prentice hall, 2002chapter 2 wheelen/hunger 1 chapter 2 corporate governance and social...
Post on 02-Jan-2016
233 Views
Preview:
TRANSCRIPT
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
1
Chapter 2Corporate Governance
and
Social Responsibility
PowerPoint Slides
Dr.Vijaya Kumar
Skyline College
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
2
Corporate Governance
Defined:
Refers to the relationship among the board of directors, top management, and shareholders in determining the direction and performance of the corporation.
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
3
Corporate Governance
•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
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
4
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 corporation’s mission and specify
strategic options
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
5
Board of Directors
Members:Inside directors
– “Management directors”– Officers or executives employed by
corporation
Outside directors– “Non-management directors”– May be executives of other firms but not
employed by board’s corporation
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
6
Board of Directors Continuum
PhantomRubber Stamp
Minimal Review
Nominal Participation
Active Participation Catalyst
Never knows what to do, if anything; no degree of involvement.
Permits officers to make all decisions. It votes as the officers recom-mend on action issues.
Formally reviews selected issues that officers bring to its
Involved to a limited degree in the perform-ance or review of selected key decisions, indicators, or programs of management.
Takes the leading role in establishing and modifying the mission, objectives, strategy, and policies. It has a very active strategy committee.
Low
(Passive)High
(Active)
Approves, questions, and makes final de-cisions on mis-sion, strategy, policies, and objectives. Has active board committees. Performs fiscal and manage-ment audits.
DEGREE OF INVOLVEMENT IN STRATEGIC MANAGEMENT
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
7
Agency Theory
Problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation.
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
8
Stewardship Theory
Executives tend to be more motivated to act in the best interest of the corporation than their own self-interests. Theory argues that over time, senior executives tend to view the corporation as an extension of themselves.
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
9
Board of Directors
“Outsider” overly simplistic term --
Some outsiders are not truly objective and could be considered insiders.
Examples:• Affiliated Directors• Retired Directors• Family Directors
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
10
Board of DirectorsMembership Trends
(Survey, 1999)
• 75% of boards have at least 1 female director
• 25% of boards have two female directors
• 60% of boards have at least one minority member
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
11
Board of Directors
Codetermination– The inclusion of a corporation’s workers
on its board of directors.
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
12
Board of Directors
Interlocking Directorates
Direct Interlocking Directorate –– When two firms share a director or when an
executive of one firm sits on the board of a second firm.
Indirect Interlocking Directorate –– When two corporations have directors who
also serve on the board of a third firm.
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
13
Board of Directors
Nominations & Elections
Traditional Approach:– CEO invites members to serve – Shareholders approve in annual proxy
statement – All nominees are usually elected
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
14
Board of Directors
Nominations & Elections
Staggered Board Approach:Corporations whose directors serve terms of more than one year, divide the board into classes, and stagger elections so that only a portion of the board stands for election each year.
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
15
Board of DirectorsNominations & Elections
Criteria for Selection
Board of Director
Membership
•Wiling to challenge management•Special expertise•Availability for advice and meetings•Expertise on global issues•Understands key technologies•External contacts valuable to the firm•Detailed knowledge of industry•High visibility in field•Accomplished in representing firm to stakeholders
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
16
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
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
17
Board of DirectorsCorporate Governance
No consistent link between board membership, leadership, structure, and financial performance of firm
Investors pay more for a firm’s stock when positive toward good corporate governance—
Belief that• Good governance leads to better performance over
time• Reduces risk of company finding itself in trouble• Governance is a major strategic issue
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
18
Styles of Corporate Governance
Entrepreneurship
management
Partnership
management
Chaos
management
Marionette
management
De
gre
e o
f In
vo
lve
me
nt
By
To
p M
ana
gem
en
t
Degree of InvolvementBy Board of Directors
High
Low
Low High
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
19
Board of DirectorsTrends in Corporate Governance
• Boards more involved in reviewing, evaluating, and shaping strategy
• Institutional investors active on boards; pressure on CEO for firm performance
• Shareholders demand directors own more than token amounts of the firm’s stock
• Non-affiliated outside directors increasing
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
20
Board of Directors
Trends in Corporate Governance
• Boards becoming smaller• Boards taking more control of board
functions• Corporations becoming more global;
international experience needed • Societal expectations that boards balance
profitability and social responsibility• Diversity of board members
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
21
Top Management
Responsibilities of Top Management:
• Provide executive leadership and a strategic vision
• Manage the strategic planning process
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
22
Top Management
Executive Leadership –– The directing of activities toward the
accomplishment of corporate objectives. Sets the tone for the entire corporation.
Strategic Vision –– A description of what the company is capable
of becoming. Often communicated in the mission statement.
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
23
Top Management
CEO and Clear Strategic Vision
Common Characteristics:
• CEO articulates a strategic vision
• CEO presents a role for others
• CEO communicates high performance standards and shows confidence in followers
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
24
Strategic Management Process
Strategic Planning Staff --
–Supports top management and business units in the strategic planning process.
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
25
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
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
26
Social Responsibility
Key question for strategic decision makers:
“Should strategic decision makers be responsible only to shareholders or do they have broader responsibilities?”
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
27
Social Responsibility
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…”
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
28
Social Responsibility
Carroll’s Four Responsibilities
• Economic
• Legal
• Ethical
• Discretionary
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
29
Social Responsibility
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
30
Social ResponsibilityBenefits
Ben & Jerry’s
Maytag
Procter &Gamble
Levi Strauss
•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 be welcomed into a foreign country
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
31
Social Responsibility
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.
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
32
Social ResponsibilityKohlberg’s Levels of Moral Development
– Preconventional Level– Concern for self
– Conventional Level– Consideration of laws and norms
– Principled Level– Adherence to internal moral code
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
33
Social Responsibility
Code of Ethics:– Specifies how an organization
expects its employees to behave while on the job.
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
34
Social Responsibility
EthicsThe consensually accepted standards of behavior for an occupation, trade, or profession
MoralityThe precepts of personal behavior based on religious or philosophical grounds
LawFormal codes that permit or forbid certain behaviors
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
35
Social Responsibility
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
Prentice Hall, 2002 Chapter 2Wheelen/Hunger
36
Social ResponsibilityImpact of the Internet
Issues –
• Cybersquatting
• Taxation
• Public Interest
top related