Concept and Meaning of A Corporate Policy

Financial Theory and Corporate Policy (4th Edition)Corporate policy is the guide post to decision making. It helps in the managerial thinking process and thus leads to the efficient and effective attainment of the objectives of any organization.

Corporate policy has been defined as “Management’s expressed or implied intent to govern action in the pursuit of the company’s objectives.” Corporate policy clarifies the intention of management in dealing with the various problems faced. It gives the managers a transparent guideline to take their decisions by being on the safe side. Corporate policy helps the manager in identification of the solutions to the problem. It provides the framework in which he has to take the decisions. The distinct views regarding policies can be categorized into the following three broad groups:

The first category holds the opinion that policy and strategy are synonymous. Corporate policy has been defined by William Glueck as “Management policy is long range planning. For all practical purposes, management policy, long range planning and strategic management mean the same thing.” However, this view is quite controversial as strategy and corporate policy do not mean the same thing. Strategy includes awareness of the mission, purpose and objectives. It has been defined as, “the determination of basic long term goals and objectives of an enterprise, and the allocation of resources necessary to carry out these goals”, while policies are statements or a commonly accepted understandings of decision making and are thought oriented guidelines. Therefore, strategy and corporate policy cannot be used interchangeably as there is a clear line of differentiation between the two terms.

The second group of experts view corporate policy as the process of implementing strategy. In the words of Frank I. Paine and William Naumes, “Policies guide and channel the implementation of strategy and prescribe how processes within the organization will function and be administered. Thus the term policy refers to organization procedures, practices and structures, concerned with implementing and executing strategy.”

Supporting this view, Robert Mudric has defined corporate policy as “A policy establishes guidelines and limits for discretionary action by individuals responsible for implementing the overall plan.” The view represents corporate policy to be

  • Restrictive 
  • Laying stress only on the tactical side and ignoring the strategic dimension.

The third view considers corporate policy to be decisions regarding the future of an organization.
In this view, Robert J. Mockler defines corporate policy as, “Strategic guidelines for action. They spell out what can and what cannot be done in all areas of a company’s operation.”

According to the policy manual of General Electric Company, “Policy is definition of common purpose for organization components of the company for benefit of those responsible for implementation, exercise discretion and good judgment in appraising and deciding among alternative courses of action.”

The views of different management scholars differ because of following reasons:

  • There is no clear differentiation of policy from other elements of planning.
  • There are different policies made at different levels of management for directing executives.
  • Corporate policy encompasses and relates to the entire process of planning.

Thus, corporate policy focusses on the guidelines used for decision making and putting them into actions. It consists of principles along with rules of action that provides for successful achievement of corporate  objectives.