1. Prentice Hall, Inc. © 20082-1 STRATEGIC MANAGEMENT & BUSINESS POLICY 11 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 2 Corporate Governance

2. Prentice Hall, Inc. © 20082-2 Corporate Governance

3. Prentice Hall, Inc. © 20082-3 Corporate Governance The relationship among the board of directors, top management, and shareholders – determining the direction and performance of the corporation

4. Prentice Hall, Inc. © 20082-4 Corporate Governance Role of Board –Monitor –Evaluate and influence –Initiate and determine

5. Prentice Hall, Inc. © 20082-5 Board of Directors Continuum

6. Prentice Hall, Inc. © 20082-6 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 board’s corporation

7. Prentice Hall, Inc. © 20082-7 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

8. Prentice Hall, Inc. © 20082-8 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.

9. Prentice Hall, Inc. © 20082-9 Board of Directors When Outsiders can be considered Insiders –Affiliated Directors –Retired Directors –Family Directors

10. Prentice Hall, Inc. © 20082-10 Board of Directors Codetermination –The inclusion of a corporation’s employees on its board of directors

11. Prentice Hall, Inc. © 20082-11 Board of Directors Interlocking Directorates –Direct Interlocking –Indirect Interlocking

12. Prentice Hall, Inc. © 20082-12 Board of Directors Nominations & Elections –Traditional Approach CEO invitation to membership Shareholders approval in annual proxy statement All nominees usually elected

13. Prentice Hall, Inc. © 20082-13 Board of Directors Nominations & Elections –Staggered Board Approach Staggered terms of service/election

14. Prentice Hall, Inc. © 20082-14 Board of Directors Sarbanes-Oxley –Code of Ethics –Audit, Nominating, and Compensation Committees all outside directors

15. Prentice Hall, Inc. © 20082-15 Board of Directors Organization of the Board –Size Charter & Bylaws Determination

16. Prentice Hall, Inc. © 20082-16 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

17. Prentice Hall, Inc. © 20082-17 Board of Directors Transformational leaders –Change agents through vision for change

18. Prentice Hall, Inc. © 20082-18 Board of Directors Successful CEO’s –Strategic vision –Passion for the company –Strong communication –charisma

19. Prentice Hall, Inc. © 20082-19 Board of Directors Executive Leadership –Strategic vision –Role model

20. Prentice Hall, Inc. © 20082-20 Board of Directors Executive Leadership –Communication of performance standards –Demonstrates confidence in abilities of followers

21. Prentice Hall, Inc. © 20082-21 Strategic Management Process Strategic Planning Staff –Supports top management & business units in the strategic planning process

22. Prentice Hall, Inc. © 20082-22 Strategic Management Process Strategic Planning Staff –Identify & analyze company-wide strategic issues –Generate strategic alternatives

23. Prentice Hall, Inc. © 20082-23 Strategic Management Process Strategic Planning Staff –Facilitate business units in coordinating activities related to strategic planning process