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Lecture 17

GMGT 1010 Lecture Notes - Lecture 17: Natural Person, World Book Encyclopedia, Equal Voice

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Department
General Management
Course Code
GMGT 1010
Professor
Farhan Islam
Lecture
17

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The Increasing Dominance and Size of Corporations i
Until a couple of centuries ago, there were very few large organizations like the type
that are so common today. One exception is the Roman Catholic churchcurrently
numbering about 1.2 billion peoplewhich has been the largest organization in the world
for centuries. Historically, other significant organizations include guilds,ii various nation
and city-states, and occasional empires. Until recently, most work took place in small
businesses. There were many family firms, where the owner was the manager and was
personally related to most of the workers. Because organizations were small, workers knew
how their work fit into the whole, and there was a strong sense of community and
interdependence in the workplace.iii
Several centuries ago this emphasis on working in small-scale organizations started
to change, facilitated in part by a variety of social, technological and legal changes. An
example of this was described in the opening case about Josiah Wedgwood and the
)ndustrial Revolution. Adam Smiths description of a pin factory, published in ,
provides what is perhaps the best single example to help understand the shift toward
people working in factories and away from working in households. Smith demonstrated the
merits of specialization and a division of labour by describing how four workers, each
performing a specialized task, could produce a total of 48,000 pins per day instead of the 12
pins per day that each would produce working independently and doing all the tasks. By
rationalizing work in factories, productivity could be dramatically increased. Smiths
analysis was compelling, and reflected how the Industrial Revolution was changing where
people worked (more and more people began to work in factories) and the type of work
they did (highly specialized and repetitive).
A brief look at the history of the corporation provides further insight into how things
have changed.iv Modern management would not be possible without the change in the
social and legal meaning of an organization. Traditionally, most businesses had been seen
as an extension of a household. This changed after organizations were given a life of their
own, and were allowed to act as legal citizens. The privilege of allowing an organization to
act as a legal citizens was granted with the understanding and under the condition that the
organization would enhance the common good. )ndeed, an organizations charter was to be
taken away if it failed to act in the common good. This responsibility to act for the common
good extended far beyond merely being prudent with the financial investments of owners
and shareholders.
Before the advent of the modern-day corporation, any debts that businesspeople
incurred were passed on from one generation to the next. As a result, people might find
themselves forced to pay for their grandparents failed business or risk being thrown into
prison.v This changed with the advent of the idea of limited liability, which means simply
that the organizations owners are not personally responsible for financial costs that exceed
the amounts they invested in the organization. Owners can limit the amount of money that
they are liable to pay if things go bad. For example, if you invested $10,000 in a pizza
company, and the company went bankrupt while owing $100,000 to different suppliers, the
most you could lose as the business owner would be $10,000.
The history of modern corporations, and the idea of limited liability, can be traced back
about 500 years to the time when European states established corporate charters in order to
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