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8/12/2019 corporate goverance

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STRATEGIC MANAGEMENT & BUSINESS POLICY13THEDITION

THOMAS L. WHEELEN J. DAVID HUNGER


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Legal Forms of Business Organization

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Sole Proprietorship

Partnership

Corporation

Corporation: a mechanism established to allow different parties tocontribute capital, expertise and labor for their mutual benefit

Corporation is governed by the board of directors that overseestop management with the concurrence of the shareholders.


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since the high-profile collapses of a number of large corporations

during 20012002, most of which involved accounting fraud.Corporate scandals of various forms have maintained public andpolitical interest in the regulation of corporate governance. In theU.S., these include Enron corporation and MCI Inc. (formerlyWorldCom)

SO, we need to How do the people of the top of the companymake sure every body is doing what they suppose to do ?

Top Management , middle management , junior management and

worker


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Prentice Hall, Inc. 2012 2-4

Corporate governance:

The relationship among the board of directors, top management

and shareholdersin determining the direction and performance of

the corporation.

The system by which the organization are directedand controlled

Q. Why is corporate governance required ?

A. Companies are owned by shareholders but run by directors.

Corporate governance ensure the company is run in the interest ofshareholders.


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The principles of Corporate governance

The OECD lays out 5 principle of good governance

1. The right of shareholders2. Equitable treatment of shareholders

3. Stakeholders relation

4. Disclosure and transparency

5. The Responsibilities of the Board


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Responsibilities of the Board of Directors

Sets corporate strategy, overall direction, mission, orvision

Hires and fires the CEO and top management Controls, monitors, or supervises top management

Reviews and approves the use of resources

Cares for shareholders interests

Assures that the corporation is managed in accordancewith state laws, security regulations and conflict ofinterest situations


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Responsibilities of the Board based on the surveyby NACD

Corporate performance

CEO succession

Strategic planning Corporate governance

Due care:

Board of directors are responsible that the corporation is

not harmed by members of the board. Directors can be

held liable


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Role of the Board in Strategic Management

Monitordevelopments inside and outside thecorporation

Evaluate and Influencemanagement proposals,decisions and actions

Initiate and Determinethe corporations mission andstrategies


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Corporate governance is the system of principles, policies,procedures, and clearly defined responsibilities andaccountabilities.

The objectives of a corporate governance system are (1) toeliminate conflicts of interest among stakeholders, particularlybetween managers and shareholders, and (2) to ensure that theassets of the company are used efficiently and productively and inthe best interests of the investors and other stakeholders.

The failure of a company to establish an effective system ofcorporate governance represents a major operational risk to thecompany and its investors.

Summary :


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Corporate Governance in HILTI

Election and term of office for the members of the Board of Directors

The members of the Board of Directors of Hilti Corporation are elected by the Annual

General Meeting for three years. As a rule, directors serve up to four terms, but no longer

than until the end of the business year in which they reach the age of 70

Allocation of responsibilities and duties ofthe Board of Directors

In addition to its legally defined duties, the Board of Directors specifically takesdecisions on the basic strategic direction of the Group, its long-term and annual

strategic planning, important business decisions, as well as the successionplanning of the Board of Directors itself and the succession planning and theappointment of the Executive Board.In the last business year, the Board of Directors supervised the activities of theExecutive Board and supported it in a consultative capacity. The Board ofDirectors took a strategic focus and actively involved in projects concerning

group strategy.


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Audit Committee

In June 2011 an Audit Committee of the Board of Directors was established.The Audit Committee assists the Board of Directors in fulfilling itssupervisory responsibilities with respect to the accounting and financialreporting practices of Hilti Corporation and its subsidiaries, compliance withlegal and regulatory requirements, the internal and external audit processes

as well as with its oversight of the risk management.

Internal audit

The internal audit department, Corporate Audit, supports the Board ofDirectors by monitoring the internal control status within group entities. To

achieve this, Corporate Audit conducts audits focused on controls withinmajor transaction cycles as well as on processes for management ofselected corporate risks. Corporate Audits objective is to providetransparency over the Groups control environment and enable security tobe provided over the Groups resources


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Compensation to the Board of Directors and Corporate Management

Members of the Board of Directors are paid a fixed annual compensation plusa lump sum for expenses. There is no additional compensation for theperformance of an Audit Committee function by a director. Former members ofthe Board of Directors do not receive any remuneration.

The members of Corporate Management (the Executive Management Team,including the Executive Board) receive an annual base salary and a bonuslinked to performance. Members of the Executive Board normally retire at theage of 56. They receive a severance payment in addition to their statutorypension fund entitlement.

Former members of the Executive Management Team do not receive anyadditional compensation other than their statutory pension fund entitlement.Total compensation is detailed in the consolidated financial statements of HiltiGroup (see note 42).


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Shareholders participation rights

Details of share and participation capital are given in the consolidatedfinancial statements of the Hilti Group (see note 20). Resolutions ofshareholder meetings are generally decided by an absolute majority ofrepresented votes. A majority of at least three quarters of representedvotes is necessary to change the articles of incorporation, or forresolutions concerning changes to share and participation capital,subscription rights, expansion or restriction of business scope as well asmergers, transformation or liquidation of the company.


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Members of a Board of Directors

Inside Directors: (management directors), officers or executivesemployed by the corporation.

