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32 Pages
CH2 MLR465
Course: G 1550, Spring 2012School: Youngstown
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2011 Corporation:amechanismestablishedtoallowdifferent partiestocontributecapital,expertiseandlaborfortheir mutualbenefit Corporationisgovernedbytheboardofdirectors thatoverseestopmanagementwiththe SUMMERconcurrenceoftheshareholders. 2- 2 Corporategovernance:therelationshipamongthe boardofdirectors,topmanagementandshareholdersin determiningthedirectionandperformanceofthe corporation 2- 3...
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2011
Corporation:amechanismestablishedtoallowdifferent
partiestocontributecapital,expertiseandlaborfortheir
mutualbenefit
Corporationisgovernedbytheboardofdirectors
thatoverseestopmanagementwiththe
SUMMERconcurrenceoftheshareholders.
2- 2
Corporategovernance:therelationshipamongthe
boardofdirectors,topmanagementandshareholdersin
determiningthedirectionandperformanceofthe
corporation
2- 3
Duecare:Boardofdirectorsareresponsiblethatthe
corporationisnotharmedbymembersoftheboard.
Directorscanbeheldliable
2- 4
ResponsibilitiesoftheBoardofDirectors
Setscorporatestrategy,overalldirection,mission,or
vision
HiresandfirestheCEOandtopmanagement
Controls,monitors,orsupervisestopmanagement
Reviewsandapprovestheuseofresources
Caresforshareholdersinterests
Assuresthatthecorporationismanagedinaccordance
withstatelaws,securityregulationsandconflictof
interestsituations
2- 5
RoleoftheBoardinStrategicManagement
Monitordevelopmentsinsideandoutsidethe
corporation
EvaluateandInfluencemanagementproposals,
decisionsandactions
InitiateandDeterminethecorporationsmissionand
strategies
2- 6
2- 7
MembersofaBoardofDirectors
InsideDirectorsareofficersorexecutivesemployedby
theboardscorporation
OutsideDirectorsareexecutivesofotherfirmsbutare
notemployeesoftheboardscorporation
2- 8
MembersofaBoardofDirectors
Affiliateddirectorsnotemployedbythecorporation,
handlelegalorinsurancework
Retiredexecutivedirectorsusedtoworkforthe
corporation,partlyresponsibleforpastdecisionsaffecting
currentstrategy
Familydirectorsdescendentsofthefounderandown
significantblocksofstock
2- 9
Board of Directors
Codetermination
The inclusion of a corporations employees on
its board of directors
2-10
MembersofaBoardofDirectors
Agencytheoryproblemsariseincorporationsbecause
topmanagementisnotwillingtoacceptresponsibilityfor
theirdecisionsunlesstheyownasubstantialamountof
stockinthecorporation
Stewardshiptheoryastheresultoflongtenurewiththe
corporation,insiders(topmanagement)tendtoidentify
withthecorporationanditssuccess.Actinthebest
interestofthecorporationmorethanselfinterest
2-11
Stewardship Theory
Executives more motivated to act in best
interest of the corporation than their own
self-interests. Theory that over time, senior
executives tend to view corporation as
extension of selves.
2-12
InterlockingDirectoratesusefulforgainingbothinside
informationaboutanuncertainenvironmentandobjective
expertiseaboutpotentialstrategiesandtactics
Directinterlockingdirectoratewhentwofirmssharea
directororwhenanexecutiveofonefirmsitsontheboard
ofasecond
Indirectinterlockingdirectoratewhentwo
corporationshavedirectorswhoserveontheboardofa
thirdfirm
2-13
NominationandElectionofBoardMembers
97%ofU.S.boardsusenominatingcommitteesto
identifypotentialboardmembers
Staggeredboardsonlyaportionofboardmembers
standforreelectionwhendirectorsservemorethanone
yearterms
2-14
Board of Directors
Nominations & Elections
Traditional Approach
CEO invitation to membership
Shareholders approval in annual proxy statement
All nominees usually elected
2-15
NominationandElectionofBoardMembers
Criteriaforagooddirectorinclude:
Willingnesstochallengemanagementwhennecessary
Specialexpertisethatisimportanttothecompany
Availableforoutsidemeetingstoadvisemanagement
Expertiseonglobalissues
Understandsthefirmskeytechnologiesandprocesses
Bringsexternalcontactsthatarepotentiallyvaluabletothefirm
Hasdetailedknowledgeofthefirmsindustry
Hashighvisibilityintheirfield
Isaccomplishedatrepresentingthefirmtostakeholders
2-16
Approximately70%ofthetopexecutivesofU.S.
