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Transcript of Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Strategic management 4...
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strategic management 4Strategic management 4
The soft elements of the strategy: The soft elements of the strategy: interest-groups, governance, interest-groups, governance,
cultures, and ethics) cultures, and ethics)
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Expectations andExpectations and PurposesPurposes
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The logic of the analysis The logic of the analysis
1.1. Identification of oIdentification of organirganissational ational stakeholdersstakeholders
2.2. Stakeholder mappingStakeholder mapping
3.3. Corporate governanceCorporate governance
4.4. Ethical issuesEthical issues
5.5. CultureCulture
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Complex role that people play in Complex role that people play in strategy developmentstrategy development
Strategy is aboutStrategy is about
• what people expect an organisation to what people expect an organisation to achieve achieve
• what influence people can have over what influence people can have over an organisation’s purposesan organisation’s purposes
There are two important groups of There are two important groups of peoples: ownes, and stakeholderspeoples: ownes, and stakeholders
Role of PeopleRole of People
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The most important interest group:The most important interest group: the owners (stockholders) the owners (stockholders)
OwnersOwners Their main interestTheir main interestSmall investorsSmall investors Divident, share priceDivident, share price
Financial investorsFinancial investors Rise of value the assets in long Rise of value the assets in long termterm
Professional investorsProfessional investors Specific goals, rise of the assetsSpecific goals, rise of the assets
StateState Employment, taxEmployment, tax
BanksBanks Providing loans, share priceProviding loans, share price
Local governmentsLocal governments Employment, tax, contribution Employment, tax, contribution
Other companyOther company Business connectionBusiness connection
Management Management Long term carreer, dividentLong term carreer, divident
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Classical rights of shareholdersClassical rights of shareholders
the right to sell the the right to sell the stockstock
the right to vote the right to vote the proxythe proxy
the right to bring the right to bring suit for damages if suit for damages if the managers or the managers or directors fail to directors fail to meet their meet their obligationsobligations
the right to have the right to have certain information certain information from the companyfrom the company
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
What is a corporation? What is a corporation?
collective ownership collective ownership of of anan enterpriseenterprise limited liability as essential elementlimited liability as essential element risk takingrisk taking and profit making organization and profit making organization flexibility in determining capital and flexibility in determining capital and
governance structuregovernance structure (within the corp. (within the corp. law)law)
has an independent legal status – separate has an independent legal status – separate - from its owners - from its owners
directed by its own management teams directed by its own management teams
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Types of owners Types of owners
activeactive/ interested in the operation of / interested in the operation of corpcorporationoration too, not only in the profit too, not only in the profit (professional investors, majority (professional investors, majority owners)owners)
passive / passive / interested in simply the interested in simply the income (profit)income (profit)
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Evolution of the Modern CorporationEvolution of the Modern CorporationEvolution of the Modern CorporationEvolution of the Modern Corporation
The businessenvironment
Organizationalconsequences
Strategic changes
Late 19thcentury
Early19thcentury
Early20thcentury
Local markets Firms specialized & Small firms.Transport slow focused on local Simple manage- Limited mechanization markets ment structures
Introduction of Geographical and Functional struct-railroads, telegraph vertical expansion ures. Line/staffindustrialization separation. Accou-
nting systems
Excess capacity in Product & Development of distribution. Growth multinational multidivisionalof financial institut- diversification corporationions & world trade
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Evolution of the corporate-governance structure
1800 1900 1950 2000
Owner-manager
Investors General AssemblyOwners’s representatives Executive management
Investors
General assembly
Board (Directors)
Executive commity
Beneficiaries
Trustees of funds
Invetment funds
General assembly
Board
Executive managers
Managers
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The Chain of Corporate Governance
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Role of owners Role of owners inin this decade this decade
to participate in forming of corpto participate in forming of corporateorate s strategytrategy
not to interfere to daily operationsnot to interfere to daily operations assessment of directorsassessment of directors to keep the company in operationto keep the company in operation to improve results of companyto improve results of company to use profit for interests of to use profit for interests of
himself/herself and that of company himself/herself and that of company
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Some common conflicts of expectations
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Definition of the stakeholdersDefinition of the stakeholders
The terms of stakeholder refers to any (non The terms of stakeholder refers to any (non owner) group or individual who has an owner) group or individual who has an interets in existence of an organizaton and interets in existence of an organizaton and hwo has legitimate expectation about their hwo has legitimate expectation about their activities.activities.
