Monthly Archives: March 2017

5 Most Popular Types of Industrial Equipment

There are many forms of industrial equipment used in the workplace. Industrial equipment is usually large and made of materials such as steel and titanium for optimal strength. These machines are often needed to lift and move materials which may possibly weigh thousands of pounds.

A piece of industrial equipment which is not in working order should never be used for any reason. All equipment is inspected at the beginning of everyday to ensure that they are in the best condition for workers.

By now, there are a million pieces of industrial equipment racing through your head but the question is, which ones are the most popular and most critical to the industrial field? Below you will find five types of industrial equipment which are known to be the masters of all machines in the industrial workplace:

1. Bulldozers – Bulldozers are massive machines which are used mostly in the construction and mining industries. Bulldozers have the ability to lift and move vast amounts of dirt and other debris from one place to another. Bulldozers can operate in many conditions including snow, hail and rain. These pieces of equipment are generally used to dig up the ground and provide room for building houses or other types of buildings.

2. Cranes – Cranes are generally used to transport hard, heavy items from one place to another. The arm of the crane is used to swing the object from one place to another and the arm can be adjusted according to how far the materials need to go. Unlike bulldozers, cranes have the ability to transport objects over uneven levels of ground.

3. Excavators – Excavators are engineering vehicles which consist of backhoes and cabs. They are mainly used in the digging of trenches, foundations and holes. They can also be used to destroy objects which are no longer needed for any reason and in which case need to be compressed and condensed.

4. Fork Lifts – Forklifts are warehouse vehicles which are used to lift, hoist and transport extremely heavy items from one place to another. Forklifts are known to be indispensable pieces of equipment in many industrial workplaces.

5. Compressors – Most of the pieces of equipment listed above are used for construction purposes, although compressors are generally used in more of a factory-type setting. Compressors are used to provide high pressures of air or other forms of gases. These devices can be regulated in order to maintain the desired amount of pressure in the tank.

There are many other forms of industrial equipment. Each piece of equipment is designed to perform a specific task which contributes to the overall success in this field of work. Without these forms of equipment many industrial areas would not exist.

A Career As Restaurant Owner Vs Restaurant Manager

There is a big difference between a career as a restaurant owner and a career as a restaurant manager. Restaurant managers sometimes go on to own their own restaurants, restaurant owners often do a great deal of managerial work and both are heavily invested in the success of the restaurant and involved in its daily operations, but the general similarities end there. The specific roles and responsibilities of a restaurant owner vs. A restaurant manager will be explained in further detail below.

A Career as a Restaurant Owner

Restaurant owners are responsible for oversees the entire operations of a restaurant, even when they hire someone else to manage it. They make an initial investment and either buys the restaurant from someone else or starts his or her own restaurant. Owners must make additional investments down the line when the restaurant needs new equipment and supplies, or when the business has outgrown its location and needs to move or expand, and they will also be responsible for cleaning up the mess if the business fails. The owner has a vested interest in the success of the restaurant, not just because it's his or her job, but because it's his or her investment, brainchild and often a dream come true. The owner takes the most financial risk, but he or she also gets the largest payoff if the restaurant is a success.

They vary in their level of responsibility in the kitchen and on the floor. Some owners hire other people to do everything and trust they will make the right decisions, while others are there every day, interacting with customers and staff and taking on administrative duties. Many of them must work long hours every day of the week as they get their business off the ground, but if it becomes a success, they get the opportunity to sit back and relax a bit.

A Career as a Restaurant Manager

They work closely with restaurant owners to ensure that the business runs smoothly. They also have a vested interest in making sure the restaurant is operating at a profit; In fact, this is their primary concern. The manager has pay increases, bonuses and profit shares to entice him or her to succeed, and the fear of losing his or her job to entice him or her to avoid failure. This career requires skills in budgeting, leadership, communication, analysis and planning, as well as a knowledge and appreciation of the culinary arts and customer service.

A Short Article on Technology

The world has undergone enormous changes over the past decade. We now live in a world where communication is paramount. It seems that everyone and everything is connected in some way.

For school students this has made things much more efficient. Research papers that used to involve hours of laborious effort, can now be researched and documented without ever touching a card catalog or a periodical index. Worlds of information are now available at the click of a mouse.

Questions that people pondered without any answer previously can now simply be typed into any convenient search engine and answered almost immediately. There are countless sites filled with informative short articles all over the Internet. Videos and music can now be seen on demand and news from across the world can be delivered in an instant.

There are some people who worry that the technological revolution and evolution we are experiencing today is moving too fast. There seems to be a loss of privacy in some respects and the specter of a Big Brother society looms larger than it has since 1984. Whether their fears are well founded or not will remain to be seen, but it is unlikely that people will ever willingly give up the almost instant connections to our wired world.

Flying in the face of these fears are individuals who share their worlds through their blogs. What used to be shared with only close friends is now put online for millions of people to see if they should happen upon the blogger’s website. Individuals are learning to take advantage of this by using their well placed blogs to sell products and services. The internet has allowed individuals an opportunity to step on to the same playing field as the big boys of business. With the right information and the ability to get it seen, anyone can now reach the masses and share their thoughts, feelings and even sales pitches.

Businesses as well as individuals have come to rely on the Internet as a source of advertising and actual sales. Entire business models have been constructed and thriving based solely on using Internet websites. It is rare today to find a traditional brick and mortar establishment that does not have some type of online presence. Any business that does not adapt and grow to keep up with the newest technology seriously risks being left behind in the wake of their competitors who choose to ride technology’s leading edge.

Time will tell where this all will lead. We should make the most of the positive possibilities technology promises, but we should also keep a careful watch on where we are going.

What Are High Security Locks?

I have discussed high security keys and locks in the past, but what makes a lock and key high security? A lot of manufacturers consider at least some of the locks they manufacture high security. So how do you know that you are getting what you pay for? Because you will pay far more for one of these locks than a regular lock that you can buy at your local big box store.

Here are some of the things to look for in a high security lock:

  • The locks and keys will be precision made, usually with a CNC machine rather than die casting
  • They are usually made out of brass or steel
  • If brass, they will have hardened steel pins embedded into the lock face for drill protection
  • The keyway and key should be protected with U.S. and foreign patents
  • The key blanks should be restricted to Service Centers and Locksmiths that are under contract to the manufacturer for the purpose of key control

The above list is not all inclusive but meant to provide the major points. There are a few items that I will explain further in an effort to give definition to some of the words used above that may not be familiar to all.

Keyway: In the simplest form, a keyway is a design on a key such as key cuts, spacing and angles and the matching design that is manufactured into the lock cylinder. Some manufacturers use a combination of cuts, spacing and angles along with grooves cut into one or both sides of the key. These side grooves will match the grooves in the lock. When applying for a patent these are the items that are usually patented.

Key Control: This is the ability to control not only the key blanks but also the cut keys. To demonstrate this let’s assume that the manufacturer sends 10 key blanks to one of their Service Centers. That service center cuts 10 key blanks to a secure code for one of their customers. That customer receives the 10 cut keys and records to whom they give them to. Throughout this process the keys can be accounted for all the way to the end user.

All of this comes at a price that will be at least 50% higher than a standard lock used for the same purpose. This goes back to that same question; what are you trying to protect and how much is that worth to you.

Strategies Management Adopt in Handling Change

Theoretically, there are various strategies that explain how change can be successfully initiated and implemented. However, let us first take a look at some of the common things to consider, before you embark upon an organizational change:

What do I want to change? Typically this might point towards a specific “problem” area.

Is this the fundamental thing that needs to change or is there a deeper “reason” lurking behind the “problem” that needs to be addressed? This question is particularly important because many times, after the change process has been run halfway, it is realized that a problem exists at a more basic level. Focus then shifts between new change areas that are discovered and the energy of change efforts get dissipated.

Why do I want the change?

How will I achieve the change? This will involve weighing the risk and incentives, balancing them out and addressing any gaps between intended process to achieve the change and issues related to these processes.

