Strategic Control and Corporate Governance Chapter Nine McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives After reading this chapter, you should have a good understanding of: LO9.1 The value of effective strategic control systems in strategy implementation. LO9.2 The key difference between “traditional” and “contemporary” control systems. LO9.3 The imperative for “contemporary” control systems in today’s complex and rapidly changing competitive and general environments. 9-2
Learning Objectives (cont.) LO9.4 The benefits of having the proper balance among the three levers of behavioral control: culture, rewards and incentives, and boundaries. LO9.5 The three key participants in corporate governance: shareholders, management (led by the CEO), and the board of directors. LO9.6 The role of corporate governance mechanisms in ensuring that the interests of managers are aligned with those of shareholders from both the United States and international perspectives. 9-3
Strategic Control Strategic control the process of monitoring and correcting a firm’s strategy and performance Informational, behavioral 9-4
Contemporary Approach to Strategic Control 9-5 Exhibit 9.2
Effectiveness of Contemporary Control Systems 1. Focus on constantly changing information that has potential strategic importance. 2. The information is important enough to demand frequent and regular attention from all levels of the organization. 3. The data and information generated are best interpreted and discussed in face-to-face meetings. 4. The control system is a key catalyst for an ongoing debate about underlying data, assumptions, and action plans. 9-6
Behavioral Control Behavioral control is focused on implementation—doing things right Three key control “levers” Culture Rewards Boundaries 9-7
Building a Strong and Effective Culture Organizational culture a system of shared values and beliefs that shape a company’s people, organizational structures, and control systems to produce behavioral norms. 9-8
Motivating with Rewards and Incentives Rewards and incentive systems Powerful means of influencing an organization’s culture Focuses efforts on high-priority tasks Motivates individual and collective task performance Can be an effective motivator and control mechanism 9-9
Characteristics of Effective Reward and Evaluation Systems 9-10 Exhibit 9.4
Organizational Control: Alternative Approaches 9-11 Exhibit 9.6
Role of Corporate Governance Corporate governance the relationship among various participants in determining the direction and performance of corporations. primary participants are the shareholders, the management, and the board of directors.” 9-12
Agency Theory: Two Problems 1. The conflicting goals of principals and agents, along with the difficulty of principals to monitor the agents, and 2. The different attitudes and preferences towards risk of principals and agents. 9-13
The New Rules for Directors 9-14 Exhibit 9.7
TIAA-CREF’s Principles on the Role of Stock in Executive Compensation 9-15 Exhibit 9.8