Corporate Governance

Strategic Control Strategic control  the process of monitoring and correcting a firm’s strategy and performance  Informational, behavioral

Ensuring Informational Control Traditional control system 1.strategies are formulated and top management sets goals 2.strategies are implemented 3.performance is measured against the predetermined goal set

Traditional Approach to Strategic Control Most appropriate when  Environment is stable and relatively simple  Goals and objectives can be measured with certainty  Little need for complex measures of performance

Contemporary Approach to Strategic Control Contemporary control system  Continually monitoring the environments (internal and external)  Identifying trends and events that signal the need to revise strategies, goals and objectives

Contemporary Approach to Strategic Control

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.

Characteristics of Effective Reward and Evaluation Systems

Evolving from Boundaries to Rewards and Culture System of rewards and incentives coupled with a strong culture  Hire the right people  Training plays a key role  Managerial role models are vital  Reward systems clearly aligned with organizational goals and objectives

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.”

The Modern Corporation Corporation  A mechanism created to allow different parties to contribute capital, expertise, and labor for the maximum benefit of each party.

Governance Mechanisms Board of directors  a group that has a fiduciary duty to ensure that the company is run consistently with the long-term interests of the owners, or shareholders, of a corporation and that acts as an intermediary between the shareholders and management.

Governance Mechanisms Shareholder activism  actions by large shareholders, both institutions and individuals, to protect their interests when they feel that managerial actions diverge from shareholder value maximization.

External Governance Control Mechanisms External governance control mechanisms  methods that ensure that managerial actions lead to shareholder value maximization and do not harm other stakeholder groups and that are outside the control of the corporate governance system.

External Governance Control Mechanisms Market for corporate control Auditors Banks and analysts Regulatory bodies Media and public activists