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    Corporate Governance: Strategic Management & Business Policy

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    The document discusses the roles and responsibilities of corporate boards of directors and top management. It covers topics such as defining corporate governance, the duties of boards in setting strategy and overseeing management, and trends toward increasing board independence and accountability. Case studies are provided on issues like excessive CEO compensation at Tyco and the impact of the Sarbanes-Oxley Act on reforming board practices.

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    Corporate Governance: Strategic Management & Business Policy

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    The document discusses the roles and responsibilities of corporate boards of directors and top management. It covers topics such as defining corporate governance, the duties of boards in setting strategy and overseeing management, and trends toward increasing board independence and accountability. Case studies are provided on issues like excessive CEO compensation at Tyco and the impact of the Sarbanes-Oxley Act on reforming board practices.

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    The document discusses the roles and responsibilities of corporate boards of directors and top management. It covers topics such as defining corporate governance, the duties of boards in setting strategy and overseeing management, and trends toward increasing board independence and accountability. Case studies are provided on issues like excessive CEO compensation at Tyco and the impact of the Sarbanes-Oxley Act on reforming board practices.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    13 views26 pages

    Corporate Governance: Strategic Management & Business Policy

    Uploaded by

    Hapsari
    The document discusses the roles and responsibilities of corporate boards of directors and top management. It covers topics such as defining corporate governance, the duties of boards in setting strategy and overseeing management, and trends toward increasing board independence and accountability. Case studies are provided on issues like excessive CEO compensation at Tyco and the impact of the Sarbanes-Oxley Act on reforming board practices.

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    of 26

    CHAPTER 2

    Corporate
    Governance

    STRATEGIC MANAGEMENT & BUSINESS POLICY


    10TH EDITION
    THOMAS L. WHEELEN J. DAVID HUNGER

    Prentice Hall, Inc. 2006 2-1


    Corporate Governance

    Prentice Hall, Inc. 2006 2-2


    Corporate Governance

    Corporation
    A mechanism established to allow different parties to
    contribute expertise and labor for their mutual
    benefit

    Corporate Governance
    The relationship among the board of directors, top
    management, and shareholders determining the
    direction and performance of the corporation

    Prentice Hall, Inc. 2006 2-3


    Corporate Governance

    Tyco International Ltd.


    Operates in 100 countries, Revenues of $36 B
    Dennis Kozlowski (1975 2002)
    CEO 1995 Credited with rapid worldwide expansion
    Compensation
    1996 $8.8MM
    1999 $136.1MM
    Company Loans for $$MM
    Treated Company as his own
    Wife B-Day Party $2.1 MM
    Shower Curtain $6 K
    Dog Umbrella Stand $15K
    Apartment $16.8MM

    Board of Directors
    Members granted large loans
    Many conflicts of interest
    Many former company executives
    Regularly bypassed in the decision process
    Prentice Hall, Inc. 2006 2-4
    Corporate Governance

    BOD Responsibilities
    (200 Directors from 8 countries)
    Setting strategy and overall direction, mission or vision
    Hiring firing CEO and top management
    Controlling, monitoring or supervising top management
    Reviewing and approving use of resources
    Caring for Shareholder interests

    (CEOs surveyed)
    Corporate performance
    CEO Succession
    Strategic planning
    Corporate governance

    Prentice Hall, Inc. 2006 2-5


    Corporate Governance

    Role of Board in Strategic Management

    Monitor

    Evaluate and influence

    Initiate and determine

    Prentice Hall, Inc. 2006 2-6


    Board of Directors Continuum

    Small Entrepreneur Large Public

    Prentice Hall, Inc. 2006 2-7


    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
    80% of members in large publicly held firms
    19% in privately held firms

    Prentice Hall, Inc. 2006 2-8


    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

    Prentice Hall, Inc. 2006 2-9


    Stewardship Theory

    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, Inc. 2006 2-10


    Agency Theory versus Stewardship Theory

    Stewardship
    Self
    Actualization

    Esteem

    Socialization
    Agency Theory

    Safety

    Physiological

    Prentice Hall, Inc. 2006 2-11


    Board of Directors

    When Outsiders can be considered Insiders

    Affiliated Directors
    Conflict of interests
    Retired Directors
    Former CEOs- Objectivity?
    Family Directors
    Descendents with significant blocks of stock

