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CorporateGovernance

Chapter 2

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Learning Objectives

Describe the role and responsibilities of theboard of directors in corporate governance

Understand how the composition of a board

can aect its operation

Describe the impact of the SarbanesOle!"ct on corporate governance in the UnitedStates

Disc#ss trends in corporate governance

$plain how eec#tive leadership is animportant part of strategic management

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+ole of the ,oard ofDirectors

Corporation a mechanism established to allow

dierent parties to contrib#te capital-epertise and labor for their m#t#albene.t

/he corporation is governed b! theboard of directorsthat oversees topmanagement with the conc#rrenceof the shareholders0

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+ole of the ,oard ofDirectors

Corporate governance refers to the relationship among the

board of directors- top management andshareholders in determining thedirection and performance of thecorporation

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+esponsibilities of the ,oard

Efective Board Leadership

Strategy o the Organization

Risk vs. Initiative

Succession Panning

Sustaina!iity

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+esponsibilities of the ,oard

"ue care the board is re3#ired to direct the aairs

of the corporation b#t not to managethem

4f a director or the board as a whole failsto act with d#e care and- as a res#lt- thecorporation is in some wa! harmed- thecareless director or directors can be heldpersonall! liable for the harm done0

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+ole of the ,oard in

Strategic 6anagement

#onitordevelopments inside ando#tside the corporation

Evauate and In$uencemanagement proposals- decisionsand actions

Initiate and "eter%ine thecorporation7s mission and strategies

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,oard of Directors7Contin##m

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6embers of a ,oard ofDirectors

Inside directors t!picall! o:cers or eec#tives

emplo!ed b! the corporation

Outside directors ma! be eec#tives of other .rms b#t

are not emplo!ees of the board7scorporation

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6embers of a ,oard ofDirectors

&gency theory states that problems arise in

corporations beca#se the agents

in the corporation

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6embers of a ,oard ofDirectors

Ste'ardship theory proposes that- beca#se of their long

ten#re with the corporation- insiders

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6embers of a ,oard ofDirectors

&(iated directors not emplo!ed b! the corporation- handle

legal or ins#rance wor>

Retired e)ecutive directors #sed to wor> for the corporation- partl!

responsible for past decisions aecting

c#rrent strateg!*a%iy directors descendants of the fo#nder and own

signi.cant bloc>s of stoc>

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Codetermination? Sho#ld $mplo!eesServe on ,oards@

Codeter%ination the incl#sion of a corporation7s wor>ers on

its board- began onl! recentl! in the United

States

"ltho#gh the movement to place emplo!eeson the boards of directors of U0S0 companies

shows little li>elihoodof increasing- the$#ropean eperience reveals an increasingacceptanceof wor>er participation oncorporate boards0

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4nterloc>ing Directorates

"irect interocking directorate when two .rms share a director or when

an eec#tive of one .rm sits on theboard of a second

Indirect interocking directorate when two corporations have directors

who serve on the board of a third .rm

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4nterloc>ing Directorates

Interocking directorates #sef#l for gaining both inside

information abo#t an #ncertainenvironment and objective epertiseabo#t potential strategies and tactics

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Aomination and $lection of

,oard 6embers

+,- of U0S0 boards #se nominatingcommittees to identif! potential

board membersStaggered !oards onl! a portion of board members stand

for re*election when directors servemore than one !ear terms

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Aomination and $lection of

,oard 6embers

Criteria for a good director incl#de? Billingness to challenge management

when necessar!

Special epertise that is important to thecompan!

"vailable for o#tside meetings to advisemanagement

$pertise on global iss#es

Understands the .rm7s >e! technologiesand processes

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Organiation of the ,oard

/he sie of a board in the UnitedStates is determined b! thecorporation7s charter and its b!*laws- in compliance with state laws0

"ltho#gh some states re3#ire a

minim#m n#mber of board members-most corporations have 3#ite a bit ofdiscretion in determining board sie0

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Organiation of the ,oard

/he average large- p#blicl! held U0S0.rm has (' directors on its board

/he average small- privatel!*heldcompan! has fo#r to .ve members0

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Organiation of the ,oard

Lead director cons#lted b! the ChairC$O regarding

board aairs and coordinates the ann#aleval#ation of the C$O

;5E of U0S0 companies thatcombine the Chairman and C$Opositions had a lead director0

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Organiation of the ,oard

/he most eective boardsaccomplish m#ch of their wor>

thro#gh committees0"ltho#gh the! do not #s#all! have

legal d#ties- most committees are

granted f#ll powerto act with thea#thorit! of the board betweenboard meetings0

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4mpact of the Sarbanes Ole!

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4mpact of the SarbanesOle!"ct on U0S0 Corporate

GovernanceSar!anesO)ey &ct designed to protect shareholders from

ecesses and failed oversight of boardsof directors

whistleblower proced#res

improved corporate .nancial

statements

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$val#ating Governance

S/P Corporate 0overnanceScoring Syste%

Ownership Str#ct#re and 4nF#ence inancial Sta>eholder +ights and

+elations

inancial /ransparenc! and 4nformation

Disclos#re ,oard Str#ct#re and &rocesses

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"voiding Governance 4mprovements

6#ltiple classes of stoc>

blic to private ownership

Controlled companies

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/rends in CorporateGovernance

,oards shapingcompan! strateg!

4nstit#tional investors active on boards

Shareholder demands that directorsand top management own signi.cantstoc>

6ore involvement of non*a:liated

o#tside directors

4ncreased representation of women andminorities

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/rends in CorporateGovernance

,oards eval#ating individ#al directors

Smaller boards

Splittingthe Chairman and C$Opositions

Shareholders ma! begin to nominateboard members

Societ! epects boards to balancepro.tabilit! with social needs of societ!

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/he +ole of /op6anagement

1op %anage%entresponsi!iities

involve getting things accomplishedthro#gh and with others in order tomeet the corporate objectives0

are m#ltidimensional and are oriented

toward the welfare of the totalorganiation

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$ec#tive Leadership and

Strategic Hision

E)ecutive eadership the directing of activities toward the

accomplishment of corporateobjectives- sets the tone for the entirecorporation

Strategic vision description of what the compan! is

capable of becoming

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$ec#tive Leadership and

Strategic Hision

1ransor%ationa eaders provide change and movement in an

organiation b! providing a vision forthat change

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$ec#tive Leadership and

Strategic Hision

Characteristics o efective CEOsincl#de?

(0/he C$O artic#lates a strategic vision forthe corporation0

20/he C$O presents a role for others toidentif! with and to follow0

10/he C$O comm#nicates high performancestandards and also show con.dence in thefollowers7 abilities to meet these standards0

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6anaging the

Strategic &lanning &rocess

Strategic panning staf charged with s#pporting both top

management and the b#siness #nits inthe strategic planning process

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6anaging the

Strategic &lanning &rocess

Strategic panning stafresponsi!iities incl#de?

(04dentif! and anal!e compan!*widestrategic iss#es- and s#ggestcorporate strategic alternativesto topmanagement

20Bor> as facilitators with b#siness #nitsto g#ide them thro#gh the strategicplanning process

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