What about the finances required in implementing the change?

Will business possibly continue as usual during the change phase or will it get affected adversely?

What type of resource (external or internal consultants) should I use, given the size of my organization and knowledge base?

How, if at all, will the change impact the work culture or vice versa?

How critical is the situation and how much time do I have to respond to it?

Does my core change driver team have the contextual and operational knowledge, capability and influence to survive the change process or do I need to empower them in some way?

Once you have precise answers to these elementary questions, you can decide upon the strategy you want to adopt. Theory offers at least four different change strategies. In practice, we typically use a combination of some or all of these to address change situations. These four strategies are: The Empirical-Rational Approach, the Normative-Reeducative Approach, the Power-Coercive Approach and the Environmental-Adaptive Approach.

All four provide you with different insights into the type of change environment that may exist in an organization. The type of change environment broadly varies with the ideology of the informal organization or the cultural consensus that they may share and the type of change being introduced. The relevance of the different change strategies lies in the fact that they explore different assumptions about human motivation and behavior in order to understand or anticipate response to change. Thus, they take into account the psychology of the informal organization, and hence help effectively manage the human side of change.

Their beauty, however, is that they are never mutually exclusive, and different strategies may be used at different stages in the change process. Thus, depending on your change environment, you must decide on the appropriate mix of strategies, to be used to push change.

EMPIRICAL-RATIONAL STRATEGY

A “classic” approach to change management, developed by Robert Chin and Kenneth D. Benne, this strategy is built on the premise that, in general, human beings are rational and can be reasoned with.

Hence, although change innately is resisted, people can be won over by the genuine logic behind the change, and by what is there in it for them.

If people are convinced on these two aspects of change, the process becomes easily navigable. Thus, this strategy uses persuasion to make individuals accede to change, through planned, managed dissemination of information, which makes the incentives of change clear to them. Thus, this strategy demands skillful use of communication in selling the benefits of change. The emphasis is on providing correct information; education and training that inspire people to change of their own volition. Also, it is important to identify potential carriers of change – people who willingly accept the change, and are influential enough to spread the same.

The role of the CEO is important here. Being the leader of the organization, not only is he an influential figure, but also has relatively more credibility than anyone else in the organization. Hence, he can play a major role in securing the buy-in of his people and inspiring them to embrace the change.

However, by virtue of rationale again, people are seen to be generally resistant to change, if it has an imbedded downside that is not balanced or offset by an equal upside. Hence, a foolproof plan for successfully initiating change, or at least managing the human side of it, must work out the following:

A strong basis for initiating the change

Linkage to actual benefits or incentives to be derived from the change

The pros and cons, including an exercise on possible measures to negate the “cons”

This strategy works well only if you can balance the incentives against the risks in a profitable manner i.e. only if you are able to show that the value-add from the change is proportionately much higher than the risk involved.

This strategy becomes difficult to execute, if your risks outweigh your incentives, and especially so, if the general perception is that your company is in a relatively comfortable position, even without the change. A good idea then might be to show people some genuine reasons as to why the perceived comfort is just a passing phase and won’t last long.

In such a situation, some people may buy your logic, some may not. If you find the buyers to be capable of influencing the rest, endeavor to form a class that can serve as interpreters between you and the mass of people, and hence serve as drivers of change.

For the empirical-rational approach to succeed in the later phases of change, you also need to build your case on a strong Current Situation Analysis, proceed with proper training and development programs, initiate appropriate education, and carry out relevant research and development to support the change. Hire the services of field experts and Organizational Design and change specialists if required. Once these backups are in place, people will inevitably become much more confident of shouldering the responsibilities of change. Also, while you may initially identify a representative class to drive the change, eventually you must graduate to a phase where every team player is encouraged to come up with creative solutions aligned towards attaining a “best-of-all” situation.

However, the Empirical Rational Approach disregards the fact that while employees may understand the need for change or the rationale behind change, they may still not like to undergo change, because of the emotional troubles, adjustment issues etc. that come with transition.

NORMATIVE – RE-EDUCATIVE STRATEGY

Another “classic” approach to change management, this strategy takes wings from the fact that humans are social beings. Hence, they always have the inherent urge to conform to social norms and standards.

It does not deny that humans are rational and intelligent creatures, but views their behavior as being guided by socio-cultural norms and their allegiance to these norms. Restructuring their normative orientations and inducing them to commit to new norms introduce change.

Often, a cultural shift in the organization becomes imperative to adapt to market situations and survive competition. For example, your competitor may be producing twice your output because of their technological advancement, whereas you lag behind because you still rely on manual operations. This needs you to shift work culture from a manual to a technology oriented people set, which in turn requires you to appropriately train and prepare people for the change. Normative – Reeducative Strategy is defined as a strategy that believes that norms in an organization can be purposely shifted to attain higher productivity, through collective people efforts.

Given that culture and norms quickly become a part of who you are, an initial resistance to anything non conformist or maverick is quite expected. Ironically, norms and standards too are not constant over time. If they had been, evolution of society would never have been possible. Just like a stream of water that changes its course, when it meets a strong obstruction, culture and norms can also be re-established and redefined.

This approach believes that changing the attitudes, values and culture leads to an automatic change in behavior. The very logic that makes initial resistance to such change inevitable is used to explain how, over a period of time, this kind of a change tends to adhere. Thus, although it may be paradoxical, it is actually practically observable that once a new culture sets in, people instinctively feel the need to conform, simply in order to survive.

An important tool in initiating this change is the presence of a magnetic and dynamic personality, who can considerably influence people and their perspectives. This personality can be a leader, a change agent or most effectively, the CEO of the company. Given his visibility, prominence, credibility and authority in an organization, he possesses all that is required to effect a change.

While a culture change is possible, it is never immediate. For it implies considerable adjustments to the hitherto established thought patterns and mindsets. As a result, it can emerge only as an outcome of a gradual process. Hence, this strategy is applicable only if you have a longer time frame at your disposal for enabling the change.

The Normative – Reeducative Approach is perhaps the most widely used strategy in present times. When using this strategy, it is important to remember that it is better to try and work through the existing culture, collaborating with people, and helping them see a new and better possibility, than to wake up one fine morning and replace it with a new culture. After all, you cannot change culture the way you change clothes, because it connects to a deeper part of you and how you operate. So, this approach calls for an honest endeavor to work in sync with people, identify problems and facilitate solutions. It should be directed towards improving problem-solving capacities, upgrading processes within a system, and fostering new attitudes, skills, and norms for people. While the bright side is that when your efforts engage people so much, chances of resistance are minimized. But on the other side of the coin, this approach is too dependent on employee cooperation. For instance, new software developed for a certain insurance company was found to be left unused even till months after, because the employees did not want to step out of the comfort of the “old way of doing things.” Often, such a change involves unlearning and relearning, and while the change may ultimately trigger simpler solutions to their work problems, the transition phase comes as a real challenge, often leading to resistance.

This strategy could be used in conjunction with a change in the employee performance management systems that reward people who facilitate change and penalize those who oppose it. This may help to beat the resistance and build a more cooperative atmosphere. Further, since work culture falls as much within the domains of the formal organization as the informal organization. Therefore, a change to the work culture can succeed only if an amiable relationship exists between these two counterparts, or at least if leaders of the informal organization buy the proposed change.

Another perspective on this strategy tells us that while most of the time, individuals prefer to stick to established conventions; the story is different when people within the system are not happy with the status quo. This is a situation where people are actually looking out for change. In this scenario, the preliminary step that the management needs to take to trigger a change is to evaluate and clarify organizational norms and culture. This can be done through interactions, discussions and at a personal level, introspection by the employees of the organisation. So, more often, this strategy will intimately involve people in the “process” of change rather than have them face only the “impact” of change.

