Concept 02

Chapter 2
Corporate Governance and Social Responsibility

PowerPoint Slides Anthony F. Chelte Western New England College
Prentice Hall, 2002 Chapter 2 Wheelen/Hunger 1
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.
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
Prentice Hall, 2002
Chapter 2 Wheelen/Hunger
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 corporations mission and specify strategic options
Board of Directors
Members: Inside directors
Management directors Officers or executives employed by corporation
Outside directors
Non-management directors May be executives of other firms but not employed by boards corporation
Board of Directors Continuum

DEGREE OF INVOLVEMENT IN STRATEGIC MANAGEMENT Low (Passive) Phantom Rubber Stamp Permits officers to make all decisions. It votes as the officers recommend on action issues. Minimal Review Formally reviews selected issues that officers bring to its Nominal Participation Involved to a limited degree in the performance or review of selected key decisions, indicators, or programs of management. Active Participation Approves, questions, and makes final decisions on mission, strategy, policies, and objectives. Has active board committees. Performs fiscal and management audits. Catalyst Takes the leading role in establishing and modifying the mission, objectives, strategy, and policies. It has a very active strategy committee.
High (Active)
Never knows what to do, if anything; no degree of involvement.
Prentice Hall, 2002
Agency Theory
Problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation.
Prentice Hall, 2002
Stewardship Theory
Executives tend to be more motivated to act in the best interest of the corporation than their own self-interests. Theory argues that over time, senior executives tend to view the corporation as an extension of themselves.
Board of Directors
Outsider overly simplistic term -Some outsiders are not truly objective and could be considered insiders.
Examples:
Affiliated Directors Retired Directors Family Directors
Chapter 2 Wheelen/Hunger 9
Prentice Hall, 2002
Board of Directors
Membership Trends (Survey, 1999) 75% of boards have at least 1 female director 25% of boards have two female directors 60% of boards have at least one minority member
Board of Directors
Codetermination The inclusion of a corporations workers on its board of directors.
Prentice Hall, 2002
11
Board of Directors
Interlocking Directorates Direct Interlocking Directorate
When two firms share a director or when an executive of one firm sits on the board of a second firm.
Indirect Interlocking Directorate

When two corporations have directors who also serve on the board of a third firm.
Board of Directors
Nominations & Elections
Traditional Approach:
CEO invites members to serve Shareholders approve in annual proxy statement All nominees are usually elected
Board of Directors
Nominations & Elections Staggered Board Approach:
Corporations whose directors serve terms of more than one year, divide the board into classes, and stagger elections so that only a portion of the board stands for election each year.
Prentice Hall, 2002
14
Board of Directors
Nominations & Elections Criteria for Selection
Wiling to challenge management Special expertise Availability for advice and meetings Expertise on global issues Understands key technologies External contacts valuable to the firm Detailed knowledge of industry High visibility in field Accomplished in representing firm to stakeholders
Board of Director Membership
Prentice Hall, 2002
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
Prentice Hall, 2002
16
Board of Directors
Corporate Governance No consistent link between board membership, leadership, structure, and financial performance of firm Investors pay more for a firms stock when positive toward good corporate governance Belief that
Good governance leads to better performance over time Reduces risk of company finding itself in trouble Governance is a major strategic issue
Styles of Corporate Governance

High
Degree of Involvement By Top Management
Entrepreneurship management
Partnership management
Chaos
Marionette
management
Low Low
management
High
Degree of Involvement By Board of Directors

Prentice Hall, 2002
18
Board of Directors
Trends in Corporate Governance Boards more involved in reviewing, evaluating, and shaping strategy Institutional investors active on boards; pressure on CEO for firm performance Shareholders demand directors own more than token amounts of the firms stock Non-affiliated outside directors increasing
Board of Directors
Trends in Corporate Governance Boards becoming smaller Boards taking more control of board functions Corporations becoming more global; international experience needed Societal expectations that boards balance profitability and social responsibility Diversity of board members
Top Management
Responsibilities of Top Management:
Provide executive leadership and a strategic vision
Manage the strategic planning process
Prentice Hall, 2002
21
Top Management
Executive Leadership
The directing of activities toward the accomplishment of corporate objectives. Sets the tone for the entire corporation.
Strategic Vision
A description of what the company is capable of becoming. Often communicated in the mission statement.
Prentice Hall, 2002
22
Top Management
CEO and Clear Strategic Vision Common Characteristics: CEO articulates a strategic vision CEO presents a role for others CEO communicates high performance standards and shows confidence in followers
Strategic Management Process

Strategic Planning Staff -Supports top management and business units in the strategic planning process.
Prentice Hall, 2002
24
Strategic Management Process

Strategic Planning Staff
Responsibilities: Identify and analyze company-wide strategic issues, suggest corporate strategic alternatives Work as facilitators with business units to guide them through the strategic planning process
Social Responsibility
Key question for strategic decision makers:
Should strategic decision makers be responsible only to shareholders or do they have broader responsibilities?
Prentice Hall, 2002
26
Friedmans 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
Prentice Hall, 2002
27
Carrolls Four Responsibilities
Economic Legal Ethical Discretionary
Prentice Hall, 2002
29
Social Responsibility Benefits

Ben & Jerrys
Environmental concerns may enable the firm to charge premium prices and gain brand loyalty Trustworthiness may help generate enduring relationships with suppliers and distributors without spending time and money policing contracts Can attract outstanding employees who prefer working for a responsible firm More likely to be welcomed into a foreign country
Maytag Procter & Gamble
Levi Strauss
Prentice Hall, 2002
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.
Kohlbergs Levels of Moral Development Preconventional Level
Concern for self
Conventional Level
Consideration of laws and norms
Principled Level
Adherence to internal moral code
Code of Ethics:
Specifies how an organization expects its employees to behave while on the job.
Prentice Hall, 2002
33
Ethics
The consensually accepted standards of behavior for an occupation, trade, or profession
Morality
The precepts of personal behavior based on religious or philosophical grounds
Law
Formal codes that permit or forbid certain behaviors
Approaches to Ethical Behavior Utilitarian Actions and plans judged by consequences Individual Rights People have fundamental rights to be respected in all decisions Justice Distribution of costs and benefits to be equitable, fair, and impartial
Prentice Hall, 2002
35
Impact of the Internet
Issues
Cybersquatting Taxation Public Interest
Prentice Hall, 2002

Concept 02

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Concept 02

Uploaded by

Copyright:

Available Formats

Chapter 2

Corporate Governance and Social Responsibility

Prentice Hall, 2002

Evaluate & Influence

Initiate & Determine

Board of Directors Continuum

Never knows what to do, if anything; no degree of involvement.

Prentice Hall, 2002

Prentice Hall, 2002

Prentice Hall, 2002

Codetermination The inclusion of a corporations workers on its board of directors.

Prentice Hall, 2002

Indirect Interlocking Directorate

Prentice Hall, 2002

Board of Director Membership

Prentice Hall, 2002

Prentice Hall, 2002

Styles of Corporate Governance

Degree of Involvement By Top Management

Degree of Involvement By Board of Directors

Prentice Hall, 2002

Provide executive leadership and a strategic vision

Manage the strategic planning process

Prentice Hall, 2002

Prentice Hall, 2002

Strategic Management Process

Prentice Hall, 2002

Strategic Management Process

Prentice Hall, 2002

Prentice Hall, 2002

Prentice Hall, 2002

Social Responsibility Benefits

Maytag Procter & Gamble

Prentice Hall, 2002

Prentice Hall, 2002

Prentice Hall, 2002

You might also like