Corporate Governance, Corporate Governance, Stakeholders, Ethics and Stakeholders, Ethics and

CultureCulture

Corporate GovernanceCorporate Governance

►Corporate Governance is about the way Corporate Governance is about the way in which organizations are run and who in which organizations are run and who should control them – the chairman, should control them – the chairman, chief executive, and the board of chief executive, and the board of directors, shareholders or stakeholders directors, shareholders or stakeholders such as employeessuch as employees

►Need: Separate ownership & Need: Separate ownership & managementmanagement

►Beneficiaries – Board - ManagementBeneficiaries – Board - Management

► Laws to enhance corporate governance: Laws to enhance corporate governance: company law, audit function and accounting company law, audit function and accounting standardsstandards

► Political aims of corporate governance:Political aims of corporate governance:► Creating framework for control large powerful Creating framework for control large powerful

companies whose interest may not coincide companies whose interest may not coincide with the national interestwith the national interest

► Controlling MNCs, which can dominate the Controlling MNCs, which can dominate the local economylocal economy

► Ensuring companies are answerable to Ensuring companies are answerable to stakeholders, and not only shareholdersstakeholders, and not only shareholders

► Ensuring companies are run according to lawsEnsuring companies are run according to laws► Protecting investors who buy sharesProtecting investors who buy shares

Principles of Good Corporate Principles of Good Corporate GovernanceGovernance

► The rights of the shareholders: co commitment The rights of the shareholders: co commitment for return on investment, use of their moneyfor return on investment, use of their money

► The equitable treatment of shareholders: The equitable treatment of shareholders: minority, foreign shareholders, right to have minority, foreign shareholders, right to have violation redressedviolation redressed

► The role of stakeholders: creating wealth, jobs, The role of stakeholders: creating wealth, jobs, and sustainability of enterpriseand sustainability of enterprise

► Disclosure and transparency: financial, Disclosure and transparency: financial, performance, governorship of coperformance, governorship of co

► The responsibility of the board: strategic The responsibility of the board: strategic guidance, monitoring of management, board’s guidance, monitoring of management, board’s accountability to the co and the stakeholdersaccountability to the co and the stakeholders

Role of Non-Executive Role of Non-Executive DirectorsDirectors

►Experience and knowledgeExperience and knowledge►Warning EDs of high risk-areasWarning EDs of high risk-areas►Provide supervisionProvide supervision►Determine EDs remunerationDetermine EDs remuneration►Appointing and liaising with auditorsAppointing and liaising with auditors►Advice to board and individual Advice to board and individual

directorsdirectors

Result of focus on corporate Result of focus on corporate governancegovernance

► Increasing power of governing bodyIncreasing power of governing body► Increasing shareholder powerIncreasing shareholder power►Pressure for formulating strategyPressure for formulating strategy►Greater security of quoted businessGreater security of quoted business►Greater emphasis of risk managementGreater emphasis of risk management►Greater scrutiny of mergers & Greater scrutiny of mergers &

acquisitionsacquisitions

StakeholdersStakeholders

►Anyone affected by the organizationAnyone affected by the organization►Different objectives: managers, govt, Different objectives: managers, govt,

pressure groups, shareholders, pressure groups, shareholders, customers, suppliers, financierscustomers, suppliers, financiers

►Objectives may be in conflictObjectives may be in conflict►Does not necessarily exercise the Does not necessarily exercise the

powerpower

Analyzing StakeholdersAnalyzing Stakeholders

Mendelow Matrix:Mendelow Matrix:

A: minimum effort: lack of interest & powerA: minimum effort: lack of interest & power

B: keep informed: interested but lack powerB: keep informed: interested but lack power

C: keep satisfied: require assurance of C: keep satisfied: require assurance of strategy outcome in advancestrategy outcome in advance

D: key players: major drivers of changeD: key players: major drivers of change

EthicsEthics

► Business ethics is the application of ethical Business ethics is the application of ethical values to business behaviorvalues to business behavior

► Ethical Dilemmas:Ethical Dilemmas:► Child laborChild labor► Environment protection for law or future Environment protection for law or future

generationsgenerations► Bribes or official presentsBribes or official presents►Downsizing: maintaining ratios or Downsizing: maintaining ratios or

competencecompetence► Testing medicine on less privelegedTesting medicine on less priveleged►Merck VioxxMerck Vioxx► Apple shares issueApple shares issue

