OSUN STATE UNIVERSITY, OSOGBO

FACULTY OF MANAGEMENT SCIENCES

DEPARTMENT OF BUSINESS ADMINISTRATION

COURSE CODE: BUS 103

COURSE TITLE: INTRODUCTION TO BUSINESS

CONTENTS;

1. THE NATURE OF BUSINESS

2. BUSINESS ORGANIZATION

3. BUSINESS ENVIRONMENT

4. BUSINESS RTHICS

5. CORPORATE SOCIAL RESPONSIBILITY

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Introduction.

The course “Introduction to Business” provides us with general background to the element and
characteristics of business locally and worldwide. Regardless of the educational background of
the student, it’s every likelihood that in one way or the other, we always have close correction
with business. Business could be classified into the following industries:

(i) Manufacturing and services industries

(ii) Wholesaling and services industries.
(iii) Retailing and services industries and
(iv) Non – profit public enterprises.

Most of these industries provide the need of the society. Business therefore, is a vital means of
satisfying human wants.

Definitions

The word “Business” has several meanings:

1. Business could mean any establishment, regardless of size that serves the public through
the manufacture or distribution of goods and services.
2. Business can also be referred to “as the commercial life of a nation”. In essence, we are
saying that business includes the sum total of all economic activities, such as Banking,
Production, distribution, transportation, and various economic pursuits undertaken by
man to provide himself with a standard of living”.
3. According to Nickels, McHugh and McHugh (2005), “a business is any activity that
seeks to provide goods and services to others while operating at a profit.
4. Fry, Stoner and Hatturick (2004) said “a business is any organisation that strives for
profit by providing goods and services that meet customer needs”.
5. McNaughton (1960) says “business is the sum total of those activities that have as their
main purpose the creation, maintenance and extension of a concern, which continues to
exist because it earns profits or other benefits of money”.

According to Hooper (1961), the term business refers to the “whole complex field of commerce
and industry, the basic industries, processing and manufacturing industries and the networks of
auxiliary services, the distribution, banking, insurance, transport and so on, which serve and
inter-penetrate the world of business as a whole.”

Business is exchange of goods, money or services for natural benefits. It should be noted
therefore, that any activity performed for which there is no exchange of goods or services for
money cannot be considered as business transaction e.g. playing of Guitar or Piano for leisure,
painting of picture, cutting the grass at the backyard, washing of children/husband clothes etc.

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The term business should not be confused with the term trade. Trade simply denotes purchase
and sale of goods but business includes all activities of production of goods and services.
Business embrace industry, trade and other activities like banking, insurance, transport and
communication and other activities which facilitate the production and distribution of goods and
services.

Features of business.

Business is generally characterized by the following features:

1. Exchange, sale or transfer of goods and services for a price – All legal business involve
in the production and exchange of goods and services that meet consumers’ needs and
demand. These goods and services are exchanged with the consumers’ purchasing power
that is MONEY. This exchange must involve or transfer of goods and services for a
value in form of price. However, goods products and consumed by self or given out as
gifts are not regarded as business goods service exchange does not take place.
2. Profit Motive – All business organisations employ various resources to produce goods
and services that meet consumers’ desires. With the exemption of non – profit seeking
and chantable organisations, business undertaken primarily with the view of producing
goods and services to make profit in order to survive and remaining business.
3. Production of goods and services – Business involves the production and exchange of
goods and services. Goods produced or exchange may be consumer goods such as bread,
oil, shoe, cloth etc or producers’ such as machinery and tools. Consumer goods are meant
for direct consumption while producer goods are those used for further production.
Services however include the supply of water, electricity, insurance, warehousing,
transport, finance etc.
4. Uncertainty and Risk Bearing – Business activities are characterised by the element of
uncertainty and risk. In all business endeavours, the businessman or investor needs to
bear risk that may arise due to uncertainty in business cycles. Risk involves the
possibility of loss i.e. uncertainty of return on investment made in business.

Business risk are brought about by the following factor:-

i. Changes in consumer demand due to changing consumer tastes and fashion, income
etc.
ii. Unfavourable government policies (fiscal and monetary policies, Bans, Sanctions,
Embargoes etc).
iii. Intensity of competition in the market.
iv. Inflation: rising prices of goods and services especially that of raw materials and
spare parts.
v. Unethical business practices – smuggling.
vi. Faulty managerial decisions.

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 vii. Price fluctuations and other economic exchanges etc.
viii. Continuity of operation – A scale of a product once does not constitute business
except it is undertaken continually and regularly.

Objectives of business

All business endeavours have same goals or objectives which they strive to seek or achieve.
Since business is essentially an economic activity, the primary objective is that of making profit,
prerequisite for business survival. The major goals of any organisation are as follows:

(a) Profitability
(b) Survival
(c) Growth
(d) Market share
(e) Productivity
(f) Innovation
(g) Employee Welfare
(h) Service to consumer
(i) Social responsibility
(j) Reputation
(k) To maximise dividends of shareholders.
(l) To create employment opportunity.

BUSINESS GOALS

The goals that business sets for itself are of great importance to everyone whether he or she is an
employee, a consumer, an owner, or just a member of the general public. For instance, the
attainment of the business goals affects the national economy system which affects everyone in
the society. Hence, the parties who benefit from the economic objective of profit making include:

1. Owners.
2. Employees.
3. Customer’s i.e. general public or community.
4. Government.

OWNERS: - The owners of business happened to be the first beneficiaries of business economic
objectives. The owners of business must get adequate return on the money invested in the
business and this must be in terms of profit or dividends. Thus, for the businessman to achieve
his profit motive goal, means maximising the firm’s potential and failure to do so would result in
the business fetching – up.

EMPLOYEES: - Employees also benefits from benefits from business economic objective of
profit maximisation. This rough fair remuneration and other welfare facilities such as housing,

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transportation, job security, educational facilities for children, medical care, leave bonus, access
to soft loans and retirement benefits like gravity and pension. These benefit will motivate
employees to work harder at making the organisation successful in the attainment of its set
objectives. All these benefits will be made possible only if the organisation is able to make
adequate profits to cover all its expenses.

CUSTOMERS: - Customers (general public are the patrons of the business enterprise and hence
their satisfaction is most important. These goods and services must be made to the satisfaction of
customers as this will be determined by the patronage the business enjoys from the customers.
Otherwise, they will not be sold or used. As long as the firm intends to survive, it has to satisfy
its customers’ need at a profit.

GOVERNMENT: - Governments as well is the beneficiary of business economic objective of

profit maximisation. The benefits government receives from business organisation are in form of
taxes and other levies paid by business organisations to the government covers. This payment
will continue as long the business is maximising its profits.

KEY RESULTS AREAS NEEDING OBJECTIVES

The pursuit of profit maximisation as the single objective of business organisations has been
severely critised. The search for and the pursuit of the one, right objective is not only unlikely to
be productive, but is certain to harm or misdirect the business organisation. Drucker (1954)
believe that the very survival and growth of a management system was endangered when
managers emphasised only on the profit objective. This is because this single-objective emphasis
encourages managers to take action that will make money today with little regard for how a
profit will be made in the future. Managers should, therefore, strive to establish a variety of
objectives in all the key areas where activity is critical to the survival and prosperity of the
management system.

Many attempts have been made by different writers to identify key result areas in which
organisations should establish objectives. The mostly accepted key result area are those of Peter
Drucker. While working as a constant for general Electric, Drucker (1954) identifies eight major
areas vital to organisations existence in which it can set objectives in terms of performance and
results. Although principally applicable to profit – oriented organisations, Drucker’s eight key
result areas are also relevant for public sector as well as not – for – profit organisations.
Following are the eight key result areas in which Drucker advised managers to set objectives –

(1) Market Standing – Managers should set objectives indicating where it would like to be
in relation to its competitors. Market standing objectives might include:
 Increase market share from 20% to 30% within five years
 Becoming a market leader in innovation and pricing.
 Achieve total sales of 100,000 units a year by 2010.

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(2) Innovation – Managers should set objectives outlining its commitment to the
development and introduction of new products, processes, practices, and methods.
Innovation objectives might include:
 Being the leading company to develop new technology in the industry.
 Actively engage in Research and Development.
 Being the first to introduce innovative methods in marketing and manufacturing.
(3) Productivity – Managers should set objectives outlining to increase efficiency in
resources utilization in order to achieve target levels of production. Productivity
objectives might include:
 Increasing output levels of production department by 5% in the next operating year.
 Decreasing production costs per unit of output by 5% in the next operating year.
 Decreasing labour costs as a proportion of total costs y 5% in the next operating year.
(4) Physical and financial Resources – Managers should set objectives regarding the
acquisition, allocation, use and maintenance of physical as well as financial resources.
Such objectives might include:
 Acquiring up – to – date equipment at the end of present operating year.
 Refurbishment of the entire plant in the next two year.
 Increasing monthly cash flow by 5% over the next 2 years.
(5) Profitability – Managers should set objectives that specify the profit the organisation
would like to generate. Profit can be interpreted as the gain resulting from organisation’s
activities. Profitability objective might include:
 Generating returns in excess of investment.
 Maximising dividends for shareholders
 Creating and keeping reserves for future use.
(6) Manager’s performance and Development – Managers should set objectives that
specify rates and level of managerial productivity and growth. Objectives dealing with
continued development of managerial talent, for the present as well as for the future, are
important. Manager performance and development objectives might include:
 Establishing a yardstick for performance evaluation of managers.
 Assisting managers in developing their personal career plans within the first two
years of joining the organisation.
 Sponsoring at least two separate in – house training programmes for all levels of
management annually.
(7) Workers Performance and Attitude – Objectives should be set that will specify rates of
workers productivity as well as desirable attitudes all workers must possess. Worker
performance and attitude objectives might include:
 Increasing the employees’ contribution to the achievement of the organisational
objectives.
 Decreasing employees turnover due to poor reward system.

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  Reducing absenteeism to the barest minimum level of no more than 2% in a year.
(8) Social Responsibility – Managers should objectives that indicate the company’s
responsibilities to stakeholders as well as the society in general. These are non –
economic objectives related to supporting a good cause but not for profit motive. Social
responsibility objectives might include:
 Donations to victims of natural disasters
 Giving scholarships to indigent but brilliant students.
 Preservation and Improvement of the environment.

The organisation must give adequate attention to all these key areas which are of direct
importance to its survival and growth. Besides, organisations objective must also form a
network. They must be interconnected and mutually supportive, and cannot exist in isolation
(Scanlan and Key, 1979).

BASIC FUNCTIONS OF BUSINESS.

The role of business in human living existence cannot be overemphasised. Business

organisations play an important role in economic development of nay nation. This is because
business activities are evident in every human existence. Below are the major functions of
business;

1. Business performs the major function for providing goods and services to the society as a
whole.
2. It helps to improve the Standards of living of the people of a nation. This is done through
the production of more and better commodities and services and their widespread
distributing throughout the society.
3. It is business that provides the raw materials from which goods are fashioned (Extractive
Industries). It then converts raw materials into finished goods and then markets or
distributes them to the consumers.
4. Business also provides essential services which is aimed at making life more comfortable
and also making production and distribution possible. Such services include provision of
pipe-borne water, electricity, transport, and communication, banking, research insurance,
advertising etc.
5. Business also provides employment for a vast majority of people so as to earn a living.

BUSINESS RESOURCES.

Business resources can be defined as all inputs that can be acquired, processed and utilized by
business organisation to produce goods and services or to create wealth. We look at business
resources in terms of 6Ms: Man, Money, Materials, Machines, Methods and Market. All these
resources and others, such as knowledge and information of goods and services. Business must
acquire and make use of these resources to perform and achieve its set goals.

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1. Man – This refers to the human resource commonly called labour. This resource involves
the use of human efforts in the production process. Human efforts can be mental,
physical, acquired or invented. Human efforts are necessary inputs for production to take
place. The human efforts can be divided into three parts, viz:
(a) Skilled – These are human efforts and abilities that are human efforts and abilities
that are acquired through formal, relatively long and specialised type of training e.g.
efforts of a lawyer, an accountant or a business manager.
(b) Semi – Skilled – These are human efforts or abilities that are acquired through
informal training or apprenticeship e.g. efforts of a bricklayer, a tailor or a plumber.
(c) Unskilled – These are human efforts or abilities that required little or no training or
special knowledge e.g. the efforts of a gateman or a cleaner.
2. Money – Money is an important resource needed for production to take place. The reason
is that all other resources are acquired with the help of money. Money comes in form of
capital and can be in form of short-term fund or long-term fund. It can be described as
man-made productive assets used for the creation of further wealth. Most times,
businesses organisations obtained financial resources inform of loan capital or
shareholders’ fund.
3. Materials – These are the most visible part of production. They are the resources that are
needed to facilitate the production of goods and services. In fact, production is seen as the
conversion of input materials into finished goods and/or services. Materials as a class of
resources have four components:
(a) Raw materials – These refer to unit of inventory awaiting conversion into output. In
other words, they form the class of materials on which production process is yet to
commence.
(b) Work – in – progress – This refers to element on conversion, that is, class of materials
that are already put into process but for which production process is yet to be
completed.
(c) Finished goods – These are fully converted materials, that is, elements that are
processed into final output but which are yet to leave the factory or the job shop.
(d) Tools – These are generally spare parts maintenance items as well as other set of
equipments that are usually kept for use in the course of normal operation.
4. Machines – These are used to represent technical equipment and facilities from the most
simple to the very sophisticated that are used in the conversion of inputs to outputs. in
this wise, a broom is regarded as a machine just as cranes, conveyor belts, fork lift
vehicle, appliances and other tools that are needed to transform raw materials into
finished goods.
5. Method – This relates to the skills that are brought to bear in the process of determining
resources, the magnitude and the direction of resources that are deployed for conversion.
Consideration should also be given to the best techniques to be used in the process of
transforming the inputs to outputs.

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 6. Market – In the context of business management a product makes sense only if there is
demand for it. Market here refers to all potential buyers and the opportunities presented
by the environment in which the business operates. Since the purpose of the business is
normally accompanied with management criteria of effectiveness and efficiency, market
becomes one of the crucial resources considered control to business. The opportunities
available in the market can be used to expand the level of sales, profit, growth and
success of the business.

BUSINESS SECTORS IN THE NIGERIAN ECONOMY

According to National Account of Nigeria, business activities may be conveniently divided into
the following sectors namely;

i. Agriculture
ii. Livestock
iii. Forestry.
iv. Fishing.
v. Mining and quarrying, coal, crude petroleum, meta lone
vi. Manufacturing
vii. Utilities
viii. Building and construction.
ix. Transportation.
x. Communication post, telephone and telegraphs, radio and television.
xi. Wholesale and retail trade.
xii. Hotels and restaurants.
xiii. Finance & Insurance.
xiv. Real estate and business service.
xv. Housing.
xvi. Producers of government service (Government and Universities etc.)

Business units within the various sectors produce goods and services, and the total value of
goods and services produced in the country in any year is known as the GROSS DOMESTIC
PRODUCT (G.D.P.)

WHY STUDY BUSINESS.

People study business for a number of reasons. The following are several reasons why the study
of business is important;

1. It assist in career selection

2. It gives opportunity for self employment.
3. Helps in tackling the consumer decision.
4. Lead to better consumer decisions.

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 5. It is one of the most relevant studies in contemporary society.
6. It is the aim of business as a discipline, to build up a body of principles and to furnish
business expert or businessmen with the tools of business analysis that will enable them
not only to understand current business problems, but also to see the economic
consequences of pursuing particular line of policy.
7. Leads to better investment decision.
8. Enable the individual to understand better the relationship between oneself and others in
day – to – day business dealings.
9. A knowledge of business enables us to give practicable advice in business transactions.

RESPONSIBILITY OF BUSINESS.

Caroll proposes that managers of business organisations have four responsibilities, economic,
legal, ethical and discretion.

1. The Economic Responsibilities – a business organisations management are to produce

goods and services of value to the society so that the firm may repay its creditors and
shareholders.
2. Legal Responsibilities – are defined y governments in laws that management is expected
to obey.
3. The Ethical Responsibilities - of an organisation’s management are to follow the
generally held beliefs about how one should act in a society.
4. Discretional Responsibilities – in contrast, are the purely voluntary obligations a
corporation assumes. Examples are training the hard – core unemployed, scholarship
awards, philanthropic contribution etc.

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BUSINESS ORGANISATIONS.

Business organisations or unit can be classified into two broad categories according to their
sizes.

1. Small business organisations: Sole proprietorship and partnership.

2. Big or Large business organisations: They include limited liability companies, public
corporations and cooperative societies.

Business organisation can be classified into another two broad categories according to patterns of
their ownership:

(a) Private Enterprises: These are those business units and economic activities owned and
managed by private individuals. Examples include sole proprietorship, partnership,
private public limited liability companies, and cooperative societies.
(b) Public Enterprises: These a business organisations owned and managed by the
government corporations and companies owned by the government such as water
corporation, Nigeria Railway Corporation, Trans City Corporation among others.

DIFFERENCIES BETWEEN PRIVATE AND PUBLIC ENTERPRISES.

PRIVATE PUBLIC
1. Owned by private individual Owned by local, state and Federal
Governments.
2. Main motive is to make profit Main motive is to render essential
services to members of the public.
3. Private individuals or organisations Government provides capital.
provide capital
4. Establishment is in any area in which Establishment is only essential services.
profits are assured
5. Private individuals or organisations or Tax payers bear losses as a result of
owners bear the losses business failure.
6. Enjoy no monopoly Enjoy monopoly e.g. NEPA, NIPOST,
Nigeria Ports Authority.
7. Owners or directors appointed by Public enterprises are controlled by
owners control the private enterprises. government through the appointment of
BOD.
8. Make efficient Less efficient because of government
interference and bureaucracy
9. Established by ordinary registration or Established by acts of parliament
by incorporation
10. Less amount of capital required to Huge amount by acts of parliament.
establish

MAJOR TYPES OF BUSINESS ORGANISATION.

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 There are six (6) major types of business organisations. They are;

(1) Sole proprietorship: A single person always own this type of business e.g. Martius
Enterprises.
(2) Partnership: Owned by 2 – 20 persons and if it is in case of banks, it is owned by 2 – 10
persons e.g. Akeem and John Enterprises.
(3) Private Limited Company: Owned by 2 – 50 persons e.g. Dewale and Sons Limited.
(4) Private Limited Company: Owned by 7 persons upward e.g. Lever Brothers, Cadbury,
PZ, Guinness PLC, NB PLC, and NBC PLC etc.
(5) Public corporation: Owned by any number of persons e.g. Surulere Co-operative thrift
and credit society.
(6) Public corporation: Owned by government e.g. NEPA PLC, NIPOST, and NRC.

DETERMINANTS OF FORM OF BUSINESS OWNERSHIP

The selection of a particular form of organisation or ownership involves a number of

considerations. Some of these are:

1) Amount, source and availability of capital needed by the firm.

2) The size of its market i.e. the extent the products of the firm are in demand.
3) The size and distribution of profits.
4) The type of firm, either public or private firm or the type of ownership, government or
private individual.
5) Ease or difficulty of organsiational and efficiency or inefficiency of the management.
6) Degree of personal interest and control desired.
7) Ease or difficulty of transfer of ownership and the number of owners.
8) The nature of the business of the firm.
9) Tax position
10) Potential for expansion.
11) The number and extent of factors of production available to the firm i.e. raw materials,
labour, capital and entrepreneurial ability.
12) Extent of government regulation.
13) Extent of liability for the firm’s debts.
14) Workers attitudes to work.

THE SOLE PROPRIETORSHIP.

Sole proprietorship is a business concern established, owned operated, financed and control by
one person with the sole aim of making profit. It is the oldest and simplest form of business
organsiational. This form of business unit is also known as: One man business, sole Traer or
individual proprietorship. In Nigeria, there is more sole proprietorship than any other form of
business ownership. Examples of individual proprietorship include small retail shop, Barber
shop, Canteen (Bukas), Dry cleaning etc.

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CHARACTERISTICS OR FEATURES OF SOLE PROPRIETORSHIP.

(1) Ownership: It is owned by one person.

(2) Liability: The liability of the one man business is unlimited.
(3) Source of Capital: The capital used in forming and running the business comes from the
proprietor.
(4) Motive of its formation: To make profit.
(5) Legal Status: It is not a legal entity.
(6) Method of withstanding capital: The owner withdraw his capital without the consent of
anybody.
(7) Its Nature: It is simplest and the common type of business unit.

ADVANTAGES OF SOLE PROPRIETORSHIP

1) Small capital: It requires small capital to start the business.

2) Easy to establish: No formal procedures are required for its establishment.
3) Quick and independent decisions can be made without consulting anybody.
4) No business income tax/lower taxation.
5) Individual Accountability: He pays personal attention to the needs of his customers.
6) He singly formulates the firm’s policies and set the goals that guide the business
internally and externally and strives to work towards them.
7) Privacy of Business Affairs: The business and its owners are not required by law to
disclose their annual account or punish them.
8) Business gains are personal gain: He returns all profits for personal use and does not
share them with anybody.
9) Lower Organisational Costs: This makes it easy to manage.
10) Fitness to any environment: Because of the nature one man business, it adapts easily to
any environment it finds itself as long as there are customers to be served.

DISADVANTAGES OF SOLE PROPRIETORSHIP

1) Unlimited liability of the Owners: The owner bears all risks and losses of the business
alone. In words. If the owner fails to fulfill his financial obligation to any person, the
creditor has right under the law to lay claim not only to business assets of the owner, but
also to the personal assets or properties of the business owner.
2) Limited financial Resources: The owner has problem of raising adequate capital in
running the business. This is because the sole proprietor relies only on his personal
savings and assistance from friends and family members for friends. A sole proprietor
cannot generate funds from money and/or capital market through private or public
placement.
3) Retarded Growth: Difficulty of expansion due to smallness of capital outlay coupled with
managerial inabilities.

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 4) Limited life span: This form of business is not permanent. There is lack of continuity
which may be associated with the death or incapacitation of the owner. This may mean
the end of the business.
5) “Workaholic” he is very incentive to work hard and please himself. This may result in
overwork, which may insure his health.
6) Unable to employ or retain well – skilled workers.
7) Management Difficulties: This type of business does not enjoy abundance of managerial
expertise required for successful management of the business. This is because such
business is owned and managed by one person who is vital functions sufficiently versatile
to handle all vital functions of the business efficiently.

PARTNERSHIP

Partnership may be defined as the relationship that exist when two or more persons contribute
skill, money or money’s with in order to establish, own ants manage business organsiational with
the sole aim of making profit. Partnership is “an association of 2 – 20 persons or 2 – 10 persons
as in case of a bank, to carry on as co – workers of business for profit. They also share the losses
that arise from such business.

Why the formation of partnership?

Partnership may be formed because: -

1) It is a means of bringing into a business more capital or more skills which can be used for
expansion.
2) Serves as a means of spreading the risk of loss among several people.
3) Equal sharing of profits or losses.

Characteristics/features of partnership.

1) Ownership: It owned by 2 – 2- or 2 – 10 persons.

2) Liability: The liabilities of partners are unlimited.
3) Formation Motive: To make profit.
4) Legal status: It is not legal entity.
5) Source of capital: Contribution from the partners.
6) Method of withdrawing capital: Must be approved by other partners as laid down in their
partnership deed.

Types of partnership

There are two types of partnership namely:-

1. General/Ordinary partnership
2. Limited partnership

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1. General/Ordinary Partnership – In this, all the partners have equal responsibility and
bear all the risks of the business equally. All the parties have equal powers, unlimited
liabilities; take active part and profits are shared equally.
2. Limited Partnership – here ,all partners do not take equal part in the management of
the business , the liabilities of the partners are limited to the capital they
contributed ,etc .But ,in compliance with the partnership law ,the partner who is
active and has unlimited liability in the business is the overall risk bearer.

Kinds of Partnership

1. Active Partners – this partner takes active part in the formation, financing and
running of the business.

2. Dormant or Sleeping partner- this partner only contribute his partner only exist in
name or word, as he does not contribute financial resources to the business. His name
is only use in the formation of the business.
3. Nominal or Passive partner – Passive partner only exists in name or word as he
contributes nothing financially, but his name in the formation of the business Partner
of this nature are only men and women of substance whose name are greater than
silver and gold, like retired Army General ,Politicians ,Civil Servants , Successful
business men ,etc .Those people have a share in the profits and liabilities of the
business as specified in the partnership deed.

ARTICLES OF PARTNERSHIP OR PARTNERSHIP DEED.

