Firm Focal Point Contracts Theory Analysis

The process of decision-making in a firm differs due to its complexity in three ways that are different. Firstly, the decision-makers in a firm are so many; secondly, the board of directors in the major firms make policy decisions, including appointing the CEO. Then the CEO gets some of the right to decide while still delegating many decisions required in the operation of a firm, for example, decisions relating to finances.

The lowest employee in a firm even makes the firm's findings. Secondly, these decisions are not aimed at maximizing the firm's value. The behaviors in investing of the RJR executives are clear that their interests are far beyond just the maximization of corporate. To allocate internal resources, firms usually use internal pricing systems.

To analyze the issues in an organization, the firm then requires a concept of the firm which is richer. It is, consequently, helpful to focus on a definition that proves to be useful for our purposes. The firm, in this case, is defined as a focal point to a set of contracts. We can learn that the firm is created from the legal system. This means that it has been granted the legality to stand on its own like an individual.

Therefore, it can be sued, and it can enter contracts. The focal point means that in every contract concerning the firm, the firm is always one of the parties. These contracts include employees, customer warrantees, suppliers, insurance, franchise agreements, bonds, loans, and leases. Some of these contracts are legal documents that are explicit, while others are implicit.

The various contracts that have been identified above them are essential, while some of them are less important. From a firm's perspective, basic customer contracts are important; most customers may not understand that they enter into a contract every day. For instance, whenever a client buys a product from a firm, they get into a legal agreement. Customers are critical because there will be no business (Brickley, 2015).

They are simply the souls of the company and make sure that the firm does not run out of business. This is seen by their power to purchase goods and services of the firm, and in return, they drive revenues; hence they ensure the continuity of the business. Suppliers also are among the vital contract in a firm; the suppliers' side is just as important as the customer's side. At the most basic level, a firm requires the suppliers to provide the products or resources needed to run a business.

Another vital contract of a firm is the employees; they are the most important in providing crucial insights for the overall customer experience. Although they are sometimes overlooked and neglected, they are valuable assets, and more often, they are brand ambassadors. Therefore, they should be valued just like the customers because they provide the most potent energy for the company (Brickley, 2015).

Their dedication is towards serving the customers so that maximum output can be experienced. Insurance providers are also an essential contract since they ensure the stability in the financial systems of a firm. This is mainly in the financial market; they are the large investors since they act as the link between the banks and the insurers and provide stability financially.

Those less critical include the stockholders because they play both direct and. Indirect roles in a firm. The benefits that the firm makes, the shareholders reap from both the benefits and the successes. The rewards they get they divide among themselves in the form of dividends.

They are essentially the owners of a firm in that they help in electing directors who, in turn, supervise the senior officers. They also play an indirect function in the stock market. Banks is another example of a contract that is not important since their part is to finance businesses that want to expand (Brickley, 2015).

They offer loan services and business investments essential for economic growth. Their main aim is to the economy and not directly to the firm. Bondholders are not essential contracts in a firm because their role is to acquire bonds issued by the firm.

They, therefore, become the creditors in the firm, and consequently, they enjoy protection and priorities even more than the stockholders. They only benefit from the firms because they even receive their initial principal back after maturation on top of the periodic interests they receive.

Labour unions are also not essential contracts in a firm because their role is to fight for the rights of the employees (Brickley, 2015). They give the employees the power to negotiate better conditions like better wages through collective bargaining. It only performs as an intermediary amid the firm and the employees. They deal with firms on behalf of their union members, so they do not benefit the firm directly. This is why they are not an important contract.