Stakeholders are those individuals or groups Stakeholders are those individuals or groups whowho
depend on the organisation to fulfil their depend on the organisation to fulfil their own goalsown goals
and on whom the organisation dependsand on whom the organisation depends
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
External StakeholdersExternal Stakeholders
Stake-Stake-holdersholders
ExamplesExamples InfluenceInfluence
Market Market Suppliers, competitors, Suppliers, competitors, distributors, distributors, shareholdersshareholders
Economic/value Economic/value creationcreation
Social/Social/politicalpolitical
Policy makers, Policy makers, regulators, government regulators, government agenciesagencies
Social legitimacySocial legitimacy
Techno-Techno-
logicallogicalKey adopters, Key adopters, standards agencies, standards agencies, owners of competitive owners of competitive technologiestechnologies
Diffusion of new Diffusion of new technology/technology/
adoption of adoption of industry standardsindustry standards
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
StakeholdersStakeholders Their main interestTheir main interest
SuppliersSuppliers Long term connectionsLong term connections
BuyersBuyers Quality, quick reaction, small priceQuality, quick reaction, small price
Other business partnersOther business partners Long term connection, liquidityLong term connection, liquidity
Potencial entrans Potencial entrans Stable and business-like marketStable and business-like market
Substitute product producersSubstitute product producers Clear roles, and conditionsClear roles, and conditions
Workers, and their unionsWorkers, and their unions Good working conditions, wagesGood working conditions, wages
Employer’s associationEmployer’s association Rule-following behaviorRule-following behavior
Government’s regulatorsGovernment’s regulators Rule-following behaviorRule-following behavior
Enterprises in the industryEnterprises in the industry Acceptance some mutual rules Acceptance some mutual rules
1. Types of stakeholders
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
2. Types of stakeholders2. Types of stakeholders
StakeholdersStakeholders Their main interestTheir main interestLocal authoritiesLocal authorities Tax, subsidyTax, subsidy
Local communitiesLocal communities HelpHelp
Trade unionsTrade unions AcceptanceAcceptance
Customer groupsCustomer groups Consumer-friendly behaviorConsumer-friendly behavior
Employment associationEmployment association AcceptanceAcceptance
GovernmentGovernment Pay tax, follow the lawsPay tax, follow the laws
Press, mediaPress, media Provide infromation, and advertiseProvide infromation, and advertise
Pressure groupsPressure groups Specific interestSpecific interest
Foreign countriesForeign countries Follow the local customFollow the local custom
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Stakeholder Mapping: the Power/Interest MatrixStakeholder Mapping: the Power/Interest Matrix
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Use of Stakeholder MappingUse of Stakeholder Mapping Do actual levels of interest and power Do actual levels of interest and power
reflect corporate governance reflect corporate governance framework?framework?
Who are key blockers and facilitators of Who are key blockers and facilitators of a strategy?a strategy?
Is repositioning of stakeholders Is repositioning of stakeholders desirable/feasible?desirable/feasible?
Which are the key stakeholders whose Which are the key stakeholders whose interest and power must be maintained interest and power must be maintained to support the strategy?to support the strategy?
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Corporate GovernanceCorporate Governance
The governance frameworkThe governance framework• whom the organisation serveswhom the organisation serves• how the purposes and priorities should be how the purposes and priorities should be
decideddecided• how an organisation should functionhow an organisation should function• how power is distributed among how power is distributed among
stakeholdersstakeholders
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Corporate Governance (CG)Corporate Governance (CG)
CG is the CG is the systemsystem by which business corporations by which business corporations are directed and controlled. are directed and controlled.
The CG The CG structure structure specifies the distribution of specifies the distribution of rights and responsibilitiesrights and responsibilities among different among different participants in the corporation, such as, the participants in the corporation, such as, the board, managersboard, managers ,shareholders and other ,shareholders and other stakeholdersstakeholders and spells out the and spells out the rules and rules and proceduresprocedures for making decisions on corporate for making decisions on corporate affairs. affairs.
By doing this, it also provides the structure By doing this, it also provides the structure through which the company objectives are set, through which the company objectives are set, and the means of attaining those objectives and and the means of attaining those objectives and monitoring performance.monitoring performance.
