by “The aggregate of all the forces, factors and institutions which are external to and beyond the control of an individual business enterprise but which exercises a significant influence on the functioning and growth of individual enterprises.”
In other words, Business Environment refers to the total of all the things external to the firm and industry which affect their organization and operations.
Organisation structure means such things as composition of board of directors, the number of independent directors, the extent of professional management and share -holding pattern. The nature of organisational structure has a significant influence over decision making process in an organisation. An efficient working of a business organisation requires that its organisation structure should be conducive to quick decision making. Delays in decision making can cost a good deal to a business firm.
The board of directors is the highest decision making body in a business organisation. It takes general policy decisions regarding direction of growth of business of the firm and supervises its overall functioning. Therefore, the managerial capability of the board of directors is of crucial importance for the functioning of a business firm and for achievement of its overall mission and objectives.
For efficient and transparent working of the board of directors in India it has been suggested that the number of independent directors be increased. Many private corporate firms in India are managed by family members of their promoters which is not conducive to the efficient working of these firms.
Internal Environment
It is therefore highly desirable to increase the extent of professional management of private corporate companies. The share holding pattern has also an important implication for business management. In some Indian companies the majority of shares is held by the promoters of the company themselves.
In some others share-holding pattern is quite diversified among the public. In India financial institutions such as UTI, LIC, GIC, IDBI, IFC etc. have large share holdings in prominent Indian corporate companies and the nominees of these financial institutions play a critical role in making major business policy decisions of these corporate companies.
Technically, shareholders elect directors who make up the board of directors. The directors then appoint company’s top managers who take various business decisions. However, most of the shareholders delegate the voting rights to the management or do not attend the general body meeting.
Thus, most of the shareholders regard ownership of the company as a purely financial investment. However, in recent years in developed countries like the United States the shareholders have come to wield a great influence.
The bankruptcy of business giants such as Enron, World Com. in the United States have created great awareness as well as mistrust among shareholders. In the last few years there has been frequent law suits filed by shareholders against directors and managers for ignoring the interests of shareholders or in fact cheating them by not declaring dividends. That is why there is worldwide debate on proper corporate governance of business firms.
Nature of Business Environment
- Aggregative: Business Environment is the totality of all the external forces which influences the working as well as decision making of an enterprise.
- Inter-Related: Different elements of Business Environment are Inter-related and inter-dependent. A change in one element affects the other elements. For instance, Economic Environment affects the Non-Economic Environment which in-turn influences or affects the Economic conditions.
- Relative: Business Environment is a Relative Concept. It differs from country to country an even region to region.so, Business Environment depends upon the region or country in which Business is operated or conducted.
- Inter-Temporal: Business Environment is also an inter-temporal concept as it changes overtime. In the short run, Business Environment may remain static but in the long run, it does change. so, Business Environment is more or less dynamic in nature.
- Uncertain: Business Environment is largely uncertain because it is very difficult to forecast the future environment. Further, when the environment changes very fast, uncertainty increases.
