17 حزيران، 1517 حزيران، 1517 حزيران، 15developed by prof. dr. majed el- farra 1...

/ /١٤٤٤ ٠٩ ٢٨ 21:09 Developed by Prof. Dr. Majed El-Farra

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Second lecture

Corporate Governance

and

Social Responsibility


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Defined:

Refers to the relationship among the board of directors, top management, and shareholders in determining the direction and performance of the corporation.


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•Setting corporate strategy, overall direction, mission or vision

•Hiring and firing the CEO and top management

•Controlling, monitoring, or supervisingtop management

•Reviewing and approving the use of resources

•Caring for shareholder interests

Board of Directors


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Corporate GovernanceRole of the Board in strategic management

– Monitor• Developments inside and outside the corporation

– Evaluate & Influence• Review proposals, advise, provide suggestions and

alternatives

– Initiate & Determine• Delineate\define corporation’s mission and specify

strategic options


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Board of Directors Continuum


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Board of Directors

Members:

Inside directors– “Management directors”– Officers or executives employed by

corporation

Outside directors– May be executives of other firms but not

employed by board’s corporation


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Board of Directors

Organization of the Board

• Size– Determined by charter and bylaws– Average for publicly-held, large firm is 11

directors– Average for small/medium private firms is 7 to

8 directors


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Board of Directors

Corporate Governance• Boards more involved in review and

shaping strategy• Institutional investors more active in

pressuring for corporate performance• Shareholders demand that directors and

executives own more than token amounts of stock

• Nonaffiliated outside directors increasing


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Board of DirectorsTop management responsibilities

Top management Responsibilities

•Executive Leadership

•Strategic vision•Presents a role of others to identify with and follow•Communicates high performance standards and shows confidence in followers’ abilities


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Strategic Management Process

Strategic Planning Staff --

–Supports top management and business units in the strategic planning process.


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Strategic Management ProcessStrategic Planning Staff

Responsibilities:

• Identify and analyze company-wide strategic issues, suggest corporate strategic alternatives

• Work as facilitators with business units to guide them through the strategic planning process


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Styles of Corporate Governance

High Entrepreneurship Management

Partnership Management

low Chaos Management

Marionette Management

Low High

Degree of Involvement

By top management

Degree of involvement by board of directors


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• Chaos Management• When both the board of directors and top management

have little involvement in the strategic management process.

• The board waits for top management to bring it proposals. • Top management is operationally oriented and continues

to carry out strategies, policies, and programs specified by the founding entrepreneur who died years ago.

• There is no strategic management being done here.


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• Entrepreneurship Management• A corporation with an uninvolved board of

directors but a highly involved top management has entrepreneurship management.

• The board is willing to be used as a rubber stamp for top management's decisions.

• The CEO, operating alone or with a team, dominates the corporation and its strategic decisions.


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• Marionette Management• Probably the rarest form of strategic management style, • marionette management occurs when the board of directors is deeply

involved in strategic decision making, but top management is primarily concerned with operations.

• Such a style evolves when a board is composed of key stockholders who refuse to delegate strategic decision making to the president.

• This style also occurs when a board fires a CEO but is slow to find a replacement.

• Marionette Management occurred at Winnebago Industries when the company's Board of Directors, chaired by its founder, 72-year-old John K. Hanson, took away Ronald Haugen's title as chief executive officer, but left him as company president.


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• Partnership Management• Probably the most effective style of strategic management,• partnership management is epitomized\embodied by a

highly involved board and top management. The board and top management team work closely to establish the corporate mission, objectives, strategies, and policies.

• Board members are active in committee work and utilize strategic audits to provide feedback to top management on its implementations of agreed-upon strategies and policies.

• This appears to be the style emerging in a number of successful corporations such as General Electric Company.


