Relationship between Management and Owner
There are some relationship points between owners and management such as owner has to provide that the business capital and management has to operate the business and survives in the market. Management issues are the daily, weekly and monthly things that must be done to ensure the smooth running of the business. Ownership issues are the things that only an owner can do. They tend to be more strategic and might include dealing with the bank or finance company to make sure that the business has enough capital to grow.
The purposes of business in our society have often led to conflict between owner and managers because their points of view are different:-
(a) Conflict of viewpoint
Separation of functions and conflict of viewpoint between ownership and management exist regardless of whether the business is organized as a single proprietorship, a partnership, a corporation, or a government business.
(b) Functions of profit
Profit performs at least four major functions. First of all, it provides a quantitative measurement of the effectiveness of the business effort. Second, it provides a return on invested capital; it is rewarding to the owner for assuming the risks of the enterprise. Third, profit is a source of capital for innovation and expansion. And fourth it provides for the costs of staying in business. Profit performs at least four major functions that are –
- It provides a quantitative measurement of the effectiveness of the business effort.
- It provides the return on investment.
- Profit is a source of capital for innovation and expansion.
- It provides for the cost of the costs of staying in business
(c) Profitability and Social Responsibility
The doctrine of enlightened self-interest requires a redefinition of stockholder interest. While businessmen continue to recognize their obligations to make a dollar for the owner, they also recognize that business has broader responsibilities to develop the kind of society in which business can grow and prosper and that it is the best long-range interest of stockholders to do so.