1. 12 CHAPTER McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Corporate Governance, Business Ethics, and Strategic Leadership Instructor: Dr.Gehan Shanmuganathan

2. 12-2 LO 12-1 Describe and evaluate the relationship between strategic management and the role of business in society. LO 12-2 Conduct a stakeholder impact analysis. LO 12-3 Critically evaluate the relationship between corporate social performance (CSR) and competitive advantage. LO 12-4 Describe the role of corporate governance and evaluate different governance mechanisms. LO 12-5 Describe and evaluate the relationship between business strategy and ethics. LO 12-6 Describe the different roles that strategic leaders play and how to become a strategic leader.

3. ChapterCase 12 HP’s CEO Mark Hurd Resigns amid Ethics Scandal Mark HurdMark Hurd  CEO of HP after Carly Fiorina  Low profile, no-nonsense, strategy execution forte Highly successful Highly successful  Increasing market shares for computers and printers  Stock rose 110% (well above that of NASDAQ) 2010 sexual harassment scandal2010 sexual harassment scandal  Forced to resign  With $45 million severance package 12-3

4. Strategic Management and the Role of Business in Society Public stock company is the backbone of our economyPublic stock company is the backbone of our economy Four characteristics of public firmsFour characteristics of public firms  Limited liability for investors  Transferability of investor interest  Legal personality  Separation of ownership and control 12-4

5. EXHIBIT 12.2 Honesty and Ethics Ranking of Different Professions “How would you rate the honesty and ethical standards of people in different fields?” Only 15% of “high” executives 12-5

6. Stakeholder Strategy Stakeholder theoryStakeholder theory  How a wide variety of stakeholders interact to jointly create and trade value  Effective management of these relationships builds competitive advantage Why have stakeholder management?Why have stakeholder management?  More cooperative and better information  Increased trust lowers costs  Greater flexibility and adaptability  Reduced risk  Stronger reputation 12-6

7. EXHIBIT 12.3 Stakeholder Impact Analysis 12-7

8. Corporate Social Responsibility Milton Friedman circa 1962:Milton Friedman circa 1962:  “the only social responsibility of business is … to increase profits so long as it stays within the rules of the game” Today’s businesses tend to do more than just make profitsToday’s businesses tend to do more than just make profits  But does CSR help build competitive advantage?  The answer might depend on where you do business…  UAE, Japan, and India are less interested in CSR  China, Brazil, and Germany are more interested in CSR 12-8

9. Corporate Governance Corporate governance   Mechanisms to direct and control a firm   Ensure the pursuit of strategic goal   Address the principal–agent problem When corporate governance failed   Accounting scandal   Global financial crisis   Bernard Madoff  Ponzi scheme Information asymmetry   Insider information  ImClone and Galleon Group 12-9

10. 1–10 STRATEGY HIGHLIGHT 12.1 GE’s Board of Directors Diversity of GE’s board of directors (17 members)Diversity of GE’s board of directors (17 members)  Business, academia, politicians  4 women, 2 ethnic minorities  15 board members are independent outside directors  Less likely to fall victim to groupthink  Organized into committees to function The separation of CEO/Board Chair dualityThe separation of CEO/Board Chair duality  Due to recent global financial crisis 12-10

11. Corporate Governance Around the World Difference in national institutions and culture “Free” market economies?   State-directed capitalism (less freedom). Ex: China   Free market capitalism (more freedom). Ex: U.S. Germany   Stakeholder capitalism   Kurzarbeit France   Stakeholder capitalism China   State-owned enterprises 12-11

12. Strategy and Business Ethics Business ethicsBusiness ethics  Agreed-upon code of conduct in business Legal conduct vs. Ethical conductLegal conduct vs. Ethical conduct  Legal, but may not be ethical  Mortgage brokers selling “option ARMs”  Ethical, but may not be legal  Pharmaceutical firms discussing pricing to increase affordability When facing an ethical dilemmaWhen facing an ethical dilemma  Whether the actions fall in acceptable norms of professional behavior?  Do you feel comfortable explaining and defending the decision in public? 12-12

13. Strategic Leadership Strategic leadership   Behaviors and styles of executives that influence others Managerial discretion   Steve Jobs at Apple   Michael Dell at Dell   Mark Zuckerberg at Facebook   Bill Gates at Microsoft 12-13

14. EXHIBIT 12.8 Strategic Leaders: The Level 5 Pyramid 12-14

15. CHAPTERCASE 12/ Consider This… Larry Ellison (CEO at Oracle) hired Mark HurdLarry Ellison (CEO at Oracle) hired Mark Hurd  Oracle stock price rose by $10 billion!  Remember HP stock went down $10 billion… HP hired Leo Apotheker as CEO in Nov. 2010HP hired Leo Apotheker as CEO in Nov. 2010  Came from German firm SAP (enterprise software)  Announced exit from (consumer) hardware market (PCs, tablets), which is about 40% of HP's total revenues of roughly $100bn  Stock price dropped ~40% HP fired Mr. Apotheker 11 months later! (with more than $20 million+ golden parachute)HP fired Mr. Apotheker 11 months later! (with more than $20 million+ golden parachute) In September 2011, Meg Whitman was appointed HP CEOIn September 2011, Meg Whitman was appointed HP CEO 12-15