Partnership deed can be defined as a written agreement, rules, and regulations that
guide members of partnership business. The deed contains the following items among
others:
1. Name of firm
2. Name of the partners
3. The place of the business
4. The description of the nature of business
5. The amount of capital that such partner is to contribute
6. The role of each partner in the business.
7. The method of profits and losses sharing
8. The compensation, if any, the partners are to receive for services rendered to the
business.
9. The rights of partners in the business
10. How long the business shall cast
11. Partners right in the business
12. How matters shall be determined either by majority vote or not
13. Provision for admission of new members

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 14. The limitations of liability of one or more partners
15. The arrangements concerning withdrawals of additional investments.
16. Arrangement for the dissolution of the firm in the event of death, incompetence,
or other causes of withdrawal of one or more of its members.

ADVANATGES OF PARTNERSHIP

1. Greater capital or financial resources.

2. Greater specialization and diversified managerial talents.
3. Better credit rating than the Sole Proprietorship
4. Less government regulations.
5. Creation of employment opportunities.
6. Cordial relationship existence between partners and consumers.
7. Taxes are paid on individual partner’s income only.
8. Opportunity for extending the business and for increasing its efficiency by exploiting the
benefit of division of Labour.
9. Joint and better decisions can be easily taken by partners.

DISADVANTAGES OF PARTNERSHIP

1. Unlimited Liability: Each partner is individually liable for all the debts of the business
and that the liabilities of the owners are not limited to the amount contributed into the
business.
2. Not a legal Entity – Partnership does not have separate legal entity different from owners.
3. Disagreement: Disagreement among the partners can lead to dissolution especially if
some fundamental issues are at stake.
4. Limited Life: This means that the Partnership dies at the death or bankruptcy or
registration or retirement of one partner.
5. Limited Capital: It is difficult to acquire long-term loan because of lack of continuity.
6. Difficulty in finding qualified and agreeable partners.
7. Delay in decision taking because of the need to consult with every partner.
8. General Agency – Any action taken by one partner is legally binding on all the other
partners. Therefore, there is possibility of entering a partnership with someone whose
business judgment is poor.

LIMITED LIABILITY COMPANY

A company is an association of individuals who agreed to and jointly pool their capital together
in order to establish and own a business venture distinct from their owners.

TYPES OF COMPANIES

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 1. Unlimited Liability Companies: Owners of these types of companies do not end to the
capital contributed to the business; as personal belongings which have to go for it in order
to offset the business debts in case the companies run into liquidation.
2. Limited Liability Companies by guarantee: Owners of these types of companies liability
is limited by norms or guarantee. The sole aim of these companies formation in the
promotion of science, religion, arts, education e.t.c. and not for profits making. These
type of companies’ source of capital is majorly from promise, voluntary contributions
from members, and charitable organisations. Hence, the liabilities by promise or
guarantee.
3. Limited Liability Company by Shares: Owners (shareholders) of these types of
companies’ liability is limited to the amount they contributed for the formation and
management of the companies. If the company runs into liquidation, the shareholders can
not lose more than their nominal shares. Limited liability companies by share are also
known as Joint Stock Companies.

KINDS OF LIMITED LIABILITY COMPANIES

1. Private Limited Liability Company: This type of company is formed with a specified
number of persons. It has a minimum number of two (2) persons and a maximum fifty
(50) members, this number of members include employees of the company.
2. Public Limited Liability Company: Here, the minimum number of person that can form it
is seven (7) people while it has no maximum number. This type of company is free to
invite members of the public to contribute capital for the running of the company by
buying shares. These shareholders who are the real owners of the company are free to
transfer their shares to the other people.

CHARACTERISTICS OF LIMITED LIABILITY COMPANIES

1. Policy is decided by the board of directors who are elected by the shareholders at an
annual meeting, since the corporation is only a legal person and not a living one, it can
act daily through the directors elected by the stock holders.
2. Each stockholder has many votes as the number of voting shares of stock owned. These
votes are cast to elect members of the board and reach decision on other major matter at
the annual meeting.
3. Each stockholder has limited liability. If the corporations fail financially and its debts are
greater than its assets, the corporate debt is limited to the extent of its assets. Each
stockholder, therefore, can only lose the extent of his or her investment of stock in the
corporation.
4. Dividends, which must be declared by the board of directors, are paid to stockholders in
proportion to the number of shares held by each.
5. Legal problems and complicated documentations & executions, red-tape must be
foreseen in operating the corporation.

17
 6. Stock is bought and sold quite easily on stock exchange as long as there is demand for it.
7. Income and other taxes will be paid at rates higher than those for sole proprietorship and
partnership.

DIFFERENCES BETWEEN PRIVATE LIMITED LIABILITY COMPANY AND PUBLIC

LIMITED LIABILITY COMPANY.

PRIVATE LIMITED LIABILITY PUBLIC LIMITED LIABILITY

COMPANY COMPANY
1 Has a minimum of 2 owners Has a minimum of 7 owners
2 Has a minimum number of owners of Unlimited number of owners
50
3 Capital cannot be raise from members Capital can be raised from members of the
of the public or through the sales of public by selling shares and through the
shares, neither can it be issue issuance of debentures.
debentures.
4 Capital transfer can only be done after Capital or shares are freely transferable
seeking the consent of all owners of from one person to another.
the company.
5 Formation and control of the company Shareholders owned the company board of
is carried out by capital contributors Directors controlled it.
6 Business commencement is only Business commencement is only possible
possible after obtaining the certificate after obtaining both certificate of
of incorporation. incorporation and certificate of trading.

DOCUMENTATION IN THE FORMATION OF A LIMITED LIABILITY COMPANY

The formation of a limited liability company is usually started with the preparation of certain
documents that will be persecuted to registrar of companies for his perusal and subsequent
registration. This preparation is normally done by a solicitor or a business consultant. The main
documents that are involved in company formation are;

A. Memorandum of Association
B. Articles of Association

MEMORANDUM OF ASSOCIATION

This document states clearly the relationship between company and the outside world. It
specified the name, location, objectives e.t.c of the company. The memorandum of association
has all or some of the following as its content:

1. The name of the company with “Limited” as the last word.

2. The location of the registered office of the company.
3. The objectives of the company

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 4. Proposed amount of the registered capital.
5. A statement indicating the liability of the company’s shareholders.

ARTICLES OF ASSOCIATION

This document lays down the initial rules and regulations governing the organisation and
management of the company. The articles of association of a company contain the following:

1. The duties, rights and position of each member of the company.

2. The method of the appointment of the directors.
3. The rights and powers of the directors.
4. How dividends are to be shared.
5. How general meetings are to be held and the procedures.
6. Method of electing directors and the voting rights at such election.
7. Method of auditing the company’s accounts.

THE PROSPECTUS

A document that give about an establishment information.

It is mandatory that a company prospectus must be filled with the registrar of companies after
been approved by the council of stock exchange. A prospectus is issued by public limited
liability companies and it serves as a mechanism for raising capital.

A prospectus is a document of notice, which extends invitation to the general public to subscribe
to the shares of the company. The prospectus contains the following information:

a. The names and addresses of all the directors of the company.

b. The types of shares available for purchase in the company.
c. When and how shares may be bought.
d. Minimum and maximum number of shares a subscriber may apply for.
e. The relative cost of the shares.
f. Financial history of the company.
g. Possible value of the assets and liability of the company.

CERTIFICATE OF INCORPORATION

This is a certificate issued by the registrar of companies to signify that a business unit has been
incorporated. This certificate can only be issued if after scrutinizing the above two documents –
the memorandum of association and articles of association by the registrar of the companies and
he feel satisfied. The certificate of incorporation confers legal status on a company.

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CERTIFICATE OF TRADING

This is a certificate issued to a public limited liability company by the registrar of companies to
commence business and existence borrowing powers. It should be noted that the certificate of
trading is issued only when the company has fulfilled some requirements like raising the
minimum required capital from the public, and each director has paid for his own shares among
others.

ADVANTAGES OF LIMITED LIABILITY COMPANY.

1. It enjoys a separate legal entity distinct from the owners.

2. The liability of the owners is limited to the amount invested in the company.
3. Death or withdrawal of a shareholder does not lead to the end of the business.
4. It is easy to expand business because of availability of large capital.
5. There is opportunity for the employees to acquire shares in the company and thus become
co-owners.
6. The interests of shareholder in the business are safe as no secret profit can be made.

DISADVANTAGES OF LIMITED LIABILITY COMPANY.

1. The formalities and requirements by law for the establishment of a limited liability
company are very cumbersome.
2. Public Limited Liability Company lacks privacy because it’s required by law that the
company must publish its account for public consumption.
3. The managers of the business are not always the owners of the business.
4. Huge capital is required for the formation and running of the business.
5. Disagreement between shareholders and members of Board of Directors may bring the
companies progress to a halt.
6. Delay in policy and decision making as it takes long time for the members of the Board
of Directors which is the decision and policy making body to convene a meeting and take
decision.

PUBLIC CORPORATION

A public corporation is a business organisation, established, owned, managed and financed with
tax payers’ money by government of a country, with the main motive of not making profit but to
render essential services to members of the public. A public corporation is also known as public
enterprises or statutory corporation. It is established by acts of parliament which also determine
the functions it will perform. Public corporation are owned by the government but managed by
Board of Directors appointed by the government, examples are NEPA, Nigeria Airway, Nigeria
Railway, etc.

Characteristics or features of public corporation

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 1) Ownership and Finance: It is owned by government and financed with task prayers’
money.
2) Capital Involvement: A huge capital involvement in the establishment and running of the
public corporation.
3) Motivate: Not profit motive but to provide essential services to the general public at the
least minimum affordable price.
4) Type of services Rendered: Essential services-electricity, water, hospitals, schools, etc.
5) Methods of Establishment: A public corporation is established by acts of parliament.
6) Enjoyment of Monopoly: No competition from other organisation in the provision of
essential services.
7) Ownership & Management: Public corporation is owned y the government of a country
and managed and controlled by Board of Director appointed by the government.
8) Restriction of services: In spite of the essential nature of its services, a public corporation
does not extend its services to all parts of the country.

Merits of public corporation.

1) Legal status – Owners cannot be dragged to count but corporations can be sued because
they are legal entities.
2) Enough capital is Ensured – They enjoy the advantage of having enough capital base
because they are financed by government with tax payers’ money.
3) Enjoyment of the Economic of large – scale productivity – Public corporation can enjoy
economics of large – scale production because they have huge capital resources.
4) Generation of Employment Opportunities – They provide more employment
opportunities than other business organisations because this is one of the reasons why
government established them.
5) Enjoyment of Monopoly – They are free from any form of competition from other
business organisations. They also enjoy government protection as private enterprises are
not allowed to duplicate public corporation effort in the provision of essential services.
6) \accountable to the public – As public properties their annual reports are made public for
people’s perusal.
7) Continuity – The exit of a member of the board of director or their dissolution or even a
charge of government can never affect the continued existence of a public corporation.
They are of continuity.
8) Welfare – The interest of the workers of a public corporation are adequately taken care of
through various welfare schemes available to them e.g. pension and gratuity.
9) Provision of Efficient Services – IN theory, public corporation are meant to provide
efficient and effective services to members of the public because they are support by the
government financially and otherwise.
10) Prevention of Exploitation – The sole aim is provision of essential services and not for
profit motive, so, they are devoid of any exploitative tendencies.

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Demerits of public corporation.

1) Undue government interference – The Board of Directors appointed on political basis to

oversee public corporation are unduly interfered with by the government. The result is
square pegs being put in round holes and it fits the adage that says “He who pays the
piper dictates the time”.
2) Bureaucracy – There are a lot of complicated system of administrations and a lot of red-
tapism in them.
3) Inefficiency – This is a result of the lackadaisical attitude of the workers to work, in fact,
many public corporation as property of “Nobody”.
4) Huge Capital Involvement – The establishment of public corporations requires huge
capital which the government may not even be able to undertake on its own unless he
enjoy financial backing from external bodies.
5) Delay in Policy and Decision formulation – This is because their decisions and policies
are take and made by members of the Board of Directors, subject to government
ratification.
6) Very Hard to Establish – It always take a long period before the law establishing them is
passed in the parliament.
7) Owner-Production and Wastage – Tax payer’s bears the burden of the losses as there is
no conversation method.
8) Non – flexibility – The acts of parliament that established them make it difficult for them
to change easily in order to suit new condition.
9) Lack of privacy – Members of the public has the right to inspect their accounts, and their
annual reports are made public.
10) Ethnicisms and sectionalism –
11) Lack of cordial relationship among workers and boards of directors which may be as a
result of differences in political views or some other sentiments which may not angur
well for the progress of the organisation.

Co – operative societies.