OECD definitionOECD definition
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Separation of ownership and control Separation of ownership and control
exclusive control of stocks by shareholderexclusive control of stocks by shareholder shareholders’ communities interest limited shareholders’ communities interest limited
to the price of the stockto the price of the stock control rights of corporation’s properties control rights of corporation’s properties
delegated to managementdelegated to management certificate of proportional share of corp.certificate of proportional share of corp.
THE CORP. ITSELF IS THE OWNER OF THE CORP. ITSELF IS THE OWNER OF ITS OWN PROPERTY!!!ITS OWN PROPERTY!!!
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Classical rights of shareholdersClassical rights of shareholders
the right to sell the the right to sell the stockstock
the right to vote the right to vote the proxythe proxy
the right to bring the right to bring suit for damages if suit for damages if the managers or the managers or directors fail to directors fail to meet their meet their obligationsobligations
the right to have the right to have certain information certain information from the companyfrom the company
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Rights of contemporary Rights of contemporary shareholdersshareholders
Control and economic rights no longer Control and economic rights no longer attach to the same individual or group.attach to the same individual or group.
The shareholder surrendered control The shareholder surrendered control over his wealth.over his wealth.
The shareholder is a The shareholder is a supplier of capitalsupplier of capital and a and a risk takerrisk taker..
Ultimate responsibility and authority of Ultimate responsibility and authority of ownership is attached to stock ownership is attached to stock ownership.ownership.
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Level of governance: Corporate strategy, Corporate reponsibility, Mission of the corporation
Level of the management:Organizing activitiesImplemetation of strategyControling day-to day activities
Board
Management teams
Supervisory Board
Independent external auditor
CEO
Chairman
General Assembly
Employees
Executive committie
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
GovernanceGovernance – management by – management by bodiesbodies
The corporate The corporate governance isgovernance is CollectiveCollective DemocraticDemocratic ResponsibleResponsible Legally framedLegally framed Well structuredWell structured
managementmanagement
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Key formKey formss of of CG CG :: the the bodies bodies
What is What is „„aa”” body? body?Body is a teamBody is a team, members created by , members created by
delegation, nomination or election delegation, nomination or election (voting)(voting)
Body haBody hass a leader (heading), named a leader (heading), named chairpersonchairperson
Bodies have Bodies have legal backgroundlegal backgroundBody haBody hass a a bylawbylawBodies have responsibilities by Bodies have responsibilities by
law or by the status of the bodylaw or by the status of the body
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Bodies in the international Bodies in the international corporate governancecorporate governance
General AssemblyGeneral Assembly, the body of owners , the body of owners (shareholders)(shareholders)
BoardBoard;; members are elected by the General members are elected by the General Assembly. (In Germany board members are Assembly. (In Germany board members are elected byelected by the the Supervisory Board) Supervisory Board)
Supervisory BoardSupervisory Board;; members are elected by members are elected by the General Assembly. (In US/UK no Supervisory the General Assembly. (In US/UK no Supervisory Board)Board)
Management teamManagement team (not defined by law) (not defined by law)
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Key Actors of BodiesKey Actors of Bodies Chairwoman/chairman of the General Chairwoman/chairman of the General
Assembly, elected by the ownersAssembly, elected by the owners Chairperson of the Board/Supervisory Chairperson of the Board/Supervisory
Board, elected by body membersBoard, elected by body members Board Committee leaders, nominated by Board Committee leaders, nominated by
the Boardthe Board Top management (executives), nominated Top management (executives), nominated
by the Boardby the Board Independent external auditor, contracted Independent external auditor, contracted
by the management oby the management orr the Board, the Board, accepted byaccepted by the the General Assembly General Assembly
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Special bodiesSpecial bodies
Committees of the BoardCommittees of the Board Executive C.Executive C. Financial C.Financial C. Audit C.Audit C. Nominations C.Nominations C. Remunerations C.Remunerations C. Strategic C.Strategic C. Ad Hoc C. (e.g. for project, Ad Hoc C. (e.g. for project, M&AM&A))
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Collective Responsibilities of OwnersCollective Responsibilities of Owners((General AssemblyGeneral Assembly))
Creation and change of Creation and change of the Incorporation the Incorporation Charter, Charter, Deed of Foundation (strictly Deed of Foundation (strictly regulated by Corporate Actregulated by Corporate Act))
Voting for Board (Supervisory Board) Voting for Board (Supervisory Board) membersmembers
Creating discussion issues of General Creating discussion issues of General AssemblyAssembly
Accepting (or not) Board’s reportsAccepting (or not) Board’s reports Electing the chairperson of the General Electing the chairperson of the General
AssemblyAssembly
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Responsibility of the Responsibility of the BoardBoard of of DirectorsDirectors
The Board is The Board is the the strategic strategic (and (and operational)operational) management body of the management body of the Corporation (firm)Corporation (firm)
Election of Board’s ChairpersonElection of Board’s Chairperson Nomination of management (President, Nomination of management (President,
CEO, etc.)CEO, etc.) Creation reports to General Assembly, Creation reports to General Assembly,
presenting the Annual Reportpresenting the Annual Report Sharing all duties with the management – Sharing all duties with the management –
bylaw regulationbylaw regulation RepresentingRepresenting officially officially the Corporation the Corporation
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Board level decisionsBoard level decisions
The BoardThe Board –as the highest level decision –as the highest level decision making body of the corporation – making body of the corporation – sets sets direction, vision, strategy.direction, vision, strategy.
