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Prentice Hall, Inc. © 2006 2-1
STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
CHAPTER 2 Corporate Governance
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Prentice Hall, Inc. © 2006 2-2
Corporate Governance
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Prentice Hall, Inc. © 2006 2-3
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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Prentice Hall, Inc. © 2006 2-4
Corporate Governance
Role of Board
–Monitor
–Evaluate and influence
–Initiate and determine
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Prentice Hall, Inc. © 2006 2-5
Board of Directors Continuum
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Board of Directors
Members --
–Inside directors•“management directors”•Officers or execs employed by the firm
–Outside directors•“non-management directors”•Execs of other firms not employed by the board’s corporation
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Prentice Hall, Inc. © 2006 2-7
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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Prentice Hall, Inc. © 2006 2-9
Board of Directors
When Outsiders can be considered Insiders
–Affiliated Directors–Retired Directors–Family Directors
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Prentice Hall, Inc. © 2006 2-10
Board of Directors
Codetermination
–The inclusion of a corporation’s employees on its board of directors
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Prentice Hall, Inc. © 2006 2-11
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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Prentice Hall, Inc. © 2006 2-13
Board of Directors
Nominations & Elections
–Staggered Board Approach•Staggered terms of service/election
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Prentice Hall, Inc. © 2006 2-14
Board of Directors
Sarbanes-Oxley
–Code of Ethics
–Audit, Nominating, and Compensation Committees all outside directors
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Prentice Hall, Inc. © 2006 2-15
Board of Directors
Organization of the Board
–Size
•Charter & Bylaws Determination
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Prentice Hall, Inc. © 2006 2-16
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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Prentice Hall, Inc. © 2006 2-18
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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Prentice Hall, Inc. © 2006 2-20
Board of Directors
Executive Leadership
–Communication of performance standards–Demonstrates confidence in abilities of followers
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Prentice Hall, Inc. © 2006 2-21
Strategic Management Process
Strategic Planning Staff
–Supports top management & business units in the strategic planning process
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Prentice Hall, Inc. © 2006 2-22
Strategic Management Process
Strategic Planning Staff
–Identify & analyze company-wide strategic issues–Generate strategic alternatives
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Prentice Hall, Inc. © 2006 2-23
Strategic Management Process
Strategic Planning Staff
–Facilitate business units in coordinating activities related to strategic planning process