A co-operative society is a business organisation in which a group of individuals who have

common interest mutually agreed to come together to establish in order to promote their
economic activities like production, distribution or marketing of goods and services and
provision of other welfare benefits to their members. Co-operatives societies is one of the oldest
form of business organisations that exist in our society. It arose as a form of democratic business
organisation meant to counteract the activities of their capitalist counterpart.

Characteristics or features of co-operative societies.

1. It is a democratic organisation of one man one vote.

2. Membership is open to those who fulfill certain conditions stipulated by the societies.

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 3. The co-operative societies are owned from persons to infinity.
4. Dividends paid to members is based on patronage.
5. Little interest is paid on capital.
6. Elected members in the society on behalf of members.
7. It is a voluntary association.
8. The sole aim of cooperative societies is not profit maximisation but to promote the
economic activities and welfare of the members.

Types of co-operative societies.

(1) Consumers co-operative society – As the name applies, consumers pools their resources
together in order to buy goods in bulk from the manufacturers. They by – pass the
middlemen in order to get these goods at cheaper rates and then distribute to their
members.
(2) Producers Co-operate Society – This is the association of producers of similar products
who have come together in order to promote the production and sale of their product.
Members of this society like farmers, and other producers contributes money in order to
buy or hire equipment, machinery and raw materials at reduced rates meant for the
promotion of their productive activities.
(3) Credit and Thrift co – operative society – This is one of the commonest co-operative
societies found in our present day society. In this society, members are encouraged to
save their money together, which all or part of it may be lent to any member that is in
need. In some of these types of society, members collect their total savings weekly or
monthly in a rotatory form. If part or all of the money collected is given to a member in
form of loan, the interest chargeable on the loan is very low if at all any. This type of
society saves the members, the pairs of going to bans to borrow money with their
embarrassing collateral securities.

Benefits of co – operative societies.

(1) Democratic in Nature – They are democratic in nature as all members have equal right to
say what and how the society should be organised, equal rights to vote and be voted for.
(2) Savings encouraged – The credit and thrift cooperative society encourages its members to
save their money.
(3) Joint purchaser results in low prices of Goods – As members buy goods in bulk and
directly from the producers and distributes to their members, they enjoy low prices of
goods.
(4) Encouragement of Economic Development – Co-operative societies activities encourage
mass production, distribution and consumption, and equally encourage savings for further
investment.
(5) Hardwork Encourages – They encourage hardwork as a result of the fact that they have
joint pride of ownership and sense of belongingness.

23
 (6) Promotion of member’s welfare and standard of living – as a result of the making goods
available to members at reduced rate, prevent price fluctuation as their motive is not to
maximise profit but to improve members’ welfare give the needy ones loans with low or
without interest rates e.t.c.
(7) They fight Inflation and Deflation – They do these through their activities of price
stabilization, regulation of the quantity of goods needed e.t.c.
(8) Advertisement costs saves – They save advertisement money since majority of the goods
they purchase from manufacturers are bought by their members.
(9) Members are paid dividend calculated on the basis of the capital contributed and total
purchases made from the society.
(10) Avoidance of Hoarding – This is as a result of the fact that they buy directly from the
manufacturers and distribute members.
(11) Good Human Relations & Unity fostered – Co-operative societies encourage
interpersonal relationship among members as they treat themselves as brothers, sisters,
friends, etc.
(12) Evaluation of their Members – This is done in areas of production, distributions, buying
and selling of goods and services.

Problems of co – operative societies.

1) Illiteracy – Majority of co-operative societies members are illiterates who do not

understand the working and principles of these societies.
2) Tax Evasion – Co-operative societies are never taxed by government, meaning that they
are not contributing their own quota to the progress and economic development of the
country.
3) Indiscriminate Enrolment of Members – Enrolment of members are not based on their
business acumen, experience, competence, ability, efficiency, financial contribution etc.
4) High rates of Embezzlement – Some members of co-operative societies connive and use
the societies money in wrong ways for their selfish benefits.
5) Weak Management – Some of them are managed by men who lack administrative and
managerial acumen.
6) Limited Expansion – Expansion of co-operative societies is limited in scope due to
insufficient capital base and in terms of the size of members, which may remain so far
many years of their existence.
7) Lack of Discipline – Lack of discipline among members is due to equalitarian nature of
the societies.
8) Insufficient Capital – This problem arises as a result of low subscriptions and
unwillingness some members to pay their own.
9) Problem of Politics – Many of the co-operatives societies members allow meddling in
political affairs to take a good part of their energies attention span at the detriment of

24
 their laudable role in the running of their co-operative society. Differences in political
sympathy by members may also bring about a sudden death of the association.
10) Individual Initiatives Denial – This denial may lead to obstruction of rapid development
of entrepreneurship.

THE NATURE AND ROLE OF THE BUSINESS ENVIRONMENT

Business organizations are embedded in complex environments where they operate. Those who
are involved in business policy formulation should therefore be aware of the existence and the
impacts of the environment on organizational performance.

The term ‘’business environment’’ has the general meaning of external factors that surround and
potentially affect the activities and behaviours of a particular business organization. Kohn(1997)
notes that business environment comprises the totality of forces, actions and institutions that are

25
currently and /or potentially contending with the organization’s activities and performance.
Business environment may be immediate or remote, local or international, internal or external,
absolute or comparative, e.t.c. This means that business environment refers to influence and/or
affect the activities of a particular business organization.

The term ‘’environment’’ can be defined as the sum of interrelationships that exist within the
business and its environment. All managers, irrespective of their organizations, must take into
account the environmental constraints that affect their performance. The need to study the
environment results from the fact that business organization do not operate in a vacuum. A
mutual relationship exists between a business and its environment. Whereas a business affects
the environment by producing the goods and services needed by the environment, and
contributing to social causes, costs, e.t.c, the environment affects the business by providing the
resources (human and materials) required by the business and presenting opportunities and
threats.

A major fact about the environment is that it does not stand still: it is dynamic; therefore, no
organization can afford to ignore the changing environment if it wants to succeed.

An organization’s performance in the environment is a matter of the degree of alignment among

the organization’s environmental opportunities, objectives, policy, strategy, structure,
management styles and systems. Thus, for survival, an organization first studies the environment
in which it is operating, and specifically the opportunities and threats within the environment. It
often develops a set of objectives describing what it wants to avhieve in its environment, and
then formulates a corporate policy and strategy aimed at achieving the objectives. It then builds
an organizational structure that is capable of carrying out the corporate strategy. Finally, it
designs various systems of analysis, planning and control support the effective implementation
of the organizational strategy. The process takes this form:
ENVIRONMENT====OBJECTIVES====POLICY====STRATEGY====SYSTEMS.

A successful organization is one that has found a useful way of survival within the lager
environment. Policy –makers should be able to distinguish the degree of stability of an
environment as identified by Emery and Trist (1957) thus;

(1). Stable Environment- This is a situation where the major forces and institutions in the
environment remain stable over a long period of time. In this type of environment, the
occurrence of change can be predicted and measures taken to contain it.

(2). Slowly Evolving Environment- This is where smooth and fairly predictable changes take
place. An organization survives in this type of environment to the extent that it foresees changes
and takes intelligent steps to adapt to the changes.

(3). Turbulent Environment- This is a situation where major and unpredictable changes occur.
The Nigeria business environment is characterised by turbulence.

26
CHARACTERISTICS OF THE BUSINESS ENVIRONMENT

There are five major characteristics of the business environment. They are;

(1). Complexity- The business environment consists of a number of factors, events, conditions
and influences arising from different sources. A ll these interact with one another to create new
sets of influences on corporate policy and strategy. The interaction is complex.

(2). Dynamism- The business environment is constantly changing in nature. Due to the many
and varied operating influences, there is dynamism in the environment causing it to continuously
change its shape and character.

(3). Uncontrollability- Most of the forces and institutions in the external environment are
beyond the control of the organization. This means that environmental factors are uncontrollable.
It is full of complexities, fluidity, uncertainty and instability.

(4). Multifacetedness- What shape and character an environment may be viewed differently by
different observers, especially where such new development is seen as an opportunity by one
company while another company perceives it as a threat.

(5). Far- Reaching Impact- The growth and profitability of an organization depends critically
on the environment in which it exists. Any environment change will impact on the organization
in several different ways.

The business environment could be either internal or external. The external environment refers to
all relevant forces and conditions outsides the business boundaries that affect its activities. The
internal environment on the other hand consists of all forces and conditions within the business
that influence its activities.

THE EXTERNAL (BUSINESS) ENVIRONMENT

The external environment of a business organization is the pattern of all the external conditions
and influences that affect, and/or relate to, its life and development. These factors include
technological, social, competitive, economic, physical, and political factors.

(1). The Technological Environment- This consists of those factors related to knowledge
applied in the production process, inventions, methods and ways of doing things, procedures and
innovations, plus the materials and machines used in the production of goods and services. Such
factors have an impact on business policy and decision- making in an organization, on
communication, infrastructural and managerial technologies.

(2). The Social Environment- The social environment consists of factors related to human
relationships and the bearing of such relationships on business. Factors and influences relevant in
the social environment include:

27
(a). Demographic Characteristics- These include population, its density and distribution,
changes in population, age groups, migration, e.t.c. The demographic structure could reveal the
size of the market, and the potential consumers and customers of the business which constitutes
business opportunities.

(b). Family Structure- This refers to the attitudes towards and within the family, values attached
to the family, and changes in the family structure.

(c). Social Concern- These refer to the social responsiveness attached to the organization, such
as environmental pollution, use of the mass media, consumerism, e.t.c.

(d). The function of children and adolescents in the family and society, and also the role of
women in bringing up children and intervening in crisis, must have policy attention.

(e). Social attitudes, motives, customs, belief and the effects that such factors have on buyer
behaviour and educational levels, conduct of workers, and many more, are part of the social
factors.

(3). The Economic Environment- The close interaction of business with the economic
environment is hardly surprising, since one of the objectives of business is to create economic
activity. The economic structure of a country (Capitalist, Socialist, or Mixed economy), the
privatization or commercialization of business enterprises, economic planning system, economic
policies (e,g. Fiscal or monetary policies), indicies (e.g. National income, Per capital income,
Disposable income), and infrastructural factors (such as Financial institutions), are various
economic factors which the management of an organization has to evaluate. Economic
environment also includes the economic system which shows how goods and services are
produced and distributed in a given society. It also includes business cycles of boom, recession,
depression and recovery. The economic environment also covers levels of business activities,
such as the price level, productivity level, real income level, interest and employment rate. All
these will have effects on business, how much is saved and invested in the country will have an
effect on the spending pattern of the population.

(4). The Legal-Political Environment- In recent years, developments in the political

environment have increasingly been affecting decisions in the operation and management of
business enterprises. The political system is a broad term covering the forms of institutions and
the structure by which a nation is governed. It consists of an interacting set of laws, government
legislations and agencies that influence and constrain the conduct of various organizations and
individuals in the society.

In Nigeria, there are three tiers of government- the federal, the state, and the local government.
Each tier of government has its powers and limitations. There are also three arms of government,
viz; The executive, the legislative, and the judiciary. Each arms of government has been assigned
constitutional roles to perform in the country. Business enterprises should be aware of the laws

28
and regulations that guide the operations and management of organizations in the Nigeria legal
political environment. Policies that will contravene or contradict the laws and regulations should
be avoided.

(5). The Socio-cultural Environment- The socio-cultural environment consists of the beliefs,
the values and norms of a given society. People usually grow up in a particular society with some
cultural settings which shape a World-view that defines the way and manner of living of the
people. This World-view dictate and determines the consumption norm of the society and the
type of product or service that an organization can offer to the market concerned. Policy-makers
should try to understand the cultural setting as it affects business decision-making.

(6). Corporate organizations operate in an environment that is full of competition. The

nature of competition actually influence the performance of these organizations. According to
Kotler(1988), three different forms of competition can be identified in the environment, thus;

(a). Generic competition- This comes from other product categories that might satisfy the same
consumer needs. For example, a person who is thirsty may decide to take water, tea or soft drink.
Another person who needs transportation from Lagos to Port-harcourt may decide to travel by
air, road, or sea. Generic competition is always present and exists in the environment.

(b). Product form competition- The competition arises from within the product group, where
various products are made to satisfy the same basic needs. If a person decides to travel by road
from Lagos to Portharcourt, for example, he may go by luxurious bus, by car or buy urvan bus.

(c). Enterprise competition- This refers to specific organizations that are competitive,
producers of the same product or service. In the beverage industry, for example, there is Cadbury
Plc, Unilever Plc, Cocoa Industries Limited, and a host of others.