Makes decisions inMakes decisions in major investment, major investment, financial, organizational, market financial, organizational, market questions and appoints the very leading questions and appoints the very leading personspersons of of management. management.
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Primary functions of the BoardPrimary functions of the Board
SELECT SELECT (C(CEOEO, board members, management , board members, management compensation)compensation)
REVIEW AND APPROVEREVIEW AND APPROVE (financial objectives, (financial objectives, strategicstrategic plan, adequacy of the system to law)plan, adequacy of the system to law)
ADADVVICE AND COUNCELICE AND COUNCEL (to the top (to the top management)management)
EVALUATE EVALUATE (board processes, performance)(board processes, performance) OTHERSOTHERS („umbrella definition) („umbrella definition)
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Responsibility of the Responsibility of the Supervisory Supervisory BoardBoard
Control over the Board and Control over the Board and Management teamManagement team in order in order to save to save and preserve the owner’s interestsand preserve the owner’s interests
Control the legal conformity of the Control the legal conformity of the firm and they activity with laws, rules firm and they activity with laws, rules and prescriptionsand prescriptions
NotNot a a decision making body decision making body
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Responsibility of Responsibility of Board’s Board’s CommitteesCommittees
Committee is notCommittee is not a a decision making body decision making body Consulting, Consulting, foundation of business foundation of business
decisiondecisionss, controlling function, controlling function Committee mCommittee members are embers are BoardBoard
members members andand experts experts Analysis for Analysis for the the Board and General Board and General
AssemblyAssembly
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Responsibility of Responsibility of ManagementManagement Shared responsibility with the BoardShared responsibility with the Board Management of day-to-day operationManagement of day-to-day operation Functional and structural organization of Functional and structural organization of
businessbusiness Management of key processes and Management of key processes and
functionsfunctions (e.g. (e.g. production, production, marketing, marketing, controlling, logistic, human resources, controlling, logistic, human resources, sales, finances, organizational sales, finances, organizational development)development)
Expertise for the Board and General Expertise for the Board and General AssemblyAssembly
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Market for Corporate ControlMarket for Corporate Control
Definition:Definition: Shares of public firms Shares of public firms are traded, and in large enough are traded, and in large enough blocks this means control over blocks this means control over corporations is traded. That puts corporations is traded. That puts some pressure on managers to some pressure on managers to perform, otherwise their corporation perform, otherwise their corporation can be taken over, and they will be can be taken over, and they will be fired. fired.
