INTRODUCTION TO CORPORATE GOVERNANCE,

BUSINESS LAW & ETHICS

Stephen Ong, BSc(Hons) Econs (LSE),

MBA International Business(Bradford)

Visiting Fellow, Birmingham City University

Visiting Professor, Shenzhen University

MBA1034 GOVERNANCE, LAW & ETHICS

• BUSINESS ENVIRONMENT1

• NONMARKET ENVIRONMENT2

• 4 I’s Framework for Analysis3

Today’s Overview

Topics Covered

• Introduction

• The environment of business

• The role of management

• Market and nonmarket environments

• Analysis of the nonmarket environments: The four I’s

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Topics Covered

• The nonmarket environment of the automobile industry

• Change in the nonmarket environment

• Anticipating change in the nonmarket environment

• The nonmarket issue life cycle

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Introduction

• Firms have more control over their fate in the markets in which they operate

– Less in their nonmarket environment

• Successful companies understand that:

– If they do not manage their nonmarket environment, it will manage them

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The Environment of Business

• Market component

• Nonmarket component

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Examples of Nonmarket Issues

• Sustainability and global climate change

• Security, health and safety

• Regulation and deregulation

• Intellectual property protection

• Human rights

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Examples of Nonmarket Issues

• International trade policy

• Antitrust

• Social pressure from nongovernmental organizations (NGOs) and social activists

• News media coverage and social media

• Corporate social responsibility

• Ethics

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The Role of Management

• Successful management requires:

– Frameworks for analyzing nonmarket issues

– Principles for reasoning about them

– Strategies for addressing them

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Market and Nonmarket Environments

• Firm’s activities in market environment can generate nonmarket issues and change in nonmarket environment

• Nonmarket issues and actions shape the market environment

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Figure 1.1 - The Environment of Business

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Analysis of the Nonmarket Environment: The Four I’s

• Issues

• Interests

• Institutions

• Information

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The Nonmarket Environment of the Automobile Industry

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Issues

Interests

Institutions

Information

Change in the Nonmarket Environment

• The nonmarket environment changes as:

– Issues are resolved

– Current issues progress

– New issues arise

• Nonmarket issues originate from:

– External forces

– A firm’s own actions

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Sources of Nonmarket Issues

• Scientific discovery and technological advancement

• New understandings

• Institutional change

• Interest group activity

• Moral concerns

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Anticipating Change in the Nonmarket Environment

• The effectiveness with which a firm and its managers address nonmarket issues depends on four approaches to the nonmarket environment

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The Nonmarket Issue Life Cycle

• The progression of nonmarket issues can be understood in terms of a life cycle

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Figure 1.2 - Nonmarket Issue Life Cycle

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CASE DISCUSSION : GLOBAL

PHARMACEUTICAL INDUSTRY

Case - The Nonmarket Environment of the Pharmaceutical Industry

• U.S. spending on pharmaceuticals increased by 19 percent to $131.9 billion in 2000

– The expenditures reflected high prices, heavy marketing expenditures, and high profits

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Case - The Nonmarket Environment of the Pharmaceutical Industry

• In 2001 Bayer withdrew its newly introduced and fastselling cholesterol-lowering drug Baycol because over 50 deaths were associated with its use

• Patents provided the most important protection for intellectual property in the pharmaceutical industry

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Casestudy : AIG

1. View the video “Capitalism : A Love story”and assess Big Banks and AIG’s role in theglobal subprime crisis.

2. Read and prepare the Casestudy on AIG(Monks & Minow (2011)) for discussionnext class. Analyse using PELE and 4ianalysis and identify the corporategovernance issues that AIG faced.

Further Reading• Solomon, Jill (2010) Corporate Governance and

Accountability 3rd Edition, Wiley, UK. Ch.1-3

• Larcker, David & Tayan, Brian (2011) Corporate Governance Matters, FT Press/Pearson New Jersey. Ch.1

• Goergen, Marc (2012) International Corporate Governance, Pearson. Ch.1

• Monks, A.G. & Minow, N. (2011) Corporate Governance, 5th

Edition, Wiley. Ch.1

• Johnson, Gerry, Whittington, Richard & Scholes, Kevan(2011), 9th edition, FT Prentice Hall/Pearson UK..Ch.4

• CIMA - Performance Strategy: Study Text (2011) BPP Learning Media Ltd. Part B : 3

Idea for Discussion

Brendan McSweeney, (2008),"Maximizing shareholder-value: A panacea for economic growth or a recipe for economic and social disintegration?", critical perspectives on international business, Vol. 4 Iss: 1 pp. 55 – 74

QUESTIONS?