For business policy formulation, corporate organizations should assess their competitive
positions in order to improve their chances of designing appropriate strategy to optimizes
environmental opportunities.

(7). The Natural Environment- Organizational activities are carried out within the natural
environment. This consists of the climatic conditions, the vegetation belts, the physical features,
the mineral resources and a host of other natural endowments. This environment creates
opportunities and threats for business practice (Kotler,1988). In Nigeria, the natural environment
creates abundant opportunities that can be harnessed to achieve organizational objectives.
Corporate organizations should be aware of the opportunities created by the trends in the natural
environment.

(8). The Co-operative (Task) Environment- This consists of institutions that co-operate with
corporate organizations in their effort to achieve objectives. The collaborators include the
suppliers who provide a host of heterogeneous inputs for the organisations processing activities.

29
These inputs go through various forms of transformation that yield the outputs. The creditors
include the financial institutions that provide credit facilities for organisations. The customers
consists of all those who patronise the organisations products for whatever reasons. Policy
formulation should take cognisance of the cooperative environment because their activities also
influence the performance of corporate organisations.

STRUCTURE OF THE ENVIRONMENTAL FACTORS

External Macro Environment Natural.

Economic.
Political.
Socio-cultural.
Technological.
Legal-political, Demographic.

Intermediate corporative Competitors.

Suppliers.
Competitors.
Environment Customers.
Suppliers.
Consumers.
Customers.
Creditors.
Consumers.
Creditors.

Internal Micro Environment Human Resources.

Research and Development
Production.
Marketing.
Finance and Accounting.
Management support system

THE INTERNAL (BUSINESS) ENVIRONMENT.

The internal environment consists of the controllable organisational resources that can be
manipulated to achieve objectives. The resources, behaviour, strength, weaknesses, synergy and
distinctive competencies constitute the internal environment of an organisation. An organisation
uses different types of resources, and the combination of these different resources, and the

30
synergy within the organisation, which leads to the development of strengths or weaknesses over
a perid of time. Organisational capability in the design and implementation of corporate policy
and strategy reests on an organisation’s capacity and ability to use its distinctive competences to
excel in a particular field. Some of the internal environments of an organisation are:-

(1) Organisational Resources (i.e Human Resource) – Adequate and skilled work force is
in a five qua nou for business success. They are responsible for setting objectives,
analyzing both internal and external environments and for formulating, implementating
and evaluating the firm’s strategies and operations. When employees embrace the same
values and goals as their management, the organisation succeeds.
(2) Production – Production is one of the major fuctional areas of a business and has strong
relations with other functional areas such as marketing and purchasing departments.
Production department is responsible for the production of high quality products a
relatively low costs, and insufficient quantities to meet customer’s needs. The purchasing
department assist production department to meet production targets by making available
raw materials and supplies of the right quality, right quality, at the right place and time.
The marketing department is responsible for the selling of the organisation’s outputs.
Management must look into production and service delivery activities of the company.
This will focus on capacity of operation, capacity to operate to the limit or above the
competitors’ production methods, quality, cost and source of raw materials.
(3) Marketing – No company can stay in business for very long unless its products can be
sold at a profit. The businessman needs to examine the strengths and weakness of
marketing position. “Who is our Customers?” This analysis involves the determination of
the needs, wants, perceptions and preferences of target market culminating in formulation
of marketing policies. Accordingly, the management must continuously analyse the
marketing position – market segmentation, market research, marketing mix, customer
satisfaction, product life cycle, and the competitive position (market share) of the
organisation within key markets.
(4) Finance – The importance of good financial planning is highlighted by the fact that poor
financial planning is the major cause of business failure. The financial function involves
the analysis, planning, and control of the financial performance of the organsiational. It
deals with the examination of financial strengths and weakness through financial
statements such as the balance sheet and an income statement, and compares trends to
historical and industry figures. It examines total finance available, lost of capital, capital
structure, stock valuation (performance of share at the stock exchange market) financial
leverage (the ratio of total debt to total assets), and other financial ratios. The finance
department see to it that all financial matters are properly taken care of and periodically
auditing the account and informing the management about the financial state of the
business.
(5) Management support system – The Board of Directors (BOD) is the overall umbrella
changed with the responsibility of overseeing the general management of the organisation

31
 to ensure that it is inn in a way that best serve the interest of the shareholders. However,
not every organisation has a board of directors. By law incorporated, organisations are
expected to have board of directors. But non – incorporated businesses are not supposed
to have a board of directors. The major role of the boardof directors is assisting the
organisation in setting corporate strategy and making sure that the strategy is
implemented properly. In addition, the board of directors also helps the organisation in
reviewing all important decisions that are made by top management and determines the
pay package for top managers.
(6) Research and Development – The research and development could desire us into what
is called strengths and weaknesses. The strength of an organsiational gives it a
comparative advantage over other competitors in the same industry while its weakness
gives the opposite. When we consider functional areas within an organisation, i.e
finance, marketing etc., it is important that the organisation should develop its strengths
in such areas since any form of weakness (e.g. production that uses obsolete planr,
machinery) might result in uneconomical operations which lead to waste of scarce and
limited resources.

Organisational approaches to environmental challenges.

In view of the fact that business organisation’ do not exist in a vacuum, it is essential to
determine how organisations respond to environmental pressures and what factors affect their
responses.

Oliver (1991) elaborated a theoretical framework that posits organisational responsiveness to

institutional pressures as a strategic choice. Five alternatives that range between passivity and
increasing active resistance are offered as follows:

i. Acquiescence – Full conformity with institutional pressure. Here organisation

conform.
ii. Compromise – Partial conformity with institutional pressure. This is a diplomatic
game characterised by avoidance of intistutuional pressure through concealment, non
– conformance, symbolical responsiveness, etc.
iii. Defiance – Active rejection of institutional norms.
iv. Manipulation – Attempt to actively change or exert power over institutional
pressures.
v. Environmental Scanning – This is to systemically scan the environment in order to
identify opportunities and threats. The objective is to make use of opportunities and
avoid threats.
vi. Intelligence Adaptation to Environmental Changes – In Nigeria, most corporate
organisations purchase strong generators to supplement public power supply.
vii. Strategic Planning – Effective strategic planning can provide a cushion toward off
adverse environmental changes.

32
THE CHOICE OF STRATEGY TO USE DEPENDS ON THE FOLLOWINGS:

Underlying Rationale or expectation associated with the pressure, e.g. if it will enhance
legitimacy, the motivation to conform will be there.

Constituents – Characteristics of sonstituent groups.

Content – If contents conflicts with the organisational goals or are likely to hider the
achievements of goals, resistance is more likely to occur.

The Nature of the control – Legal coercion results in less resistance, while voluntary diffusion
creates resistance.

Environmental Context – High environmental uncertainty by acquiescing to institutional

pressure. Steiner (1994) Summarises the relationaship between institutional pressure and
strategic response to the two variables as a function of; (i) Strenght or the pressure; and (ii) effect
on technical outcome, e.g. turnover and productivity.

33
 BUSINESS ETHICS

The World of business ethics is quite broad and its encounter edges spread into a number of
areas in the larger sphere of business – society relationships. business ethics is essentially the
study of morality and standards of business conduct. It relates to the behaviour of a business in a
business situation. They are concerned primarily with the impact of decisions on the people,
within and outside the main individually and collectively in communities or other groups. They
are concerned with action measures by ethical rules rather than say economic or financial rules.

Definition of ethics.

Ethics refers to codes of conduct that guide an individual in his/her dealings with others. It has to
do with personal behaviour and moral duty, that is with what is right or wrong. In work situation,
it is concerned with principles and practices of moral and good conduct in business life.

Pojman (1990) notes that ethics is usually conceptionalised as existing in four domains (i)
Actions, the act (right, wrong); (ii) Consequences (good, bad, indifferent), (iii) Character
(Virtuous, Vicious); (iv) Motive (goodwill, that evil will). Thus, ethics is the field that studies
human behaviour in relationship with others on the basis of rightness or wrongness. Morality, on
the other hand, is the inner mental or psychological conviction which forms the basis of man’s
behaviour, making him to decide wether his/her actions in relation to the others that he/she has
interactions with, is premised on the wrongness or rightness of such actions. However, such
convictions or actions must share commonality with colleagues. It is to this extent that ethics is a
cultural phenomenon.

Meaning of business ethics.

In practice, business ethic is concerned with two issues. First is the difficulty of determining
what actions really or appropriate from situation to situation. Second is having the fortitude to
carry out those ethical actions.

Business ethical behaviour is conduct that is fair and just over and above obedience to
constitutional laws and valid government regulations. It is always ethical for a business man to
obey the laws even though he may personally believe them to be unjust or immoral. Behaviour
that conform to ethical principles are considered to be ethical business behaviours. Otherwise, it
is unethical.

WHY STUDY BUSINESS ETHICS?

Three deep – noted approaches are suggested for changing the perceptions, beliefs, values and
orientations of the society in general and the operators of business organisation’s in particular.
These are (i) Developing ethical behaviour in individuals and organisations (ii) Developing
ethical codes for various professionals, and adhering to such codes, and (iii) Revitalising the
culture of excellence.

34
 i. Developing Ethical Behaviour in individuals and organisations – This will be
based on massive education, training and development in schools, colleges,
polytechnics and universities. At the primary and secondary level, moral instruction
should be made a compulsory subject. It should also be made compulsory at the
school certificate level like English and Mathematic. This should be equally
applicable at the college, polytechnic and university levels. Education is the
foundation of any society’s development. As knowledge is transferred through it, it
should be a good starting point. Organisational members (private and public), from
the lowest to the highest, should be exposed to intensive training/retraining and
development, designed to impact ethical values. They should be mandated to put into
practice values and attitudes learnt in the training programmes.
ii. Developing Ethical codes for various professionals, and Adhering to such codes –
Professional bodies in medicine, engineering, law, etc, have ethical codes of conduct.
The same can not be said of business organsiations or chambers of commerce and
industry in various countries in Africa. To restore sanity into their operations and earn
respectability from the outside world and from prospective foreign investors, business
organisations in Africa need to fachion out business code of ethics. A drastic problem
requires an equally drastic solution. Ethical issues are a big challenge to African
business and must be seriously addressed. Such codes should be based on probity,
sense of duty, discipline, honesty, altruism, tolerance, justice, morality, transparency,
politeness, accountability, reciprocity, respect for time, respect for rules and
regulations, among others. Joseph (1991) states: “Show me the way to greater
probity, transparency, accountability, participation and respect for rules and
regulations in Nigeria and you will be pointing the way out of nigeria’s self –
defeating crisis of governance.
iii. Revitalizing the culture of Excellence – This calls for the restoration of traditional
African values. Africans had the culture of excellence, e.g. being one’s brother’s
keeper, which the so called civilisation had rubbed off our social fabrics. Business
organisations will therefore need to build in their members a total sense of
belongigng. The honest, considerate, truthful, hardworking, etc. African personality
should be revitalized. The philosophy of “extended family”, “human family” and
“good neighbourliness” should be reactivated in organisatons. The resuscitation of the
moral ideology of “good neigbourliness” is important, and it should be enshrined as a
preactical way of life. We have to recognize “Good neighbourliness in various forms
as the golden Rule” (Oluwole, 2000).

In addition, it may be appriopriate to borrow from the Japanese experience. This will involve:-

1. Building an organisational culture that supports excellence.

2. Establishing ethical standards based on culture founded on moral ethical principles and
sound values which will be the driving force for excellence.

35
 3. Having strategic and articulate human resources – through processes of selection,
placement and training.
4. Building a spirit of high performance into culture – by inspiring people to do their best;
and
5. Having shared values by employees and managers which will be the core of excellence
(Lawal, 2002).

We have to appreciate the fact that ethical behaviour will produce organisational health, growth
and development. Unethical conduct will, on the other hand, produce organisational ill health,
stagnation, decline, death and decay.

Characteristics of ethical principles.

These are some of characteristics of ethical principles:-

(1) They are explanatory because they give reasons why businessmen take whatever moral
decisions and actions they arrive at in their dealings with fellow human beings.
(2) They are descriptive because they tell you the nature of ethics in general.
(3) They are descriptive because they stipulate how people should behave in situations
involving ethical consideration.
(4) They are predictive: They indicate how people are likely to behave under certain
situation.
(5) Ethical principles have as their foundation the backing of the generally accepted
institutions of the society. This is especially the case since organisations are integral part
of the society.

WHY STUDY BUSINESS ETHICS?

The need to study business ethics becomes imperative because of the following reasons.

