1. Corporate Governance and Social Responsibility
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2. Corporate Governance
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3. Corporate Governance Defined:
Refers to the relationship among the board of directors, top management, and shareholders in determining the direction and performance of the corporation.
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4. Corporate Governance Board of Directors
Setting corporate strategy, overall direction,
mission or vision
Hiring and firing the CEO and top management
Controlling, monitoring, or supervising
top management
Reviewing and approving the use of resources
Caring for shareholder interests
Board of
Directors
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5. Role of the Board in strategic management
Corporate Governance
Role of the Board in strategic management
Monitor
Developments inside and outside the corporation
Evaluate & Influence
Review proposals, advise, provide suggestions and alternatives
Initiate & Determine
Delineate corporation’s mission and specify strategic options
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6. Board of Directors Continuum
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7. Board of Directors Members: Inside directors Outside directors
“Management directors”
Officers or executives employed by corporation
Outside directors
May be executives of other firms but not employed by board’s corporation
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8. Organization of the Board
Board of Directors
Organization of the Board
Size
Determined by charter and bylaws
Average for publicly-held, large firm is 11 directors
Average for small/medium private firms is 7 to 8 directors
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9. Top management responsibilities
Board of Directors
Top management responsibilities
Executive Leadership
Strategic vision
Presents a role of others to identify with and follow
Communicates high performance standards and shows confidence in followers’ abilities
Top management
Responsibilities
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10. Styles of Corporate Governance
High
Entrepreneurship Management
Partnership Management
low
Chaos Management
Marionette Management
Low
Degree of
Involvement
By top
management
Degree of involvement by board of directors
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11. Styles of Corporate Governance
Chaos Management
When both the board of directors and top management have little involvement in the strategic management process.
The board waits for top management to bring it proposals.
Top management is operationally oriented and continues to carry out strategies, policies, and programs specified by the founding entrepreneur who died years ago.
There is no strategic management being done here.
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12. Styles of Corporate Governance
Entrepreneurship Management
A corporation with an uninvolved board of directors but a highly involved top management has entrepreneurship management.
The board is willing to be used as a rubber stamp for top management's decisions.
The CEO, operating alone or with a team, dominates the corporation and its strategic decisions.
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13. Styles of Corporate Governance
Marionette Management
Probably the rarest form of strategic management style,
marionette management occurs when the board of directors is deeply involved in strategic decision making, but top management is primarily concerned with operations.
Such a style evolves when a board is composed of key stockholders who refuse to delegate strategic decision making to the president.
This style also occurs when a board fires a CEO but is slow to find a replacement.
Marionette Management occurred at Winnebago Industries when the company's Board of Directors, chaired by its founder, 72-year-old John K. Hanson, took away Ronald Haugen's title as chief executive officer, but left him as company president.
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14. Styles of Corporate Governance
Partnership Management
Probably the most effective style of strategic management,
partnership management is epitomized\embodied by a highly involved board and top management. The board and top management team work closely to establish the corporate mission, objectives, strategies, and policies.
Board members are active in committee work and utilize strategic audits to provide feedback to top management on its implementations of agreed-upon strategies and policies.
This appears to be the style emerging in a number of successful corporations such as General Electric Company.
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15. Social Responsibility
Broader responsibility:
Private corporation has responsibilities to society that extend beyond making a profit.
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16. Social Responsibility
Friedman’s Traditional View
“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits…”
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17. Social Responsibility
Carroll’s Four Responsibilities
Economic
Legal
Ethical
Discretionary/flexible
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18. Responsibilities of Business
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19. Social Responsibility: Balancing Commitments to Stakeholders
Stakeholders: Groups, individuals, and organizations that are directly affected by the practices of an organization
Employees
Investors
CORPORATION
Customers
Suppliers
Local Communities
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20. Social Responsibility
It refers to the way in which a business tries to balance its commitments to certain groups and individuals in its social environment.
Customers: Treat customers fairly and honestly (Examples of companies with excellent reputations in this area: L.L. Bean, Nordstrom, Dell Computer Corporation)
Employees: Treat employees fairly, with respect for their dignity and basic human needs (Examples of companies with excellent reputations in this area: 3M, Southwest Airlines)
Investors: Manage financial resources honestly and openly
Suppliers: Seek mutually beneficial partnerships
Local Communities: Minimize damage and maximize contributions to local communities
Discussion: Who are the major stakeholders at your school? How does the school prioritize these stakeholders? What are your thoughts about this prioritization?
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21. Reasons for Unethical Behavior
Moral Relativism
Morality is relative to some personal, social or cultural standard and that there is no method for deciding whether one decision is better than another.
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22. Social Responsibility
Code of Ethics:
Specifies how an organization expects its employees to behave while on the job.
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23. What Is Ethical Behavior?
Ethics: Right and wrong, good and bad, in actions that affect others. shaped by personal values and morals
Ethical Behavior: Conforming to generally accepted ethical norms.
Business ethics: Ethical or unethical behaviors of managers and employers of an organization.
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24. Responsibility Toward the Environment
Encompasses three main areas:
Air pollution
Water pollution
Land pollution
Toxic\deadly waste
Recycling
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25. Responsibility Toward Customers
Consumer Rights
Unfair Pricing
Ethics in Advertising
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26. Responsibility Toward Employees
Legal and social commitments: Legally, companies are required to refrain from discrimination against any worker based on race, gender, religion, nationality or other irrelevant factors. Ethically, many people feel that companies should ensure that the workplace is physically and socially safe.
How far should companies extend themselves to help employees who are laid off?
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27. Responsibility Toward Investors
Improper financial management:
Offenses are typically unethical, rather than illegal. Examples include excessive salaries, and lavish\plentiful or frivolous perks\bonus (e.g. regular corporate “retreats” to exotic\interesting island resorts).
Check kiting:
Responsibility towards investors has several components:
Illegal practice of writing checks against money that has not yet arrived at the bank on which it is drawn.
Insider trading:
Illegal practice of using confidential information to gain from the purchase or sale of stocks.
Misrepresentation of finances:
Typically, this takes the form of overly optimistic projections of earnings.
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