Hence, the normative-reeducative approach targets attitudes and values. It tends to produce long lasting changes as it usually involves group goals, group norms or common values. The reason is that once a new norm sets in, after being initiated either by the formal or the informal organization, it eventually becomes part of the system – “the way things are” – and therefore stabilizes over time.

POWER – COERCIVE STRATEGY

This “classic” strategy bases itself in the power of “power”. According to Hans Morgenthau:

Power may comprise anything that establishes and maintains the control of man over man. Thus power covers all social relationships, which serve that end, from physical violence to the subtlest psychological ties by which one mind controls another.

Applied to our context, this strategy advocates “power” in the form of threat sanctions, and believes that people are, in general compliant, and will ultimately bow down to those who possess greater power.

At times, when the change is not radical but moderate, the company may also use subtler forms of power or hegemonic power to attain its objective. In fact, the Normative Reeducative Approach or the Empirical Rational Approach ultimately uses hegemonic power very subtly, to navigate through the change process. Hegemony is like an internalized form of social control, which makes us feel we are choosing when really we have no choice. The 20th century French Marxist Louis Althusser called this ‘trick’ as Interpellation.

In both these cases, when a change has been decided upon, people have no choice but to accept it. They may resist for some time, but ultimately must go with the flow. However, instead of using force, these strategies use “reason” and “collaboration” to make the “change situation” seem like a choice that will lead to a better situation than the status quo. So, while the idea that the change will lead to a prospective better situation is true, it is ultimately never open to choice. Hence, indirectly even these strategies use some form of subtler hegemonic power. However, the difference is that while these approaches secure the support of the people through logic or collaboration, hence ensuring that change endures and stabilizes over time, the direct use of imposing power, as advocated by the Power – Coercive Strategy, runs the risk that once the power is removed, people may revert to their original behavior.

But many times, exerting authority, subtly or otherwise, in the form of political and economic sanctions, legislation, policies, “moral” power etc. may seem the only way to bring about a change. This happens when people in the organization collectively fail to perceive a threat that is, in reality, grave and must be resolved within a restricted response time. Use of power may also be necessary when people become obstinate and intractable in the face of a change, which has lots at stake. So, people may become even during times of an exigency. The trick applied here is to have it your way and leave no other option for your people but to accept the change. While political sanctions usually reward non-conformists with imprisonment, economic sanctions curtail financial incentives to those who resist the change. Thus, the use of coercive power is an attempt to make people yield to change by inducing fear or using actual force.

However, the use of power may not always be negative. For instance, one power – coercive strategy uses the behavioral psychology concept of “the carrot and the stick”. In this approach, power can be used to both reward employees who support change through financial incentives and punish those who don’t with political or financial consequences, through sanctions. Thus, power can operate both ways.

The success of this strategy, however, depends on the general temperament of the organization.

Some organizations, as a part of their culture, believe in the authority of seniority, and appreciate the role of the hierarchy in issuing guidelines or directives for organizational development. If your people are attuned to a system of healthy authoritarianism, this may come easy. But in an organization where liberality has long been practiced, Hitlerian tactics will face resistance. Still, with Power-Coercive strategies, people have little option but to accept change, since most of these strategies use stringent policies, where impunity is ruled out. However, to ensure that the foundations of change are built on unanimity rather than repressed fear or dissatisfaction, it is important to evaluate the nature of your organization, the problem at hand and the time frame at hand, before embarking on this strategy, as a last resort.

Robert L. Kahn observed that:

To say that A has the power to change B’s behavior necessarily implies that A exerts some force in opposition to some or all of the previously existing forces [including B’s own needs and values] on B. This is conflict….The exercise of [coercive] power, thus, necessarily creates conflict…

Thus, while the use of authority structures and threat sanctions can accomplish change, they may breed hatred and contempt for the organization or the senior management, which is harmful to organization in the long run.

ENVIRONMENTAL – ADAPTIVE STRATEGY

The Environmental-Adaptive Strategy, suggested by Fred Nickols, is built on the premise that while people innately resist change, they also eventually adapt themselves to it, when they are left with no choice.

Also known as the “die – on – the – vine” strategy, it takes its cue from the common observation that while individuals are quick to oppose change that they find threatening, they also have an innate ability to adapt quickly to a new set of circumstances. Applied to our context of organizational change, this human psychology translates to a strategy of first creating a new environment and then gradually moving people from the old to the new system. Thus, rather than proactively trying to “change” the organization by effecting a “change” in the behavior, processes, culture and norms of people, this strategy recommends that a new set of circumstances be created, and the innate nature of humans to eventually adapt be exploited, in letting the change “sink in”. Therefore, in this strategy, the ball shifts court from the management to the people, as the responsibility of regularizing the change now lies on the people and how they adapt to the change. They practically have no choice to accept or reject the change, unless of course one prefers to quit the organization altogether. Here, the change is made, and the individuals merely adapt themselves.

This strategy is best suited for changes that are radical in nature rather than those that are gradual. Say, you want to introduce the SAP-HR system to increase efficiency and speed of HR related work. This is an incremental change that will happen over time, as your Business HR personnel gradually learn how to operate the new system and shift from the old manual practice to the new systematized process. If you were to use the Environment Adaptive strategy here, creating the environment and leaving them to adapt to it in their own way, the transition phase, very likely would stretch too long. This is because, your managers already operate within a framework that they are comfortable with, and so they may be reluctant to shift to a new system. Here, you might have to use a mix of the empirical-rational and the normative-reeducative strategies instead to change that comfort culture and enable them embrace the change.

Now, consider the example that Nickols gives, of a radical change handled in the Environmental-Adaptive way. Rupert Murdoch wanted to shift to an entirely new operating structure, on terms that were very different from the current one at Fleet Street. So, he set about quietly establishing an entirely new operation in Wapping, some distance away from Fleet Street. As soon as the new system became operational, he informed the printers at Fleet Street that he had some good news and some bad news for all of them. The bad news was that they would have to shut down their operations at Fleet Street. So, everybody was fired. The good news was that a new operation had jobs for all of them, albeit on very different terms.

Now, most people in this situation will embrace the new option – a radical change, tackled using the Environment-Adaptive strategy. Of course, the strategy is a mix of the empirical rational and power coercive strategies, and that is only a reinforcement of the fact that practical situations often need a mix of different strategies to effectively manage change.

Many years ago, my work took me to a slum infested area. I was pained to see the kind of life those people led, the abject poverty everywhere, the bowl that every child held out in his hand, not for food, but in the hope that a kind passerby may drop some alms.

A few weeks ago, I got the opportunity of revisiting the same place to run an education camp, and was pleasantly amazed at the buildings that stood in place of the slums – an obvious outcome of a rigorous rehabilitation program! It was only when I ventured inside that I realized, that barring the safer, better and more decent dwelling place to live in, nothing much had really changed. The litter was still around, the kids still ran about in the mud in tattered clothes and they still held out their hands for alms. The rehabilitation program had done well in shifting them to a new place, but perhaps something more remained to be done to have them live a new, more meaningful life. Their “homes” had changed, their way of life hadn’t.

And to change that culture, they needed to be educated, to be shown that a better way of life existed, and existed within their reach. But even for that education to show its impact, I was now beginning to understand; I needed more kids like Jana, Neil and Don. Among the close to thirty kids I had been asked to supervise, there were only these three who were genuinely interested. The rest were happy with their life, as it was.

The above incident links to an important factor that you must consider before using this strategy. Ensure that you have at least a few capable, influential and probably “non conformist” employees, in your organization, who will embrace the change and drive the others. These are your “seed” employees – people who will foster a new and more effective work culture in the newly established setup. Correspondingly, Nickols uses the term “bad apples” to refer to people from the old culture, which are detrimental to the new culture and must be done away with.

If there is no buy-in on the change, at-least at the “seed” level, the strategy may not work. Rather, it may lead to a situation where you have a new workplace that continues to work in the old manner and follow the old culture. Effectively then, there hasn’t been much change.

Information System and its Trends

Information System and technologies have become a vital component of successful businesses and organizations.

