Professional Documents
Culture Documents
Corporate Governance
Defined: Refers to the relationship among the board of directors, top management, and shareholders in determining the direction and performance of the corporation.
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Corporate Governance
Setting corporate strategy, overall direction, mission or vision Hiring and firing the CEO and top management Controlling, monitoring, or supervising top management Reviewing and approving the use of resources Caring for shareholder interests
Board of Directors
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Corporate Governance
Role of the Board in strategic management
Monitor
Developments inside and outside the corporation
Board of Directors
Members: Inside directors
Management directors Officers or executives employed by corporation
Outside directors
Non-management directors May be executives of other firms but not employed by boards corporation
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High (Active)
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Agency Theory
Problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation.
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Stewardship Theory
Executives tend to be more motivated to act in the best interest of the corporation than their own self-interests. Theory argues that over time, senior executives tend to view the corporation as an extension of themselves.
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Board of Directors
Outsider overly simplistic term -Some outsiders are not truly objective and could be considered insiders.
Examples:
Affiliated Directors Retired Directors Family Directors
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Board of Directors
Membership Trends (Survey, 1999) 75% of boards have at least 1 female director 25% of boards have two female directors 60% of boards have at least one minority member
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Board of Directors
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Board of Directors
Interlocking Directorates Direct Interlocking Directorate
When two firms share a director or when an executive of one firm sits on the board of a second firm.
Board of Directors
Nominations & Elections
Traditional Approach:
CEO invites members to serve Shareholders approve in annual proxy statement All nominees are usually elected
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Board of Directors
Nominations & Elections Staggered Board Approach:
Corporations whose directors serve terms of more than one year, divide the board into classes, and stagger elections so that only a portion of the board stands for election each year.
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Board of Directors
Nominations & Elections Criteria for Selection
Wiling to challenge management Special expertise Availability for advice and meetings Expertise on global issues Understands key technologies External contacts valuable to the firm Detailed knowledge of industry High visibility in field Accomplished in representing firm to stakeholders
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Board of Directors
Organization of the Board
Size
Determined by charter and bylaws Average for publicly-held, large firm is 11 directors Average for small/medium private firms is 7 to 8 directors
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Board of Directors
Corporate Governance No consistent link between board membership, leadership, structure, and financial performance of firm Investors pay more for a firms stock when positive toward good corporate governance Belief that
Good governance leads to better performance over time Reduces risk of company finding itself in trouble Governance is a major strategic issue
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Entrepreneurship management
Partnership management
Chaos
Marionette
management
Low Low
management
High
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Board of Directors
Trends in Corporate Governance Boards more involved in reviewing, evaluating, and shaping strategy Institutional investors active on boards; pressure on CEO for firm performance Shareholders demand directors own more than token amounts of the firms stock Non-affiliated outside directors increasing
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Board of Directors
Trends in Corporate Governance Boards becoming smaller Boards taking more control of board functions Corporations becoming more global; international experience needed Societal expectations that boards balance profitability and social responsibility Diversity of board members
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Top Management
Responsibilities of Top Management:
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Top Management
Executive Leadership
The directing of activities toward the accomplishment of corporate objectives. Sets the tone for the entire corporation.
Strategic Vision
A description of what the company is capable of becoming. Often communicated in the mission statement.
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Top Management
CEO and Clear Strategic Vision Common Characteristics: CEO articulates a strategic vision CEO presents a role for others CEO communicates high performance standards and shows confidence in followers
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Responsibilities: Identify and analyze company-wide strategic issues, suggest corporate strategic alternatives Work as facilitators with business units to guide them through the strategic planning process
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Social Responsibility
Key question for strategic decision makers:
Should strategic decision makers be responsible only to shareholders or do they have broader responsibilities?
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Social Responsibility
Friedmans Traditional View
There is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits
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Social Responsibility
Carrolls Four Responsibilities
Economic Legal Ethical Discretionary
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Social Responsibility
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Levi Strauss
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Social Responsibility
Moral Relativism
Morality is relative to some personal, social or cultural standard and that there is no method for deciding whether one decision is better than another.
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Social Responsibility
Kohlbergs Levels of Moral Development Preconventional Level
Concern for self
Conventional Level
Consideration of laws and norms
Principled Level
Adherence to internal moral code
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Social Responsibility
Code of Ethics:
Specifies how an organization expects its employees to behave while on the job.
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Social Responsibility
Ethics
The consensually accepted standards of behavior for an occupation, trade, or profession
Morality
The precepts of personal behavior based on religious or philosophical grounds
Law
Formal codes that permit or forbid certain behaviors
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Social Responsibility
Approaches to Ethical Behavior Utilitarian Actions and plans judged by consequences Individual Rights People have fundamental rights to be respected in all decisions Justice Distribution of costs and benefits to be equitable, fair, and impartial
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Social Responsibility
Impact of the Internet
Issues
Cybersquatting Taxation Public Interest
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