(1) The various systems of values and views in the society about what is right and wrong are
reflected in the value systems of individual businessmen and affect business practice.
(2) Business is a major activity in any society and influence morals both in terms of what it
does and through the products produces.
(3) There are a number of ethical systems in the society bearing different in functions to
businessman. As a result, doubts are often raised I the mind of the businessman about
what is not ethical.
(4) The public expects ethical behaviour from its business institutions. In some situations, the
public has stronger ethical behaviour by managers at all levels, and;
(5) One can not understand business, or business – society relationships without knowledge
of the ethics and ethical problems of businessmen and of what society think is the state of
business ethics compared with what society expects from business.

36
PRICIPLES OF ETHICAL DECISION MAKING IN BUSINESS.

A number of principles of ethical decision making exist. These are principles put forward to
explain, describe, prescribe or predict human ethical behaviours. An understanding of basic
principles to ethical decision making can help a business man to examine personal ethics and
help him understand and work more effectively with others who have different ethical
perspectives (Williams, 2000).

When people are confronted with ethical issues, they need some principles to guide them to
choose a course of action. The 8 principles here are fundamental laws or rules that provide guide
to thought or action. Each of them has strength and weakness. The ultimate decision depends in
part on the person’s view of ethics. Unfortunately, there is no one “ideal principle” by which to
make ethical decisions in all situations. These principles distil basic wisdom that span over 2000
years of ethical thought. To the extent that they offer ideas for thinking about and resolving
ethical dilemmas, they are not vague abstractions but useful, living guides to analysis and
conduct (Lewis, 1989).

The common denominator of these ethical principles is that they encourage an individual to take
others interest into account when making ethical decisions. However, these principles, at the
same time can lead to very different ethical actions. These principles are presented below one
after the other.

(i.) Principle of Utilitarian Benefits – This principle simply states that the morally
correct action is the one that results in the greatest good for the greatest number of
people. It is based on the premise that actions that promote happiness are right and
actions that cause unhappiness are wrong. In making a decision using this principle,
one must determine whether the harm in an action is outweighted by the good. In
other words, one needs to evaluate cost – benefit – analysis of the intended action.
The action that maximises benefit is the optimum choice over other alternatives that
provide less benefit. Thus, decision makes should try to maximize gain and reduce
pain; not only for themselves but also for every one affected by their decision. In
other words, it simply means that one should never take any action on that does not
result in greatest good for society.
(ii.) Principle of Moral Rights – The moral rights approach to ethical decisions focuses
on an examination of the moral standing of actions independent of their
consequences. It holds that some principles are simply right or moral, independent of
consequences (Black and Porter, 2000). When we are confronted with two courses of
action both of which have moral standing, then the consequences – both positive and
legislative – should determine which of them is more ethical. Thus, one’s intention to
act in conformance with moral principle, as well as the consequences of that action,
must be considered in determining whether an action is ethical or unethical.

37
(iii.) Principle of Golden Rule – The golden rule is a name given to Jesus teaching as
found in the Holy Bible and has been a popular guide for centuries. Simply put, it is:
“Do unto others as you would have them do unto you”. (Matt 7:12). This approach
requires identifying various courses of action and choosing the one that treats others
the way you would wants to be treated. It includes not knowingly doing harm to
others. A person trying to resolve an ethical problem places himself in the position of
other parties affected by the decision and tries to figure out what action is most fair to
them. The “others” to consider in an organisation set up are the organisation’s
stakeholders – allthose who are affected by the orgnisations policies and practice.
This imperative contends that to determine wether a course of action is ethical, you
must first determine whether it can apply to all people under all situations. Second,
you must ask yourself if you would want the vule applied to yourself.
(iv.) Principle of Justice – This principle demands that decision makers be guided by
fairless and equity, as well as impartiality (Kahn, 1990). It focuses on how equitable
the costs and benefits of actions are distributed as the principal means of judging
ethical behaviour (Greenberg, 1987). It defines what individuals must do to maintain
the common good of the community. In general, losts and benefits should be
equitably distributed, rules should be impartially applied, and those damaged because
of inequity or discrimination should be compensated. According to this approach,
moral standards are based upon the primary of a simple value, which is justice.
(v.) Principle of individual Rights – According to this approach, ethical codes or
standards are based upon the primacy of a singlr value, which is liberty. This
principle holds that one should never take any action that infringes on others’ agreed
– on rights. This means that rights to protect people against abuses and entitle them
important liberties. Thus, a particular decision should be avoided if it interfers with
the rights of others. In other words, everyone should act to ensure greater freedom of
choice, for this promotes market exchange, which is essential for social productivity.
(vi.) Principle of the Mean – This principle of ethics was propounded by Aristotle. It
demands of Virtue through Moderation. Right actions, according to this principle, are
found in the area between extreme behaviours continuum which are labeled excess on
the one hand and deficiency on the other. Facing an ethical decision, a person first
identifies the ethical Virtue at its core (such as honesty) and then seeks the mean and
moderate of action between an excess of that virtue (boastfulness) and a deficiency of
it (understatement) (Steiner and Steiner, 2003). Today, the principle of the mean is
not well recognized, but the underlying motion of moderation as a virtue lingers in
many societies.
(vii.) Principle of Enlightened Self – Interest – Altough, this principle sounds as if it
promotes selfishness, it doesn’t. It states that the pursuit of self interest can be a
positive force. In other words, as individuals pursue their self – interest, they
ultimately improve the wellbeing of all members in the society. Applying this
principle of ethics, an action is morally right if it gives the individual or stakeholders’
38
 maximum benefits without arbitrarily hurting others and, when possible, minimize
any harm to others.
(viii.) Principle of personal Virtue – This principle holds that you should never do
anything that is not honest, open, and truthful, and which you would not be glad to
see reported in the newspaper or on television. Ethical action must pass through test
of ethics that are set forth in two questions. First, what will others think about what I
plan to do? (The “Others” Test). Second, if what I do is reported in a newspaper, or
on television, will I be proud of my actions? (The “press” Test) (Baxter International
Inc 2000).

FACTORS AFFECTING ETHICAL STANDARDS.

There is increasing greement that ethics in business is influenced by many factors”: Individuals,
economic, social and cultural operating both within and outside an organisation (Logsdon and
Corzine, 1999). There are many pressures on businessmen to behave in ways that are less than
ethical, just as there areother pressures to behave ethically. There are many potential forces
affecting ethical standards, some external to an enterprise and some internal. In this section, we
present these forces, all of which compete for a businessman’s allegiance based on the
contribution of Bedeian (1989).

EXTERNAL FACTORS AFFECTING ETHICAL STANDARDS.

Below are some external forces that affect business ethics:-

i. Professional Association – Many professional assocaitons have developed ethical

codes. These ethical codes can provide some protection to professionals within an
enterprise by helping to resolve conflicts that arise between an employee’s
professional role and his enterprise role.
ii. Family – The family is a key determination of the presence or absence of ethical
standards. In addition, the family provides pressure to succeed. Thus, it may or may
not support ethical behaviour.
iii. Religion – Religious beliefs may be very powerful in shaping the ethical behaviour of
businessmen in non – secular society.
iv. Friends – Peer groups outside a work setting may help buffer the businessman
against work related pressures, however, many businessmen will rather not discuss
ethical issues with friends.
v. Law – The law is the officially compiled customs or practices of a society. The law
helps guide businessmen within regards to socially responsive decision making.
vi. Competitors – Perceptions of the competitors behaviours will put a lot of pressure on
businessmen to respond in kind. Experience suggests that most people perceive others
as generally less ethical than themselves. Therefore, businessman may suspect that
their competitors are not being fully honest and ethical in their dealings.

39
INTERNAL FACTORS AFFECTING ETHICAL STANDARDS.

(1.)Superiors – Superiors, from an ethical point of view, can be models of negative as well
as positive behaviour. In addition, they may implicitly or explicitly encourage or demand
unethical behaviour on the part of their surbodinates.
(2.)Peers – Peers can be a source of ethical support as well as a source of ethical
compromise.
(3.)Subordinates – Subordinates can exert a lot of pressure on managers to conceal their
(that is, the subordinates) inadequacies, such failings may reflect on the managers
themselves.
(4.)Organisation Objectives – Objectives provide direction for an organisation and they
may also be a major source of pressure to behave unethically. This is so because the
stresses that managers face in trying to achieve difficult objectives can lead them into
unethical behaviour.
(5.)Enterprise Codes – In recent years, it has become popular for enterprise to have their
own ethical codes. Such codes may buffer an individual from many pressures to behave
unethically. They may also help clarify what behaviour is appropriate and what is not. All
of these factors can influence a businessman’s ethical thinking. As it has been made
known, the pressure to behave unethically is very strong. For an organisation to have
effective business ethics, ethical behaviour is required.

CORPORATE SOCIAL RESPONSIBILITY OF BUSINESS ORGANISATION.

INTRODUCTION

40
This chapter examines closely related concepts that touch on expectations form and moral
aspects of individuals, groups and organisations. These are in relation to various interest groups
in given societies and Nations. Our concern is to highlights the extent of the social responsibility
and business ethics in various countries and cultures; to see how they have served, or otherwise,
the self interest of the management and the organisation.

Social responsibility is the forerunner of business ethics, and it will be discussed first. The
adoption of social responsibility practices is expected to bring about a healthy relationship
between individuals, organisations. The conflict of interests involved in the discharge of
individual and organisational social responsibility will be discussed. The practice of ethics is one
of the social responsibilities of individuals and business organisations. This is a problem of
universal concern. It is very difficult to get hold of the problem because there is no Science in
ethics, based on principles, that has a general acceptance. However, business ethics is intended to
restore sanity into business practices for the good of all the parties involved in business
transactions. Ethics derives from religious, cultural, political and economic moral values. The
practice of ethics is expected to bring about orderliness and predictable behaviour of the parties
involved in business activities.

THE CONCEPT OF SOCIAL RESPONSIBILITY OF BUSINESS.

The concept “Social responsibility” has very wide usage. It is used in the literature of Sociology,
Anthropology, Economics, Politics and Business Management. Bowen (1953) defines it as the
obligation of businessmen to pursue those policies, to make those decisions, or to follow those
lines of action which are desirable in terms of objectives and values of society. As an
improvement on the above definition, Koontz and O’Donnel (1968) define social responsibility
as the personal obligation of everyone, as he acts in his own interest, but always ensuring that his
freedom does not restrict others from doing the same thing.

Koontz and O’Donnel (1968) further note that a socially responsible individual or organisation
will obey the laws of the land because the rights of others are at stake. Such individual or
institution is free to support institutions or individuals of his choice, he may take a neutral stand,
neither supporting nor interfering with the institutions and individuals. At the same time, it is not
proper for him to destroy institutions in his words or deeds, or step on the rights and interests of
individuals except through due legal process. In emphasising the ecological conceptualisation of
social responsibility, Buchholz (1991) note that any good definition of social responsibility must,
if not all, of the following elements:

(a) Responsibility that goes beyond the production of goods and services at a profit.
(b) Responsibility that helps in solving important social problems, especially those that the
organisations are responsible for creating.
(c) Responsibility that makes corporations have greater constitueincy than stakeholders
alone.

41
 (d) Responsibility that makes corporations have impacts that go beyond simple marketplace
transactions and
(e) Responsibility that makes corporations serve a wider range of human values than can be
captured by a sole focus on one value.

HISTORICAL EVOLUTION OF CORPORATE SOCIAL RESPONSIBILITY

The idea of social responsibility appeared in the United States around the start of the 20th
century. According to Caroll (1989), there have been four critical turning points in the evolution
of social responsibility. The first one he called “ENTREPRENEURIA ERA”. This was the time
in which America Business Magnitudes like John Rockefeller, Cornelius Vanderbitt, J.P.
Morgan, and Andrew Carnegie were amassing wealth and building industrial empires.
Unfortunately, they abused their power and were found guilty of anti-social and anticompetitive
practices such as labour lockouts, discriminatory pricing policies, kickbacks, blackmail, and tax
evasion. There were public outcries against them and government was forced to outlaw some
business practices and restrict others. The laws also defined the relationship aong business, the
government, and society and specified that business had a role to play in society beyond profit
maximisation.

The next turning point occurred during “DEPRESSION ERA” of 1929 through 1930s. at this
time, the economy of the United States was dominated by large organisations, and many people
criticised them for sharp financial practices. This made government to pass more laws to protect
investors and smaller businesses. And by extension, the social responsibility of organisation was
more clearly defined. The third landmark in social responsibility came during the ‘’SOCIAL
ERA’’ of 1960s. this period was characterised by social unrest in the United States. This made
government to take a close look at organisational practices. At this time it was clearly defined
whom the business is responsible to and who is an organisation’s is responsible for the
organisational practices.