Information System means an interconnected set of information resources under the same direct management control that shares common functionality. A system normally includes hardware, software, information, data, applications, communications and people, while an information system is the arrangement of people, data, processes, presentation of data and information technology that supports our everyday needs. It is actually technologically implemented medium for recording, storing, and disseminating linguistic expressions, as well as for drawing conclusions from such expressions. The computer technology is used for implementing information systems.

TYPES OF AN INFORMATION SYSTEM

Information System can be divided in two basic forms

1. OPERATIONS SUPPORT

SYSTEMS

It is further subdivided into

the following

o Transaction Processing System (TPS)

o Enterprise Collaboration System

o Process Control System

2. MANAGEMENT SUPPORT

SYSTEM

It is further subdivided into the following

o Management Information System (MIS)

o Decision Support System (DSS)

o Executive Support System (ESS)

TOOLS FOR THE DEVELOPMENT OF AN INFORMATION SYSTEM

The steps which are involved in the development of an Information System are:

Analysis, Feasibility Study, System Design, Testing, Implementation, Documentation.

TRENDS IN INFORMATION SYSTEM:

It is generally accepted that information is a vital commodity for the successful operation of today’s organizations. Nowadays modern business organizations are using computerized information systems in order to obtain desired information. However, as the technology advances rapidly the main issue is how can an organization should effectively use such an information system which its management sometimes can be unpredictable in order to effectively help the whole organization structure to improve and take the most out of it.

It seems fairly obvious that Information systems have played an important linking role even before the advent of the Internet. Thus, for example, the possibilities offered by Information systems have strongly influenced the way managers were able to exercise control and therefore constituted an important factor in the organization of large-scale enterprise and their geographic extension. The same is true for governments and their statistical apparatus. The recent integration of computer networks and electronic data exchange facilitated the creation of common databases and policies among governments, speeding up developments, which had started earlier. It also created new possibilities for business, for example enabling companies to develop new organizational practices (e.g. just-in-time).

However, the role of Information systems in the organization is shifting to support business processes rather than individual functions. The focus is outwards to customers, rather than inwards to procedures. Businesses are changing more and more rapidly.

This poses a challenge to existing Information systems, which are often inappropriately structured to meet these needs. It also poses a challenge to the people who design, work and use these systems, since they may hold outdated assumptions.

To ensure the services provided by Information systems whenever needed and their failure will not cause catastrophic disaster their reliability and efficiency become extremely important. Imagine what would happen when a banking system malfunctions due to some critical faults in the system or when a healthcare information system provides wrong advice for patients.

It is even not over-saying that our lives are already under control of computer systems but their reliability and efficiency has become extremely important

APPLICATIONS OF INFORMATION SYSTEM:

There is a wide range of applications of information system that are implemented in today’s world. To name a few such as

1. Sales analysis, production performance and cost trend

reporting system

2. Product Pricing, profitability forecasting and risk

analysis system

3. Sales and inventory processing and accounting System

4. Geographic Information systems

5. Health Care Information Systems

6. Banking Information System

7. Petroleum Refining System

8. Power Generation System

9. Steel Production System

The Effects Of Balance Of Trade Surplus And Deficit On A Country’s Economy

INTRODUCTION

It is in no doubt that balance of trade which is sometimes symbolized as (NX) is described as the Difference between the monetary value of export and import of output in an economy over a certain period. It could also been seen as the relationship between the nation’s import and exports. When the balance has a positive indication, it is termed a trade surplus, i.e. if it consists of exporting more than is imported and a trade deficit or a trade gap if the reverse is the case. The Balance of trade is sometimes divided into a goods and a service balance. It encompasses the activity of exports and imports. It is expected that a country who does more of exports than imports stands a big chance of enjoying a balance of trade surplus in its economy more than its counterpart who does the opposite.

Economists and Government bureaus attempt to track trade deficits and surpluses by recording as many transactions with foreign entities as possible. Economists and Statisticians collect receipts from custom offices and routinely total imports, exports and financial transactions. The full accounting is called the ‘Balance of Payments’- this is used to calculate the balance of trade which almost always result in a trade surplus or deficit.

Pre-Contemporary understanding of the functioning of the balance of trade informed the economic policies of early modern Europe that are grouped under the heading ‘mercantilism’.

Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and military security of the state. In particular, it demands a positive balance of trade. Its main purpose was to increase a nation’s wealth by imposing government regulation concerning all of the nation’s commercial interest. It was believed that national strength could be maximized by limiting imports via tariffs and maximizing export. It encouraged more exports and discouraged imports so as to gain trade balance advantage that would eventually culminate into trade surplus for the nation. In fact, this has been the common practice of the western world in which they were able to gain trade superiority over their colonies and third world countries such as Australia, Nigeria, Ghana, South Africa, and other countries in Africa and some parts of the world. This is still the main reason why they still enjoy a lot of trade surplus benefit with these countries up till date. This has been made constantly predominant due to the lack of technical-know how and capacity to produce sufficient and durable up to standard goods by these countries, a situation where they solely rely on foreign goods to run their economy and most times, their moribund industries are seen relying on foreign import to survive.

What is Trade Surplus?

Trade Surplus can be defined as an Economic measure of a positive balance of trade where a country’s export exceeds its imports. A trade surplus represents a net inflow of domestic currency from foreign markets and is the opposite of a trade deficit, which would represent a net outflow.

Investopedia further explained the concept of trade surplus as when a nation has a trade surplus; it has control over the majority of its currency. This causes a reduction of risk for another nation selling this currency, which causes a drop in its value, when the currency loses value, it makes it more expensive to purchase imports, causing an even a greater imbalance.

A Trade surplus usually creates a situation where the surplus only grows (due to the rise in the value of the nation’s currency making imports cheaper). There are many arguments against Milton Freidman’s belief that trade imbalance will correct themselves naturally.

What is Trade Deficit?

Trade Deficit can be seen as an economic measure of negative balance of trade in which a country’s imports exceeds its export. It is simply the excess of imports over exports. As usual in Economics, there are several different views of trade deficit, depending on who you talk to. They could be perceived as either good or bad or both immaterial depending on the situation. However, few economists argue that trade deficits are always good.

Economists who consider trade deficit to be bad believes that a nation that consistently runs a current account deficit is borrowing from abroad or selling off capital assets -long term assets-to finance current purchases of goods and services. They believe that continual borrowing is not a viable long term strategy, and that selling long term assets to finance current consumption undermines future production.

Economists who consider trade deficit good associates them with positive economic development, specifically, higher levels of income, consumer confidence, and investment. They argue that trade deficit enables the United States to import capital to finance investment in productive capacity. Far from hurting employment as may be earlier perceived. They also hold the view that trade deficit financed by foreign investment in the United States help to boost U.S employment.

Some Economists view the concept of trade deficit as a mere expression of consumer preferences and as immaterial. These economists typically equate economic well being with rising consumption. If consumers want imported food, clothing and cars, why shouldn’t they buy them? That ranging of Choices is seen as them as symptoms of a successful and dynamic economy.

Perhaps the best and most suitable view about Trade deficit is the balanced view. If a trade deficit represents borrowing to finance current consumption rather than long term investment, or results from inflationary pressure, or erodes U.S employment, then it’s bad. If a trade deficit fosters borrowing to finance long term investment or reflects rising incomes, confidence and investment-and doesn’t hurt employment-then it’s good. If trade deficit merely expresses consumer preference rather than these phenomena, then it should be treated as immaterial.

How does a Trade surplus and Deficit Arise?

A trade surplus arises when countries sell more goods than they import. Conversely, trade deficits arise when countries import more than they export. The value of goods and services imported more exported is recorded on the country’s version of a ledger known as the ‘current account’. A positive account balance means the nation carries a surplus. According to the Central Intelligence Agency Work fact book, China, Germany, Japan, Russia, And Iran are net Creditors Nations. Examples of countries with a deficit or ‘net debtor’ nations are United States, Spain, the United Kingdom and India.

