1. Corporate Governance and Social Responsibility

2. Corp govern:an internal system which serves the needs of shareholders and other stake holders by good management activities.
processes, customs, policies ,laws in which a corporation is directed, administered or controlled.

3. Impact of corporate governance
Strong economy, ethical business, socio economic development is a result of good corporate governance
Role of institutional investors(mutual funds ,insurance companies investor groups and banks.
Parties to corporate governance
(CEO,BOD,management,shareholders)

4. Strategic Management Responsibility: Corporate Governance Issues
The corporation is a mechanism established to allow different parties to contribute capital, expertise and labor for their mutual benefit.
Investors/Shareholders – capital providers
Management – expertise & labor providers for running of company
Board of directors (BOD) elected by shareholders to protect their interest.
Corporate governance – relationship among BOD, management, and shareholders

5. The Role of Board of Directors
BOD Typical Responsibilities
Setting corporate strategy, overall direction , mission and/or vision
Succession: Hiring, compensating and firing the CEO and top management
Control: monitoring, evaluating, and/or supervising top management
Reviewing and approving the use of organizational resources
Caring for stockholders’ interest
In legal terms, BOD’s are required to direct the affairs of the corporation but not to manage them (act with due care).

6. The Role of Board of Directors
Role of BOD in the strategic management process
Monitor:
Keep abreast of developments both outside & inside the company
Bring to management’s attention developments it might have overlooked.
Evaluate and influence:
Examine mgt’s proposals, decisions, & actions.
Agree or disagree with them; give advice, offer suggestions & outline alternatives (if any).
Initiate and determine:
Delineate a company’s mission & vision; and specify strategic options to management.

7. The Role of Board of Directors
Degree of involvement is dependent on extent to which it perform the three tasks:
Monitoring (LOW LEVEL OF INVOLVEMENT)
Evaluating and influencing (MEDIUM LEVEL OF INVOLVEMENT)
Initiating and determining (HIGH LEVEL OF INVOLVEMENT)– e.g., GM, Mead Corp.
BOD involvement is a continuum

8. The Role of Board of Directors
The BOD Continuum
Low
Degree of involvement
High
Monitor (40%)
Permit officers to make all decisions.
Formally reviews selected issues
Votes as officers recommend on actions.
Evaluate & Influence (30%)
Involved in review of selected key decisions, indicators or programs of management
Approve, question & makes final decisions on mission, objectives strategy & policies.
Perform fiscal & mgt audits.
Initiate & Determine (30%)
Take leading role in establishing & modifying mission, objectives, strategy & policies.
Has very active strategic committees

9. Composition of Board of Directors
Most publicly-owned corporations are composed of
Inside directors (management directors)
Officers & executives employed by the firm
About 20%/60% in large/small US firms
Outside directors
Executives of other firms but not employees of board’s firm
Can be affiliated to firm – legal or insurance client, retired executive of firm, family, etc.
About 80%/40% in large/small us firms

10. Composition of Board of Directors
Organization of Boards
Size determined by firm’s charter & bylaws
Average size is 11/7 for large/small firms
Dual designation of CEO and Chairman of Board held by 68% top executives in US
Outside director as lead director or chairman of board to top oversee & evaluate management
Research shows firms that separate two positions perform better than those that combine two positions.

11. Recent Trends in Board of Directors
Increasing numbers of institutional investors (pension funds, etc) and other outsiders on the board
Larger stock ownership by directors and executives; and
A greater willingness of the board to balance the economic goal of profitability with the social needs of society

12. The Role of Top Management
Top management function is usually performed by CEO in coordination with
Chief Operating Officer (COO) or President
Chief Financial Officer (CFO)
Chief Information Officer (CIO)
Executive Vice Presidents (VP’s) and VP’s of divisions & functional areas

13. The Role of Top Management
Top management is primarily responsible for the strategic management of the firm
Responsible for every decision & action of every organizational employee
Responsible for providing effective strategic leadership
Strategic leadership is the ability to anticipate, envision, maintain flexibility, think strategically, and work with others in an organization to initiate changes that will create a viable and valuable future for the organization

14. The Role of Top Management
The CEO, must perform two functions crucial to the SM of corporations:
Provide executive leadership
Articulate a strategic vision for the firm
Present a role for other to identify with and follow (e.g., behavior, attitude, values, etc)
Communicate high performance standards & show confidence in followers’ abilities to meet these standards
Manage the strategic planning process
Evaluate division/units to make sure they fit together into an overall corporate plan

15. The Role of Top Management
The whole top management’s strategic leadership responsibilities involves
Determining the firm’s mission, vision, and objectives
Exploiting & maintaining the firm’s resources, core competencies & capabilities
Creating & sustaining a strong organizational culture
Emphasizing ethical decision & practices
Establishing appropriately balance organizational control

16. The Role of Other Strategic Managers and Organizational Employees
Strategic Planners
Identify & analyze company-wide strategic issues & suggest corporate strategic initiatives to top management
Work as facilitators with divisions/units to guide then through the strategic planning process

17. The Role of Other Strategic Managers and Organizational Employees
Strategic Managers (Middle- & Lower-level managers) & Supervisors
Direct their workers in the strategy implementation process (i.e., putting the strategies into action at various functional areas)
Strategy evaluation
Other Employees
Strategy evaluation through open book management
Sharing of firm’s books or F/S with employees to see implications of their work

18. Corporate Social Responsibility
The concept of social responsibility
Proposes that a private firm has responsibilities to society that extend beyond making a profit
Obligation of firm decision makers to make decisions & act in ways that recognize the interrelatedness of business & society.
It recognizes the existence of various stakeholders and firms deal with them

19. Corporate Social Responsibility
Two Views of “who” are firms responsible to?
(1) Traditional View (Milton Friedman)
“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud” (M. Friedman, “The Social Responsibility of Business is to Increase Profits”, New York Times, (September 13, 1970: pp )

20. Two Views of “Who” Firms are Responsible to
Traditional View (continued):
By taking on the burden of social cost, the business becomes less efficient:
Prices go up to pay for increased costs; or
Investment in new activities & research is postponed
Firms are responsible to only their shareholders
Purely economic reasoning

21. Two Views of “Who” Firms are Responsible to
(2) Modern View (Archie Carroll)
Social Responsibilities
Economic
(Must Do)
Legal
(Have to Do)
Ethical
(Should Do)
Discretionary
(Might Do)

22. Two Views of “Who” Firms are Responsible to
(2)Modern View (Archie Carroll)
Business firms have four responsibilities
(a) Economic
Produce goods & services of value to society so that the firm may repay its creditors and stockholders
(b) Legal
Defined by governments in laws that management is expected to obey

23. Two Views of “Who” Firms are Responsible to
Modern View (Continued)
(c) Ethical
Follow generally held beliefs about how one should act in society
Work with employees & community in planning for layoffs, though no laws requiring this
Many people expect firms to do these things
(d) Discretionary
Purely voluntary obligations a firm assumes
Philanthropic contributions, training hard-core unemployed, providing day-care centers, etc.
Many people do not expect firms to do these things

24. Who are the Stakeholders of Firms?
Stakeholders are individuals, groups or institutions who have a stake in or are significantly influenced by an organization’s decisions and actions
Shareholders
Governments
Political & social action groups
Employees
Customers
Communities
Suppliers
Trade Associations