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Conceptual framework comprises the theoretical structures, including various assumptions, principles or rules, companies follow when conducting operations. This framework may be unique to the company’s mission, vision, and ownership. While smaller businesses may not use conceptual framework in their organizational structure or management practices, larger companies or corporations often use this framework to bolster the strength of its operating environment. A common use of conceptual framework is in the corporation’s corporate governance.
Corporate governance contains specific rules and practices companies follow to ensure the accountability and fairness in transparency in relationships with business stakeholders. Business stakeholders include individual investors, customers, managers, employees, government agencies, and the general public. The conceptual framework of corporate governance often covers the contractual agreements, conflict of interest reconciliation procedures, and guidelines for governing internal employees.
Conceptual framework is used to guide the contractual agreements made between a company and business stakeholders. These guidelines ensure that the company does not enter into business contracts or formal written agreements that overextend the economic resources of the company. The framework may also list the minimum acceptable percentage regarding the rate of return for business investments and other professional relationships or partnerships. The responsibilities, rights, and expectations of each entity listed a contractual agreements may also be determined using conceptual framework.
Companies often develop specific framework procedures for conflict resolution to ensure that internal or external business situations do not get out of hand. While conflict resolution is an important business function relating to external business stakeholders, large companies may also face numerous conflicts between various departments inside the business. Conceptual framework may outline the specific role of each individual, department, or other entity in the business and how conflicts will be reconciled according to company procedure. Companies may use outside legal counsel or an arbitration process when dealing with conflicts relating to external business stakeholders.
Corporate governance usually includes a system of checks and balances. This check and balance system helps executive managers or directors limit the amount of power one individual or group has when making business decisions. Allowing a single individual too much decision-making power can allow an individual to make decisions regarding his personal interests, rather than the company’s interests. Internal business departments may also act the same way if too many decision makers are grouped in one department. While this situation may not be extremely unprofitable or dangerous, it can force the company down a myopic path and subvert the importance of the company’s conceptual framework.