Difference between Trade Surplus and Trade Deficit

A country is said to have trade surplus when it exports more than it imports. Conversely, a country has a trade deficit when it imports more than it exports. A country can have an overall trade deficit or surplus. Or simply have with a specific country. Either Situation presents problems at high levels over long periods of time, but a surplus is generally a positive development, while a deficit is seen as negative. Economists recognize that trade imbalances of either sort are common and necessary in international trade.

Competitive Advantage of Trade Surplus and Trade Deficit

From the 16th and 18th Century, Western European Countries believed that the only way to engage in trade were through the exporting of as many goods and services as possible. Using this method, Countries always carried a surplus and maintained large pile of gold. Under this system called the ‘Mercantilism’, the concise encyclopedia of Economics explains that nations had a competitive advantage by having enough money in the event a war broke out so as to be able to Self-sustain its citizenry. The interconnected Economies of the 21st century due to the rise of Globalization means Countries have new priorities and trade concerns than war. Both Surpluses and deficits have their advantages.

Trade Surplus Advantage

Nations with trade surplus have several competitive advantage s by having excess reserves in its Current Account; the nation has the money to buy the assets of other countries. For Instance, China and Japan use their Surpluses to buy U.S bonds. Purchasing the debt of other nations allows the buyer a degree of political influence. An October 2010 New York Times article explains how President Obama must consistently engage in discussions with China about its $28 Billion deficit with the country. Similarly, the United States hinges its ability to consume on China’s continuing purchase of U.S assets and cheap goods. Carrying a surplus also provides a cash flow with which to reinvest in its machinery, labour force and economy. In this regard, carrying a surplus is akin to a business making a profit-the excess reserves create opportunities and choices that nations with debts necessarily have by virtue of debts and obligations to repay considerations.

Trade Deficits Advantage

George Alessandria, Senior Economist for the Philadelphia Federal Reserve explains trade deficits also indicate an efficient allocation of Resources: Shifting the production of goods and services to China allows U.S businesses to allocate more money towards its core competences, such as research and development. Debt also allows countries to take on more ambitious undertakings and take greater risks. Though the U.S no longer produces and export as many goods and services, the nations remains one of the most innovative. For Example, Apple can pay its workers more money to develop the Best Selling, Cutting Edge Products because it outsources the production of goods to countries overseas.

LITERATURE REVIEW

In this chapter, efforts were made to explain some of the issues concerning balance of trade and trying to X-ray some of the arguments in favour of trade balances and imbalances with a view to finding answers to some salient questions and making for proper understanding of the concept of trade balances surplus and deficit which is fast becoming a major problem in the world’s economy today which scholars like John Maynard Keynes earlier predicted.

In a bid to finding a solution to this, we shall be discussing from the following sub-headings;

(a). Conditions where trade imbalances may be problematic.

(b). Conditions where trade imbalances may not be problematic.

2.1. Conditions where trade imbalances may be problematic

Those who ignore the effects of long run trade deficits may be confusing David Ricardo’s principle of comparative advantage with Adam Smith’s principle of absolute advantage, specifically ignoring the latter. The economist Paul Craig Roberts notes that the comparative advantage principles developed by David Ricardo do not hold where the factors of production are internationally mobile. Global labor arbitrage, a phenomenon described by economist Stephen S. Roach, where one country exploits the cheap labor of another, would be a case of absolute advantage that is not mutually beneficial. Since the stagflation of the 1970s, the U.S. economy has been characterized by slower GDP growth. In 1985, the U.S. began its growing trade deficit with China. Over the long run, nations with trade surpluses tend also to have a savings surplus. The U.S. generally has lower savings rates than its trading partners, which tend to have trade surpluses. Germany, France, Japan, and Canada have maintained higher savings rates than the U.S. over the long run.

Few economists believe that GDP and employment can be dragged down by an over-large deficit over the long run. Others believe that trade deficits are good for the economy. The opportunity cost of a forgone tax base may outweigh perceived gains, especially where artificial currency pegs and manipulations are present to distort trade.

Wealth-producing primary sector jobs in the U.S. such as those in manufacturing and computer software have often been replaced by much lower paying wealth-consuming jobs such as those in retail and government in the service sector when the economy recovered from recessions. Some economists contend that the U.S. is borrowing to fund consumption of imports while accumulating unsustainable amounts of debt.

In 2006, the primary economic concerns focused on: high national debt ($9 trillion), high non-bank corporate debt ($9 trillion), high mortgage debt ($9 trillion), high financial institution debt ($12 trillion), high unfunded Medicare liability ($30 trillion), high unfunded Social Security liability ($12 trillion), high external debt (amount owed to foreign lenders) and a serious deterioration in the United States net international investment position (NIIP) (-24% of GDP), high trade deficits, and a rise in illegal immigration.

These issues have raised concerns among economists and unfunded liabilities were mentioned as a serious problem facing the United States in the President’s 2006 State of the Union address. On June 26, 2009, Jeff Immelt, the CEO of General Electric, called for the U.S. to increase its manufacturing base employment to 20% of the workforce, commenting that the U.S. has outsourced too much in some areas and can no longer rely on the financial sector and consumer spending to drive demand.

2.2. Conditions where trade imbalances may not be problematic

Small trade deficits are generally not considered to be harmful to either the importing or exporting economy. However, when a national trade imbalance expands beyond prudence (generally thought to be several [clarification needed] percent of GDP, for several years), adjustments tend to occur. While unsustainable imbalances may persist for long periods (cf, Singapore and New Zealand’s surpluses and deficits, respectively), the distortions likely to be caused by large flows of wealth out of one economy and into another tend to become intolerable.

In simple terms, trade deficits are paid for out of foreign exchange reserves, and may continue until such reserves are depleted. At such a point, the importer can no longer continue to purchase more than is sold abroad. This is likely to have exchange rate implications: a sharp loss of value in the deficit economy’s exchange rate with the surplus economy’s currency will change the relative price of tradable goods, and facilitate a return to balance or (more likely) an over-shooting into surplus the other direction.

More complexly, an economy may be unable to export enough goods to pay for its imports, but is able to find funds elsewhere. Service exports, for example, are more than sufficient to pay for Hong Kong’s domestic goods export shortfall. In poorer countries, foreign aid may fill the gap while in rapidly developing economies a capital account surplus often off-sets a current-account deficit. There are some economies where transfers from nationals working abroad contribute significantly to paying for imports. The Philippines, Bangladesh and Mexico are examples of transfer-rich economies. Finally, a country may partially rebalance by use of quantitative easing at home. This involves a central bank buying back long term government bonds from other domestic financial institutions without reference to the interest rate (which is typically low when QE is called for), seriously increasing the money supply. This debases the local currency but also reduces the debt owed to foreign creditors – effectively “exporting inflation”

FACTORS AFFECTING BALANCE OF TRADE

Factors that can affect the balance of trade include;

1. The cost of Production, (land, labour, capital, taxes, incentives, etc) in the exporting as well as the importing economy.

2. The cost and availability of raw materials, intermediate goods and inputs.

3. Exchange rate movement.

4. Multi lateral, bi-lateral, and unilateral taxes or restrictions on trade.

5. Non-Tariff barriers such as environmental, Health and safety standards.

6. The availability of adequate foreign exchange with which to pay for imports and prices of goods manufactured at home.

In addition, the trade balance is likely to differ across the business cycle in export led-growth (such as oil and early industrial goods). The balance of trade will improve during an economic expansion.

However, with domestic demand led growth (as in the United States and Australia), the trade balance will worsen at the same stage of the business cycle.

Since the Mid 1980s, the United States has had a growth deficit in tradable goods, especially with Asian nations such as China and Japan which now hold large sums of U.S debts. Interestingly, the U.S has a trade surplus with Australia due to a favourable trade advantage which it has over the latter.

ECONOMIC POLICY WHICH COULD HELP REALISE TRADE SURPLUSES.

