STRATEGIC MANAGEMENT & BUSINESS POLICY 12 TH EDITION

1. CHAPTER 2 Corporate Governance STRATEGIC MANAGEMENT & BUSINESS POLICY12THEDITION THOMAS L. WHEELEN J. DAVID HUNGER

2. Corporate Governance

3. Corporate Governance The relationship among the board of directors, top management, and shareholders determines the direction and performance of the corporation. CompanyDirection Determines

4. Corporate Governance • Role of Board • Monitor • Evaluate and influence • Initiate and determine

5. Board of Directors Continuum

6. 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

7. Agency Theory • 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 • 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.

8. Board of Directors • When Outsiders can be considered Insiders • Affiliated Directors • Retired Directors • Family Directors

9. Board of Directors • Codetermination • The inclusion of a corporation’s employees on its board of directors

10. Board of Directors • Interlocking Directorates • Direct Interlocking • Indirect Interlocking

11. Board of Directors • Nominations & Elections • Traditional Approach • CEO invitation to membership • Shareholders approval in annual proxy statement • All nominees usually elected • Staggered Board Approach • Staggered terms of service/election

12. Board of Directors • Sarbanes-Oxley • Code of Ethics • Audit, Nominating, and Compensation Committees all outside directors

13. Board of Directors • Organization of the Board • Size • Charter & Bylaws Determination

14. Board of Directors • A Board of Directors job is to provide corporate governance • Review & shaping of strategy • Pressure for corporate performance • Demand for executive stock ownership • Outside directors increasing • Impact of Sarbanes-Oxley • On behalf of: Best for the: Stockholders Employees Management Team Society Best for the: Management Team Stockholders Employees Society Best for the: Society Employees Management Team Stockholders

15. Board of Directors • Transformational leaders • Change agents through vision for change

16. Board of Directors • Successful CEOs usually display: • Strategic vision • Passion for the company • Strong communication skills • Charisma

17. Board of Directors • Executive Leadership • Provides strategic vision • Serves as a role model • Clearly communicates performance standards • Demonstrates confidence in abilities of followers

18. Strategic Management Process • Strategic Planning Staff • Identifies & analyzes company-wide strategic issues • Gathers outside information and viewpoints • Generates strategic alternatives • Supports top management & business units in the strategic planning process • Facilitates business units in coordinating activities related to strategic planning process