CHAPTER 2
Corporate
Governance
STRATEGIC MANAGEMENT & BUSINESS POLICY
10TH EDITION
THOMAS L. WHEELEN
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J. DAVID HUNGER
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Corporate Governance
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Corporate Governance
The relationship among the board of
directors, top management, and
shareholders – determining the direction
and performance of the corporation
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Corporate Governance
Role of Board
–Monitor
–Evaluate and influence
–Initiate and determine
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Board of Directors Continuum
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Board of Directors
Members -–Inside directors
•“management directors”
•Officers or execs employed by the firm
–Outside directors
•“non-management directors”
•Execs of other firms not employed by the
board’s corporation
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Agency Theory
Agency Problem –
–Objectives of owners & agents in conflict
–Difficult for owners to verify agent performance
Risk Sharing Problem –
–Owners & agents risk assessment in conflict
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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.
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Board of Directors
When Outsiders can be considered Insiders
–Affiliated Directors
–Retired Directors
–Family Directors
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Board of Directors
Codetermination
–The inclusion of a corporation’s employees on its
board of directors
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Board of Directors
Interlocking Directorates
–Direct Interlocking
–Indirect Interlocking
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Board of Directors
Nominations & Elections
–Traditional Approach
•CEO invitation to membership
•Shareholders approval in annual proxy statement
•All nominees usually elected
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Board of Directors
Nominations & Elections
–Staggered Board Approach
•Staggered terms of service/election
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Board of Directors
Sarbanes-Oxley
–Code of Ethics
–Audit, Nominating, and Compensation
Committees all outside directors
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Board of Directors
Organization of the Board
–Size
•Charter & Bylaws Determination
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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
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Board of Directors
Transformational leaders
–Change agents through vision for change
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Board of Directors
Successful CEO’s
–Strategic vision
–Passion for the company
–Strong communication
–charisma
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Board of Directors
Executive Leadership
–Strategic vision
–Role model
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Board of Directors
Executive Leadership
–Communication of performance standards
–Demonstrates confidence in abilities of followers
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Strategic Management Process
Strategic Planning Staff
–Supports top management & business units in
the strategic planning process
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Strategic Management Process
Strategic Planning Staff
–Identify & analyze company-wide strategic issues
–Generate strategic alternatives
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Strategic Management Process
Strategic Planning Staff
–Facilitate business units in coordinating activities
related to strategic planning process
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