(a) Savings

Economies such as Canada, Japan, and Germany which have savings Surplus Typically runs trade surpluses. China, a High Growth economy has tended to run trade surpluses. A higher savings rate generally corresponds to a trade surplus. Correspondingly, the United States with a lower Savings rate has tended to run high trade deficits, especially with Asian Nations.

(b) Reducing import and increasing Export.

Countries such as the U.S and England are the major proponent of this theory. It is also known as the mercantile theory. A Practice where the government regulates strictly the inflow and outflow from the economy in terms of import and export. One major advantage of this theory is that it makes a nation self sufficient and has a multiplier effect on the overall development of the nation’s entire sector.

CRITICISMS AGAINST THE ECONOMIC POLICY OF SAVING AS A MEANS OF REALISING TRADE SURPLUS

Saving as a means of realizing trade surplus is not advisable. For example, If a country who is not saving is trading and multiplying its monetary status, it will in a long run be more beneficial to them and a disadvantage to a country who is solely adopting and relying on the savings policy as the it can appear to be cosmetic in a short term and the effect would be exposed when the activities of the trading nation is yielding profit on investment. This could lead to an Economic Tsunami.

CRITICISMS AGAINST THE ECONOMIC POLICY OF REDUCING IMPORTS AND INCREASING EXPORTS

A situation where the export is having more value on the economy of the receiving country just as Frederic Bastiat posited in its example, the principle of reducing imports and increasing export would be an exercise in futility. He cited an example of where a Frenchman, exported French wine and imported British coal, turning a profit. He supposed he was in France, and sent a cask of wine which was worth 50 francs to England. The customhouse would record an export of 50 francs. If, in England, the wine sold for 70 francs (or the pound equivalent), which he then used to buy coal, which he imported into France, and was found to be worth 90 francs in France, he would have made a profit of 40 francs. But the customhouse would say that the value of imports exceeded that of exports and was trade deficit against the ledger of France.

A proper understanding of a topic as this can not be achieved if views from Notable Scholars who have dwelt on it in the past are not examined.

In the light of the foregoing, it will be proper to analyze the views of various scholars who have posited on this topic in a bid to draw a deductive conclusion from their argument to serve a template for drawing a conclusion. This would be explained sequentially as follow;

(a) Frédéric Bastiat on the fallacy of trade deficits.

(b) Adam Smith on trade deficits.

(c) John Maynard Keynes on balance of trade.

(d) Milton Freidman on trade deficit.

(e) Warren Buffet on trade deficit.

3.1. Frédéric Bastiat on the fallacy of trade deficits

The 19th century economist and philosopher Frédéric Bastiat expressed the idea that trade deficits actually were a manifestation of profit, rather than a loss. He proposed as an example to suppose that he, a Frenchman, exported French wine and imported British coal, turning a profit. He supposed he was in France, and sent a cask of wine which was worth 50 francs to England. The customhouse would record an export of 50 francs. If, in England, the wine sold for 70 francs (or the pound equivalent), which he then used to buy coal, which he imported into France, and was found to be worth 90 francs in France, he would have made a profit of 40 francs. But the customhouse would say that the value of imports exceeded that of exports and was trade deficit against the ledger of France. looking at his arguments properly, one would say that it is most adequate to have a trade deficit over a trade surplus. In this Vain, it is glaringly obvious that domestic trade or internal trade could turn a supposed trade surplus into a trade deficit if the cited example of Fredric Bastiat is applied. This was later, in the 20th century, affirmed by economist Milton Friedman.

Internal trade could render an Export value of a nation valueless if not properly handled. A situation where a goods that was initially imported from country 1 into a country 2 has more value in country 2 than its initial export value from country 1, could lead to a situation where the purchasing power would be used to buy more goods in quantity from country 2 who ordinarily would have had a trade surplus by virtue of exporting more in the value of the sum of the initially imported goods from country 1 thereby making the latter to suffer more in export by adding more value to the economy of country 1 that exported ab-initio. The customhouse would say that the value of imports exceeded that of exports and was trade deficit against the ledger of Country 1. But in the real sense of it, Country 1 has benefited trade-wise which is a profit to the economy. In the light of this, a fundamental question arises, ‘would the concept of Profit now be smeared or undermined on the Alter of the concept of Trade surplus or loss? This brings to Mind why Milton Friedman stated ‘that some of the concerns of trade deficit are unfair criticisms in an attempt to push macro- economic policies favourable to exporting industries’. i.e. to give an undue favour or Advantage to the exporting nations to make it seem that it is more viable than the less exporting country in the international Business books of accounts. This could be seen as a cosmetic disclosure as it does not actually state the proper position of things and this could be misleading in nature.

By reduction and absurdum, Bastiat argued that the national trade deficit was an indicator of a successful economy, rather than a failing one. Bastiat predicted that a successful, growing economy would result in greater trade deficits, and an unsuccessful, shrinking economy would result in lower trade deficits. This was later, in the 20th century, affirmed by economist Milton Friedman.

3.2. Adam Smith on trade deficits

Adam Smith who was the sole propounder of the theory of absolute advantage was of the opinion that trade deficit was nothing to worry about and that nothing is more absurd than the Doctrine of ‘Balance of Trade’ and this has been demonstrated by several Economists today. It was argued that If for Example, Japan happens to become the 51st state of the U.S, we would not hear about any trade deficit or imbalance between America and Japan. They further argued that trade imbalance was necessitated by Geographical boundaries amongst nations which make them see themselves as competitors amongst each other in other to gain trade superiority among each other which was not necessary. They further posited that if the boundaries between Detroit, Michigan and Windsor, Ontario, made any difference to the residents of those cities except for those obstacles created by the Government. They posited that if it was necessary to worry about the trade deficit between the United States and Japan, then maybe it was necessary to worry about the deficits that exist among states. It further that stated that if the balance of trade doesn’t matter at the personal, Neighbourhood, or city level, then it does matter at the National level. Then Adams Smith was Right!.

They observed that it was as a result of the economic viability of the U.S that made their purchasing power higher than that its Asian counterpart who was Exporting more and importing less than the U.S and that it wouldn’t be better if the U.S got poorer and less ability to buy products from abroad, further stating that it was the economic problem in Asia that made people buy fewer imports.

“In the foregoing, even upon the principles of the commercial system, it was very unnecessary to lay extraordinary restraints upon the importation of goods from those countries with which the balance of trade is supposed to be disadvantageous. It obvious depicts a picture that nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this [absurd] doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses and the other gains in proportion to its declension from the exact equilibrium.” (Smith, 1776, book IV, ch. iii, part ii).

3.3. John Maynard Keynes on balance of trade

John Maynard Keynes was the principal author of the ‘KEYNES PLAN’. His view, supported by many Economists and Commentators at the time was that Creditor Nations should be treated as responsible as debtor Nations for Disequilibrium in Exchanges and that both should be under an obligation to bring trade back into a state of balance. Failure for them to do so could have serious economic consequences. In the words of Geoffrey Crowther, ‘if the Economic relationship that exist between two nations are not harmonized fairly close to balance, then there is no set of financial arrangement that Can rescue the world from the impoverishing result of chaos. This view could be seen by some Economists and scholars as very unfair to Creditors as it does not have respect for their status as Creditors based on the fact that there is no clear cut difference between them and the debtors. This idea was perceived by many as an attempt to unclassify Creditors from debtors.

3.4. Milton Freidman on trade deficit

In the 1980s, Milton Friedman who was a Nobel Prize winning Economist, a Professor and the Father of Monetarism contended that some of the concerns of trade deficit are unfair criticisms in an attempt to push macro- economic policies favourable to exporting industries.

He further argued that trade deficit are not necessarily as important as high exports raise the value of currency, reducing aforementioned exports, and vice versa in imports, thus naturally removing trade deficits not due to investment.

This position is a more refined version of the theorem first discovered by David Hume, where he argued that England could not permanently gain from exports, because hoarding gold would make gold more plentiful in England; therefore the price of English goods will soar, making them less attractive exports and making foreign goods more attractive imports. In this way, countries trade balance would balance out.

Friedman believed that deficits would be corrected by free markets as floating currency rates rise or fall with time to discourage imports in favour of the exports. Revising again in the favour of imports as the currency gains strength.

But again there were short comings on the view of Friedman as many economists argued that his arguments were feasible in a short run and not in a long run. The theory says that the trade deficit, as good as debt, is not a problem at all as the debt has to be paid back. They further argued that In the long run as per this theory, the consistent accumulation of a major debt could pose a problem as it may be quite difficult to pay offset the debt easily.

Economists in support for Friedman suggested that when the money drawn out returns to the trade deficit country

3.5. Warren Buffet on trade deficit

The Successful American Business Mogul and Investor Warren Buffet was quoted in the Associated Press (January 20th 2006) as saying that ‘The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil… Right now, the rest of the world owns $3 trillion more of us than we own of them’. He was further quoted as saying that ‘in effect, our economy has been behaving like an extraordinary rich family that possesses an immense farm. In order to consume 4% more than we produce-that is the trade deficit- we have day by day been both selling pieces of the farm and increasing the mortgage on what we still own.

Buffet proposed a tool called ‘IMPORT CERTIFICATES’ as a solution to the United States problem and ensure balanced trade. He was further quoted as saying; ‘The Rest of the world owns a staggering $2.5 trillion more of the U.S than we own of the other countries. Some of this $2.5 trillion is invested in claim checks- U.S bonds, both governmental and private- and some in such assets as property and equity securities.

Import Certificate is a proposed mechanism to implement ‘balanced Trade’, and eliminate a country’s trade deficit. The idea was to create a market for transferable import certificate (ICs) that would represent the right to import a certain dollar amount of goods into the United States. The plan was that the Transferable ICs would be issued to US exporters in an amount equal to the dollar amount of the goods they export and they could only be utilized once. They could be sold or traded to importers who must purchase them in order to legally import goods to the U.S. The price of ICs are set by free market forces, and therefore dependent on the balance between entrepreneurs’ willingness to pay the ICs market price for importing goods into the USA and the global volume of goods exported from the US (Supply and Demand).

Director As An Agent – Liabilities Under Contracts Act – 1872

Sec 182.of the Indian Contract Act, 1872 says that “An ‘agent’ is a person employed to do an act for another or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the principal”

Where one employs another to do an act for him or to represent him in dealings with third parties, the person so employed is called an agent. In the theory of the English law, the agent is a connecting line between the principal & third parties. He is an intermediary who has the power to create legal relationships between the principal and the third parties.

Sec. 2(13) of the Companies Act, 1956 defines that “‘director’ includes any person occupying the position of a director by whatever name called”

Thus, director is an individual lawfully appointed to the Board of Directors of a company which is duly constituted to direct, control and supervise the activities and affairs of a company. Directors of a company are in the eye of law agents of the company for which they act and the general principles of the law of principal and agent regulate in most respects the relationship of the company and its directors. (Somayazula vs. Hope Prodhome & Co. (1963) 2 An W.R. 112.)

The test of agency is whether the person is purporting to enter into transaction on behalf of the principal or not. In order to constitute an agency, it is not necessary to have a formal agreement.

A director of a company is not necessarily the agent of the company or of its shareholder, but the true position of the directors of a company may that be of agents for the company with powers and duties of carrying on the whole of its business, subject to the restrictions imposed by the Articles of Association. A Director or a managing director may not be a servant of the company; he may be an agent of the company for carrying on its business. What he is in fact will depend on the facts and circumstances of each case. Generally speaking, neither the board of directors nor an individual director is, as such, an agent of the company, or the corporation, or its members. Under modern legislation, all powers of management, except those expressly reserved to the shareholders in general meeting, are vested in the board of directors, who have powers to appoint officers who are subject to the supervision and control of the board. Members of the board resemble agents in that they act on behalf of others, and are fiduciaries owing to the duties of loyalty and care. However, these duties are owed to the corporate body itself rather than to the shareholders. An individual director, as such, has still less resemblance to an agent than has the board as a body. Even when he acts as member of the board, he does not act as an agent, but as one of the group which supervises the activities of the corporation. However, he may be appointed an agent of the incorporated body.

Director as an agent: The Madras High Court observed that normally a director is not an agent of the Company but where he acts as a director- in- charge and corresponds with another party to bring about a contract he will act as an agent. As such the liability is of the company and not the agent personally. (Puddokottah Textiles Ltd. vs. B.R. Adityan (1975) 88 Mad. L. W. 688, 790)

The court has power under its equitable jurisdiction to award interest whenever a person in a fiduciary position, such as Director of Company, misuses money that he controls in his fiduciary capacity. Whenever the transaction in which the money used was of a commercial nature the court will presume that it was profitable and the court will give adequate compensation for the profits assumed to have been made. (Wallersteiner vs. Moir (1975) 1 All E.R. 849, 865)

The Supreme Court has described the office of a Director thus,

“The Director of a Company is not a servant but an agent inasmuch as a company cannot act in its own person but only through its directors, who qua the Company have a relationship of an agent to the principal.” (Ramprasad Vs. Commissioner of Income Tax (1973) A. Sc. 637, 640; Commissioner of Income Tax Vs. Man Mohandas (1966) A. Sc. 743; 59, I.T.R. – 699)

A managing Director may have a dual capacity. He may both be a director and an employee. He has not only the persona of a director but also the persona of an employee or an agent depending on terms of his employment and the Company’s Articles Association. The term ’employee’ is facile enough to cover both these relationships.

An agent though bound to exercise his authority in accordance with lawful instructions given to him is not subject to the direct control and supervision of the principal. A Managing Director of a Company if he is to act under the directions of a board of Directors is a servant.

A Managing Director has two functions and two capacities. As a Managing director he is under a contract with the company and this contract is contract of employment. More specifically it is a contract of service and not for service.

A Director of a Company is not necessarily an agent of the company or its shareholders. If he acts as an agent he must specifically say so. So where in his written statement a director did not raise such a plea, he is deemed to have acted on his personal capacity. So a suit against him alone is not barred by Sections 230 and 235 of the Contract Act. (Raja Ram Jaiswal vs. Ganesh Parshad, AIR 1959 All 29)

Managing Director benefiting himself: A Managing Director appointed for ten years resigned his post which the company refused to accept and therefore he was still in service. While being ostensibly in service his placing orders with the company’s suppliers and dealings with customers, was breach of his duty and fidelity and good faith as Director not to benefit personally by contracts ostensibly entered into on behalf of the company. (Thomas Marshall Exports Ltd. v. Guinde (1978)) A Master is liable for the torts of his servant committed during the course of his employment irrespective of the master deriving any benefit. An agent’s function is to enter into relations on behalf of his principal with third persons. He acts at his discretion and judgment but within the limits of his authority.

As a company is an artificial person and can only contract through its agents, the normal mode of signing is to use the words “on behalf of” so and so company before the signature of the agent signing, and if an agent so signs, no personal liability will attach to him. Directors are agents of the company to the extent of the authority delegated to them. Hence, where directors make a contract in the name of, or purporting to bind the company, it is the company- the principal- which is liable on it and not the directors. The directors are not personally liable unless it appears that they took personal liability.

Directors are not personally liable under a contract which is lawful and which they have made in the proper exercise of their authority. Directors purchased goods for their company and agreed with the supplier to allot him debentures for the price. Before the debentures could be issued, the company went into liquidation. The supplier was held not liable to make the directors personally liable under the contract (Elkington & Co. vs. Hurter, (1982) 2 Ch 452) .

In another case, where its directors cum majority shareholder appointed an accountant for the company and he subsequently acting as a director removed the accountant, he was held not liable to compensate the accountant because he had acted only as an officer of the company but he was liable for the accountant’s costs and expenses of litigation. This is because the litigation was solely due to his conduct in acting in a highhanded manner (Schouls vs. Canadian Meat Processing Corporation, [1980- 1984] LRC (Comm) 778) .