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The Chain of Corporate The Chain of Corporate GovernanceGovernance
Chain or hierarchy of controlChain or hierarchy of control• Separation of ownership and management Separation of ownership and management
controlcontrol• Beneficiaries, trustees of funds, investment Beneficiaries, trustees of funds, investment
managers, board, executive directors, senior managers, board, executive directors, senior executives, managersexecutives, managers
Accountability and responsivenessAccountability and responsiveness• Wider range of stakeholdersWider range of stakeholders
Principal-agent relationshipsPrincipal-agent relationships
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Governance Chain - IssuesGovernance Chain - Issues
Conflicts of interestConflicts of interest Directors’ responsibilities to Directors’ responsibilities to
shareholdersshareholders Accountability to stakeholdersAccountability to stakeholders Structure of targets, budgets and Structure of targets, budgets and
rewardsrewards
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Corporate GovernanceCorporate Governance ReformsReforms Imperfections in governance chainImperfections in governance chain
• Unequal division of powerUnequal division of power• Differing access to informationDiffering access to information
High profile cases of fraud or poor High profile cases of fraud or poor governancegovernance
Committees established for reformCommittees established for reform• Risk managementRisk management• EUEU
Real requirements:Real requirements:• Changes in board behaviourChanges in board behaviour• Strategic approachStrategic approach
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Recommendations for the futureRecommendations for the future
Proposals to improve the performance of the Proposals to improve the performance of the Board:Board:
- improving director compensation (stock improving director compensation (stock options)options)
- increasing authority of independent directorincreasing authority of independent director- separation CEO and chairman positionsseparation CEO and chairman positions- Sarbanes – OxleySarbanes – Oxley- more executive session meetingmore executive session meeting- more independence and transparency in more independence and transparency in
decisionsdecisions- closer connection with the performance of closer connection with the performance of
companycompany
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Role of Governing BodiesRole of Governing Bodies Different ownership structuresDifferent ownership structures
• Anglo-Saxon, Rhine, Latin, Japanese Anglo-Saxon, Rhine, Latin, Japanese modelsmodels
Important for international strategyImportant for international strategy• Does governance help or hinder Does governance help or hinder
investment?investment?• Does governance affect speed of Does governance affect speed of
investment?investment?• Which relationships are critical?Which relationships are critical?• How quickly will pay-offs be expected?How quickly will pay-offs be expected?
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strengths and Weaknesses of Governance Strengths and Weaknesses of Governance Systems (1)Systems (1)
st
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Strengths and Weaknesses of Governance Systems (2)
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Governing Bodies’ Influence on Governing Bodies’ Influence on Strategy (1)Strategy (1)
Two choicesTwo choices• Strategic management delegated to Strategic management delegated to
managementmanagement• Board engages with management in Board engages with management in
strategic managementstrategic management
High profile company failures focused High profile company failures focused attention on role of boardattention on role of board
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Governing Bodies’ Influence on Governing Bodies’ Influence on Strategy (2)Strategy (2)
Implications of board involvementImplications of board involvement• Need to operate independently of Need to operate independently of
managementmanagement• Must be competent to scrutinise Must be competent to scrutinise
managers’ activitiesmanagers’ activities• Need time to do job properlyNeed time to do job properly• Importance of softer issues, e.g. trust, Importance of softer issues, e.g. trust,
respectrespect
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Forms of Ownership (1)Forms of Ownership (1) Ownership has fundamental effect on Ownership has fundamental effect on
organisational purpose and strategiesorganisational purpose and strategies
• Private/public ownership of equityPrivate/public ownership of equity Public equity often required for growthPublic equity often required for growth
• Sale of all or part of the companySale of all or part of the company To a more suitable corporate parentTo a more suitable corporate parent
• Target for acquisitionsTarget for acquisitions Compare offer with expected future returnsCompare offer with expected future returns
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Forms of Ownership (2)Forms of Ownership (2) Ownership has fundamental effect on Ownership has fundamental effect on
organisational purpose and strategiesorganisational purpose and strategies
• Mutual ownershipMutual ownership Customers are owners rather than Customers are owners rather than
shareholdersshareholders
