Corporate Performance, Governance, and
Business Ethics
SYNOPSIS OF CHAPTER
Chapter 11 introduces concepts related to strategy implementation. The first section addresses the causes of poor
performance, which occurs in some firms in every industry. Causes of poor performance include poor
management, high costs, inadequate differentiation, overexpansion, shifts in demand, and organizational inertia.
The chapter then suggests ways that firms can improve poor performance, such as changing leadership, changing
strategy, or changing the organization.
The chapter then describes the ways in which various stakeholder groups make contributions to, and receive
benefits from, the organization, and how stakeholder support leads to high organizational performance. Managers
and to suggest ways to overcome it.
Next, corporate governance is presented, including boards of directors, compensation for principals,
independently audited financial statements, the threat of corporate takeover, strategic control systems, and
incentive systems. Each of these governance mechanisms is described in detail, and the costs and benefits of each
are provided.
The final topic of the chapter is ethics. Business ethics are defined and described. Then, suggestions are given to
TEACHING OBJECTIVES
1.
Introduce concepts about strategy implementation.
2.
Describe reasons for poor performance and suggest ways to improve poor performance.
3.
Identify important stakeholder groups, show how they contribute to and benefit from the firm, and describe
how stakeholders affect corporate profitability.
4.
Familiarize students with agency theory, and use it to explain why a misalignment of interests exists at
every level of the organization.
5.
Present information about various corporate governance mechanisms.
6.
Define and describe business ethics, and show ho
OPENING CASE: THE FALL OF ENRON
because it held $27 billion in hidden debt,
true financial position. The partnerships were set up in compliance with regulations, but they were a way of
ecutives. These top managers reaped
millions from the sale of their Enron stock, then abruptly left the firm. It seems clear that a few managers were
suspicion for its role in the debacle and has also declared bankruptcy. More than one employee attempted to
of lost jobs, billions of dollars in lost shareholder wealth.