1. Strategic Control & Governance Chapter 9 Built by Stambaugh/2005 Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln Jeff Stambaugh Dillard College of Business/Rm 257A jeff.stambaugh@mwsu.edu http://faculty.mwsu.edu/business/jeff.stambaugh

2. Objectives Built by Stambaugh/2005 ■ Understand Traditional & Contemporary approaches to corporate control ■ Understand triad of: culture, rewards, and boundaries ■ Know basic roles of boards of directors ■ Understand basic governance mechanisms Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

3. Traditional and Contemporary View of Strategic Control Built by Stambaugh/2005 Adapted from Exhibits 9.1 and 9.2 Dess, et al 2007 Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

4. Informational Control Built by Stambaugh/2005 ■ Key Question: Does our strategy/goals still fit? ■ Attributes of good control systems ■ Focus on info having potential strategic impact ■ Important enough to demand attention from all ■ Best interpreted and discussed face-to-face ■ Catalyst for debate Information on the questions that keep you awake at night Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

5. Double-Loop Learning Built by Stambaugh/2005 McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. StrategiesAssumptionsPremisesGoals The Firm’s Continuously Monitor Test Review Contemporary Control System Update and challenge the assumptions Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

6. Triad of Behavioral Control Built by Stambaugh/2005 Non-stop process Fair and equitable Focus efforts on priorities Short-term obj / action plans Improve Operational Efficiency / Effectiveness Minimize bad conduct Adapted from Exhibit 9.3 Essential Elements of Strategic Control Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

7. Speaking of Rewards Built by Stambaugh/2005 ■ Effective reward systems: ■ Clear / accepted objectives w/ rewards linked to performance ■ Clear / prompt feedback ■ Flexible ■ Performance rewards work best when: ■ Need for interdependence is low / want competition ■ Tight cost controls ■ Performance is easily (and accurately) measured ■ Behavioral awards work best when ■ Need for interdependence is high ■ Strong culture Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

8. Pros and Cons of Each Built by Stambaugh/2005 Culture: a system of unwritten rules that form an internalized influence over behavior. ApproachSome Situational Factors  Often found in professional organizations  Associated with high autonomy  Norms are the basis for behavior Rules: Written and explicit guidelines that provide external constraints on behavior.  Associated with standardized output  Tasks are generally repetitive and routine  Little need for innovation or creative activity Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

9. Pros and Cons of Each Built by Stambaugh/2005 Rewards: The use of performance-based incentive systems to motivate. ApproachSome Situational Factors  Measurement of output and performance is rather straightforward  Most appropriate in organizations pursuing unrelated diversification strategies  Rewards may be used to reinforce other means of control Adapted from Exhibit 9.5 Organizational Control: Alternative Approaches Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

10. Corporate Governance Built by Stambaugh/2005 MANAGEMENT ■ Run the company ■ Limited Investments BOARD ■ Elected by Shareholder ■ Responsible to Shareholders ■ Limited Liability ■ Reap Profits ■ Limited Involvement SHAREHOLDERS Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

11. Planning the Business Trip Built by Stambaugh/2005 Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

12. Agency Issues Built by Stambaugh/2005 ■ What if Principals (owners / shareholders) differ from Agents (management) on: ■ Goals? (and it is hard to verify what managers are actually doing) ■ Risk Key is to align interests and then monitor: mission of Board and Activist Shareholders Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

13. Role of Boards Built by Stambaugh/2005 ■ Monitor Management ■ CEO tenure and pay / incentives ■ Approve major strategies, objectives, and plans ■ Insure Compliance ■ Provide Advice and Counsel ■ Provide “Resources” (especially for start-ups) Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

14. Good Boards Built by Stambaugh/2005 ■ Active participants ■ Independent (meaning only a few are company officers or tied to the CEO) ■ Own a good chunk of company’s stock ■ What are the issues with the above and SARBOX? ■ Should the Board Chairman and CEO be the same person? Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

15. Other Control Mechanisms Built by Stambaugh/2005 ■ Activist shareholders / institutional investors ■ Mutual funds / retirement funds / private equity ■ Pay for performance ■ Unsolicited takeovers (throw the bums out) ■ Auditors ■ Banks / Analysts ■ Regulators (SEC) ■ Media / Public activists Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

16. Boards and CEOs Built by Stambaugh/2005 ■ CEO firings ■ Board responsibilities ■ CEO pay Immelt Waxman Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln

17. Summary Built by Stambaugh/2005 ■ Traditional vs Contemporary Strategic Control ■ Informational and Behavioral … values, rewards, boundaries ■ Corporate Governance Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln