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Corporate Governance and Parenting Gerry Johnson/Hilary Collins

To consider what is meant by corporate governance and parenting; And the boardroom issues that arise. Corporate Governance and Parenting Gerry Johnson/Hilary Collins. Aims of the Session. Discussion of corporate governance (with video interview with David Pitt-Watson)

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Corporate Governance and Parenting Gerry Johnson/Hilary Collins

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  1. To consider what is meant by corporate governance and parenting; And the boardroom issues that arise. Corporate Governance and ParentingGerry Johnson/Hilary Collins Aims of the Session

  2. Discussion of corporate governance (with video interview with David Pitt-Watson) Reminder discussion of corporate parenting Session Outline • HomeCo case study/role play • Group presentations

  3. What’s Governance About? “The purpose of high standards of governance is to increase the firm’s value, subject to meeting the corporation’s financial and other legal or contractual obligations. This inclusive definition stresses the need for boards of directors to balance the interests of capital providers with those of other stakeholders in order to achieve long term sustained commercial success. From a public policy perspective, the purpose of corporate governance is to nurture the spirit of enterprise whilst ensuring accountability for the exercise of power and patronage by firms.”The OECD Global Corporate Governance Forum

  4. Whom the organisation is there to serve and how the purposes and priorities of the organisation should be decided. Corporate Governance An Exploring Corporate Strategy Definition

  5. Reports received: Beneficiaries Limited reports Trustees Limited investment performance reports Investment managers Accounts Analysts’ reports Company briefings Board Budgets/qualitative reporting Executive directors Budgets/qualitative reporting Senior executives Budgets/other operating reports Managers Exhibit 4.2 The chain of corporate governance: typical reporting structure Source: David Pitt-Watson, Braxton Associates. Reproduced with permission

  6. Who is the “shareholder”? How is the board responsible to shareholders? Who are other important stakeholders? What is the influence of investment managers? What should be the nature and composition of the board? How do boards manage and control? A shareholder or stakeholder focus? Governance - Key Issues

  7. Role of the Corporate Parent

  8. Four questions of corporate strategy What is the role of the corporate centre? (How does it add value to the businesses?) Is the group over diversified? (The extent and type of diversification) What is the logic of the portfolio? Is the corporate control style appropriate?

  9. The corporate challenge: “If we don’t or can’t add value, then we are just a cost and may destroy value. The businesses would be better off on their own, or with someone else. If we can add value, then how: and how should we be organised to do it?”

  10. Shareholders/Investors Parent Organisation Parenting skills Businesses Corporate parent as middleman

  11. “Agent” for financial markets Identifying and acquiring under-valued assets Divesting low performing SBUs quickly and good performers at a premium Autonomous SBUs Small, low-cost corporate staff Incentives based on SBU results Portfolio managers Logic Strategic requirements Organisational requirements

  12. The achievement of synergistic benefits Sharing activities/resources r transferring skills/competences to enhance competitive advantage of SBUs Identification of appropriate bases for sharingor transferring Identification of benefits which outweigh costs Collaborative SBUs Corporate staff as integrators Overcoming SBU resistance to sharing or transferring Incentives affected by corporate results Synergy managers Logic Strategic requirements Organisational requirements

  13. Central competences can be used to create value in SBUs SBUs not fulfilling their potential (a parenting opportunity) The Centre has clear and relevant resources or capabilities to enhance SBU potential The portfolio is suited to Centre’s expertise Centre managers understand SBUs (“sufficient feel”) Effective structural and control linkages from Centre to SBUs SBUs may be autonomous unless collaboration is required Incentives based on SBU performance Parental developers Logic Strategic requirements Organisational requirements

  14. Who are you responsible to? For what? Is this a governance issue or a strategy issue; or both? How do you balance personal interest, corporate interest and societal interest? How might the centre add value to the business? How should we manage our businesses? What is the role of the board in all this? Your Challenges

  15. Chairman and Group CEO (Michael) Group Finance Director (Paula) CEO – Plastics Division and Group Chief Executive Designate (Brian) CEO –HomewareDivision (Charles) Family Non-Executive Director (James) Employee Non- Executive Director (Arthur) 2 Non Executive Directors (Julia and Derek) HomeCo: Participants

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