Outside Directors: (non-management directors), may beexecutives of other companies but not for this corp.

U.S Trend: more outsiders and reduce the total size of boar,although no clear evidence.


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OutsidersInsidersSize of

Board

Country

8210U.S.A

8210Canada

5510U K

21214Japan


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Agency theory: top management is not willing to acceptresponsibility for their decisions unless they own a substantial

amount of stock in the corporation,

Stewardship theory: as the result of long tenure with thecorporation, insiders (top management) tend to identify with the

corporation and its success. Act in the best interest of thecorporation more than self-interest.


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Affiliated directors:- Conflict of Interest.

- U.S Congress Law.

- 2004 Law (Paid during the previous three years).

Retired executive directors:

- Partly responsible for past decisions.

- 31% in U.S & 25% in Europe keep them on boards.

Family directors:

- Descendants of the founders and owns significant blocks of stock.


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Women and Minorities:

- Fortune 1000 largest U.S firms - 15% are women.

- Europe - 9% are women.

- 14% of the total U.S boards are ethnic minority in 2006(African-American 47%, Latino 19%, Asian 10%).

- Globalization.


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Codetermination: the inclusion of a corporation's workers on its

board.

Began recently in U.S.

Employee Stock Ownership Plans (ESOPs).

Exchange Benefits. (Chrysler70s)

Conflict of Interest.

U.S Trend.


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Interlocking Directorates: useful for gaining both insideinformation about an uncertain environment and objectiveexpertise about potential strategies and tactics

Direct interlocking directorate: when two firms share adirector or when an executive of one firm sits on the board of asecond

Indirect interlocking directorate: when two corporationshave directors who serve on the board of a third firm


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Board of Directors.

Inside & Outside Directors.


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Barclays Bank


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Fat Cats


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Board of Directors

CEO

V.P E.V.P COO President

Top Management

CEO set the function of top management to get the things done in order to

meet the cooperate objectives.


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Considerations for Top Management

Specific top management tasks vary from firm to firm.Depends on (vision, mission, activities)

The importance of skills diversity, e.g. experience,functional backgrounds


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Responsibilities of Top Management

Executive leadership

is the directing of activities toward the accomplishment of corporate objectives.

Strategic vision

description of what the company is capable of becoming Vision Mission

Successful CEOs Clear strategic vision Enthusiasm, passion. Ability to communicate with others. Charismatic leader. (Transformational leaders).


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Transformational leaders characteristics include:

CEO articulates a strategic vision for the corporationIBM (Louis Gerstner) Yahoo (Marissa Mayer)

Microsoft (Steve Ballmer)

CEO presents a role for others to identify with and tofollow

CEO communicates high performance standards and alsoshow confidence in the followers abilities to meet thesestandards


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Managing the Strategic Planning Process

Strategic planning staff-supports both top managementand the business units in the strategic planning process

Major responsibilities include:

Identifying and analyzing company-wide strategic issues,and suggesting corporate strategic alternatives to topmanagement

Work as facilitators with business units to guide themthrough the strategic planning process


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Nomination and Election of Board Members Traditionally CEO of corporation decided the boardmembership .

Allowing CEO free nominating directors is

danger(passive boards). 97% of U.S. boards use nominating committees to

identify potential board members(at Europe 60%).

Staggered boards- only a portion of board members standfor re-election when directors serve more than one yearterms ( anti-takeover practice)


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Nomination and Election of Board Members

Criteria for a good director include but not limited:

Willingness to challenge management when necessary

Expertise on global issues

Understands the firms key technologies and processes

Has detailed knowledge of the firms industry


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Organization of the board Average No. of the members of the board at U.S 10elsewhere(Japan 14,Germany 16..etc)

Approximately 70% of the top executives of U.S.publicly held companies hold the dual designation ofChairman and CEO(only 5% at UK)


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Organization of the board The combined Chair/CEO lead to conflict of interest .

CEO concentrate on strategy ,planning , external

relations ,& responsibility to the bored.

The Chairman responsibility is to ensure that the board& its committees perform their functions.


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Lead Director- is consulted by the Chair/CEO regardingboard affairs and coordinates the annual evaluation ofthe CEO

96% of U.S. companies that combine the Chairman andCEO positions had a lead director


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Impact of the Sarbanes-Oxley Act on U.S.Corporate Governance

In response to many corporate scandals the U.Scongress passed the Sarbanes-Oxley act in 2002.

The act was designed to protect shareholders fromexcesses and failed oversight of boards of directors

Whistleblower procedures.

Both CEO & CFO must certify the financialinformation.


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Improving Governance

Securities & Exchange Commission (SEC) required that

the audit, nominating & compensation committees bestaffed by outsider directors .


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Evaluating Governance

Rating agencies(Moodys, fitch & S&P)

They looking for:

I. Ownership structure & influence .

II. Financial stakeholder rights & relations.III. Financial Transparency & information Disclosure.

IV. Board structure & process.


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Avoiding Governance Improvements

Multiple classes of stock Public & Private Partnership (PPP)

Controlled companies


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Trends in Corporate Governance

Institutional investors active on boards Shareholder demands that directors and top management own

significant stock More involvement of non-affiliated outside directors

Boards evaluating individual directors Smaller boards Splitting the Chairman and CEO positions Shareholders may begin to nominate board members Society expects boards to balance profitability with social needs of

society

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