The last turning point in the evolution of CSR came in 1983 with the publication of Bowen’s
book: “SOCIAL RESPONSIBILITIES OF BUSINESSMEN”. At that time, the emphasis was
placed on people’s conscience rather than on the company itself. A number of factors such as
managerial revolution, a growing hostility of people who experience social problems demanding
changes in business led to the shift in focus. The term “CSR” is used to connect business
activities to broader social accountability and successful benefits.

AREA OF SOCIAL RESPONSIBILITY OF BUSINESS ORGANISATION

Business organisations usually direct their social responsibility efforts on the following;

(i) Shareholders.
(ii) Customers.
(iii) Employees.

42
 (iv) Suppliers.
(v) Government.
(vi) Competitiors; and
(vii) The society.

1. RESPONSIBILITIES TO SHAREHOLDERS.

a) Provision of accurate, timely and relevant information about the operation of the
company.
b) Keeping shareholders sufficiently well informed to exercise their full responsibilities as
owners of the company. This can be achieved by making the Annual General meeting
(AGM) a genuine forum of exchange of views by management and shareholders.
c) Ensuring that investment funds are safe and properly managed.
d) Ensuring that there are reasonable returns on invested capital.
e) Dealing equitably with different classes of shareholders.
f) Preparing and submitting annual reports and accounts to shareholders.
g) Proper disposing of dividends to shareholders as and when due.

2. RESPONSIBILITIES TO CUSTOMERS.

a) Respect the right of the customers .

b) Provision of required goods and servies at affordable pries.
c) Mabufacturing of goods that are not harmful to the health of the customers.
d) Proviing all required information by the customers in consumption of goods.
e) Ensure constant and prompt supply of goods and/or services that guarantee the
satisfaction of the needs and wants of the customers.
f) Prompt responses to the complaints of the customers.
g) Avoid misleading advertisement to the customers.
h) Labeling products clearly and unambiguously and anading the urge to mispresent the
products.

3. RESPONSIBILITIES TO EMPLOYEE.

a) Ensuring a safe and conducive work place.

b) Giving consideration to the interests of the employees when making policy decisions.
c) Provision of adequate compensation that can sustain the employee within the limit of the
business capacity
d) Making employment, promotion, redundancing, pension policies and other conditions of
service equitable and dear employee.
e) Listen to the employees’ grievances and treat them fairly.
f) Provision of equal employment opportunities for all employees regardless of their sex,
age, race, religion or Nationality.

43
 g) Provision of day – care facilities as part of business effort to recruit and advance women
in the work force.
h) Provision of safe and required tools for the employees with enough fringe benefits.
i) Ensure a career prospect for the employees.
j) Provision of security of tenure for employees.
k) Provision of services such as subsidized catering services, subsidized or free medical
services, transportation services, and staff housing scheme..

4. RESPONSIBILITIES TO SUPPLIERS.

a) Dealing with the suppliers fairly.

b) Honouring settlement dates with suppliers.
c) Informing suppliers of future plan by giving them proper and adequate notice of
requirements.
d) Giving consideration to supplier’s interest and trying to maintain a fairly flow of orders.

5. RESPONSIBILITIES TO GOVERNMENT.

a) Accepting government intervention in business affairs as normal rather than carrying for
favours or protesting against such intervention
b) Obedience to all stipulated laws, rules and regulations, which govern the operations of
the business.
c) Payment of taxes and other statutory levies as at when due.
d) Complying with government directives like fiscal and monetary policies.
e) Assisting in the implementations of development programmes or projects.
f) Avoiding the use of bribes and other corrupt means to secure government patronage.
g) Acknowledging the firm’s responsibility to other corporate bodies, individuals, and
society in the same way that a citizen conducts himself with consideration for others.
h) Ensuring that the environment where the business operates are not destroyed or damaged
by water, air, land, or noise pollution.

6. RESPONSIBILITIES TO COMPETITORS

a) To compete fairly and to refrain from restraints of trade.

b) They should not strive to suppress new comers.
c) They should not attempt to gain access to competitors’ secret research, production and
marketing methods.
d) They should refrain from engaging in industrial espionage of any nature.

7. RESPONSIBILITIES TO SOCIETY/LOCAL COMMUNITIES.

a) Undertaking the sponsorship of community based programmes and projects, which

benefits the people within the firm environment.

44
 b) Transformation of rural environment through provision of infrastructural facilities.
c) Provision of scholarship and financial assistance for brilliant and indigent students of the
local community.
d) Renovation of schools and construction of roads and market stalls.
e) Provision of information of general nature which might benefit the local community e.g.
enlightenment campaign on AIDS.
f) Contributing to art, culture and sport.
g) Exhibiting high level of ethical behaviour in business practices.
h) Generation of employment.

FACTORS MILITATING AGAINST THE PRACTICE OF SOCIAL RESPONSIBILITY

IN NIGERIA.

Many factors have been identified as difficulties associated with business response to social
responsibility. These include.

i. Inadequate financial resources – The smallness in terms of financial strength of

many business organisations preventing their consideration of social responsibility as
a task that must be considered.
ii. Profit Maximisation – Pursuit by business organisations serve as a clog in the wheel
of their involvement in social responsibility
iii. Ignorance – Most business organisations are unaware of the inherent advantages and
benefits associated with social responsibility to the company itself.
iv. Prevalence of Unethical Practices – Such as dishonesty, embezzlement, and
smuggling within the society had concluded the organisatons sense of duties to the
society.
v. Inefficiency of government and government agencies that are saddles with the
responsibility of compliance with social responsibility
vi. The general Down Turn of the Economy – The aggregate economy of the nation is
in a state of distress, which strectches the resources of the organisations. Social
responsibility becomes the last thing businesses want to think about.

Arguments against and for corporate social responsibility.

There are two contrasting opinions about the involvement of business organsiation’s in CSR,
while some noted authorities have argued against it, other experts in the field of management
have argued in support of business organisations’ involvement in CSR.

Argument against CSR.

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Hoover (1928) argues that “the business”. Similarly, Friedman (1970) agrees that “there is one
and only one social responsibility of business to use it resources and engage in activities
designed to increase its profits, so long as it to stays within the rules of the game which is to say,
engage in open and free competition, and without deception and fraus”. This position is based on
the premise that business organsiational in an economic institution whose legitimate function is
economic performance and not social activity. Monsen Jr. (1974) present salient arguments
against social responsibility. They are examined below –

1. Violation of profit maximisation – Diverting resources from the firm to socially

responsible programmes undermines the principles of competitive market place, and
denies shareholders of their rightful economic gain.
2. Cost of Social Obligations can be very expensive, and may cause firms to forgo
attractive business investments, or even to go out of business.
3. Most businessmen do not have the skills and training to effectively tackle social
problems.
4. Dilation of purpose – The pursuit of social goals may dilute the economic productivity
of the firm.
5. Concentration of too much power in Business – Business is already one of the most
powerful sectors of our society. If it pursues social goals, it will have even more power,
which may be undesirable.
6. Most socially responsible actions do not cover their costs. Someone has to pay those
costs. Usually the costs are passed to consumers through high prices.
7. Above all, business managers are not elected, they are not directly accountable to the
people neither do they accountable for the outcomes of its programmes once instituted.

Argument for CSR

Druncker (1982) argues that the business of business is not just business, but to contribute to the
welfare of the community or society where the business operates. In other words, apart from
making profits, a business must also be socially responsible. The main arguments by Monsen Jr
(1974) supporting business being socially responsible are;

1. Public Expectations – Social expectations of business have increased dramatically over

the years. Thus, public opinin now supports business pursuing social as well as economic
goals.
2. Public Image – Social responsibility behaviour will create a positive public image for
business. This will results in increased sales, attraction of good employees, access to
financing, and other benefits.
3. Better Environment – Business involvement in social responsibility can help solve
difficult social problems, helping to create a better quality of life and a more desirable
community, which will be more conducive for business activities both now and in the
future.

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 4. Avoidance of Government Regulation – If business is perceived to be meeting its social
obligations, costly and restrictive government regulations can be avoided.
5. Balance of Responsibility and Power – Since business already has a great deal of social
power, its responsibility should be equally great. When power is significantly greater deal
of social power, its social responsibility should be equally great. The imbalance
encourages irresponsible behaviour such as abuse of power that works against the public
good.

THEORIES OF CORPORATE SOCIAL RESPONSIBILITY.

Many theories have been brought to bear on the concept of CSR. In addition, there have been a
lot of disagreements over what social responsibility entails. These controversies could be traced
to a fundamental debate about the exact purpose of a business. Depending on one’s perspective,
social responsibility can be interpreted using either of the theories discussed below. Two major
schools of thoughts exist at opposite extremes of a continuum; the restrictive and expansionist
views. The former is made up of proponents of profit maximisation white the latter consists of
writers who believe that business has to be socially responsible.

The shareholders’ theory (Restrictive Views)

This is otherwise known as the classical economic view. Levitt (1985) could be credited with
setting the agenda for the debate about the social responsibility of business in his Harvard
Business Review article “The Dangers of social responsibility”, in which he cautions that
governments job is not business, and business job is not government.” Another outspoken
advocate of the shareholder theory is economists. Milton Friedman. According to Friedman
(1970) the only responsibility of business organisation is to use its resources and engage in
activities designed to maximize profit through open and free competition, and without deception
and fraud. This position is based on the argument that business organisation is an economic
institution whose legitimate ffunction is economic performance and not social activity.

The stakeholders’ theory (expansionist Views)

The stakeholders’ theory holds that business organisation must play an active social role in the
society in which it operates. Freeman (1984), one of the advocates of stakeholders’ theory,
presented a more positive view of manager’s support of CSR. He asserts that managers must
satisfy a variety of constituents (e.g. investors and shareholders, employees, customers,
suppliers, government and local community organisations) who can influence firm outcomes.
According to this view, it is not sufficient for managers to focus exclusively on the needs of
stockholders, or the owners of the corporation. Stakeholder theory implies that it can be
beneficial for the firm to engage in certain CSR activities that non financial stakeholders
perceive to be important, otherwise, these groups might withdraw their support.

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CORPORATE APPROACHES TO SOCIAL RESPONSIBILITY

In view of the controversy with respect to whether or not a business should engage in social
responsibility, it is not surprising to discover that a number of approaches or responses have been
propounded for this issue. Organisation adopted four possible positions on social responsibility.
The figure below illustrates the four stages that an organisation can take concerning its
obligations to society fall along a continuum ranging from the lowest to the highest degree of
socially responsible practices. This also shows the strength of organisation’s commitment to
social responsibility.

Low High

Assessment of Social responsibility.

Source:- Adapted from Jones and George, 2003.

When a stakeholder group make demands on a firm, management should first perform an
analysis of the stakeholder by answering the following questions –

1. Who are the stakeholders?

2. How are the stakeholders affected by the company policies.
3. What are the stakeholders’ interests in the business.
4. How have the stakeholders behaved in the past, and what coalition are they likely to form
around their issue?
5. How effective have the company’s strategies been in dealing with these and other
stakeholder?
6. What new strategies and action plans need to be formulated to deal effectively with the
stakeholders?

Once an audit of the stakeholders have been done, the management can develop strategies for
dealing with the stakeholders by selecting one of the following four general approaches: (i)
Obstruct, (ii) defensive (iii) accommodative, and (iv) proactive.

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 (i) Obstructive Approach – At the low end of the continuum is the obstructive
approach. Managers using this approach choose not to behave in a socially
responsible way to the general society in which they operate. Rather, they behave
unethically and illegally and do everything possible to conceal their behaviour from
reaching other organisational stakeholders and society at large.
(ii) Defensive Approach – This approach indicates at least a commitment to ethical
behaviour. The managers believe that they have an obligation to obey the law. That
is, the only social responsible behaviour that is appropriate is that prescribed by the
law.
(iii) Accommodative Approach – This approach is used when managers decides to
accept social responsibility for business decisions, although it may do so in response
to ethical pressure from stakeholders groups. Managers adopting this strategy want to
make choices that are reasonable in the eyes of the society and want to do the right
thing when called on to do so.
(iv) Proactive Approach - Managers using proactive approach take the lead in social
issues. They seek to learn that is in the public interest and respond without pressure
from any quarter. A good example of proactive response is corporate philanthropy.

As observed by Daft (1997), obstructiveness tends to occur in firms whose actions are based
solely on economic considerations, Defensive organisations are willing to work within the letter
of the law. Accommodative organisations respond to ethical pressures. Proactive organisations
used discretionary responsibilities to enhance community welfare.

