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STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 2 Corporate Governance

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Corporate Governance

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Corporate Governance

The relationship among the board of directors, top management, and shareholders – determining the direction and performance of the corporation

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Corporate Governance

Role of Board

–Monitor

–Evaluate and influence

–Initiate and determine

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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 the firm

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

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Board of Directors

When Outsiders can be considered Insiders

–Affiliated Directors–Retired Directors–Family Directors

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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

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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.

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Board of Directors

Codetermination

–The inclusion of a corporation’s employees on its board of directors

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Board of Directors

Interlocking Directorates

–Direct Interlocking

–Indirect Interlocking

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Board of Directors

Nominations & Elections

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

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Board of Directors

Nominations & Elections

–Staggered Board Approach•Staggered terms of service/election

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Board of Directors

Sarbanes-Oxley

–Code of Ethics

–Audit, Nominating, and Compensation Committees all outside directors

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Board of Directors

Organization of the Board

–Size

•Charter & Bylaws Determination

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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

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Board of Directors

Transformational leaders

–Change agents through vision for change

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Board of Directors

Successful CEO’s

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

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Board of Directors

Executive Leadership

–Strategic vision–Role model

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Board of Directors

Executive Leadership

–Communication of performance standards–Demonstrates confidence in abilities of followers

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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