• Privatisation Privatisation Market forces, customer needs, access to Market forces, customer needs, access to
capitalcapital
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Key Points (1)Key Points (1) Expectations and purposesExpectations and purposes influenced influenced
by:by:• Corporate governance, stakeholder Corporate governance, stakeholder
expectations, business ethics and cultureexpectations, business ethics and culture
Corporate governanceCorporate governance• Whom organisation serves, how Whom organisation serves, how
purposes/priorities decidedpurposes/priorities decided
Stakeholders’ power and influenceStakeholders’ power and influence• Stakeholder mappingStakeholder mapping
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Key Points (2)Key Points (2) Ethical stanceEthical stance
• Corporate social responsibilityCorporate social responsibility
Culture Culture • Levels of cultural frames of referenceLevels of cultural frames of reference• Layers of values, beliefs, behaviours and Layers of values, beliefs, behaviours and
taken-for-granted assumptionstaken-for-granted assumptions• Cultural webCultural web
Communication of organisational Communication of organisational purposespurposes• Values, mission, objectivesValues, mission, objectives
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The most important interest group:The most important interest group: the owners (stockholders) the owners (stockholders)
OwnersOwners Their main interestTheir main interestSmall investorsSmall investors Divident, share priceDivident, share price
Financial investorsFinancial investors Rise of value the assets in long Rise of value the assets in long termterm
Professional investorsProfessional investors Specific goals, rise of the assetsSpecific goals, rise of the assets
StateState Employment, taxEmployment, tax
BanksBanks Providing loans, share priceProviding loans, share price
Local governmentsLocal governments Employment, tax, contribution Employment, tax, contribution
Other companyOther company Business connectionBusiness connection
Management Management Long term carreer, dividentLong term carreer, divident
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Classical rights of shareholdersClassical rights of shareholders
the right to sell the the right to sell the stockstock
the right to vote the right to vote the proxythe proxy
the right to get the right to get dividentdivident
the right to bring the right to bring suit for damages if suit for damages if the managers or the managers or directors fail to directors fail to meet their meet their obligationsobligations
the right to have the right to have certain information certain information from the companyfrom the company
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Types of owners Types of owners
activeactive/ interested in the operation of / interested in the operation of corpcorporationoration too, not only in the profit too, not only in the profit (professional investors, majority (professional investors, majority owners)owners)
passive / passive / interested in simply the interested in simply the income (profit)income (profit)
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
StakeholdersStakeholders Their main interestTheir main interest
SuppliersSuppliers Long term connectionsLong term connections
BuyersBuyers Quality, quick reaction, small priceQuality, quick reaction, small price
Other business partnersOther business partners Long term connection, liquidityLong term connection, liquidity
Potencial entrans Potencial entrans Stable and business-like marketStable and business-like market
Substitute product producersSubstitute product producers Clear roles, and conditionsClear roles, and conditions
Workers, and their unionsWorkers, and their unions Good working conditions, wagesGood working conditions, wages
Employer’s associationEmployer’s association Rule-following behaviorRule-following behavior
Government’s regulatorsGovernment’s regulators Rule-following behaviorRule-following behavior
Enterprises in the industryEnterprises in the industry Acceptance some mutual rules Acceptance some mutual rules
1. Types of stakeholders
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
2. Types of stakeholders2. Types of stakeholders
StakeholdersStakeholders Their main interestTheir main interest
Local authoritiesLocal authorities Tax, subsidyTax, subsidy
Local communitiesLocal communities HelpHelp
Trade unionsTrade unions AcceptanceAcceptance
Customer groupsCustomer groups Consumer-friendly behaviorConsumer-friendly behavior
Employment associationEmployment association AcceptanceAcceptance
GovernmentGovernment Pay tax, follow the lawsPay tax, follow the laws
Press, mediaPress, media Provide infromation, and advertiseProvide infromation, and advertise
Pressure groupsPressure groups Specific interestSpecific interest
Foreign countriesForeign countries Follow the local customFollow the local custom
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Corporate governanceCorporate governance
The relationship between the The relationship between the shareholders, Board of Directors, and shareholders, Board of Directors, and the management of the company to the management of the company to ensure that management acts in a ensure that management acts in a way to protect the interets of the way to protect the interets of the investors (including creditors) in the investors (including creditors) in the company. company.
