge the manager’s performance by how well their objectives have been accomplished over a period of time.
Many of these business owners are entrepreneurs, people, who take the risks necessary to organize and manage a business and receive the financial profits and nonmonetary rewards. The entrepreneur is expected to be innovative, practical, and strong willed. This view was actually established years ago by noted Austrian economist Joseph Schumpeter. He stated: “The function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, opening a new source of supply of materials or a new outlet for products, by recognizing a new industry”.

Employees

Employees supply the skills and abilities needed to provide a product or service and to earn a profit. Most employees expect to receive an equitable wage or salary and to be given gradual increases in the amount they are paid for the use of their skills and abilities. To compete with other businesses, a business enterprise needs a committed and effective team of employees.

Consumers

In the international marketplace the target of business activity is consumers. A consumer is a person or business who purchases a good or service for personal or organizational use. Consumers in economic system such as those in Japan, Germany, Canada, and the United States want more and better products and services. They want better automobiles, better homes, more luxuries, and better leisure equipment. They want to pay a fair price for the goods and services they purchase to be reliable.
A business enterprise attempts to satisfy consumer needs and desires while earning a profit. To do so, businesses must determine what those consumer needs and desires are. Because consumers continually want more and better things, new businesses are formed, and other businesses make adjustments to accommodate the demand. When a need or desire for products or services exists, a business can earn a profit by supplying it promptly and efficiently. The uncertainty and risk involved in assessing consumer needs and wants provide a challenge to the business decision maker attempting to earn a profit.

Business Objectives

Business must achieve their objectives to remain in operation. Lists of business activities generally include such factors as profit, survival, growth, and social responsibility.
Survival, growth, and social responsibility

Survival is an obvious objective. Other objectives can be accomplished only if the business enterprise survives.
Growth is an objective because business does not stand still. Market share increase, personal and individual development, and increased productivity are important growth objectives. The growth of Compaq Computer and Wal-Mart to multibillion-dollar enterprises is often used as an example of business success accomplished through growth.
In recent years, meeting social responsibilities has been recognized as an important objective. Businesses, like each person in society, must accept their responsibilities in areas such as pollution control, eliminating discriminatory practices, and energy conservation.

Profit: two views

Although survival, growth, and social responsibility are important objectives, the profit objective plays the major role in business. Profit, however, means different things to different people because of their values, attitudes, and perceptions.
Business profit. Typically, a businessperson calculates profit by subtracting all the costs, including taxes, from the revenue received for selling a product or service in the market. The difference is referred to as business profit. For example, the franchise owner of a Wendy’s fast-food restaurant subtracts all expenses (for supplies, staff wages, property, advertising, and so on) from all income to determine the business profit.
Successful business organizations earn a profit because their goods and services effectively meet customers’ needs and demands. Basically, profits reward a business enterprise for effectively conducting a number of activities.
Risk taking. The business may earn a profit when it takes risk by entering a new market or by competing head-on with another business. For example, Toyota invested millions of dollars in promoting and selling small cars in the United States. Today, this Japanese corporation is the largest small-car seller in the U.S. market.
Evaluation of demand. Business organizations that evaluate consumer needs and demands and then move efficiently into a market can earn substantial profits. Xerox in the photoreproduction industry, Compaq Computers in personal computers, and Domino’s in the pizza business are examples of companies whose accurate assessments of consumer demands resulted in good profits.
Efficient management. A major cause of business failure is improper or inadequate management of people, technology, materials, and capital. Efficient planning, organizing, controlling, directing, and stuffing can earn satisfactory profits. Some of the most profitable enterprises (e.g., Ethan Allen, Molly Maid, Blue Bell Ice Cream, H & R Block, and Coca-Cola) are also known as well-managed businesses. Such well-managed enterprises earn, on the average, about 5 percent profit a year on total sales. Of course, business profit rates vary greatly by industry, size of business, and location of the business, as well as managerial effectiveness.

