Strategic Control and Corporate Governance

Chapter Nine

McGraw-Hill/Irwin

Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Strategic Control
Strategic control
the process of monitoring and correcting a firms strategy and performance Informational, behavioral

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Ensuring Informational Control

Traditional control system
1. strategies are formulated and top management sets goals 2. strategies are implemented 3. performance is measured against the predetermined goal set

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Traditional Approach to Strategic Control

Most appropriate when
Environment is stable and relatively simple Goals and objectives can be measured with certainty Little need for complex measures of performance

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Contemporary Approach to Strategic Control

Contemporary control system
Continually monitoring the environments (internal and external) Identifying trends and events that signal the need to revise strategies, goals and objectives

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Contemporary Approach to Strategic Control

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Building a Strong and Effective Culture

Organizational culture
a system of shared values and beliefs that shape a companys people, organizational structures, and control systems to produce behavioral norms.

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Characteristics of Effective Reward and Evaluation Systems

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Evolving from Boundaries to Rewards and Culture

System of rewards and incentives coupled with a strong culture
Hire the right people Training plays a key role Managerial role models are vital Reward systems clearly aligned with organizational goals and objectives

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Role of Corporate Governance

Corporate governance
the relationship among various participants in determining the direction and performance of corporations. primary participants are the shareholders, the management, and the board of directors.

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The Modern Corporation

Corporation
A mechanism created to allow different parties to contribute capital, expertise, and labor for the maximum benefit of each party.

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Governance Mechanisms
Board of directors
a group that has a fiduciary duty to ensure that the company is run consistently with the long-term interests of the owners, or shareholders, of a corporation and that acts as an intermediary between the shareholders and management.

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Governance Mechanisms
Shareholder activism
actions by large shareholders, both institutions and individuals, to protect their interests when they feel that managerial actions diverge from shareholder value maximization.

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External Governance Control Mechanisms

External governance control mechanisms
methods that ensure that managerial actions lead to shareholder value maximization and do not harm other stakeholder groups and that are outside the control of the corporate governance system.

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External Governance Control Mechanisms

Market for corporate control Auditors Banks and analysts Regulatory bodies Media and public activists

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