Reidenbach & Robin ModelReidenbach & Robin Model

► Amoral: winning at any cost – no set of Amoral: winning at any cost – no set of values other than greedvalues other than greed

► Legalistic: obeying the law – if it is legal then Legalistic: obeying the law – if it is legal then it is OKit is OK

► Responsive: what can be gained from Responsive: what can be gained from ethical behavior – pretending to be caringethical behavior – pretending to be caring

► Emerging ethical: take an active interest in Emerging ethical: take an active interest in ethical issues – recognize social contract – ethical issues – recognize social contract – want to do the right thingwant to do the right thing

► Ethical cos – have a ‘total ethical profile’ – Ethical cos – have a ‘total ethical profile’ – balance profits/ethics throughout their balance profits/ethics throughout their cultureculture

CSRCSR► Corporate responsibility is concerned with the ways Corporate responsibility is concerned with the ways

in which an organization exceeds the minimum in which an organization exceeds the minimum obligations to stakeholders specified through obligations to stakeholders specified through regulation and corporate governance.regulation and corporate governance.

► Different views:Different views:► Shareholder: SR of business to make profit – Shareholder: SR of business to make profit –

employment generation, economic growth, employment generation, economic growth, innovation, tax contribution, living standards innovation, tax contribution, living standards (directors’ being charitable with other people’s (directors’ being charitable with other people’s money)money)

► Long term self interest view: PR arising from CSR Long term self interest view: PR arising from CSR will increase profits in the long term. Failure to do will increase profits in the long term. Failure to do will prompt litigation and damage business.will prompt litigation and damage business.

► Stakeholder view: one stakeholder may be Stakeholder view: one stakeholder may be sacrificed for greater good of other stakeholderssacrificed for greater good of other stakeholders

Common CSR issuesCommon CSR issues

►Work creation and training Work creation and training programmesprogrammes

►Sponsorship of the arts and sportSponsorship of the arts and sport►Employee welfare programmesEmployee welfare programmes►Community welfare programmesCommunity welfare programmes►Support for educational institutions Support for educational institutions

and links with businessand links with business►Contributions to overseas aidContributions to overseas aid►Environmental programmesEnvironmental programmes

Organizational CultureOrganizational Culture

►Culture is the set of values, guiding Culture is the set of values, guiding beliefs, understandings and ways of beliefs, understandings and ways of thinking that are shared by the thinking that are shared by the members of an organization and is members of an organization and is taught to new members as correct. It taught to new members as correct. It represents the unwritten, feeling part represents the unwritten, feeling part of the organization.of the organization.

► ‘‘the way we do things around here’the way we do things around here’

The effect of cultureThe effect of culture

►StrategyStrategy►Strategic lens: design, experience, ideaStrategic lens: design, experience, idea►Perceptions about competitorsPerceptions about competitors►Perceptions about customersPerceptions about customers►Management styleManagement style►Attitude to various stakeholdersAttitude to various stakeholders►Ethical behaviorEthical behavior►Attitude towards CSRAttitude towards CSR

The cultural webThe cultural web

►A way of understanding organization – A way of understanding organization – paradigmparadigm

►Organizations find it difficult to think Organizations find it difficult to think and act outside that paradigmand act outside that paradigm

► It is a shared mindset – formed from the It is a shared mindset – formed from the basic or implicit assumptions that basic or implicit assumptions that members of an organization members of an organization unconsciously carry around themunconsciously carry around them

►Cultural web: six inter-related elementsCultural web: six inter-related elements

6 key inter-related elements6 key inter-related elements

►Routines and ritualsRoutines and rituals►Stories and mythsStories and myths►SymbolsSymbols►Power structurePower structure►Organizational structureOrganizational structure►Control systemsControl systems

Core values and missionCore values and mission

►The most generalized type of objectThe most generalized type of object►Core values are the principles that Core values are the principles that

guide an organization’s behaviorguide an organization’s behavior►Content of mission statement: Content of mission statement:

purpose, strategy, policies and purpose, strategy, policies and standards of behavior, valuesstandards of behavior, values