Corporate Governance
Refers
to the relationship among the board of directors, top management, and shareholders in determining the direction and performance of the corporation.
Board of Directors
Monitor
High (Active)
Board of Directors
Members:
Inside directors
Outside directors
Non-management directors May be executives of other firms but not employed by boards corporation
Agency Theory
Problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation.
Stewardship Theory
Executives tend to be more motivated to act in the best interest of the corporation than their own self-interests. Theory argues that over time, senior executives tend to view the corporation as an extension of themselves.
Board of Directors
Outsider overly simplistic term -Some outsiders are not truly objective and could be considered insiders. Examples:
Board of Directors
Codetermination
The
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Board of Directors
Interlocking Directorates
Direct Interlocking Directorate
When
two firms share a director or when an executive of one firm sits on the board of a second firm. two corporations have directors who also serve on the board of a third firm.
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Board of Directors
Corporations whose directors serve terms of more than one year, divide the board into classes, and stagger elections so that only a portion of the board stands for election each year.
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Board of Directors
invites members to serve Shareholders approve in annual proxy statement All nominees are usually elected
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Board of Directors
Organization of the Board
Size
Determined by charter and bylaws Average for publicly-held, large firm is 11 directors Average for small/medium private firms is 7 to 8 directors
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Board of Directors
Lead Director
This person is consulted by the Chair/CEO regarding board affairs and coordinates the annual evaluation of CEO.
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Board of Directors
Trends in Corporate Governance
Boards more involved in reviewing, evaluating, and shaping strategy Institutional investors active on boards; pressure on CEO for firm performance Shareholders demand directors own more than token amounts of the firms stock Non-affiliated outside directors increasing
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Board of Directors
Boards becoming smaller Boards taking more control of board functions Corporations becoming more global; international experience needed Societal expectations that boards balance profitability and social responsibility Diversity of board members
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Top Management
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Top Management
Executive Leadership
The directing of activities toward the accomplishment of corporate objectives. Sets the tone for the entire corporation.
Strategic Vision
A description of what the company is capable of becoming. Often communicated in the mission statement.
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Top Management
Strategic Planning Staff Supports top management and business units in the strategic planning process.
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1.
Identify and analyze company-wide strategic issues, suggest corporate strategic alternatives
2. Work as facilitators with business units to guide them through the strategic planning process
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