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CHAPTER 2 Corporate Governance
STRATEGIC MANAGEMENT & BUSINESS POLICY 12TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER Prentice Hall 2006
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Corporate Governance Prentice Hall 2006
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Company Direction Board Management Shareholders Corporate Governance
The relationship among the board of directors, top management, and shareholders determines the direction and performance of the corporation. Board Management Shareholders Determines Company Direction Prentice Hall 2006
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Role of Board Monitor Evaluate and influence Initiate and determine
Corporate Governance Role of Board Monitor Evaluate and influence Initiate and determine Prentice Hall 2006
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Board of Directors Continuum
Prentice Hall 2006
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Members -- Inside directors Outside directors “management directors”
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 2006
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Agency Theory Agency Problem – Risk Sharing Problem –
Objectives of owners & agents in conflict Difficult for owners to verify agent performance Risk Sharing Problem – Owners & agents risk assessment in conflict 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 2006
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When Outsiders can be considered Insiders
Board of Directors When Outsiders can be considered Insiders Affiliated Directors Retired Directors Family Directors Prentice Hall 2006
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Board of Directors Codetermination The inclusion of a corporation’s employees on its board of directors Prentice Hall 2006
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Interlocking Directorates
Board of Directors Interlocking Directorates Direct Interlocking Indirect Interlocking Prentice Hall 2006
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Nominations & Elections
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 Prentice Hall 2006
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Sarbanes-Oxley Code of Ethics
Board of Directors Sarbanes-Oxley Code of Ethics Audit, Nominating, and Compensation Committees all outside directors Prentice Hall 2006
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Organization of the Board
Board of Directors Organization of the Board Size Charter & Bylaws Determination Prentice Hall 2006
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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: Stockholders Employees Management Team Society Best for the: Management Team Stockholders Employees Society Best for the: Society Employees Management Team Stockholders Prentice Hall 2006
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Transformational leaders
Board of Directors Transformational leaders Change agents through vision for change Prentice Hall 2006
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Successful CEOs usually display:
Board of Directors Successful CEOs usually display: Strategic vision Passion for the company Strong communication skills Charisma Prentice Hall 2006
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Executive Leadership Provides strategic vision Serves as a role model
Board of Directors Executive Leadership Provides strategic vision Serves as a role model Clearly communicates performance standards Demonstrates confidence in abilities of followers Prentice Hall 2006
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Strategic Planning Staff
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 Prentice Hall 2006
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