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CHAPTER 2 Corporate Governance

CHAPTER 2 Corporate Governance. Corporate Governance. The relationship among the board of directors, top management, and shareholders – determining the direction and performance of the corporation. Corporate Governance. Role of Board Monitor Evaluate and influence Initiate and determine.

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CHAPTER 2 Corporate Governance

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  1. CHAPTER 2 Corporate Governance

  2. Corporate Governance The relationship among the board of directors, top management, and shareholders – determining the direction and performance of the corporation

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

  4. Board of Directors Continuum

  5. 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

  6. 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

  7. 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 • Corporate Governance • Review & shaping of strategy • Pressure for corporate performance • Demand for executive stock ownership • Outside directors increasing • Impact of Sarbanes-Oxley

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

  15. Board of Directors • Successful CEO’s • Strategic vision • Passion for the company • Strong communication • charisma

  16. Board of Directors • Executive Leadership • Strategic vision • Role model • Communication of performance standards • Demonstrates confidence in abilities of followers

  17. Strategic Management Process • Strategic Planning Staff • Supports top management & business units in the strategic planning process • Identify & analyze company-wide strategic issues • Generate strategic alternatives • Facilitate business units in coordinating activities related to strategic planning process

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