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The business firm should try to get useful information about competitors by:

1. Careful study of trade journals.2. Buying competitors' products and taking them apart.3. Hiring management consultants who have worked for competitors.4. Rewarding competitors' employees for useful "tips."5. Questioning competitors' customers and/or suppliers.6. Buying and analyzing competitors' garbage.7. Advertising and interviewing for non-existent jobs.8. Taking public tours of competitors' facilities.9. Releasing false information about the company in order to confuse

competitors.10. Questioning competitors' technical people at trade shows and

conferences.11. Hiring key people away from competitors.


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Discussion

• What recommendations would you make to improve the effectiveness of today's corporate governance in Gaza private sector?

UN Governance1. Empowering the top management.

2. Beneficiary participation.

3. Rotation of top management.

4. Incentives.

5. Top management should be from locals.

6. Periodical review and reporting to board of directors.

7. Independent local steering committee.

8. Open channels of communication with public.

9. Specialized bodies in different services.

10. Some of the board should be from locals.

11. System and standards to evaluate top management.

12. Enriching the strategic staff from outside UN staff.

13. Power sharing between top and low level management.

14. Improve the role of CSOs.


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Improving the efficiency of the PNA Governance

1. Choose the best ministers

2. Qualified and competence legislators.

3. Separation between authorities

4. More controlling and monitoring of legislation.

5. Abide by law the common of the Palestine.

6. Using external consultants to the legislation council,

7. regular meeting.

8. Regular meeting and follow up.

9. Awareness campaign to all about their duties.

10. Improve cooperation and team work.

11. More role for residences\public.

12. Clear and agreed accountability techniques.

13. Form a controlling committee from the council./ /١٤٤٤ ٠٩ ٢٨ 21:09 Developed by Prof. Dr. Majed El-

Farra21


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Improving the efficiency of Board of Directors in NGOs

1. Select qualified persons.2. People with enough time.3. Sperate 4. Periodical reports.5. Government role.6. Provide incentives. 7. External and internal control development.8. Internal monetary committee.9. Periodical meeting.


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Broader responsibility:

• Private corporation has responsibilities to society that extend beyond making a profit.


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Friedman’s Traditional View

“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits…”


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Social ResponsibilityCarroll’s Four Responsibilities

• Economic: produce goods and services of value to society.

• Legal: abide by law, avoid discrimination. • Ethical: respect beliefs in society.• Discretionary/flexible :pure voluntary

obligations.


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Responsibilities of Business


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Social ResponsibilityBenefits

Ben & Jerry’s

Maytag

Procter &Gamble

Rubbermaid

•Environmental concerns may enable the firm to charge premium prices and gain brand loyalty

•Trustworthiness may help generate enduring relationships with suppliers and distributors without spending time and money policing contracts

•Can attract outstanding employees who prefer working for a responsible firm

•More likely to attract capital from investors who view reputable companies as desirable


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Social Responsibility: Balancing Commitments to Stakeholders

Stakeholders:Stakeholders: Groups, individuals, and organizations that Groups, individuals, and organizations that are directly affected by the practices of an organizationare directly affected by the practices of an organization

Employees Investors

Local Communities

Customers SuppliersCORPORATION


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• It refers to the way in which a business tries to balance its commitments to certain groups and individuals in its social environment.

• Customers: Treat customers fairly and honestly (Examples of companies with excellent reputations in this area: L.L. Bean, Nordstrom, Dell Computer Corporation)

• Employees: Treat employees fairly, with respect for their dignity and basic human needs (Examples of companies with excellent reputations in this area: 3M, Southwest Airlines)

• Investors: Manage financial resources honestly and openly• Suppliers: Seek mutually beneficial partnerships• Local Communities: Minimize damage and maximize

contributions to local communities


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Reasons for Unethical Behavior

Moral Relativism

– Morality is relative to some personal, social or cultural standard and that there is no method for deciding whether one decision is better than another.


