**2. The global business scenario in retrospect**

Business strategies around long-run investment and profits have varied over time. In the context of the post Second World War it was widely spread that for a firm's long term sustainability and profitability it was necessary to invest in long term expansion and to improve workers' relative wages. This was also a "golden age" for workers' rights and organization practices. Indeed, Lazonick and O'Sullivan have described this business trend as a strategy of 'retain and reinvest' where profits were retained by the company and reinvested into productive capacity [7, 8].

However, this scenario began to change during the 1970s and 1980s. The new phase of financial dominance was concomitant with the reconfiguration of the international monetary system under the dollar supremacy after the 1980s that fostered the processes of globalization and financial deregulation. As a result, the historical changes in business have been related to qualitative transformations in capital accumulation and competition. The changing practices on corporate finance fostered the growth of the participation of institutional investors, such as pension funds or private equity firms, in business management as relevant shareholders. As a result, there was a change from reinvestment towards a strategy of maximizing short-term value for shareholders. The drive to increase the share-holders' value and the incorporation of the managerial strata through share options tended to postpone long-term investments. In addition, these practices favored mergers and acquisitions and fostered financial speculation. As a matter of fact, the financial conception of investment increased in the context where financial innovations aimed to achieve fast growth with lower capital requirements to improve short-term results [9].

In fact, the centralization of capital, through waves of mergers and acquisitions, created new challenges to business stability. In this scenario, the economic and social outcomes have involved a trend to 'downsize and distribute', that is to say, a trend to restructure, reduce costs and focus on short- term gains. In practice this has meant plants displacement and closures, changing employment and labour conditions, outsourcing jobs, besides the pressure on supply chain producers in the global markets. The costs fall disproportionately on labour because the new priorities of shareholder value limit the social responsibility of firms.

Changes in corporate governance and power relations have happened in the context of financial liberalization. There is no doubt that since 1970s the process of financial deregulation and financialization has radically changed the way banks, non-banks and non-financial institutions work and interact with the real economy. Within this setting, the evolution of central banks' policies and private strategies has influenced the dimension and composition of the balance sheets of the different sectors of the economy. Among the main features:


Market deregulation has been associated to great transformations in the models of economic growth. While some countries have presented a consumption-driven growth model fueled by credit, generally followed by current account deficits, other countries have shown an export-driven growth model, mainly characterized by modest consumption growth and large current account surpluses. In spite of the coexistence of different growth models, the financial-led accumulation regime has presented some distinctive features:


In short, the financial markets have not only grown in size but also mutate the composition: the changing role of the traditional banking system and the expansion of shadow banking since investment funds have become the main features of current financial systems. The evaporation of the traditional distinction between bank-centred and market-centered financial institutional set ups imposed by the post-World War II tight regulation of the financial system has imposed new analytical challenges. Accordingly the Çelik and Isaksson [10], the current investment chain is complex due to cross-investments among institutional investors, increased complexity in equity market structure and trade practices, and an increase in outsourcing of ownership and asset management functions. In addition, ownership engagement plays an important role for effective capital allocation and the informed monitoring of corporate performance.

The expansion of financial accumulation has increased the wealth and power of the owners of capital whose assets are embodied in securities, bonds, shares, etc. Meanwhile, financial firms have increasingly dominated firm groups. Considering the evolution of the business models since the 1990s, the corporations' strategies turned out to focus on short-term gains and the distribution of dividends to shareholders, that is to say, to investors. In other words, the business model of the large enterprises could be apprehended as a form of governance that aims increasing short-term earnings by means of a "clash of rationalization". In this context, managers have stimulated the re-composition of tasks, labour turnover, the dismissal of workers, in addition to outsourcing. Therefore, competitiveness and productivity have been put together in the attempt to promote higher business performance. As a result, not only operational strategies in production (suppliers, labor, etc.) but also marketing and commercialization strategies (logistics, mark-up, market share, customer relationship, etc.) have been relevant to face the productivity challenges and efficiency targets.

In the private equity business model, managers are designated to monitor the private equity funds' portfolio companies on their behalf. Private equity funds belong to complex landscape of institutional investors that could be bifurcated as traditional (i.e., pension funds, investment funds including mutual funds, and insurance companies) and alternative (i.e., sovereign wealth funds, private equity, hedge funds). Jensen [11] found that takeovers, leveraged buyouts and other goingprivate transactions, like the private equity forms, are manifestations of the emergence of new organizations where resources could be managed more effectively than in public corporations. Once a target is selected, the fund acquires a controlling interest in that portfolio company with the general partners directing the company's business and affecting policy at the company level. Jensen's perspective highlights that private equity firms improve performance of their portfolio companies after the takeovers. Given higher levels of debt, managers have to increase operational returns in order to focus on regular payments to debtholders. Secondly, the monitoring role of the private equity firms could exert pressure on underperforming managers in order to achieve the targeted goals.

Within the private equity institutional set up, investors and managers do not assume an irrevocable commitment with the business they own [12]. In the last decades, the burgeoning emphasis on short-term performance, and the move to portfolio managers had a profound impact on mutual fund investment investors' strategies, most obviously in soaring portfolio turnover. Private equity funds reveal the power of centralized money to define investment flows and threaten the stability of a modern economy of production. In a private equity firms´ portfolio, a company acquisition (investment buyout) is equivalent to an addition to a stock of financial assets and the investment buyout demand is generated by expectations on the extraction of short-run cash-flows, mainly anticipated dividends and non– equity based fees. Besides the payment of no –equity based fees, a higher debt ratio to improve short-term cash flows could increase the private equity firms´ investment returns before selling the portfolio companies three to five years later, either publicly or to another investor. Among the private equity strategies, the exit ones become crucial in the investment (buyout) decision because the search for liquidity shortens the maturation of investments. The target is to sell the companies three to five years later after the takeover, either publicly or to other private investors. Although these institutions hold illiquid assets (companies), managers are used to continuously re-evaluate the portfolio assets. In short, after the 1970s, the reorganization of the markets at the global level has been overwhelmed by the financial logic of investment in a setting characterized by expansion of credit, capital markets' operations and institutional investors.

The new trend towards corporate diplomacy puts in question the dominance of a business culture based on short-term profits. Indeed, the shift towards a corporate diplomacy business model aims to manage potential conflicts between stakeholders, that is to say, the potential tensions between short term and long term business strategies.

#### **3. New commitments in global business**

The challenges—and risks—in this transition to a business model focused ion stakeholders are enormous. For many of the companies this will require a redefinition of policies, strategies, revenue streams, products and services. These trends suggest new concerns on market competition and global trade. Indeed, the global network of interactions between shareholders and stakeholders has potentially wide and indirect influence on the evolution of the global future of investment,
