Prentice Hall, Inc. © STRATEGIC MANAGEMENT & BUSINESS POLICY 11 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 2 Corporate Governance

Prentice Hall, Inc. © Corporate Governance

Prentice Hall, Inc. © Corporate Governance The relationship among the board of directors, top management, and shareholders – determining the direction and performance of the corporation

Prentice Hall, Inc. © Corporate Governance Role of Board –Monitor –Evaluate and influence –Initiate and determine

Prentice Hall, Inc. © Board of Directors Continuum

Prentice Hall, Inc. © 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

Prentice Hall, Inc. © Agency Theory Agency Problem – –Objectives of owners & agents in conflict –Difficult for owners to verify agent performance Risk Sharing Problem – –Owners & agents risk assessment in conflict

Prentice Hall, Inc. © Stewardship Theory Executives 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.

Prentice Hall, Inc. © Board of Directors When Outsiders can be considered Insiders –Affiliated Directors –Retired Directors –Family Directors

Prentice Hall, Inc. © Board of Directors Codetermination –The inclusion of a corporation’s employees on its board of directors

Prentice Hall, Inc. © Board of Directors Interlocking Directorates –Direct Interlocking –Indirect Interlocking

Prentice Hall, Inc. © Board of Directors Nominations & Elections –Traditional Approach CEO invitation to membership Shareholders approval in annual proxy statement All nominees usually elected

Prentice Hall, Inc. © Board of Directors Nominations & Elections –Staggered Board Approach Staggered terms of service/election

Prentice Hall, Inc. © Board of Directors Sarbanes-Oxley –Code of Ethics –Audit, Nominating, and Compensation Committees all outside directors

Prentice Hall, Inc. © Board of Directors Organization of the Board –Size Charter & Bylaws Determination

Prentice Hall, Inc. © Board of Directors Corporate Governance –Review & shaping of strategy –Pressure for corporate performance –Demand for executive stock ownership –Outside directors increasing –Impact of Sarbanes-Oxley

Prentice Hall, Inc. © Board of Directors Transformational leaders –Change agents through vision for change

Prentice Hall, Inc. © Board of Directors Successful CEO’s –Strategic vision –Passion for the company –Strong communication –charisma

Prentice Hall, Inc. © Board of Directors Executive Leadership –Strategic vision –Role model

Prentice Hall, Inc. © Board of Directors Executive Leadership –Communication of performance standards –Demonstrates confidence in abilities of followers

Prentice Hall, Inc. © Strategic Management Process Strategic Planning Staff –Supports top management & business units in the strategic planning process

Prentice Hall, Inc. © Strategic Management Process Strategic Planning Staff –Identify & analyze company-wide strategic issues –Generate strategic alternatives

Prentice Hall, Inc. © Strategic Management Process Strategic Planning Staff –Facilitate business units in coordinating activities related to strategic planning process