[Modern Corporation: Starting a Large Company / Business]

we work for [Music] them we buy and we invest our savings to buy corporate Securities therefore without some knowledge of the corporation or even really ourselves we may well ask why some big businesses use the corporate form of business Enterprise to carry on their operations for some of the answers to this question let's see how a small if somewhat fanciful Corporation came into being it All Began in Harry Hunt's garage Workshop Harry was a kind of would-be inventor with no successes to date of course Harry's son wanted to own the first of these space a Wonder [Music] Vehicles after a few safety modifications the Pogo jet became a reality news about the Pogo jet quickly spread throughout the neighborhood in fact the overnight customer demand was so terrific that Harry decided to go into business he became what is known as a sole proprietorship in other words he owned the whole business all by himself very soon all over town everybody but everybody was bordering Pogo [Music] Jets filling so many orders was a problem for Harry he'd need a larger plant additional tools and more help this required an investment far greater than Harry alone could afford why not take a partner his brother-in-law he had extra cash and so the partnership of hunt and peek was born with the extra cash the new plant became a reality more workers operating the new equipment turned out better Pogo jets faster and cheaper there was even enough money left for an advertising campaign sales of pogo jets boomed in the west the South even on New York's Madison Avenue orders and still more orders poured in from all over the country again the problem how do we expand to satisfy the demand a still larger Factory more Machinery more employees and much more working capital but from where the partnership could borrow some money from a bank but not enough enough to finance their expansion program they might get additional Partners from among their friends and neighbors but this would be difficult because each new partner just like Hunton peek would be individually liable for all the debts of the company to the full extent of his personal [Music] assets so why not raise the new capital another way that is form a corporation their lawyer obtained the necessary Charter to incorpor from the state Corporation commissioner and received approval to sell 10,000 shares of the common stock at $10 per share hunt andek received 2,000 shares of common stock for their investment in the business the remaining $8,000 shares at $10 per share were bought by outside investors under the corporate form of Enterprise every stockholder's liability for the debts of the company is limited if the business business ever goes bankrupt the most these stockholders could lose would be the $10 per share they paid for their common [Music] stock at the first stockholders meeting each shareholder had one vote for each share of common stock he owned and helped to elect the directors the directors approved the bylaws and chose the officers of the corporation they elected hunt president and PE Vice President part of the new stockholders money helped to pay for more research to design and develop a startlingly new model some of the new money was used to buy more efficient equipment and to hire more workers to turn out more and better Pogo Jets at lower costs by the end of the second year sales had reached $500,000 after deducting manufacturing and sales costs other expenses and taxes the company earned a net profit of $40,000 at a meeting of the board of directors the president presented the company's year-end balance sheet under assets the balance sheet shows what the company owns in the way of cash in the bank amounts due and collectible from customers its inventory of supplies and the value of its equipment and buildings total assets are $240,000 underly liabilities are listed what the company owes in the way of accounts payable to suppliers the current portion due on the building morgage unpaid taxes and the balance due on the building's long-term mortgage total liabilities add up to $80,000 the difference between what the company owns and what it owes is called net worth $100,000 of invested capital plus2 ,000 of retained earnings plus $40,000 profit for the year add up to a net worth of $16,000 total liabilities of $80,000 plus net worth of $160,000 amount to $240,000 to balance total assets considering the sound financial condition of the company the president recommended that $110,000 in dividends be paid to shareholders at the rate of $1 per share on the common stock a proposal which the board of directors unanimously approved with Pogo jet we have seen that the corporation is an excellent device for raising Capital because of the limited liability of stockholders and the promise of continuity of existence for the business owners of corporate Securities may sell their stock to others at any time or Beque it to heirs if hunt retires or PEC passes on the board of directors elects new officers to carry on the business regardless of changes in its officers or directors a corporation can go right on operating so long as it meets the challenge of competition in the marketplace now the odds are that neither you nor anyone else will ever own a share of the fictional Pogo jet Corporation but literally millions of Americans do share in the ownership of the more than a,2 200,000 real corporations large and small which are the strong backbone of the nation's economy the dynamic activity of the major stock exchanges of the country attests to the degree to which people invest their Savings in the shares of Corporations on the New York Stock Exchange alone more than 10 million Corporation Shares are bought and sold in a single day about 85% of the nation's industrial corporations are comparatively small businesses with an average capital investment of around a half a million dollar they employ relatively few people and generally serve local or Regional markets examples of small corporations are building contractors