Factors Directing Corporate Behavior

The business landscape of the 21st century is littered with companies that have failed to keep abreast of the changing trends, ideas and the pace of technological change. In this context it is important more than ever for corporates to practice good corporate governance since an approach that is fair and ethical as well as transparent is likely to lead to greater productivity than an approach that favors short term profits and encourages cutting corners. Hence, it is pertinent to look at some of the factors that drive corporate behavior from the perspective of good corporate governance.

  • To start with, the profit motive is the major or the chief factor that drives corporate behavior. For a long time, profits were the sole criterion by which corporates were judged and hence, corporations indulged in the “pathological pursuit of profit and power” at the expense of everything else.

    In recent decades, the business paradigm has shifted somewhat with corporates now engaging in some measure of socially and environmentally responsible behavior to reflect the changing times. However, it is by no means certain that the corporations have abandoned their relentless search for profits as can be seen from the spate of corporate scandals involving unethical and illegal business practices.

  • The next factor that drives corporate behavior is the consumer preference or the way in which consumers vote with their feet in buying products and availing of services. Indeed, the pursuit of profits and the consumer is king motto exist in a sort of creative tension since satisfying the consumer in all respects means that corporates have to forego some of their profits and when corporates cannot satisfy consumers, they flock to their competitors. Hence there is a contradiction of sorts which only the market based economies are able to find solutions since the markets correct these contradictions by virtue of their existence.

  • The third factor that drives corporate behavior is the presence of absence of regulations and rules governing corporate conduct. In countries where regulators do not have much power, corporations tend to run amok in the market and make everybody dance to their tunes. On the other hand, in the developed countries and in countries where the regulators do their job properly, corporations cannot take the consumers and the regulators for granted. Of course, the ongoing global financial crisis has proved that even in the developed west, instances of corporates taking the consumers and the country for a ride have been surfacing regularly.

What is clear from the preceding discussion is that among the various factors that direct corporate behavior, the one underlying or common theme is that the interaction of markets and market players often dictates the outcome more than anything else. The prevailing view that markets know best has somewhat been challenged in recent years. Hence, more than ever, there is a need for corporates to rise to the occasion and present solutions instead of finger pointing and indulging in blame games.

Finally, corporates exist within the ecosystem of the market and hence what moves the market moves them as well. So, the factors that direct corporate behavior are often found in the market ecosystem that is prevalent in a particular country of region.

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Corporate Governance