The finance function may be carried out within a number of different forms of organizations. Of primary interest are the sole proprietorship, the partnership, and the corporation.
Sole Proprietorship. The sole proprietorship form of organization represents single-person ownership and offers the advantages of simplicity of decision making and low organizational and operating costs. Most small business with 1 to10 employees are sole proprietorships. The major drawback of the sole proprietorship is that there is unlimited liability to the owner. In settlement of the firm’s debts, the owner can lose not only the capital that had been invested in the business, but also personal assets. This drawback can be serious, and the student should realize that few lenders are willing to advance funds to a small business without a personal liability commitment.
The profits or losses of a sole proprietorship are taxed as though they belong to the individual owner. Thus if a sole proprietorship makes $25.000, the owner will claim the profits in his or her tax return. (In the corporate form of organization, the corporation first pays a tax on profits, and then the owners of the corporation pay a tax on any distributed profits).
Partnership. The second form of organization is the partnership, which is similar to a sole proprietorship except there are two or more owners. Multiple ownership makes it possible to raise more capital and to share ownership responsibilities. Most partnerships are formed through an agreement between the participants, known as the articles of partnership, which specifies the ownership interest, the methods for distributing profits, and the means for withdrawing from the partnership. For taxing purposes, partnership profits or losses are allocated directly to the partners, and there is no double taxation as there is in the corporate form.
Like the sole proprietorship, the partnership arrangement carries unlimited liability for the owners. While the partnership offers the advantage of sharing possible losses, it presents the problem of owners with unequal wealth having to absorb losses. If three people form a partnership with a $100.000 contribution each and the business loses $100.000, one wealthy partner may have to bear a disproportionate share of the losses if the other two partners do not have sufficient personal assets.
To circumvent this shared unlimited liability feature, a special form of partnership, called a limited partnership, can be utilized. Under this arrangement, one or more partners are designated general partners and have unlimited liability for the debts of the firm; other partnership are designated limited partners and are liable only for their initial contribution. The limited partners are normally prohibited form being active in the management of the firm.

Corporation

In terms of revenue and profits produced, the corporation is by far the most important type of economic unit. While only 19 percent of U.S. business firms are corporations, over 90 percent of sales and over 70 percent of profits can be attributed to the corporate form of organization. The corporation is unique – it is legal entity into itself. Thus the corporation may sue or be sued, engage in contracts, and acquire property. A corporation is formed through articles of corporation, which specify the rights and limitations of the entity.
A corporation is owned by shareholders who enjoy the privilege of limited liability, meaning their liability exposure is generally no greater than their initial investment. A corporation also has a continual life and is not dependent on any one shareholder for maintaining its legal existence.
A key feature of the corporation is the easy divisibility of the ownership interest by issuing shares of stock. While it would be nearly impossible to have more than 50 or 100 partners in most business, a corporation may have more than a million shareholders is General Motors.
The shareholders’ interests are ultimately managed by the corporation’s board of directors. The directors, who may include key management personnel of the firm as well as outside directors not permanently employed by it, serve in a stewardship capacity and may be liable for the mismanagement of the firm or for the misappropriation of funds. Outside directors of large public corporations may be paid more than $25.000 a year to attend meetings and participate in important decisions.
Because the corporation is a separate legal entity, it reports and pays taxes on its own income. As previously mentioned, any remaining income that is paid to the shareholders in the form of dividends will require the payment of a second tax by the shareholders. One of the key disadvantages to the corporate form of organization is this potential double taxation of earnings.

Policies

In the administration of business one of the most important tasks is to formulate policy; the work of planning and the determination of company objectives become effective when expressed in policy form.
A policy is a guide to the action or decisions of people. Policies are directives, issued from a higher authority, and provide a continuous framework for the conduct of individuals in a business – they are in effect a type of planning. Policies are expressions of a company’s official attitude towards types of behaviour within which it will permit, or desire, employees to act. They express the means by which the company’s agreed objectives are to be achieved and usually take the form of statements, telling members how they should act in specific circumstances. Policies reflect management thinking on basic matters and inform those interested in the activities of the company about the company’s intentions regarding them.
Formulation of policy

