1. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 1 Session 3 Defining the Company’s Mission and Social Responsibility

2. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 2 Session Objectives To explore the concept and usefulness of mission and mission statements Develop Guidelines for Formulating a Mission Introduce the Concept of Corporate Governance To Discuss The Stakeholder Approach to Social Responsibility

3. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 3 What is a Company Mission? Company Mission: A broadly framed but enduring statement of a firm’s intent. It is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market, and technology terms.

4. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 4 Benefits of a Well-Developed Mission Statement DISTINGUISH ORGANIZATIONS FROM THE COMPETITION FEDERATE AND BOND THE WORKFORCE CHALLENGE THE ORGANIZATION TO ACHIEVE OBJECTIVES ENHANCE DECISION-MAKING BY HARMONIZING VALUES AND VISION IMPROVE THE PLANNING PROCESS

5. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 5 Characteristics of a Mission Statement Embodies the business philosophy of the firm’s strategic decision makers Implies image firm seeks to project Reflects firm’s self-concept Indicates firm’s principal product or service areas primary customer needs the firm will attempt to satisfy

6. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 6 Mission Statement Components 1.Customer-market 2.Product-service 3.Geographic Domain 4.Technology 5.Concern for Survival 6.Philosophy 7.Self-concept 8.Concern for Public Image

7. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 7 Three Essential Components: Basic Product or Service Primary Market Principal Technology If a firm uses a “silver bullet” mission for outsiders to read, it will include these three components.

8. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 8 CISCO SYSTEMS MISSION STATEMENT SHAPE THE FUTURE OF THE INTERNET BY CREATING UNPRECEDENTED VALUE AND OPPORTUNITY FOR OUR CUSTOMERS

9. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 9 Primary Company Goals: Survival – failure means incapable of satisfying the aims of any of its stakeholders. Profitability –mainstay goal of a business. Growth –Growth in this sense must be broadly defined.

10. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 10 Company Philosophy AKA company creed. Usually appears within the mission statement Beliefs, values, aspirations, and philosophical priorities

11. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 11 GE’S VALUE STATEMENT ALL OF …ALWAYS WITH UNYIELDING INTEGRITY… ARE PASSIONATELY FOCUSED ON DRIVING CUSTOMER SUCCESS LIVE SIX SIGMA QUALITY…ENSURE THAT THE CUSTOMER IS ALWAYS ITS FIRST BENEFICIARY..AND USE IT TO ACCELERATE GROWTH INSIST ON EXCELLENCE AND ARE INTOLERANT OF BUREAUCRACY ACT IN BOUNDARYLESS FASHION DEMONSTRATE WITH INFECTIOUS ENTHUSIASM FOR THE CUSTOMER THE FOUR E’S OF GE LEADERSHIP PERSONAL ENERGY CREATE ENERGIZING ATMOSPHERE EDGE TO MAKE DIFFICULT DECISIONS ABILITY TO CONSISTENTLY EXECUTE

12. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 12 Public Image Customers attribute certain qualities to particular businesses. Firms seldom address the question of their public image. Chance to define public image (the elevator conversation).

13. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 13 Company Self-Concept Extent to which the firm can relate functionally to its external environment. Demonstrates an understanding of their impact on others or of others on them. Ordinarily, do not appear in mission statements.

14. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 14 Newest Trends in Mission Components The following are increasingly integral parts in the development of missions: Customers as a priority Quality as a priority Inspirational vision statement

15. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 15 Newest Trends in Mission Components Statements of company vision Developed to express the aspirations of the executive leadership Presents the firm’s strategic intent “A computer on every desk, and in every home, running on Microsoft software”

16. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 16 Word of the Day Corporate Governance

17. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 17 Corporate Governance Essentially the management of management Purpose is to monitor management decision- making and behavior to ensure they are in best interest of shareholder wealth creation

18. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 18 Boards of Directors The Chief Governing Body of Corporations

19. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 19 Boards of Directors The board of directors is the group of stockholder representatives and strategic managers responsible for overseeing the creation and accomplishment of the company mission.

20. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 20 Major Board Responsibilities: Establish and update mission Elect and set pay of top officers & CEO Set amount & timing of dividends Set broad company policy, objectives and authorize managers to implement long-term strategy Mandate company’s legal and ethics compliance

21. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 21 The Agent - Principle Relationship Involves separation of owners (principals) and managers (agents) of a firm Potential exists for owners’ wishes to be ignored Involves delegation of decision- making authority by owners to managers

22. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 22 How Can Agency Problems Occur? Moral hazard problem Owners have access to limited information Owners cannot monitor every executive decision Executives often free to pursue own interests Adverse selection Stockholders have limited ability to determine competencies of executives at time of hire Problems of overlapping priorities between owners and executives likely to occur

23. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 23 Potential Agency Relationship Problems 1.Executives pursue growth in company size rather than in earnings 2.Executives attempt to diversify their corporate risk 3.Executives avoid risk 4.Managers act to optimize their personal payoffs 5.Executives act to protect their status

24. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 24 Agency Theory Agency theory is a set of ideas on organizational control based on the belief that the separation of the ownership from management creates the potential for the wishes of owners to be ignored.

25. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 25 Aligning Executive Interests with Owner Interests Stock Option Plans Bonus plans Incentives for Long- Term Performance

26. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 26 Solutions to the Agency Problem Define agent’s responsibilities in a contract, including elements like bonuses to align executives’ and owners’ interests Pay executives a premium for their services Structure a backloaded compensation plan for executives Create teams of executives across different organizational units to focus on overall organizational performance

27. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 27 Wal Mart To provide value and service to our customer by offering a wide variety of quality merchandise at the lowest possible price in an atmosphere of prompt and courteous service in our small town markets. To be an innovative and forward-looking company that controls expenses to the maximum degree possible. To be dedicated to continuing and profitable growth. To maintain a partnership with our associates and to remain committed to the communities in which we operate stores; by enhancing the quality of life in those local communities through a commitment to good business, economic development and philanthropy.

28. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. 28 Tam's Tavern At Tam's Tavern it is our mission to make sure that you come back soon. Here is how we are going to do that. We are going to give you good food and good service in a pleasant environment. We are going to do it for a very fair price. There, that wasn't so hard was it? But there is more. We are going to try and be a good corporate citizen. We are going to recycle all of our glass, plastic, paper and every thing else our city and county will let us. We are going to take good care of the employees of Tam's because, well, there are many reasons why we should but mainly because it's the right thing to do. It is the people of Tam's that make it special. Our only limitations are the imagination. What can we do for you?