Section 226 of the Indian Contract Act assumes that the contracts or act of the agent is one, which, as between the principal and third person, is binding on the principal. If the contracts is entered into, or act done professedly on behalf of the principal and is within the scope of the actual authority of agent, there is no difficulty. With regard to contracts and acts which are not actually authorized, the principal may be bound by them on the principal of estoppel, if they are within the scope of the agent’s ostensible authority; but in no case is he bound by any unauthorized act or transaction with respect to persons having notice that the actual authority is being exceeded. Therefore no act done by an agent in excess of his actual authority is binding on the principal with respect to persons having notice that the act is unauthorized. An agent who was appointed by a power of attorney, borrowed money on the faith of a representation made by him that the power gave him full authority to borrow and misapplied it. The agent produced the power, which did not authorize the loan, but the lender did not read it, and made the advance in reliance on the agent’s representation. It was held that the lender must be taken to have had notice of the terms of the power and that the principal was not bound by the loan. (Jacobs v. Morris (1902) 1 Ch 816) In regard to Sec. 238 of the same Act, which deals with effect on agreement of misrepresentation or fraud by agent, makes the principal bound by such acts of the agent having same effect as though the principals had committed the fraud or misrepresentation. But misrepresentations made or frauds committed by agents in matters that do not fall within their authority do not affect their principals.

While negotiating a contract for his company, a director should make it clear to the other party that the contract will be entered into by the company and not by the director personally. If he does not do this and the other party believes that he is contracting with the director or agent and not the company, the contract they conclude will be a personal one and he will be personally liable for the fulfillment of the promises made. (Bridges & Salmon Ltd. vs. The Swan (Owners), (1968) 1 Lloyds Rep 5)

Written and submitted by: –

STUTI BANSAL

IVth year, B.B.A.LL.B

Symbiosis Law School,

Pune

Balancing the Accounts and Necessity of Ledger

Balancing the Accounts

Whenever it is desired to balance an account, the two sides are added up, and if the totals of the two sides are unequal then the difference is put on the side having lesser total. This will make both the sides equal. The amount of the difference inserted is known as ‘balance’ of the account. In particulars column it is written as Balance c/d (carried down). In subsequent period it is known as Balance bid (brought down). If the total of the credit side of the account is less, the balance will be inserted on credit side with the words “By Balance c/d”. This balance is known as Debit Balance and after closing the account it will be shown on the debit side with the words “To Balance bid”. Similarly if the total of debit side of the account is less, the balance will be inserted on debit side with the words “To Balance c/d”. This balance is known as Credit Balance and after closing the account it will be shown on the credit side with the words “By Balance bid”.

Personal Accounts

It is worthwhile to refresh your memory and recall that personal accounts relate to individuals and business entities (firm; company, corporation etc.) and the rule is : Receiver is to be debited and giver is to be credited. Now if on any particular date the business wants to know as to how much amount is ‘due to’ or ‘due by’ a particular person to itself (business) then it should balance the account of the person concerned. Debit balance as per personal account signifies that the person is the debtor of the business i.e. person owes an amount equal to the balance to the business or the amount, represented by the balance is ‘due to’ the business by the person. Similarly, Credit balance as per personal account signifies that the person is the creditor of the business i.e. business owes an amount equal to the balance to the person or the amount represented by the balance is ‘due by’ the business to the person.

Real Account

These are the accounts relating to property or possession or rights. Rule is : “What comes in is to be debited and what goes out is to be credited.” Thus all incomings are to be recorded on the debit side and outgoings on the credit side. On any particular date these accounts should have ‘debits balance’ representing the worth of the item covered by the account. At the end of the year (generally) or at any other point of time when the financial position of the business is required to be ascertained these accounts are balanced. These balances are shown on the assets side of the statement of position or Balance Sheet. These accounts do have ‘debit balance’ which signifies the ‘book-value’ or ‘written down value’ or ‘going concern-value’ of the assets of the business as on that relevant date.

Nominal Accounts

These are the accounts showing the various heads of expenses and sources of income. At the end of the specified period (generally one year) these accounts are closed by transfer to the final accounts i.e. Trading or Profit and Loss Account.

Necessity of Ledger

Maintaining of ledger is a must in every accounting system. It is necessary as will be clear from its advantages:

(1) Transactions relating to a particular person, item or heading of expenditure’ or income are grouped in the concerned account at one place.

(2) When each account is periodically balanced it reflects the net position of that account. For example, how much is due from a customer or how much is payable to a supplier or what is the value of total purchases or what has been the expenditure on salaries? Such information is available by balancing the ledger accounts.

(3) Ledger is the stepping stone for preparing Trial Balance- which tests the arithmetical accuracy’ .of the accounting books.

(4) Since the entries recorded in the journal are referenced into ledger the possibility of errors or defalcations are reduced to the minimum.

(5) Ledger is the destination of all entries made in journal or sub-journals.

(6) Ledger is the “store-house” of all information which subsequently is used for preparing final accounts and financial statements.

Opening entry and its posting. In the case of an existing business we are required to pass an entry in the journal (on the basis of the Balance Sheet prepared at the end of the previous year) for bringing in the new books all assets and liabilities: this is known as Opening entry.

Benefits of a Rational Decision Making Model

An understanding of cerebral management will reveal the pastime of managers in harnessing organisational resources to achieve the desired end. Managers are confronted with challenges and issues that require resolution, clarity and decision almost all the time. Some of the issues are trivial while others are important to the well being of the organisation especially in terms of bottom line and strategic performance.

The managerial environment is becoming too complex and dynamic. This requires rational thinking and rational decision making. No longer will heuristics or rule of the thumb produce any effective solution to organizational problems and challenges. Rationality in decision making is no longer negotiable while irrationality is untenable.

Rational decision making model is a traditional approach to understanding decision making. It is idealistic in that it does not always capture the decision making pattern of the practicing manager but what should constitute the managerial decision making frontier.

It is often referred to as the rational economic model. It presumes that managers, who are indeed the decision makers, are rational and hence would always engage in a sequence of steps that will enhance the probability of attaining the set goals.

The model prescribes a sequential decision making process with a flow that includes opportunity or problem solution, opportunity or problem recognition, opportunity or problem definition, generation of alternatives, information gathering, evaluation of alternatives, selection of an alternative, implementation of selected alternative and feedback through the evaluation of the effectiveness or otherwise of the alternative.

Opportunity or problem recognition is key to effective decision making. Without opportunity or problem recognition it may be difficult to define the phenomenon or place it in proper perspective. Generation of alternative approaches to coping with the situation depends largely on how well the situation is defined.

There is usually a need to gather information on the alternatives so as to ascertain their desirability after an empirical analysis. Thereafter one option is selected after proper screening of the alternatives. The option selected is implemented and subjected to further evaluation to provide feedback that is juxtaposed with the original problem.

The problems with this model include simplistic assumptions that all alternatives will be considered and screened; that accurate information will be available at no cost; and that decision makers are totally rational beings without coloration of emotion and other vices which are part of their individual frames.

Most often than not managers do not always engage in rational decision making as a result of their emotional make up, degree of competence, dearth of relevant information, groupthink and time constraints. Consequently, mistakes are made and resources are wasted on “solutions that realize little ultimate value for the organisation” (Berret-Koehler, 2002). As managers, the truth is that we satisfied rather than maximise all of the time (Vecchio, 2006).

Within bounded discretion, I consider the model an effective one for adoption in my organisation. It will serve as a guide to line managers and professional cadre to developing solutions to problem based on rational thinking devoid of emotion and rule of the thumbs which appear to be the rule than exception.

The whole idea is to provide them a framework for empirical problem solving. However it is important that training be conducted for them especially in the area of problem recognition, ideas generation and evaluation.