CORPORATE GOVERNANCE AND

SOCIAL RESPONSIBILITY

2.1. CORPORATE GOVERNACE: ROLE OF BOARED OF DIRECTORS Corporation: A mechanism established to allow different

parties to contribute capital, expertise and labor for their mutual benefit.

N.B. Corporation is governed by the board of

directors that oversees top management with the concurrence of the shareholders.

CORPORATE GOVERNACE: ROLE OF BOARED OF DIRECTORS Cont.. Corporate Governance: The relationship among the board of

directors, top management and shareholders in determining the direction and performance of the corporation.

Role of Board of Directors Responsibilities of the Board of Directors:Sets corporate strategy, overall direction,

mission, or vision Hires and fires the CEO and top management Controls, monitors, or supervises top

management Reviews and approves the use of resources Cares for shareholders’ interests

Role of Board of Directors Cont.. Role of the Board in Strategic Management 3 basic tasks

Monitor: developments inside and outside the corporation(any board)

Evaluate and Influence: management’s proposals, decisions and actions(Active boards)

Initiate and Determine: the corporation’s mission and strategies(Only the most active boards)

Board of Directors Continuum

Role of Board of Directors Cont..Members of a Board of Directors

Inside Directors (Mgmt directors) are officers or executives employed by the board’s corporation

Outside Directors(Non-mgmt directors) are executives of other firms but are not employees of the board’s corporation

Role of Board of Directors Cont..Outsiders can be considered Insiders. They can be

for example:

1. Affiliated directors - not employed by the corporation, handle legal or insurance work.

2.Retired executive directors- used to work for the corporation, partly responsible for past decisions affecting current strategy.

3. Family directors- descendents of the founder and own significant blocks of stock.

Role of Board of Directors Cont.. Nomination and Election of Board Members

Criteria for a good director include: Willingness to challenge management when necessary Special expertise that is important to the company Available for outside meetings to advise management Expertise on global issues Understands the firm’s key technologies and processes Brings external contacts that are potentially valuable to the

firm Has detailed knowledge of the firm’s industry Has high visibility in his/her field Is accomplished at representing the firm to stakeholders

2.2. Corporate Governance: Role of Top ManagementResponsibilities of Top Management:

1. Provide Executive leadership and Strategic Vision

Executive leadership is the directing of activities toward the accomplishment of corporate objectives. Sets the tone for the entire corporation

Strategic vision description of what the company is capable of becoming.

Role of Top Management Cont.. Transformational Leaders provide

change and movement in an organization by providing a vision for that change.

Characteristics include:CEO articulates a strategic vision for the

corporationCEO presents a role for others to identify with

and to followCEO communicates high performance

standards and also shows confidence in the followers’ abilities to meet these standards

Role of Top Management Cont..

2. Manage the Strategic Planning Process

Approaches: Bottom-up strategic planningTop-down strategic planningConcurrent strategic planning Strategic planning staff

Role of Top Management Cont.. Strategic planning staff- supports both top

management and the business units in the strategic planning process

Major responsibilities include:

Identifying and analyzing company-wide strategic issues, and suggesting corporate strategic alternatives to top management.

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

2.3. Social Responsibility of Strategic Decision Makers

Concept of social responsibility: A private corporation has responsibilities to

society that extend beyond making a profit. N.B. Strategic decisions often affect more than

just the corporation.

Social Responsibility of Strategic Decision Makers Cont.. Responsibilities of A Business Firm Two contrasting views of the responsibilities

of business firms to society offered by Milton Friedman and Archie Carroll

Social Responsibility of Strategic Decision Makers Cont.. Friedman’s traditional View of Business

Responsibility:

There is one and only one social responsibility of business-to use its resource and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

Social Responsibility of Strategic Decision Makers Cont..

Carroll’s Four Responsibilities of Business in order of priority.

Social Responsibility of Strategic Decision Makers Cont..

According to Carroll, therefore, social responsibility includes both ethical and discretionary, but not economic and legal, responsibilities.