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    Corporate Governance: Strategic Management & Business Policy

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    Majed Alolabi

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    Corporate Governance: Strategic Management & Business Policy

    Uploaded by

    Majed Alolabi
    27 views21 pages

    Original Title

    Ch02

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    Copyright:

    Attribution Non-Commercial (BY-NC)
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    Download as ppt, pdf, or txt
    27 views21 pages

    Corporate Governance: Strategic Management & Business Policy

    Uploaded by

    Majed Alolabi

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    You are on page 1of 21

    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

    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

    Role of Board

    –Monitor

    –Evaluate and influence

    –Initiate and determine

    Prentice Hall, Inc. © 2006 2-4


    Board of Directors Continuum

    Prentice Hall, Inc. © 2006 2-5


    Board of Directors

    Members --

    –Inside directors
    •“management directors”
    •Officers or executives employed by the firm

    –Outside directors
    •“non-management directors”
    •Executives of other firms not employed by the
    board’s corporation

    Prentice Hall, Inc. © 2006 2-6


    Board of Directors

    When Outsiders can be considered Insiders

    –Affiliated Directors
    –Retired Directors
    –Family Directors

    Prentice Hall, Inc. © 2006 2-7


    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 2-8


    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 2-9


    Board of Directors

    Codetermination

    –The inclusion of a corporation’s employees on its


    board of directors

    Prentice Hall, Inc. © 2006 2-10


    Board of Directors

    Interlocking Directorates

    –Direct Interlocking

    –Indirect Interlocking

    Prentice Hall, Inc. © 2006 2-11


    Board of Directors

    Nominations & Elections

    –Traditional Approach
    •CEO invitation to membership
    •Shareholders approval in annual proxy statement
    •All nominees usually elected

    Prentice Hall, Inc. © 2006 2-12


    Board of Directors

    Nominations & Elections

    –Staggered Board Approach


    •Staggered terms of service/election

    Prentice Hall, Inc. © 2006 2-13


    Board of Directors

    Sarbanes-Oxley

    –Code of Ethics

    –Audit, Nominating, and Compensation


    Committees all outside directors

    Prentice Hall, Inc. © 2006 2-14


    Board of Directors

    Organization of the Board

    –Size

    •Charter & Bylaws Determination

    Prentice Hall, Inc. © 2006 2-15


    Board of Directors

    Corporate Governance

    –Review & shaping of strategy


    –Pressure for corporate performance
    –Demand for executive stock ownership
    –Outside directors increasing
    –Impact of Sarbanes-Oxley

    Prentice Hall, Inc. © 2006 2-16


    Board of Directors

    Transformational leaders

    –Change agents through vision for change

    Prentice Hall, Inc. © 2006 2-17


    Board of Directors

    Successful CEO’s

    –Strategic vision
    –Passion for the company
    –Strong communication
    –Charisma

    Prentice Hall, Inc. © 2006 2-18


    Board of Directors

    Executive Leadership

    –Strategic vision
    –Role model

    Prentice Hall, Inc. © 2006 2-19


    Board of Directors

    Executive Leadership

    –Communication of performance standards


    –Demonstrates confidence in abilities of followers

    Prentice Hall, Inc. © 2006 2-20


    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 2-21

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