Corporate governance disciplines include:
- Administration: responsibility for the performance of a company and the delivery of value to stakeholders
- Strategy: the beneficial positioning of a company in the market to offer value to stakeholders over time.
- Structure: the facilitator of the relationships between the infrastructure, the products and/or services, the markets and the interest groups of a company that generate value.
The constituencies are the common element.
Stewardship based on the Constitution:
The consistencies of a company consist of:
- Main: employees, customers, suppliers and investors.
- Secondary – regulators and competitors
- community at large
Primary constituencies are directly associated with revenue-generating activities: employees perform, customers buy, vendors deliver, and investors finance. Employees take care of customers who create demand for suppliers and provide potential for investors to earn a return. Secondary groups allow activities or challenge them. Constituents are individual members of a constituent group.
Employees (main):
- Full time and part time
- Permanent (including rented) and temporary
The definition of employment is determined by federal immigration and federal and state tax and employment laws and regulations. They are numerous and complex.
A common law employee is a person who provides services for wages or salary, under an oral or written contract, on an ongoing basis and under the control of a director of a company.
Corporate officers are treated as employees if they provide services and are compensated; business partners, limited liability company members and sole proprietors are not treated as employees.
An independent contractor performs the work for a director who can determine the end result, but not how the result is achieved, and is supposed to be temporary in nature. Severe penalties can result for the misclassification of employees as independent contractors. Independent contractors are businesses in their own right.
Leased employees are technically employed by a Professional Employment Organization (PEO), but the client is responsible for job control. The administrative burden of the HR function, including payroll processing, is shifted to the PEO. In effect, the employees are working for the client with an outsourced human resources department. By pooling employees from multiple clients, the PEO can reduce processing costs and obtain favorable rates for insurance due to the scale effect. Clients pay fees and amounts to cover payroll, taxes, and benefits directly to the PEO.
The rules related to employment, self-employment, and unemployment taxes are complex. In some cases, independent contractors are considered statutory employees for payroll tax purposes under the Internal Revenue Code. If not, they are responsible for their own labor taxes.
Clients (primary):
- Acquire “hard” products and “soft” service related products
- Receive services at the time of product delivery
- Purchase support services
Customers can be internal or external to a company. Internally, one unit may provide products and/or services to another, or pass on work in progress. For example, administrative functions are service providers for operational functions. Externally, customers can be individuals or companies. The relationship between companies is always with individuals. Therefore, a company’s reputation with its customers depends largely on specific individual relationships, attitudes, and behaviors that may or may not be consistent with management’s values and intentions.
Relationships with companies that consist of multiple entities and operate in multiple markets can be complex. Corporations often have subsidiaries and affiliates that are separate but related entities under a holding company structure for various business and legal reasons. A specific management team may be common to several entities, or to just one. As a consequence, business practices may differ between entities within the same structure. Therefore, when establishing a relationship with a customer, it is important to obtain information about the exact business entity, including the legal name, especially for credit reporting purposes.
Customers begin relationships as prospects, which can be contractual or non-contractual. However, once a prospect becomes a customer, they should always be treated as such, regardless of whether they are active or not, and unless there is a legal reason to end the relationship. An existing customer is also a prospect for marketing products and/or services outside of the current active relationship.
Clients of professional service firms are generally referred to as “clients.”
Suppliers (primary):
- trade and professional
- real estate
- financial services
- industry associations
Since companies are customers of providers, the same issues apply regarding individual relationships and multi-entity structures.
Supplier relationships can begin informally or formally through a “request for proposal” process. Too often, a relationship starts out on a “casual” basis and then migrates to a “recurring” basis based on quality and value.
Commercial and professional vendors deliver materials and supplies, merchandise, and services. Commercial providers may also extend credit. Real estate services include leasing, buying and selling, and facility management. Financial service providers include commercial banks, finance companies, and insurance companies. As lenders, commercial banks and finance companies extend credit to the entities that make up the businesses. Industry associations provide membership services and provide forums where company heads can discuss common problems.
Investors (primary):
- individuals
- Companies
Investors purchase and divest money market, debt and equity securities (including derivatives) in entities in compliance with federal and state securities laws and regulations. These laws and regulations are very strict. Investors include individuals and companies such as venture capital firms; commercial, corporate and industrial companies; insurance companies; investment banks; and mutual and pension funds.
The United States Securities and Exchange Commission (SEC) facilitates capital formation by supervising issuers of public and private securities and market participants such as brokers, intermediaries, exchanges, funds, and underwriters. Investors are accredited or non-accredited under SEC rules, which determine who can invest in private entities for which there is no market.
Bond investors are holders of debt capital and equity investors are holders and owners of equity capital. Business partners, limited liability company members, and sole proprietors are investors in their businesses and owners.
Regulators (secondary):
- Federal
- State
- County
- Municipal
Regulators include national and foreign governments. Professional boards and institutes also serve as regulators and may be closely linked to governments.
Regulators grant the right to do business in their jurisdictions in exchange for compliance with laws and regulations and payment of fees and taxes. They may require licenses and permits. Laws and regulations vary between jurisdictions with respect to ownership (situs) and physical presence (nexus).
Competitors (secondary):
- Traditional
- Not traditional
Traditional competitors consist of suppliers of similar or substitute products. Non-traditional competitors consist of new entrant suppliers of similar or substitute products and disruptive suppliers. Disruptive providers are existing or new, introducing replacement products and/or services or new delivery systems, often using new and emerging technologies. Disruptive vendors are often responsible for paradigm shifts.
Community at large:
The community in general consists of markets where a company offers its products and/or services; obtains materials, supplies, and services; has employees; or owns or rents property. The broader community can range from local to global depending on a company’s influence and presence, from a small radius around a single physical location to the entire world.
A company can also be influenced by groups such as:
- unions
- Unaffiliated industrial, business and political groups
- Media including press, radio, television and internet.
- Philanthropic associations
Due to the effects of outsourcing and the Internet, companies can expand their reach from a single physical or virtual location to global markets. However, due to the effects of social media, they need to be aware of how they are perceived in local to global communities, whether they want to take action or not.
Constituency-based strategy:
The constituency-based strategy narrows the gap from where the company is to where it wants to be with respect to each of its constituencies. Constituency-based strategy is expressed in terms of specific strategic objectives, goals, and initiatives.
Constitution-Based Structure:
The constituency-based structure lays the foundation for efficiency through processes that are designed to serve constituencies. If the processes are not designed to serve the voters, chaos can result. As an employee, customer, vendor, or investor, it can be extremely annoying to switch from organizational unit to organizational unit because no one knows exactly how to solve a problem. The further a unit is from a constituent, the lower the probability of its ability to solve problems.
The “value chain” is the set of all activities that earn and add value to materials and supplies that result in finished products and/or services. The value chain links suppliers and customers, through processes carried out by employees, and with facilities and equipment financed by lenders and investors.
Voter understanding is a business competency (entrepreneurship, leadership and management).
