Governance and Ethics

Corporate Governance  The separation of ownership and control creates an agency problem in modern corporations What does this mean? This has given rise to a host of governance mechanisms  Some ideas Regulation  SEC, NYSE, GAAP, Sarbanes Oxley Fear of takeover Large bloc holdings  Is the answer more wealthy people?

Governance Mechanisms  Boards Separation of CEO and Chairman Independent vs Executive Directors  Role of audit and compensation committees The average US CEO earns times the salary of an average production worker The figure was 107x in 1990 and 42x in 1982 Is the system working?

Governance Mechanisms  Incentives Stock options  Indexed stock options Bonuses ESOPs Promotion systems  Tournament model Tenure CEO compensation Balanced Scorecard

Stakeholders

Shareholders vs Stakeholders  Milton Friedman the business of business is business anything within the law is legitimate  Society can always change laws if they disapprove of behavior  What if business controls the lawmakers? Instrumentalism  Pursuit of profit in line with societal expectations Corporate Responsibility

Ethics  Utilitarianism On li’l orphans Tyranny of the majority  Rights Model Which bill of rights?  Justice Model (Rawls) Liberty, opportunity, income, wealth, and self- respect - are to be distributed equally unless an unequal distribution of any or all of these goods is to the advantage of the least favored. The concept of the veil of ignorance

Ethics and Strategy  Ethical decision One that typical stakeholders would find acceptable because it aids stakeholders, the organization, or society  Unethical decision One that a manager would prefer to disguise or hide because it enables a company or individual to gain at the expense of society or other stakeholders

Thinking Through Ethical Problems  Does my decision fall within the accepted values or standards that typically apply in the organizational environment?  Am I willing to see the decision communicated publicly to all stakeholders affected by it?  Would the people with whom I have a significant personal relationship approve of the decision?

Approaches to Change Images of Managing Controlling (activities) Shaping (capabilities) Images of Change Outcomes IntendedDIRECTORCOACH Partially Intended NAVIGATORINTERPRETER UnintendedCARETAKERNURTURER Approaches to correcting poor performance.

Exercises  Stakeholder Claims  Al Dunlap