Furniture manufacturers and garment manufacturers small corporations can be extremely flexible in responding to the changing demand for their products or Services if department store buyers become interested in a New Dress or suit design the owner manager of a small Corporation can put the new model into production [Music] quickly usually within a few days enough units of the new design can be completed to make deliveries to the department [Music] store and the buyer will have in stock the new models for sale to prospective purchasers several hundred, small corporations dominate the corporate sector of the American economy in terms of numbers how however the 500 largest industrial corporations in the country alone account for about 1/4 of all corporate [Music] sales the automobile business is one of many examples of how large corporations serve as a competitive Force for Progress it takes big businesses like General Motors American Motors Chrysler and Ford with combined assets of approximately 21 billions of dollars to finance the plants managerial knowhow styling research testing and development [Music] programs manufacturing equipment and the payrolls for some 1,100,000 workers to achieve the economies of large-scale production of automobiles yet the four corporations couldn't turn out an automobile if it weren't for thousands of suppliers that specialize in making hundreds of component parts that are assembled to produce a finished automobile in a recent year these four automobile manufacturers purchased 16 billions of dollars of goods and services from suppliers that were big medium and small businesses American Motors Chrysler General Motors and Ford have some 30,000 dealers competing to sell their products to automobile buyers all over the country anyone who shops for an automobile is well aware of the competition among new and used car dealers to make a sale no wonder it's hard to make a decision considering the hundreds of choices the automobile Buy has in prices models and [Music] [Music] Extras at home when the potential buyer tries to decide what automobile to purchase he is exposed to advertising programs on which the four corporations spend many millions of dollars every year to expand their Market by advertising in newspapers [Music] magazines on the radio and of course on countless television commercials 1966 Buick the tune car tuning is what makes a Buick a Buick and and what makes the new 66 Sport Wagon more than an ordinary wagon tuned styling tuned Performance Tuned ride tuned Handler but regardless of the bait on the hook this skeptical consumer was not quite ready to [Music] bite somewhere in the back of his mind there was something about another manufacturer's product that had caught his fancy together in harmony wouldn't you really rather have a Buick he agreed with every point the salesman made this was just the car he wanted he'd be back later in the day with the down payment or would he at the last minute our unpredictable friend bought a foreign model leaving at least one car salesman slightly confused about this particular consumer's buying habits while foreign manufacturers sold some 484 th000 Passenger cars in this country in a recent year General Motors Ford Chrysler and American Motors together sold over 8 million Passenger cars in the same 12-month period in the same year these four corporations had sales of about $32 billion on which they earn profits of5 b200 million out of these profits the four companies paid $2 b800 million in taxes to federal state and local governments they paid out $1 b600 million in dividends to stockholders and reinvested the remaining $800 million of profits in their businesses to increase efficiency and productivity and every year the advertising and sales battle continues with each Corporation competing to win a larger share of the automobile [Music] Market in the steel industry the competitive battle is equally intense corporations making steel not only compete among themselves to sell their products but they also must compete with producers of materials that can be substituted for steel from 1950 to the end of 1963 us cement production gained [Music] 56% the production of aluminum gained [Music] 222% while the production of Steel gained only 13% in the same 13-year period steel Imports Rose by 48% the nation steel companies invest hundreds of millions of dollars each year in new facilities and new manufacturing techniques to produce Quality Steel at a price that will meet the challenges of domestic and foreign competition for example the Jones and loand Steel Corporation has invested millions of dollars to install basic oxygen furnaces that produce a heat of Steel in 1 hour which formerly took took about 8 hours the corporation's huge investment in basic oxygen furnaces means that steel can be made for $2 to $8 a ton less than with the Open Hearth furnace which the new method replaces The increased productivity with the more efficient process enables the corporation to capture a greater share of the market which in turn expands the number of better paying jobs for skilled workers and unions have been most effective in getting a share of Industries increasing productivity for their members in tough bargaining sessions with the management of the United States Steel Corporation union leaders have won labor contracts that increased us Steel's average hourly employment costs from $281 in 1955 to $464 by 1964 or a gain of 65% in 9 years to place Steel Workers among the nation's highest paid industrial workers the United States Steel Corporation is a good example of the fact that competition makes it slippery on top even for the Giants in the early 1800s United States Steel was the nation's first billion dollar Corporation and alone produced about 65% of the total Iron and Steel in the country by 1960 competition from domestic and foreign steel producers cut its share of the market to about 25% of course the steel industry is now 10 times bigger than it was in the 1900s and the United States Steel Corporation has increased its assets