    Prentice Hall, Inc. 2006 2-12


    Board of Directors

    Codetermination

    The inclusion of a corporations employees on its


    board of directors
    More popular in Europe
    With or without ownership

    Prentice Hall, Inc. 2006 2-13


    Board of Directors

    Interlocking Directorates

    Direct Interlocking
    Shared director or exchanged seats

    Indirect Interlocking
    Two corporations have directors that serve on
    the board of a 3rd firm

    Prentice Hall, Inc. 2006 2-14


    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

    Annual Elections
    Opportunity for hostile takeover
    Increased shareholder control

    Prentice Hall, Inc. 2006 2-15


    Board of Directors

    Criteria for a good Director


    Willing to challenge management
    Has special expertise
    Available outside of meetings
    Expertise on global business issues
    Understands key firms technologies
    Brings valuable external contacts
    Knowledge of firms industry
    High visibility in their field
    Accomplished in representing the firm to
    stakeholders

    Prentice Hall, Inc. 2006 2-16


    Board of Directors

    Sarbanes-Oxley
    Key elements
    All audit committee members must be outside directors and
    receive no additional fee
    Board no longer grants loans to officers
    Formal procedures for whistle blowers
    CEO and CFO must certify all financial info.
    Internal and external auditors may not be from the same firm
    Must identify if there is a member of the audit committee with
    financial expertise

    Code of Ethics for CEO and CFO must be disclosed

    Members of the Audit, Nominating, and Compensation


    Committees must all be outside directors

    Prentice Hall, Inc. 2006 2-17


    Board of Directors

    Organization of the Board

    Size
    Charter & Bylaws Determination
    States may set minimums
    Large Publicly held 11
    SME Privately held 7 or 8
    Family owned - 4

    Prentice Hall, Inc. 2006 2-18


    Board of Directors

    Corporate Governance Trends

    Review & shaping of strategy active participation


    Pressure for corporate performance from
    shareholders and institutional investors
    Demand for executive/director stock ownership with
    performance based incentives
    Outside directors increasing
    Impact of Sarbanes-Oxley
    Smaller boards
    Separate CEO/COB and/or Lead Director
    Members with Intl experience
    Shareholder nominations
    Social responsibility on the rise

    Prentice Hall, Inc. 2006 2-19


    Board of Directors

    CEO Responsibilities
    Provide executive leadership and effective
    strategic management
    Manage the strategic planning process

    Prentice Hall, Inc. 2006 2-20


    Board of Directors

    Transformational leaders

    Articulate a strategic vision

    Presents a role for others to identify with and to


    follow

    Communicates high standards of performance


    and confidence in followers ability

    Prentice Hall, Inc. 2006 2-21


    Strategic Management Process

    Strategic Planning Staff

    Supports top management & business units in


    the strategic planning process
    Identify & analyze company-wide strategic issues
    Generate strategic alternatives
    Facilitate business units in coordinating activities
    related to strategic planning process

    Prentice Hall, Inc. 2006 2-22


    Strategic Management Process

    Board of Directors Role in Succession


    Planning
    Set criteria for selection based on strategic needs of
    the company
    Executive type
    Dynamic industry expert - growth
    Analytical portfolio manager - diversification
    Cautions profit planner - stability
    Turnaround specialist weak company/active market
    Professional liquidator company cant be saved
    Set realistic performance expectations
    Develop a deep understanding of the organization
    and conduct thoughtful annual reviews of the
    CEO
    Prentice Hall, Inc. 2006 2-23
    CHAPTER 2
    Corporate
    Governance

    STRATEGIC MANAGEMENT & BUSINESS POLICY


    10TH EDITION
    THOMAS L. WHEELEN J. DAVID HUNGER

    Prentice Hall, Inc. 2006 2-24


    Board of Directors

    Criteria for a good Director


    Willing to challenge management
    Has special expertise
    Available outside of meetings
    Expertise on global business issues
    Understands key firms technologies
    Brings valuable external contacts
    Knowledge of firms industry
    High visibility in their field
    Accomplished in representing the firm to
    stakeholders

    Prentice Hall, Inc. 2006 2-25


    Corporate Governance

    BOD Responsibilities
    (200 Directors from 8 countries)
    Setting strategy and overall direction, mission or vision
    Hiring firing CEO and top management
    Controlling, monitoring or supervising top management
    Reviewing and approving use of resources
    Caring for Shareholder interests

    (CEOs surveyed)
    Corporate performance
    CEO Succession
    Strategic planning
    Corporate governance

    Prentice Hall, Inc. 2006 2-26

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