DIMENSIONS OF CORPORATE SOCIAL RESPONSIBILITY.

According to the approach of Carrol (1991), CSR covers the full range of dimensions that
constitute an organisation’s responsibility, which are four: economic, legal, ethical and
philanthropic. Figure below summarises the content of those dimensions.

In recent years, the ethical and philanthropic dimensions have gained in significance (Caroll,
1991), exceeding Friedman’s (1970) original perspective based on economic and legal
dimensions. In this respect, corporate participation in philanthropic activities (firms’ social
actions) is one of the most visible aspects of CSR.

Components of corporate Social Responsibility

Components Contents
Economic The economic nature of business organisations is obvious, since they
Responsibility are created in order to provide goods and services at a price. Thus, the
objective of maximizing profits from their activity is essential, and
performance is considered the base on which the firms other
responsibilities are founded.
Legal Responsibility Firms must act accordingly to laws and standards that regulate the
market and the society of which they form a part.
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 Reflects unwritten codes, regulations and values implicitly derived
from society that transcend merely legal framework.

Ethical Responsibility
Philanthropic Society want firms to behave as good citizens and commit part of
Responsibility their resources to improving common well – being. This does not
involve any obligation for firms, since they are not necessarily
branded as being ethically lacking if they act in this way.

ROLES OF GOVERNMENT IN BUSINESS

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Business and Government (Public Policy).

Business decision and political decision making are closely connected. Political decisions affect
business, business decisions affect politics. Government’s actions are reflections of a country’s
public policy and these change the business environment in important ways. Managers must
therefore understand the public policy process.

FIGURE

Taxes, Rates, Charges, Levies,

Payments.

Provision of public works (Security, infrastructure, e.t.c)

Figure: the above figure shows Government and Business Interaction.

Government create conditions for business to operate. They set the rules of the same for
competition which will in turn benefit the society. Government also imposes some costs on
business through taxes and regulations. One of the main features of a modern economy is the
involvement of business with government. Stakeholders in the society, therefore, persuade
government to regulate business activities to promote or protect social interests. Public policy is
also used to encourage business to meet social challenges such as job creation and education.

WHAT IS PUBLIC POLICY?

Post, Lawrence and Weber (1999) define public policy as a plan of action undertaken by
government officials to achieve some broad purpose affecting a substantial segment of a nation’s
citizens. An American Senator, Patrick Moyniham, once said ‘’Public Policy is what a
government chooses to do or not to do’’. Government do not chose to act unless a substantial
number of the citizens are affected by an act and government, in so doing, is said to act in the
public interest. In modern societies, the role of the government is extensive. It reconciles
different interests and concerns into reasonable plans of actions that each government in a
country follows to achieve its set purposes.

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The power to make public policy comes from a nation’s political system. Citizens thus elect
political leaders who carry out public functions in the society. Governments use different public
policy tools or instruments to achieve their policy goals. For example, in budget negotiations,
discussions are likely to focus on ways of vising revenue in the form of higher taxes or reduced
deductions on selected items in the case of subsidy. In general, the instruments of public policy
and the combinations of penalties and incentives which governments adopt to act in ways that
will make policies achievable. Regulatory powers of government are broad and constitute a
formidable instrument to accomplish public purpose. Public policy actions usually have effects.
Some of the effect are intentional while others are not, because public policy, like environmental
protection , affects many people, businesses and other interest groups, nit is inevitable that some
groups will not be pleased. Regulations may cause business some cost but if toxic substances are
not regulated the society may run health risk as was the case in Koko village in Delta State in
1980.

Yet, it is a possible that other goals may be obstructed as an unentitled effect of compliance
with such regulations. In assessing any public policy, it is important for managers to develop
answers to the four questions below:-

1. What inputs will affect the public policy ?

2. What goals are to be achieved?
3. What instruments are being used to achieve the goal?
4. What effect, intended and unintended are likely to occur?

The answers to these questions provide basis for us to understand how public policy actions will
affect the economy and business sector.

PUBLIC POLICY AND BUSINESS

Business activities are significantly influenced by government’s attempt to manage economic

growth, using fiscal and monetary policy. State governments shape the business environment
through a variety of state economic policies and local government affect business through
policies that involve operating permits, licenses e.t.c. as illustrated in the last figure, a nation’s
well being is entrowes with its economic and social policies. Public policy has direct or indirect
impact on business by shipping the climate in which companies do business in the nation and
across national borders. It is necessary to discuss some of those issues and policies which the
government puts in place to ensure that the activities of the society and those of business are
properly coordinated and managed for a smooth social order. These issues and policies include:

a. NATIONAL ECONOMIC GROWTH:- The role of government as manager of the

modem economy is widely accepted today. Political and business leaders recognize that
government can create, or destroy, the basic conditions necessary for business to compete

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 and for citizens to prosper. National governments generally accept the view that a key
role of government in the national economy is executed through macro-economic
policies.
b. FISCAL POLICY:- This refers to those patters of government spending and taxing in an
economy that are intended to stimulate or support the micro economy. Governments
spend money on different types of actives. Local governments employ teachers, road
cleaners, nurses and sanitary officers. State governments typically spend large amounts of
money on roads, social services, and education. The federal government spend large
sums on military defenses, foreign affairs, police and hundreds of public works projects.
c. TAXATION POLICY:- Government actions to raise or reduce taxes on business
directly affect how much money firms have to invest in new plants, equipment and
people. The same is true of taxes of individuals: after, taxed household income affects
spending for food, housing, automobiles and entertainment. Tax rates also affect the
money available for savings and reinvestment in the economy.
d. MONETARY POLICY: A nation monetary policy affects the supply, demand and
value of the country’s currency. The value of the currency is affected by the strength of
the nation’s economy relative to the economics of other countries. The amount of the
money in circulation and the level of demand for loans, credit, and currency influence
inflation, deflation, and government objectives. In Nigeria, the Central Bank sets policies.
By raising and lowering the interest rates at which bank borrows money, the bank is able
to influence the size of the nation’s money supply and the value of the naira relative to
other national currencies.
e. TRADE POLICY: These refer to those government actions that are taken to encourage
or discourage commerce with other countries. Many countries favour trade with others.
Nations with large amounts of natural resources such as oil, timber, coal, minerals, and
agricultural products tend to favour trade because it creates markets for their goods and
helps them achieve economic growth. Nations that are cost efficient producers of
clothing, electronic equipment, computers and automobiles also tend to favour
international trade because they can offer better prices to customers than their less
efficient competitors.
f. INDUSTRIAL POLICY: Many national governments have attempted to direct
economic resources towards the development of specific industries within the country.
This is known as industrial policy. A nation that has oil resources, for example, may
structure tax and other policies to encourage exploration and production of oil fields.
Many nations have also encouraged industries such as steel, automobiles, textiles, and
other large employers through public policy. In the widest application of industrial
policy, governments can invest in new technologies directly by creating a state-owned
enterprise or indirectly by creating rules and conditions that encourage others to invest in
new business.
g. HEALTH POLICY: Health is among the most essential of social services, in part
because public health problems can affect all of a nation’s population. Advanced
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 industrial nations (e.g Japan, Britain, and the United States) tend to devote significant
resources to providing basic health-care to the population. Developing countries also
recognize the importance of public health as a moral obligation and an investment in
human resources. African countries are less concerned in this direction. Advanced
industrial societies rely heavily on hospitals, medical technology and sophisticated
pharmaceutical products to improve health. Many other nation emphasize meeting basic
health care needs through local clinics, community education and reliance on locally
available medicines. Investment in such primary health care tends to produce significant
improvement in health indicators such as infant mortality, illness rates of small children
and vaccination of population against diseases.

PROBLEMS OF NIGERIAN MANAGERS/ENTREPRENEURS

Business managers/entrepreneurs in Nigeria have several limitations or problems that account for
their inefficiency and sometimes failures. Many of these problems are unique to small
entrepreneurial enterprises, which are in the majority in our environment; they result from
smallness of size of the business. Others are general to all business enterprises irrespective of
size (Lawal, et al 2000).

THE INTERNAL PROBLEMS that affect the small scales enterprises particularly and other
enterprises in general Lawal, kio, Sulaiman and Adebayo, (2000) include the followings;

(1). WRONG CHOICE OF BUSINESS; Entrepreneurs should avoid entering into business
opportunities that are already over crowded. Choosing a wrong investment area may lead to
failure.

(2). LACK OF BUSINESS CONNECTION; This relates to inability to establish good

relationships with customers, creditors, and government agencies. These may lead to business
failure.

(3). LACK OF EXPERT: Export knowledge in area of organizational activities is important,

lack of organizational knowledge can be problematic.

(4). POOR FINANCIAL MANAGEMENT: This relates to inability to maintain proper

accounting records.

(5). MANAGEMENT INCOMPETENCE: Majority of small scale enterprises entrepreneurs in

Nigeria lack required management know-how to run the business effectively and efficiently.

(6). ONE STRETCHING OF CREDIT: Most small business organization who are eager to
make sales often extend undue credits to customers, without appropriate methods cash of
collection.

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(7). WASTEFUL EXPENSES: Expenses must be kept to essential minimum for the success of
the enterprises. Many Nigeria enterprises indulge in excessive and wasteful expenses.

(8). INVENTORY PROBLEM: There could be problem of overstocking or purchase of slow

moving products, with consequent cost implication.

(9). LOCATION PROBLEM: Poor location in relation to customers may affect business
success.

(10). ABSENCE OF PRODUCTION IMPROVEMENT TECHNIQUES: These include the

use of such management techniques as management by objective (MBO) organization and
method, work study etc.

(11). UNETHICAL BUSINESS PRACTICE: These include dishonesty, poor quality product,
bribery, corruption and other acts of indiscipline. The contribute to business failure.

(12). LACK OF ADEQUATE ATTENTION: There are often neglect of the business by the
owners, resulting from poor habits, poor health, mantel problems and several others.

(13). PERSONAL CHARACTERISTICS: The characteristics of the owner of the enterprise

can be a cause of failure or success, for the success of an enterprise the owner must be mature in
judgment, have balance and aggressive diplomatic character.

(14). MARKETING PROBLEM: This can manifest in a variety of ways e.g Non
standardization of product, inappropriate pricing, poor promotional strategies etc

(15). LACK OF QUALIFIED MANPOWER: In the case of small-scale business enterprises

thy cannot afford to employ competent and skilled manpower due to their financial stature and
reputation.

(16). LACK OF EMPLOYEE SATISFACTION: In most Nigerian enterprises the general

working conditions are very poor. There is also autocratic leadership style of some of the
entrepreneurs and these constitutes problem for the organization.

THE EXTERNAL PROBLEMS confronting enterprises in Nigeria are equally many and
varied. They include among others the following;

1. CAPITAL PROBLEM: This relates to securing long term equity capital and working
capital. In the case of small-scale enterprise thy have serious problem in term of securing
fund, building and manufacturing adequate financial reserves and equity capital.
2. COMPETITION: There is problem of competition against large corporations with
small-scale enterprises, due to the competitive advantage of the grant firms. The
competition among the big firms often sometimes take unethical dimension.

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 3. TECHNOLOGICAL PROBLEM: In the case of small indigenous enterprises lack of
access to technology often affect the success of small enterprises. In addition all
origination in Nigeria are open to technological competition from the global environment.
4. LACK OF RAW MATERIAL: There is often problem od shortage of raw material,
such that small organization do not secure adequate outputs for production.
5. DEFICIENT POLICY FRAMEWORK: The political environment in term of
economic policy framework and legal regulation can be problem to all forms of
enterprises. There could be unfair regulations from local authority, state and federal
government. In addition, inadequate organization facilities and cumbersome laws can be
problems for enterprises.
6. LIMITATION OF EXTENSION SERVICES: In the case small-scale enterprises there
are often limited services of research institution, industrial development centers.
Management institution and other intermediate framework designed for the success of
small-scale business.

FURTHER READINGS

Ogundele, O.J.K, Fagbemi, A.O (2014) Light of Management, First Edition.

Ogundele, O.J.K (2007) Entrepreneurship Development, Corporate Governance and

Small Business Management, First Edition.

Olu Ojo, (2009) Fundamentals of Business Management, First Edition.

Ilesanmi, O. A (1997) Elements of Business, First Edition.

Laurie, J.M (2007) Management and Organizational Behaviour, Eight Edition.

Fadeyi, R.M (1999) Management Principles and Practices, First Edition.

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