The Firm as a Focal Point for a Set of Contracts
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,...
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...
…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.
In conclusion, some contracts are more important than others because they help the firm achieve its primary goal, which is doing business. They do this by directly being involved with the firm while the less important, as discussed in most cases, benefit from the firm or have indirect roles. Since the firm is the focal point of all the contracts, for the contacts to be imported directly to the firm, for those that are not important, they benefit from the business and offer indirect roles to the…
