1. Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Strategic Management: Text and Cases, 4e 9 Strategic Control and Corporate Governance

2. 9 - 2 Ensuring Informational Control Traditional control system Based largely on the feedback approach Traditional approach is sequential Strategies are formulated and top management sets goals

3. 9 - 3 Ensuring Informational Control Contemporary control system Interactive relationships between strategy formulation, implementation and control Two different types of control

4. 9 - 4 Informational control Behavioral control Both types of control are necessary success Contemporary Approach to Strategic Control

5. 9 - 5 Informational Control Key question -“Do the organization’s goals and strategies still ‘fit’ within the context of the current strategic environment?” Deals with internal external environments Two key issues

6. 9 - 6 Behavioral Control Behavioral control is focused on implementation— doing things right Three key control “levers” -Culture -Rewards -Boundaries

7. 9 - 7 Behavioral Control: Balancing Culture, Rewards, and Boundaries Contemporary approach - A balance between Culture Rewards Boundaries Traditional approach -Emphasizes comparing outcomes to predetermined strategies and fixed rules Adapted from Exhibit 9.3 Essential Elements of Strategic Control

8. 9 - 8 Building a Strong and Effective Culture Organizational culture is a system Organizational culture shapes a firm’s Culture sets implicit boundaries (unwritten standards of acceptable behavior)

9. 9 - 9 Motivating with Rewards and Incentives Rewards and incentive systems Potential downside

10. 9 - 10 Setting Boundaries and Constraints How would you set boundaries at Enron? Using organizational culture … Using written rules ….

11. 9 - 11 Some Definitions Culture: a system of unwritten rules that forms an internalized influence over behavior. Rules: Written and explicit guidelines that provide external constraints on behavior. Rewards: The use of performance-based incentive systems to motivate.

12. 9 - 12 Role of Corporate Governance Relationship among t he shareholders, the management and the board of directors Align managerial motives with t he interests of the shareholders and the board of directors

13. 9 - 13 Governance Mechanisms: Aligning the Interests of Owners and Managers Committed and involved board of directors Shareholder activism Managerial incentives External Governance Control Mechanisms

14. 9 - 14 Governance Controls Internal Executives Management Board of directors Shareholders (investors) External Market for corporate control Auditors Banks and analysts Regulatory bodies Media

15. 9 - 15 Agency Theory Deals with the relationship between -Principals -Agents Goals of principals and agents may conflict Principal and agent may have different attitudes and preferences toward risk

16. 9 - 16 Major Provisions of Sarbanes-Oxley Act Auditors CEOs and CFOs Executives