STRATEGIC MANAGEMENT & BUSINESS POLICY 10TH EDITIONTHOMAS L. WHEELEN J. DAVID HUNGERCHAPTER 2 Corporate Governance

Corporate Governance

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

Corporate GovernanceRole of Board

Monitor

Evaluate and influence

Initiate and determine

Board of Directors Continuum

Board of DirectorsMembers --

Inside directorsmanagement directorsOfficers or execs employed by the firm

Outside directorsnon-management directorsExecs of other firms not employed by the boards corporation

Agency TheoryAgency Problem Objectives of owners & agents in conflictDifficult for owners to verify agent performance

Risk Sharing Problem Owners & agents risk assessment in conflict

Stewardship TheoryExecutives 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.

Board of DirectorsWhen Outsiders can be considered Insiders

Affiliated DirectorsRetired DirectorsFamily Directors

Board of DirectorsCodetermination

The inclusion of a corporations employees on its board of directors

Board of DirectorsInterlocking Directorates

Direct Interlocking

Indirect Interlocking

Board of DirectorsNominations & Elections

Traditional ApproachCEO invitation to membershipShareholders approval in annual proxy statementAll nominees usually elected

Board of DirectorsNominations & Elections

Staggered Board ApproachStaggered terms of service/election

Board of DirectorsSarbanes-Oxley

Code of Ethics

Audit, Nominating, and Compensation Committees all outside directors

Board of DirectorsOrganization of the Board

Size

Charter & Bylaws Determination

Board of DirectorsCorporate Governance

Review & shaping of strategyPressure for corporate performanceDemand for executive stock ownershipOutside directors increasingImpact of Sarbanes-Oxley

Board of DirectorsTransformational leaders

Change agents through vision for change

Board of DirectorsSuccessful CEOs

Strategic visionPassion for the companyStrong communicationcharisma

Board of DirectorsExecutive Leadership

Strategic visionRole model

Board of DirectorsExecutive Leadership

Communication of performance standardsDemonstrates confidence in abilities of followers

Strategic Management ProcessStrategic Planning Staff

Supports top management & business units in the strategic planning process

Strategic Management ProcessStrategic Planning Staff

Identify & analyze company-wide strategic issuesGenerate strategic alternatives

Strategic Management ProcessStrategic Planning Staff

Facilitate business units in coordinating activities related to strategic planning process

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