2-1 STRATEGIC MANAGEMENT & BUSINESS POLICY 12 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 2 Corporate Governance.

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STRATEGIC MANAGEMENT & BUSINESS POLICY12TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 2 Corporate Governance

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Corporate Governance

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Corporate Governance

The relationship among the board of directors, top management, and shareholders determines the direction and performance of the corporation.

Board

Management Shareholders

DeterminesCompanyDirection

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Corporate Governance

Role of Board

–Monitor

–Evaluate and influence

– Initiate and determine

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Board of Directors Continuum

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Board of Directors

Members --

– Inside directors• “management directors”• Officers or execs employed by the firm

–Outside directors• “non-management directors”• Execs of other firms not employed by the

board’s corporation

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Agency Theory

Agency TheoryAgency Problem –

–Objectives of owners & agents in conflict–Difficult for owners to verify agent performance

Risk Sharing Problem ––Owners & agents risk assessment in conflict

Stewardship TheoryExecutives more motivated to act in best interest of the corporation than their own self-interests. Theory that over time, senior executives tend to view corporation as extension of selves.

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Board of Directors

When Outsiders can be considered Insiders

–Affiliated Directors–Retired Directors–Family Directors

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Board of Directors

Codetermination

–The inclusion of a corporation’s employees on its board of directors

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Board of Directors

Interlocking Directorates

–Direct Interlocking

– Indirect Interlocking

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Board of Directors

Nominations & Elections

–Traditional Approach• CEO invitation to membership• Shareholders approval in annual proxy statement• All nominees usually elected

–Staggered Board Approach• Staggered terms of service/election

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Board of Directors

Sarbanes-Oxley

–Code of Ethics

–Audit, Nominating, and Compensation Committees all outside directors

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Board of Directors

Organization of the Board

–Size

• Charter & Bylaws Determination

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Board of Directors

A Board of Directors job is to provide corporate governance

–Review & shaping of strategy–Pressure for corporate performance–Demand for executive stock ownership–Outside directors increasing– Impact of Sarbanes-Oxley

On behalf of:

Best for the:1. Stockholders2. Employees3. Management Team4. Society

Best for the:1. Management Team2. Stockholders3. Employees4. Society

Best for the:1. Society2. Employees3. Management Team4. Stockholders

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Board of Directors

Transformational leaders

–Change agents through vision for change

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Board of Directors

Successful CEOs usually display:

• Strategic vision• Passion for the company• Strong communication skills• Charisma

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Board of Directors

Executive Leadership

– Provides strategic vision– Serves as a role model–Clearly communicates performance standards–Demonstrates confidence in abilities of followers

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Strategic Management Process

Strategic Planning Staff

• Identifies & analyzes company-wide strategic issues

• Gathers outside information and viewpoints

• Generates strategic alternatives• Supports top management & business units in

the strategic planning process

• Facilitates business units in coordinating activities related to strategic planning process