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Evolution of the corporate-governance structure
1800 1900 1950 2000
Owner-manager
Investors General AssemblyOwners’s representatives Executive management
Investors
General assembly
Board (Directors)
Executive commity
Beneficiaries
Trustees of funds
Invetment funds
General assembly
Board
Executive managers
Managers
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The Chain of Corporate Governance
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Level of governance: Corporate strategy, Corporate reponsibility, Mission of the corporation
Level of the management:Organizing activitiesImplemetation of strategyControling day-to day activities
Board
Management teams
Supervisory Board
Independent external auditor
CEO
Chairman
General Assembly
Employees
Executive committie
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
GovernanceGovernance – management by – management by bodiesbodies
The corporate The corporate governance isgovernance is CollectiveCollective DemocraticDemocratic ResponsibleResponsible Legally framedLegally framed Well structuredWell structured
managementmanagement
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Key formKey formss of of corporate governance corporate governance :: the the bodiesbodies
What is What is „„aa”” body? body?Body is a teamBody is a team, members created by , members created by
delegation, nomination or election delegation, nomination or election (voting)(voting)
Body haBody hass a leader (heading), named a leader (heading), named chairpersonchairperson
Bodies have Bodies have legal backgroundlegal backgroundBody haBody hass a a bylawbylawBodies have responsibilities by law Bodies have responsibilities by law
or by the status of the bodyor by the status of the body
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Bodies in the international Bodies in the international corporate governancecorporate governance
General AssemblyGeneral Assembly, the body of owners , the body of owners (shareholders)(shareholders)
BoardBoard;; members are elected by the General members are elected by the General Assembly. (In Germany board members are Assembly. (In Germany board members are elected byelected by the the Supervisory Board) Supervisory Board)
Supervisory BoardSupervisory Board;; members are elected by members are elected by the General Assembly. (In US/UK no Supervisory the General Assembly. (In US/UK no Supervisory Board)Board)
Management teamManagement team (not defined by law) (not defined by law)
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Key Actors of BodiesKey Actors of Bodies Chairwoman/chairman of the General Chairwoman/chairman of the General
Assembly, elected by the ownersAssembly, elected by the owners Chairperson of the Board/Supervisory Chairperson of the Board/Supervisory
Board, elected by body membersBoard, elected by body members Board Committee leaders, nominated by Board Committee leaders, nominated by
the Boardthe Board Top management (executives), nominated Top management (executives), nominated
by the Boardby the Board Independent external auditor, contracted Independent external auditor, contracted
by the management oby the management orr the Board, the Board, accepted byaccepted by the the General Assembly General Assembly
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
New corporate governance rules between 1994-2006New corporate governance rules between 1994-2006
The different rules The different rules 19941994 19981998 20022002 20062006
Renumeration pay by performance Renumeration pay by performance MayMay MayMay MUSTMUST MUSTMUST
Renumeration disclosure Renumeration disclosure MayMay MayMay MayMay MUSTMUST
Audit committee creation Audit committee creation MayMay MUSTMUST MUSTMUST MUSTMUST
Audit committee independence Audit committee independence MayMay MUSTMUST MUSTMUST MUSTMUST
Board independence Board independence MayMay MUSTMUST MUSTMUST MUSTMUST
Removal of cross-shareholding Removal of cross-shareholding MayMay MayMay MUSTMUST MUSTMUST
Liability of the Board Liability of the Board MayMay MayMay MayMay MUSTMUST
Comply or explain Comply or explain MayMay MayMay MayMay MUSTMUST
Separation of Chairman and CEO Separation of Chairman and CEO MayMay MayMay MayMay MayMay
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Two side of the governance: business Two side of the governance: business judgement rule and checks/balancesjudgement rule and checks/balances
Rule granting directors of publicly listed Rule granting directors of publicly listed companie’s immunity from liability if their actions companie’s immunity from liability if their actions were executed in good faith, using sound were executed in good faith, using sound business judgement and exercised with resonable business judgement and exercised with resonable care. care.
It also refers to the defence of corporate It also refers to the defence of corporate sovereignty, which means that courts do not sovereignty, which means that courts do not intervene into company’s affaires until the intervene into company’s affaires until the decisions of the company are in accordance with decisions of the company are in accordance with good faith and resonable care. good faith and resonable care.
On the other hand there are rules and processes On the other hand there are rules and processes for governance and control of private sector for governance and control of private sector companies, which balance the authonomycompanies, which balance the authonomy
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The balancing institutions The balancing institutions
The most important balances are the The most important balances are the corporate governance rules, and corporate governance rules, and bodies, and structures, bodies, and structures,
The other types of important The other types of important balances are rules determining fair balances are rules determining fair behavior in business relations:behavior in business relations:• The code of ethics, and The code of ethics, and • The business cultureThe business culture
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
The stories of corporate disasters
Ineffective board
Dominant CEO („one man” show)
Disaster
Greed, hubris, irresponsibility
Poor strategy
Ill-judged acquisitions, over-expansions
Inadequate
con
trol
en
vir
onm
ent
Accidental external trigger
Inadequate
con
trol
en
vir
onm
ent
Conformist culture
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005
Corporate social responsibilityCorporate social responsibility
Corporate social responsibility (CSR) is a Corporate social responsibility (CSR) is a company’s obligation to be company’s obligation to be accountable to all of its stakeholders accountable to all of its stakeholders in all its operations and activities with in all its operations and activities with the aim of achieving sustainable the aim of achieving sustainable development not only in the development not only in the economical dimensions but also in the economical dimensions but also in the social and environmental dimensions.social and environmental dimensions.