ADA Compliant Lecture PowerPoint

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Strategic Management and

Business Policy 15e, Global Edition

15e

Chapter 2

Corporate Governance

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Learning Objectives

2-1 Describe the role and responsibilities of the board of directors in corporate governance 2-4 Discuss trends in corporate governance

2-5 Explain how executive leadership is an important part of strategic management

2-2

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What is Corporate Governance(1 of 2)

• Corporation

– a mechanism established to allow different parties to contribute capital, expertise and labor for their mutual benefit

• The corporation is fundamentally governed by the board of directors overseeing top management, with the concurrence of the shareholders.

2-3

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What is Corporate Governance(2 of 2)

• Corporate governance

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

2-4

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Agency Theory

• Agency theory deals with the relationship between stockholders & management

– What to do when the goals of the stockholders and management conflict?

– What to do when it is difficult or expensive for the

stockholders to verify what the management is actually doing?

– What happens when the stockholders and the

management have different attitudes and preferences toward risk?

9-5

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Corporate Governance Parties

• Shareholders – those that own the company

• Directors – Guardians of the Company’s assets for the Shareholders

• Managers who use the Company’s assets

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Corporate Governance Classic Model

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HOW OWNERS AFFECT

MANAGEMENT

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(200 Directors from 8 countries)

– Setting strategy and overall direction, mission or vision – Hiring firing CEO and top management

– Controlling, monitoring or supervising top management – Reviewing and approving use of resources

– Caring for Shareholder interests

(CEO’s surveyed)

– Corporate performance – CEO Succession

– Strategic planning

– Corporate governance

Responsibilities of the Board

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Role of the Board in Strategic Management

• Monitor developments inside and outside the corporation

• Evaluate and Influence management proposals, decisions and actions

• Initiate and Determine the corporation’s mission and specify strategic options

2-9

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Figure 2-1: Board of Directors’ Continuum

2-10

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The Role of Top Management

• Top management responsibilities

– getting things accomplished through and with others in order to meet the corporate objectives – multidimensional and oriented toward the

welfare of the total organization

2-11

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Executive Leadership and Strategic Vision

Three key characteristics of effective CEOs: 1. Articulate a strategic vision for the corporation.

2. Present a role for others to identify with and follow.

3. Communicate high-performance standards and also show confidence in the followers’ abilities to meet these standards.

2-12

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Four Pillars of Corporate Governance

• Accountability

• Fairness

• Transparency

• Independence