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Unformatted text preview: Organization Purpose Organization
Dr. Nguyen Kiem Than Introduction Introduction As a human being, we all have a “purpose” in life in As a legal entity, a Corporation should have As a “purpose” for existence (the “WHY” of a for business) business) Time frame: Purpose – permanent Vision – very long term Objective – long term Target – short term Corporate Purpose Maximize value for shareholders Profit – make money ($) Growth in Stock Price Growth in Dividend Governments Local communities Employees Debt holders … Act responsibly toward other stakeholders Examples of Purpose Examples Merck (pharmaceutical): “Advancement of Merck medical science and service to humanity” medical Johnson & Johnson (J&J): “To alleviate pain Johnson and disease, aiding to the art of healing progress” progress” H&P: “ To design, develop, and manufacture H&P: the finest electronic equipment for the advancement of science and the welfare of humanity” humanity” Most others: “To make money” Shareholder Shareholder Typical Authority System Shareholders Board of Directors - BOD CEO CEO Top Management Shareholders who “own” the company are Shareholders at the top of the authority system at Do they really “control” the company? Shareholder Shareholder Theoretically, shareholders choose BOD Theoretically, who then nominates CEO who Who would have real impact on Corporate Who Strategy via control of CEO? Strategy US: Institutional Investors (mutual funds, hedge US: funds, private equity funds, retirement plans) with mostly quarterly financial focus with Japan: Keiretsu (business groups with Japan: interlocking shareholding relationship) and Keidanren (Japan Business Federation) Keidanren Shareholder Shareholder Korea: Chaebol (business conglomerates Korea: controlled by influential Korean family and assisted by Korean government) assisted Vietnam: Founding members with more than Vietnam: 50% share or government 50% Who are shareholders of multinational Who companies? companies? Who control Joint Venture companies? Who (e.g. BP-TNK) (e.g. Shaken Cult of Shareholder Value Shaken “Shareholder value is a result, not a strategy. Shareholder Your main constituencies are your employees, your customers and your products” (Jack Welch) your The losses suffered by financial groups have The exposed the belief that Directors were the knowledgable guardians of shareholders’ interest as fallacy as “Anybody could run a business in the 1990s. A Anybody dog could have run a business” (Jeffery Immelt, CEO of GE) CEO Effects of Shareholder Value Cult Effects “Immediate shareholder value maximization Immediate creates a fleeting illusion of value creation by emphasising immediate goals over long term strategies” (Jeffery Sonnenfield – Yale Prof) – Quarterly profit and bonus focus Quarterly Wall street’s high-risk, high reward model US compensation at top of corporate tree 275 US times average in 2007 times Stock options and bonus system reward corporate Stock executives with “other people’s money” executives CEO = Corporate Dictator Corporate Social Responsibility Corporate Corporate social responsibility movement is Corporate on the rise, reinforced by crisis on Focus on short-term profits to be replaced Focus by long-term strategic thinking by Increase attention to issues environmental Increase protection, needs of customers, employees and suppliers and Local Community as Stakeholder Local Most major corporations have “Corporate Most Responsibility” or “Corporate Citizenship” Department with Strategy focused on wellDepartment being of other stakeholders being Example of community issues: Sustainable Development Pollution Control – Environmental Permitting NIMB Syndrome (Not In My Backyard) Land usage conflict Government as Stakeholder Government Government has substantial stakes in Government corporation via: corporation Law and Regulation at national or local level Planning and Permitting Taxes Government bailout for companies too large Government to fall Direct control via ownership of more than 50% Direct of company stocks Employee as Stakeholder Employee Labor considered as “human resource” at same Labor level as land, equipment, monetary debt… level Is employee also a “human being”, and important Is stakeholder with deep impact on company growth, survival and long term profitability? (case of GM, Virgin Group) Virgin Example of labor issues: Legal protection – strong in France and Germany, very Legal weak in the US. How about Vietnam? weak Union strength – same as above Cultural respect for Human Being – strong in Japan, Cultural weak in the US where labor is mostly “disposable” weak Are we all Stakeholders? Are One of the key causes of current financial One crisis is the short term focus of US business institutions institutions Shareholders and equity fund managers want Shareholders high return next quarter high CEO bonus depends on quarterly results Encourage risk taking – higher risk = higher return When this concept starts to fail, taxpayers When have to pay for bailout cost have All of us have to pay for failures in the US – All We are all “stakeholders” of US corp. We Useful Links Useful Keiretsu: Keiretsu: http://en.wikipedia.org/wiki/Keiretsu http://en.wikipedia.org/wiki/Keiretsu Keidanren: Keidanren: http://www.keidanren.or.jp/english/profile/pro0 http://www.keidanren.or.jp/english/profile/pro0 Chaebol: Chaebol: http://en.wikipedia.org/wiki/Chaebol http://en.wikipedia.org/wiki/Chaebol ...
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This note was uploaded on 04/10/2011 for the course STRATEGY SM2011 taught by Professor Hoangduong during the Summer '11 term at American InterContinental University Illinois.
- Summer '11