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Corporate Governance Systems

Corporate Governance Systems. Team 4 Candice Woods Jennifer Zhang May 27, 2013. What is Corporate Governance?. The system of rules and practices that governs a firms decision making processes.

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Corporate Governance Systems

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  1. Corporate Governance Systems Team 4 Candice Woods Jennifer Zhang May 27, 2013

  2. What is Corporate Governance? • The system of rules and practices that governs a firms decision making processes

  3. Assigned Article • Stakeholder rights and corporate governance: • A cross-national study of hostile takeovers William D. Schneper Mauro F. Guillén

  4. What is a Hostile Takeover? • A corporate acquisition implemented either by a shareholder or stakeholder that is in contest to a firms incumbent managers

  5. Normative Power Conception Traditional Viewpoints Hostile Takeover

  6. Hostile Takeover Occurrences

  7. Governance Systems Stakeholder Model Shareholder Model Firms purpose is to make SH’s Richer Ongoing Power Struggle Managers vs. SH’s Profit maximizing; high-risk Hostile takeover is correlated with economy health and company performance • Corporate control depends on Support • Ongoing Power Struggle • Risk-averse; utilize capital • Share Price measure of Performance • Hostile Takeovers are rare

  8. Findings • Hostile Takeover increase when there are strong SH rights and when financial institutions and workers rights are not strongly protected • Inversely correlated

  9. Article 1 • “The role of Hostile Takeovers in Corporate Governance” • RajeevaSinha • Underperformance does not motivate a hostile takeover • Narrowly defined a hostile takeover • Occurs when the managers or BOD have been replaced during hostile takeover • Other wise a Synergistic Takeover

  10. Creative Destruction • Schumpeterian process of ‘creative destruction’ likely the cause of hostile takeovers Hostile takeovers in Europe • Hostile takeovers occur in waves; correlated to technological advances and political/economical changes • Mechanism to adapt to external environmental changes

  11. Currently used Defense Strategies United States United Kingdom Employed dividends Announced Profits • Charter amendments • Litigation • Poison Pill • “flip in” • “flip over” • Greenmail

  12. Article 2 “Stakeholder Theory: Reviewing a Theory That Moves Us” André O.Laplume, Karan Sonpar &Reginald A.Litz 3 Main Stakeholders • Shareholders • Banks • Workers “To be an effective strategist, you must deal with those groups that can affect you, while to be responsive, you must deal with those group that you can affect.” -Freeman

  13. Who else can be the Stakeholders Internal Stakeholders External Stakeholders Governments Competitors Consumer advocates Environmentalists Special interest groups media • Owners • Customers • Employees • Suppliers

  14. How do Stakeholders Influence Firms • With direct & indirect withholding and conditional usage strategies • Influence depends on relationship structure, contractual forms, and institutional supports • Influence is determined by the power and legitimacy of a stakeholder • By forming coalitions and collaboration.

  15. How Suppliers Influence A Firm’s Decision Making • Porter’s Five Forces Model • The Strength of Bargaining Power of Suppliers

  16. How do firms gain stakeholder support? • By building stakeholder trust and avoiding opportunistic relationships • Maintain a good reputation • Become involved in non-profit work • Increase work involvement by offering an employee stock option

  17. Article 3 The second assigned article “Comparative and International Corporate Governance” Ruth V. Aguilera a & Gregory Jackson cross-country diversity in corporate governance

  18. Correlations in Conclusion Recall from the previous slide

  19. Need more studies on cultural aspects that encourages HT

  20. SH vs. SKGovernance System + Cultural analysis (Hofstede)

  21. References • Aguilera, R. V., & Jackson, G. 2010. Comparative and international corporate governance. Academy of Management Annals, 4(1): 485-556. doi: http://dx.doi.org/10.1080/19416520.2010.495525 • Laplume, A., Sonpar, K., & Lits, R. (2008). Stakeholder Theory: Reviewing a Theory That Moves Us. Journal of Management, 34:1152. Doi: 10.1177/0149206308324322 • Porter, E., M. (2008). The five competitive forces that shape strategy. Harvard Business Review. January, 2008, 79-92. • Schneper, W. D., & Guillen, M. F. 2004. Stakeholder rights and corporate governance: cross-national study of hostile takeovers. Administrative science quarterly, 49(2): 263-295. Retrieved from http://web.ebscohost.com/bsi/pdfviewer/pdfviewer?sid=a2f62067-c872-42d0-994d-e9cd09965b01%40sessionmgr115&vid=52&hid=117 • Sinha, R. (2004). The role of hostile takeovers in corporate governance. Applied Financial Economics, 14(18), 1291-1305. doi:10.1080/0960310042000280492

  22. Thank you all for listening and participating!

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