Chapter - 2

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Prentice Hall, Inc. © 2006 2-1 STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 2 Corporate Governance

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Transcript of Chapter - 2

  • 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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