to some $5 billion to remain the nation's largest producer of Iron and Steel but size alone does not ensure a lasting advantage over a firm's competitors statistics reveal that among our 100 largest corporations in 1909 only 59 were still included on the list in 1919 competition had cut the survivors to 42 by 1929 and as a result of competition and some mergers only 31 on the original list remained among the nation 's 100 largest corporations at the end of 1960 while competition is constantly weeding out the inefficient the historical record of many of our most successful corporations demonstrates that a company which meets the challenge of change and competition Will Survive and prosper statistics show that all industrial corporations in the nation increased their assets from some $33 billion in 199 to about $46 billion by 1960 in 199 the 100 largest industrial corporations owned 26% of the O they increased their ownership of the assets of all industrial cor from 26 to 31% in roughly half a century some Economist guard concentration of economic power in the 100 largest industrial corporations as a threat to our society other economists consider their growth rate no more than necessary for a dynamic expanding economy such as ours where the idea is to give any business the freedom to grow as big as competitive performance allows so long as it obeys the law of the land occasionally however the management of some businesses try to escape the rigors of compet competition by agreeing among themselves to fix prices of their products to earn higher profits and competition would permit but ever since the Sherman ATA trust Act was passed in 1890 price agreements or actions to monop and Restraint of competition have been corporate managers convicted of such actions must pay their price to Society for breaking the law like any other individual who may be convicted of a crime other federal and state legislation which has been enacted to protect the public regulates corporations that own and operate Banks insurance companies the trucking industry Airlines telephone companies electric light and power companies and others in any event it is certainly Beyond question that government regulation of business should protect the many against the abuses of the few and establish rules of the game to give individuals and businesses the maximum freedom to grow and prosper the growth of many of our large corporations has been characterized by emphasis on research and new product [Music] development the Innovative pioneering of color television by the radio Corporation of America is perhaps the most dramatic example in recent years of the time and money it takes to create a new product for sale to the mass [Music] Market this is an early model color television receiver that RCA research scientists and Engineers demonstrated to the public in October of 1949 by June of 19 1953 RCA had developed a prototype of the first set scheduled for production in October of 1953 to get the new industry underway RCA offered to make available to competing television manufacturers full technical details on how to make its basic color receivers by December of 1953 the Federal Communications Commission approved the RCA technical standards for color TV and gave the green light for the production of color TV sets for sale to the public in 1954 production lines began rolling on color TV sets not only at RCA but in the plants of its competitors who were licensed to use the RCA patents by the end of 1965 color television including broadcasting production of tubes and selling of sets was a multi million dollar industry employing hundreds of thousands of workers in jobs that never existed before it took RCA about 13 years and some $130 million to make a success of color [Music] television and after investing all these millions to give birth to a new industry RCA now sees its color sets competing with the products of other efficient Manu facturers who are vying with RCA to capture a larger share of the rapidly expanding market for color television [Applause] sets the color television success story demonstrates that there is no resting place for an Enterprise in our Dynamic everchanging [Music] economy to keep up with the challenge of competition and change in the marketplace our corporations invest over 10 billion dollar every year and long range research programs in a competitive drive to develop new products which in turn create new job [Music] opportunities job creation is indeed very rapid in our business [Music] system in 1955 the nation civilian labor force numbered 63 million in round numbers by 1965 the nation labor force had increased to some 72 million or a gain of close to a million jobs every year in a 10-year period and to prepare our growing crop of young people to fill the new jobs available each year the nation schools spend billions of dollars annually to provide our youth with a better education to prepare them for the more sophisticated and complex skills our Progressive economy requires to produce more more and better goods and services for our expanding [Music] population as is proper in a Democratic Society Americans continue to ask questions about our corporate structure and our economic system as a whole such as are some of our giant corporations becoming too big some of our labor unions have too much [Music] power when workers lose their jobs in an Enterprise that cannot meet competition our successful corporations and government agencies doing what they should to establish training programs that will teach the unemployed from all walks of life the skills they need to hold the new jobs that technological progress continues to create in our expanding economy in classrooms and elsewhere we Americans continue to search for a satisfactory balance between competitive private Enterprise and government regulation a balance that will safeguard and still keep the door of opportunity wide open for sole proprietorships Partnerships and corporations to continue to contribute their maximum to the growth and progress of our nation