CHAPTER 2

Corporate
Governance

STRATEGIC MANAGEMENT & BUSINESS POLICY

10TH EDITION
THOMAS L. WHEELEN

Prentice Hall, Inc. 2006

J. DAVID HUNGER

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Corporate Governance

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Corporate Governance

The relationship among the board of

directors, top management, and
shareholders determining the direction
and performance of the corporation

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Corporate Governance

Role of Board
Monitor
Evaluate and influence
Initiate and determine

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Board of Directors Continuum

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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
boards corporation

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Agency Theory

Agency Problem
Objectives of owners & agents in conflict
Difficult for owners to verify agent performance

Risk Sharing Problem

Owners & agents risk assessment in conflict

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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.

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Board of Directors

When Outsiders can be considered Insiders

Affiliated Directors
Retired Directors
Family Directors

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Board of Directors

Codetermination
The inclusion of a corporations employees on its
board of directors

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Board of Directors

Interlocking Directorates
Direct Interlocking
Indirect Interlocking

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Board of Directors

Nominations & Elections

Traditional Approach
CEO invitation to membership
Shareholders approval in annual proxy statement
All nominees usually elected

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Board of Directors

Nominations & Elections

Staggered Board Approach
Staggered terms of service/election

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Board of Directors

Sarbanes-Oxley
Code of Ethics
Audit, Nominating, and Compensation
Committees all outside directors

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Board of Directors

Organization of the Board

Size
Charter & Bylaws Determination

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Board of Directors

Corporate Governance
Review & shaping of strategy
Pressure for corporate performance
Demand for executive stock ownership
Outside directors increasing
Impact of Sarbanes-Oxley

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Board of Directors

Transformational leaders
Change agents through vision for change

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Board of Directors

Successful CEOs
Strategic vision
Passion for the company
Strong communication
charisma

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Board of Directors

Executive Leadership
Strategic vision
Role model

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Board of Directors

Executive Leadership
Communication of performance standards
Demonstrates confidence in abilities of followers

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Strategic Management Process

Strategic Planning Staff

Supports top management & business units in
the strategic planning process

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Strategic Management Process

Strategic Planning Staff

Identify & analyze company-wide strategic issues
Generate strategic alternatives

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Strategic Management Process

Strategic Planning Staff

Facilitate business units in coordinating activities
related to strategic planning process

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