Corporate Governance

1
Chapter 2

• Corporate Governance Social Responsibility

2
1. Mission, Objectives Strategies
3
Mission vs. Strategic Visions

• A mission statement focuses on current business
  activities -- who we are and what we do
• Current product and service offerings
• Customer needs being served
• Technological and business capabilities
• Jack Trout on Mission Statements
• http//www.forbes.com/columnists/2006/08/18/jack-t
  rout-on-marketing-cx_jt_0821mission.html

4
Example Mission Statement
Intels core mission is being the building block
supplier to the Internet economy and spurring
efforts to make the Internet more useful. Being
connected is now at the center of peoples
computing experience. We are helping to expand
the capabilities of the PC platform and the
Internet.
5
What are Objectives?

• End results of planned activity
• They state what is to be accomplished by when
• quantified if possible (examples from the
  BSG-Online Simulation)
• Return on Equity (ROE)
• Earnings per Share (EPS)
• Credit Risk (Credit Rating)
• Stock Price
• Image Rating
• Managers now routinely require that objectives be
  SMART
• Specific, Measurable, Attainable, Realistic, Timed

6
What are Strategies?

• Comprehensive plans stating how the organi-zation
  will achieve its mission objectives
• Eg. Porters Generic Strategies
• A hierarchy of strategy is the grouping of
  strategy type by levels in the organization
• Corporate Overall Direction
• Business Competitive Cooperative
• Functional Maximize Resources Productivity

7
Three Levels of Strategy
Corporate Strategy
Business (Division Level) Strategy
Functional Strategy
8
NIKE Mission, Objectives, Strategies

• Work with a partner
• Outline NIKEs Strategic Decision-Making process
• MISSION
• OBJECTIVES
• STRATEGIES

9
NIKE Mission, Objectives, Strategies
Identify Nikes current
10
Assignment 2 Mission, Objectives, Strategies

• Form into pairs.
• Outline the your companys Strategic
  Decision-Making process
• Determine your companys MISSION, OBJECTIVES
  STRATEGIES (for 1st practice year)
• Write your name on the sheet!
• You have 15 minutes to complete the exercise.

Names ___________________________
___________________________ __________________
_________ ______________________
_____
11
Assignment 2 Mission, Objectives, Strategies
Identify your companys current
Name _____________________________________

12
2. Corporate Governance

• Relationship which exists among board of
  directors, management and shareholders to ensure
  proper direction and performance levels are
  achieved

13
Role of Board

• Board of Directors
• Elected by shareholders
• Authority responsibility to protect shareholder
  interests
• Responsibilities
• Set corporate strategy, direction, mission/vision
• Succession hire fire CEO top management
• Review approve use of resources
• Care for stockholder interests

14
Role of Board

• Board of Director Members
• Inside Directors
• Members of Senior Management (CEO)
• Outside Directors
• Executives from other firms
• Experts opinion leaders
• Other stakeholders

15
Role of Board

• Trends in Boards of Directors
• More active role in strategic management
• Increasing number of institutional investors
• Greater stock ownership by directors
• Greater willingness to balance profit social
  needs of society
• Governance Video
• http//video.google.ca/videoplay?docid55605218575
  9050185qcorporategovernancetotal110start0n
  um10so0typesearchplindex0

16
Agency Theory

• Managers of large, publicly traded firms are
  typically not the owners. In fact, many top
  managers own small amounts of stock. The owners
  (shareholders) elect boards of directors who hire
  managers as the agents to run the firms
  day-to-day activities.
• AGENCY THEORY is concerned with analysing
  resolving two problems that occur between owners
  agents
• The Agency Problem arises when
• objectives of owners agents conflict, and
• It is difficult for owners to verify what the
  agent is actually doing
• The Risk Sharing Problem arises when
• Owners and agents have different attitudes toward
  risk
• How can companies reduce the likelihood and
  severity of the Agency Problem and the Risk
  Sharing Problem?

17
Role of Top Management

• Top Management
• Comprised of CEO, COO (or President), and vice
  presidents of divisions and/or functions
• Meet corporate objectives by getting things done
  through and with others
• CEO Responsibilities
• Provide executive leadership strategic vision
• Manage the strategic planning process

18
Social Responsibilities of Strategic Decision
Makers

• The Debate Is management responsible only to
  stockholders or should they have broader social
  responsibilities?
• Milton Friedman laissez-faire view
• profit maximization is the only social
  responsibility of business
• Archie Carroll Four responsibilities of business
• economic, legal, ethical, discretionary

• A pessimistic perspective Anita Roddick
  http//www.bigpicture.tv/videos/watch/310dcbbf4
• A hopeful perspective Oded Grajew
  http//video.google.com/videoplay?docid6180036948
  830658291

19
Social Responsibilities of Strategic Decision
Makers

• Responsibilities of Business

Social Responsibility

• Are leading Canadian companies demonstrating
  corporate social responsibility?
• Tim Hortons Loblaws RIM CIBC

20
Social Responsibilities of Strategic Decision
Makers

• Should corporations be the engines for
  corporate social responsibility?
• Is government solely responsible for setting the
  rules?
• Where do advocacy groups fit into the equation?
• Have they interests that we should understand?

21
Social Responsibilities of Strategic Decision
Makers

• How do strategic managers balance the interests
  of its stakeholders in a socially responsible
  manner?
• Identify groups within the firms task
  environment that are affected by the firms
  activities
• Identify when the interests of one group can
  conflict with another
• Weigh how alternative decisions will affect
  stakeholder groups
• The option that appears to be most profitable may
  have negative consequences for the firm
• Consider the utilitarian, rights, and theory of
  justice models of moral behaviour

22
The Last Word

• A famous filmmaker offers hope for those who
  distrust capitalist engines of growth
• http//video.google.com/videoplay?docid-223429697
  9377023531