publiclyheldcompaniesholdthedualdesignation
ofChairmanandCEO
2-17
Board Directors
Nominations of & Elections
Staggered Board Approach
Staggered terms of service/election
2-18
Board of Directors
Organization of the Board
Size
Charter & Bylaws Determination
2-19
LeadDirectorisconsultedbytheChair/CEOregarding
boardaffairsandcoordinatestheannualevaluationofthe
CEO
96%ofU.S.companiesthatcombinetheChairmanand
CEOpositionshadaleaddirector
2-20
ImpactoftheSarbanesOxleyActonU.S.
CorporateGovernance
SarbanesOxleyAct2002designedtoprotect
shareholdersfromexcessesandfailedoversightofboards
ofdirectors
Whistleblowerprocedures.
Improvedcorporateinternalcontrols.
Outsidedirectors.
2-21
Board of Directors
Corporate Governance
Review & shaping of strategy
Pressure for corporate performance
Demand for executive stock ownership
Outside directors increasing
Impact of Sarbanes-Oxley
2-22
ImpactoftheSarbanesOxleyActonU.S.
CorporateGovernance
EvaluatingGovernance
Ratingagencies
S&PCorporateGovernanceScoringSystem
AvoidingGovernanceImprovements
Multipleclassesofstock
Publictoprivateownership
Controlledcompanies
2-23
Board of Directors
Sarbanes-Oxley
Code of Ethics
Audit, Nominating, and Compensation
Committees all outside directors
2-24
Board of Directors
Corporate Governance
Review & shaping of strategy
Pressure for corporate performance
Demand for executive stock ownership
Outside directors increasing
Impact of Sarbanes-Oxley
2-25
TrendsinCorporateGovernance
Boardsshapingcompanystrategy
Institutionalinvestorsactiveonboards
Shareholderdemandsthatdirectorsandtopmanagementown
significantstock
Moreinvolvementofnonaffiliatedoutsidedirectors
Increasedrepresentationofwomenandminorities
Boardsevaluatingindividualdirectors
Smallerboards
SplittingtheChairmanandCEOpositions
Shareholdersmaybegintonominateboardmembers
Societyexpectsboardstobalanceprofitabilitywithsocialneedsof
society
2-26
ResponsibilitiesofTopManagement
Executiveleadershipisthedirectingofactivitiestoward
theaccomplishmentofcorporateobjectives.Setsthetone
fortheentirecorporation
Strategicvisiondescriptionofwhatthecompanyis
capableofbecoming
2-27
Board of Directors
Executive Leadership
Strategic vision
Role model
Communication of performance standards
Demonstrates confidence in abilities of
followers
2-28
Board of Directors
Successful CEOs
Strategic vision
Passion for the company
Strong communication
charisma
2-29
ResponsibilitiesofTopManagement
TransformationalLeadersprovidechangeand
movementinanorganizationbyprovidingavisionforthat
change.
Characteristicsinclude:
CEOarticulatesastrategicvisionforthecorporation
CEOpresentsaroleforotherstoidentifywithandto
follow
CEOcommunicateshighperformancestandardsandalso
showconfidenceinthefollowersabilitiestomeetthese
standards
2-30
ManagingtheStrategicPlanningProcess
Strategicplanningstaffsupportsbothtopmanagement
andthebusinessunitsinthestrategicplanningprocess
Majorresponsibilitiesinclude:
Identifyingandanalyzingcompanywidestrategicissues,
andsuggestingcorporatestrategicalternativestotop
management
Workasfacilitatorswithbusinessunitstoguidethem
throughthestrategicplanningprocess
2-31
Whendoesacorporationneedaboardofdirectors?
3.Whoshouldandshouldnotserveonaboardofdirectors?
5.ShouldaCEObeallowedtoserveonanothercompanys
boardofdirectors?
7.Whatwouldbetheresultiftheonlyinsideronacorporations
boardweretheCEO?
9.ShouldallCEOsbetransformationalleaders?Wouldyoulike
toworkforatransformationalleader?
1.
2-32
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