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Social ResponsibilityKohlberg’s Levels of Moral Development

– Preconventional Level– Concern for self

– Conventional\conservative Level– Consideration of laws and norms

– Principled Level– Adherence to internal moral code


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Code of Ethics:– Specifies how an organization

expects its employees to behave while on the job.


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What Is Ethical Behavior?

Ethics: Right and wrong, good and bad, in actions that affect others. shaped by personal values and morals

Ethical Behavior: Conforming to generally accepted ethical norms.Business ethics: Ethical or unethical behaviors of managers and employers of an organization.


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Discussion

• Identify examples of ethical and unethical business practices.– Ethical Business Practices: Examples: Donating a percentage

of profits to charity and community causes (Ben & Jerry’s donates 7-1/2% of pre-tax profits, and Levi Strauss donates 2.4% of pre-tax profits to a variety of causes), encouraging employees to engage in volunteer work using paid work-release time (Walt Disney’s VoluntEARS program), recycling (McDonald’s has a far-reaching environmental protection program).

– Unethical Business Practices: Examples: Forwarding “marketing research” results to sales people, excessive violence in video games, and of course all forms of illegal behavior (e.g. deliberately selling cigarettes to minors).


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Approaches to Ethical Behavior

• UtilitarianUtilitarianActions and plans judged by consequences

• Individual RightsIndividual RightsPeople have fundamental rights to be respected in all decisions

• JusticeJusticeDistribution of costs and benefits to be equitable, fair, and impartial\objective.


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Approaches to Ethical Behavior

• Categorical imperatives\crucialCategorical imperatives\crucial

“golden rules”

Not restrict others behavior


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• Encompasses three main areas:

1. Air pollution

2. Water pollution

3. Land pollution– Toxic\deadly waste– Recycling

Responsibility Toward the Environment


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Responsibility Toward Customers

Consumer RightsConsumer Rights

Unfair PricingUnfair Pricing

Ethics in AdvertisingEthics in Advertising


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Responsibility Toward Employees

• Legal and social commitments: Legally, companies are required to refrain from discrimination against any worker based on race, gender, religion, nationality or other irrelevant factors. Ethically, many people feel that companies should ensure that the workplace is physically and socially safe.

• How far should companies extend themselves to help employees who are laid off?


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Responsibility Toward Investors

• Improper financial management:

• Offenses are typically unethical, rather than illegal. Examples include excessive salaries, and lavish\plentiful or frivolous perks\bonus (e.g. regular corporate “retreats” to exotic\interesting island resorts).

• Check kiting:

• Responsibility towards investors has several components:• Illegal practice of writing checks against money that has not yet arrived at the

bank on which it is drawn.

• Insider trading:

• Illegal practice of using confidential information to gain from the purchase or sale of stocks.

• Misrepresentation of finances:

• Typically, this takes the form of overly optimistic projections of earnings.

Review

• What are the Carroll’s four social Responsibilities of companies? Is there a consensus on the concept of social responsibilities? What is the relationship between social responsibility and ethics? Try to be practical in your answer.


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Discussion • Should all CEOs be transformation leaders? Would you like to

work for a transformational leader?

• According to the text, top management must successfully handle two responsibilities that are crucial to the effective strategic management of the corporation: (1) provide executive leadership and a strategic vision and (2) manage the strategic planning process. The successful CEOs often provide this executive leadership by taking on many of the characteristics of the transformation leader by communicating a clear strategic vision, demonstrating a strong passion for the company, and communicating clear directions to others. Such transformational leaders, like Bill Gates at Microsoft, Steve Jobs at Apple, and Anita Roddick at The Body Shop, are able to command respect and energize their employees. / /١٤٤٤ ٠٩ ٢٨ 21:09 42Developed by Prof. Dr. Majed El-

Farra

17 حزيران، 1517 حزيران، 1517 حزيران، 15developed by prof. dr. majed el- farra 1...

Documents

corporate governance

strategic options slide

directors average

board of directors members

management reviewing

management controlling

corporate governance

boards corporation slide