Miles A. Zachary MGT 4380
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Transcript of Miles A. Zachary MGT 4380
Miles A. ZacharyMGT 4380
Leading an Ethical Organization: Corporate Governance, Corporate Ethics,
& Social ResponsibilityChapter 10
Corporate governance involves:Making meta-managerial decisionsApproving financial objectivesAdvising on strategic issuesMaking TMT members aware of laws and regulationsRepresenting stakeholders (namely shareholders)
Corporate governance is the responsibility of the board of directors—a group of individuals, either elected or appointed, that oversees the activities of an organization or corporation
Effective board members bring resources and capabilities to an organization; sometimes celebrity
Corporate Governance
Board composition is a critical factor in the dynamics of board decision-makingBoard insiders: members of the board that are
employed in the firmBoard outsiders: members of the board external to the
firmInstitutional investors such as hedge funds, retirement
funds, or banks often request a number of outside board members
CEO duality: when the CEO is also the chairman of the board of directorsCan be controversial since it gives a large amount of power
to one person; can create divisions and conflict in the board
Corporate Governance
CEO compensation is a balance between competitive pressures and the value of the day-to-day functions of a CEO“Salary commensurate with experience”—firms
must pay for the limited number of quality talent
Market pressures help to dictate the high price firms pay for a CEO
However, the salary is balanced by industry norms and investor pressure
Managing CEO Compensation
Agency ProblemsThe interests of firm management (e.g., the
CEO) and the owner(s) (e.g., the board, shareholders) are not always equal
The solution: better alignmentOften done through high CEO compensation and
stock options/ownership opportunitiesWhat are some other ways firms can achieve
better interest alignment?
Corporate Governance
CEO compensation often includes:Guaranteed salaryCash/option bonusesStock optionsPerks
Perks are often the “unsung” benefits of being a CEO
Managing CEO Compensation
When a firm is doing poorly, sometimes they are poised for a takeoverLeveraged buyout (LBO): a company that is
purchased through significant debt then removed from the stock marketReduction in workforce and streamline/cost savings
ensueHostile takeover: an attempt to buy a company
that is resisted by the target firmSometimes the target firm may be saved by a
“white knight”; a firm that is a more favorable buyer
Corporate Takeovers
Corporate Raider: an individual or a firm that purchases stock in another firm with the intentions of eventually taking it overE.g., Richard Gere’s character in Pretty Woman is a
corporate raiderShark Repellant: activities conducted by a board to
deter or defend the firm from a takeoverGreenmail-buy back large blocks of shares at a premium
to retain % ownershipPoison pill-sell considerable amounts of stock to dilute
the number of shares a purchaser needs to own the company
Golden parachute-a cash bonus given to executives who help a takeover transition
Corporate Takeovers
In response to several notable corporate scandals at Enron, WorldCom, and Tyco, congress legislated the Sarbanes-Oxley Act of 2002
The law set new or increased standards for the boards of public US companies and accounting firms
Businesses should be careful to not only follow the letter of the law, but the spirit of the law
Business Ethics
Corporate social performance is the degree to which a firm’s actions honor ethical values that respect individuals, communities, and the environment
Can be measured by the impact a firm has on:The communityProduct quality/safetyDiversityEmployee relationsEnvironmentalEthical corporate governance
Corporate Social Performance
Sometimes businesses are created or create new aspects of their business in the name of social good
Social entrepreneurship is the entrepreneurial actions where both economic and social value are createdE.g., Tom’s shoes—buy one, give one
Corporate Social Performance
Corporate Social Performance
While CSR has emerged as an important priority for businesses, it has been less than effectively implemented (Porter & Kramer, 2006)It has pitted firms against society when they
are clearly interdependentHas been discussed generally as opposed to
specifically how it can improve a firm’s strategy and performance
Corporate Social Responsibility
How are businesses and societies interdependent?Firms need societies
Education, health care, and equal opportunity create productive workforce
Good laws protect firm interests and propertyEfficient utilization of land, water, energy, and other
resources is essentialSocieties need firms
Creates jobsInnovation improves the quality of livingCorporate taxes help fund government operations
Important to mind the “principle of shared value” where in a temporary gain in one will hurt the long-term prosperity of both
Corporate Social Responsibility
Three (3) categories of social issuesGeneric social issues are important to society, but do
not significantly affect the organizations operations or long-term competitiveness
Value chain social impacts are those things that are significantly affected by a firm’s activities in the course of ordinary business
Social dimensions of competitive context are factors in the external environment that affect the underlying drivers of competitiveness in a companies operations
Each of these affect different companies in different industries differently
Corporate Social Responsibility
Corporate Social Responsibility
The most important thing a firm can do for society is contribute to a prosperous economyWhen firms are punished unnecessarily for
being productive, it hurts the society it operates in
Firms must, however, avoid seeking short-term profits through deception
Rather, firms should build long-term success by focusing on shared value and using CSR strategically to improve their organization and the world
Corporate Social Responsibility