The Internal Environment Including Social Responsibility & Business Ethics
Jan 05, 2016
The Internal Environment
Including Social Responsibility & Business Ethics
Corporate Governance
Defined as the relationship that exists among the board of directors, top management, and shareholders (institutional investors and blockholders) in determining the direction of the organization
Boards of Directors & Corporate Governance
Board ofDirectors
Setting corp strategy, overall direction, mission and vision of firm
Hiring & firing of the CEO
Controlling, monitoring, or supervising Sr Mgmt
Reviewing and approving the use of resources
Caring for the shareholder interests
Boards of Directors & Corporate Governance
Monitor developments inside & outside the firm
Review proposals, advise, offer suggestions, ad alternatives
Delineate the corporation’s mission and specify strategic alternatives
Boards of Directors & Corporate Governance
Board MembersInside Directors
- “Management Directors- Officers or Executives employed by the firm
Outside Directors- “Non-Management Directors”- May be executives of other firms, but not
employed by the board’s corporation
Boards of Directors & Corporate Governance
OutsideBoard Members
“Outsider” is an over simplistic term - some outsiders are not truly objective and could be considered “insiders.”
Affiliated directors Retired directors Family directors
Route to a Sustained Competitive Advantage
HumanResources
OrganizationalResources
PhysicalResources
Sustained Competitive Advantage
Human Resources
Boards of Directors1. Strong board members bring
experience and network contacts2. Is board comprised of internal
or external directors?3. Do board members own
significant shares of company stock?4. Is board membership stable?
Human Resources
Top Management1. Should assume role of selfless
stewards of stakeholder goals2. Job experience, job tenure, and
industry experience3. Top management turnover4. What are top mgmt’s strengths &
weaknesses
Human Resources
Middle Management, Supervisors & Employees
1. Comprehensive HR planning program
2. Training & development programs3. Emphasis on performance
appraisal4. Diversity
Organizational Resources
Are strategies consistent w/org’n mission and goals?
Are corporate, business unit and functional strategies intertwined & consistent?
Is the org’s formal structure appropriate for implementing its strategy?
Are the decision making processes effective for implementing the strategies?
Organizational Resources
Is the organization’s culture or climate consistent with its strategy?
How effective are the org’s strategic control processes?
Physical Resources
Does the org’n possess up-to-date technology?
Does the org’n possess adequate capacity?
Is the org’s distribution network efficient in reaching customers?
Are sources of supply reliable and cost effective?
Is firm in optimum geographic location?
Resource Based Approach
Internal Strategic Factors:
Critical strengths & weaknesses that are likely to determine if the firm will be able to take advantage of opportunities will avoiding threats.
Resource Based Approach
Resource is defined as an asset, competency, process, skill or knowledge that is controlled by the organization.
Evaluating Key Resources
VIRO FrameworkValue - does it provide a comp
advantage?Rareness - do other competitors have it?Imitability - Is it costly for others to
imitate?Organization - is the firm organized to
exploit the resource?
Resource Based Approach
5-step approach to internal analysis and strategy development:
1. Identify & classify a firm’s resources2. Combine & classify strengths into capabilities
3. Appraise the profit potential of resources4. Select a strategy that best exploits a firm’s
resources relative to external opportunities5. Identify resource gaps
Sustainability of an Advantage
Durability:
Rate at which a firm’s underlying resources and capabilities (core competencies) depreciate or become obsolete.
Sustainability of an Advantage
Imitability:
Rate at which a firm’s underlying resources and capabilities (core competencies) can be duplicated by others
Core Competencies
Transparent
Transferable
Replicable
Core Competencies
Explicit Knowledge: knowledge that can be easily articulated and communicated
Tacit Knowledge: knowledge that is not easily communicated b/c it is deeply rooted in employee experience or in a corporation’s culture
What Do These People Have in Common - Which Name Doesn’t
Belong Here?
Kenneth Lay
Bernie Ebbers
Sam Waksal
Dennis Kozlowski
John Rigas
John Walker Lindh
Don Cardy
David Glenn
The Agency Problem
A situation in which a corporation’s top managers who serve as agents for the firm’s owners . . . fail to act in the best interests of the owners, but instead pursue their own self interests.
Managerial Ethics
Refers to the standards of conduct and moral judgement - that is, whether managers’ decisions and behaviors are right or wrong or . . .
(Wright, 1998)The rules and principles that define right
and wrong decisions and behavior(Coulter, 2002)
Managerial Ethics
Go to “the grey zone” located on page 147 and let’s discuss.
Countering the Effects of Unethical Behavior & Agency Problems
Ethical Codes of ConductBeing consistent in policies & actionsRewarding ethical conductTreating employees fairlyExercising executive leadership in
setting a good exampleMcClenahen (1999)
Countering the Effects of Unethical Behavior & Agency Problems
Aligning the interest of both top management and boards of directors with the interests of the individual shareholder by requiring significant stock ownership.
Social Responsibility
Refers to the expectation that organization’s should act in the public interest
preserve the environmentbe truthful to customerstreat employees equitablytrain the hard-core unemployedcontribute to education & the artsrevitalize distressed areas
Social Responsibility
Firms have economic or must do responsibilities
They also have have to do obligationsThirdly, they are expected to perform
ethical or should do tasksLastly, are positioned to perform
volitional, discretionary or might do activities
Carroll (1979)
Social Responsibility
When firm’s don’t operate in a socially responsible manner . . . what happens?