CHAPTER 2
Corporate
Governance
STRATEGIC MANAGEMENT & BUSINESS POLICY
10TH EDITION
THOMAS L. WHEELEN
Prentice Hall, Inc. 2006
J. DAVID HUNGER
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Corporate Governance
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Corporate Governance
The relationship among the board of
directors, top management, and
shareholders determining the direction
and performance of the corporation
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Corporate Governance
Role of Board
Monitor
Evaluate and influence
Initiate and determine
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Board of Directors Continuum
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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
boards corporation
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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
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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.
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Board of Directors
When Outsiders can be considered Insiders
Affiliated Directors
Retired Directors
Family Directors
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Board of Directors
Codetermination
The inclusion of a corporations employees on its
board of directors
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Board of Directors
Interlocking Directorates
Direct Interlocking
Indirect Interlocking
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Board of Directors
Nominations & Elections
Traditional Approach
CEO invitation to membership
Shareholders approval in annual proxy statement
All nominees usually elected
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Board of Directors
Nominations & Elections
Staggered Board Approach
Staggered terms of service/election
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Board of Directors
Sarbanes-Oxley
Code of Ethics
Audit, Nominating, and Compensation
Committees all outside directors
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Board of Directors
Organization of the Board
Size
Charter & Bylaws Determination
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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
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Board of Directors
Transformational leaders
Change agents through vision for change
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Board of Directors
Successful CEOs
Strategic vision
Passion for the company
Strong communication
charisma
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Board of Directors
Executive Leadership
Strategic vision
Role model
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Board of Directors
Executive Leadership
Communication of performance standards
Demonstrates confidence in abilities of followers
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Strategic Management Process
Strategic Planning Staff
Supports top management & business units in
the strategic planning process
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Strategic Management Process
Strategic Planning Staff
Identify & analyze company-wide strategic issues
Generate strategic alternatives
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Strategic Management Process
Strategic Planning Staff
Facilitate business units in coordinating activities
related to strategic planning process
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