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Unformatted text preview: 169 As we mentioned in Chapter 3, “Board of Directors: Duties and Lia- bility,” the Organization for Economic Cooperation and Develop- ment (OECD) states that one of the primary responsibilities of the board is to “ensure the strategic guidance of the company.” The Higgs Report recommends that directors “constructively challenge and con- tribute to the development of strategy.” 1 Furthermore, survey data from the National Association of Corporate Directors (NACD) indi- cates that directors themselves consider strategic planning and over- sight to be their most important responsibility—more than financial oversight, CEO succession planning, compensation, and shareholder relations. 2 Consensus holds that strategic oversight is crucial, but the man- ner in which the board is expected to perform this function is less clear. The confusion arises primarily because it is not the board’s responsibility to develop the strategy—that is management’s job. Instead, the board is expected to scrutinize the strategy to make sure that it is appropriate for the company’s shareholders and stakehold- ers, and then to monitor the contribution of corporate activities to the strategic plan. We break the discussion of strategy development and oversight into four parts: 1. Defining the corporate strategy 2. Developing and testing a business model that verifies how the strategy translates into shareholder or stakeholder value Organizational Strategy, Business Models, and Risk Management 6 3. Identifying key indicators to measure corporate performance 4. Identifying and developing processes to mitigate risks to the strategy and business model Organizational Strategy Developing the corporate strategy begins with identifying the organi- zation’s overarching mission and specific objectives. It answers ques- tions such as, “Why are we in business?” and “What do we hope to achieve?” For example, Lockheed Martin publishes on its Web site a mission statement that outlines corporate vision and values: Lockheed Martin’s Vision: Powered by innovation, guided by integrity, we help our customers achieve their most challenging goals. Lockheed Martin’s Value Statements: Do What’s Right We are committed to the highest standards of ethical conduct in all that we do. We believe that honesty and integrity engender trust, which is the cornerstone of our business. We abide by the laws of the United States and other countries in which we do business; we strive to be good citizens and we take responsibility for our actions. Respect Others We recognize that our success as an enterprise depends on the talent, skills, and expertise of our people and our ability to function as a tightly integrated team. We appreciate our diversity and believe that respect—for our colleagues, customers, partners, and all those with whom we interact—is an essential element of all positive and productive business relationships....
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This note was uploaded on 03/07/2012 for the course FINANCE 280 taught by Professor Saira during the Spring '12 term at IMSciences.
- Spring '12