Dividends VS Life? (Part 2)

(Blog n°6)

  

Capitalism is defined by the private property of production means. In terms of fundamental economic, the capital is what is used to produce goods. This capital should be bought by the capitalist to allow him a property on the said capital. The goal of that ownership is to create value from raw materials by transforming them into finished or intermediate products. This value may have two uses: re-investment in new capital (in fundamental economic sense) or it can be kept by the capitalist as a personal revenue.

Roughly, these lines constitute a brief description of the functioning of an Idealtyp company. It tries to define its goals by considering the way it works from a financial point of view. Therefore, the principal aim of a company is to make money. Problematic: a company does not produce only money, at least not permanently. This statement would imply that on a short term point a view, a firm does not need to create wealth to exist. So, the criterion of value creation is not the only one that can define a firm.

Fundamentally, the most basic aspect of a company is that it has an activity. It could be goods production or services dispense, but any a firm is basically an organization that has a more or less profitable activity. Introducing the idea of activity in the conceptual definition of a firm implies to consider the people having an influence on that activity: the stakeholders. Suppliers, customers, governments, competitors… these entities must be considered when establishing a company strategy.

To keep the Whirlpool example taken in the previous part of that post, the employees in that case are important stakeholders, perhaps the most important ones. Firstly (and obviously), because they are the base of the company’s activities and production. Secondly, because they are ambassadors of the brand, of what they produce. By their employment, they are loyal to the company, especially if this loyalty in encouraged by the firm’s culture. Thirdly (finally and most importantly) they based their entire life on the company. A human life is also maid that if the foundations of it are removed, it collapses and has then nothing to lose, and people having nothing to lose is one of the worse publicity for a company.

This is why a company is not a place where goods are produced to make money, this is why dividends have a link with relocation of a factory. Of course, it is not relevant to implicate dividends in a human resources problem. However, the leader of an organization must consider all the influences of such a decision. The position held by the company at this moment is delicate and should take into account all the implications that it could have with any of the stakeholders, especially those able to have an influence on the image of the organization. The main idea here is that diplomacy and balance are in the very core of strategic and financial decisions. These can influence not only the fields of their applications but also the large scale of the whole company.