Policy formulation may begin at any level of management and may flow upwards or downwards along the levels of organization. Policy usually is formed by:
 The board of directors and senior management, who determine the main policies;
 Being passed up the chain of command until someone takes responsibility for making a decision;
 External influences, e.g. government legislation, may force a policy change.
Policy formulated by executives is usually on broad lines and subordinates have scope in applying it. Any policy should be as specific as possible.
Examples of policy:
 Product policy involves deciding upon the products to make and depends upon many factors, particularly upon market conditions, such a policy in turn generates other policies, e.g. marketing, finance and research.
- Production policy deals with, for example: What proportions of plant should be devoted to flow or job batch production? What items to make or to buy? What use should be made of by-products?
- Market policy involves determining distribution channels, pricing structure of products, volume and type of advertising, credit policy, method of subdividing territory and remuneration of salesmen.
- Purchasing policy involves what organizations buy and to what extent, and what are alternative sources of supply.
- Human resources policy involves methods of training, education, pension schemes, incentive plans, management succession and development, benefits, union relations.
Rules and procedures are often confused with policies.
Rules are more specific than policies and they usually entail penalties for misuse. Policy establishes a guiding framework for rules. Policies are broader than rules and are usually stated in more general language.
Procedures reflect policy and provide a standard method by which work is performed and provide a check when events do not occur. They are subordinate to policy and are a useful aid to training.

Roger Worsham had just graduated as an accounting major with an MBA degree and had landed a job with a small regional accounting firm in northern Michigan. Working there would give him the experience he needed to qualify as a certified public accountant (CPA). He, his wife, and their two small children settled in to enjoy small-town life. Roger’s employer was experiencing tough competition from large accounting firms that were able to offer more varied services, including management consulting, computerized data processing services, and financial advice. Losing a big client could mean the difference between staying open or closing down one of the local offices.
During one of his first audit assignments of a local savings and loan (S&L) company, Roger uncovered evidence of fraud. The S&L was restricted by law at that time to mortgages based on residential property, but it had loaned money to a manufacturing company. To conceal this illegal loan from Roger, someone had removed the file before he began the audit. Roger suspected that the guilty party might have been the S&L president, who, in addition to being the largest owner of the manufacturing firm, was also a very influential lawyer in town.
Roger took the evidence of wrongdoing to his boss, expecting to hear that the accounting firm would include it in the audit report, as required by standard accounting practices. Instead, he was told to put the evidence and all of his notes through a shredder. His boss said, “I will take care of this privately. We simply cannot afford to lose this client.” When Roger hesitated, he was told, “You put those papers through the shredder or I’ll guarantee that you’ll never get a CPA in Michigan, or work in an accounting office in this state for the rest of your life.”
Question: If you were Roger, what would you do? If you were Roger’s boss, would you have acted differently? What is the ethical thing to do?
Ethics is a conception of right and wrong conduct. Ethics tells us when our behavior is moral and when it is immoral. Ethics deals with fundamental human relationships – how we think and behave toward others and how we want them to think and behave toward us. Ethics principles are guides to moral behavior. For example, in most societies lying, stealing, deceiving, and harming others are considered to be unethical and immoral. Honesty, keeping promises, helping others, and respecting the rights of others are considered to be ethically and morally desirable behavior. Such basic rules of behavior are essential for the preservation and continuation of organized life everywhere.
These notions of right and wrong come from many sources. Religious beliefs are a major source of ethical guidance for many. The family institution – whether two parents, a single parent, or a large family with brothers and sisters, grandparents, aunts, cousins, and other kin – imparts a sense of right and wrong to children as they grow up. Schools and schoolteachers, neighbors and neighborhoods, friends, admired role models, ethnic groups – and of course, the ever-present television – influence what we believe to be right and wrong in life. The totality of these learning experiences creates in each person a concept of ethics, morality, and socially acceptable behavior. This core of ethical beliefs then acts as a moral compass that helps to guide a person when ethical puzzles arise.