Corporate governance involves establishing order between a firm's owners and top managers. It addresses the agency problem that arises from the separation of ownership and control, where managers may not always act in shareholders' best interests. Governance mechanisms like boards of directors, executive compensation, and market threats aim to align manager and shareholder goals. Effective governance also considers ethical treatment of all stakeholder groups.
Management of culture in mergers and acqusitionBolaji Okusaga
Public Relations is a great tool for the Management of soft-issues in Mergers and Acquisition. Oftentimes, managers bother only about the hard-issues but value-attrition mostly occur when the soft-issues are not properly addressed.
Describes the various partnership options available to nonprofit organizations including mergers, joint programming, administrative consolidation, management service organizations, parent-subsidiary, etc. He will present the findings of landmark studies on mergers and alliances in the United States, and discuss the benefits and challenges of restructuring as well as the phases of the strategic restructuring process
How to create sustainable Competitive Advantage using Strategy Mechanism?Petrilau
The company operating in a turbulent environment needs a working strategy mechanism rather than a detailed road map for a road when the environment is fast changing, and topography is unknown
Ansoff’s strategic success formula states that for optimum return on investment, both the aggressiveness of the firm’s strategy and its capabilities must match the turbulence of the environment.
How to Launch Strategy from Formulation to Organisation's Expected State :Mod...Chuks Ejechi, MSc, PMP
Not much attention is given to implementation as formulation. It is no news that many good strategies have failed as a result of this. My thinking is that if organisations can picture formulation and implementation as a unit, results will be better.
I term my developed model: Formulate and Implement Strategy Model.
Management of culture in mergers and acqusitionBolaji Okusaga
Public Relations is a great tool for the Management of soft-issues in Mergers and Acquisition. Oftentimes, managers bother only about the hard-issues but value-attrition mostly occur when the soft-issues are not properly addressed.
Describes the various partnership options available to nonprofit organizations including mergers, joint programming, administrative consolidation, management service organizations, parent-subsidiary, etc. He will present the findings of landmark studies on mergers and alliances in the United States, and discuss the benefits and challenges of restructuring as well as the phases of the strategic restructuring process
How to create sustainable Competitive Advantage using Strategy Mechanism?Petrilau
The company operating in a turbulent environment needs a working strategy mechanism rather than a detailed road map for a road when the environment is fast changing, and topography is unknown
Ansoff’s strategic success formula states that for optimum return on investment, both the aggressiveness of the firm’s strategy and its capabilities must match the turbulence of the environment.
How to Launch Strategy from Formulation to Organisation's Expected State :Mod...Chuks Ejechi, MSc, PMP
Not much attention is given to implementation as formulation. It is no news that many good strategies have failed as a result of this. My thinking is that if organisations can picture formulation and implementation as a unit, results will be better.
I term my developed model: Formulate and Implement Strategy Model.
A comparitive study of laser ignition and spark ignition with gasoline air m...Amiya K. Sahoo
With the advent of lasers in the 1960s, researcher and engineers discovered a new and powerful tool to investigate natural phenomena and improve technologically critical processes. Due to recent progress in the area of high power fiber optics allowed convenient shielding and transmission of the laser light from one part of engine to the combustion chamber.
Laser is emerging as a strong concept for alternative ignition in spark ignition engine. Laser ignition has potential advantages over conventional spark plug ignition. Laser ignition system is free from spark electrodes hence there is no loss of spark energy to the electrodes, which are also free from erosion effect. In addition the potential advantages of the lasers lies in its flexibility to change the ignition location. Also, multiple ignition points can be achieved rather comfortably as compared to conventional electric ignition systems using spark plugs, And many more.
In this paper, advantages and disadvantages of laser and conventional spark ignition systems in the context of combustion engines are discussed, and performances of laser ignition and conventional spark ignition systems are comparatively evaluated in terms of Minimum Ignition Energy, Ignition Probability and Exhaust Emissions at similar operating conditions of the engine and graphs are plotted.
And will also explain how laser ignition extends the lean flammability limit, while the spark ignition could be more favorable for rich mixture.
Senior Seminar in Business Administration BUS 499Corporate.docxedgar6wallace88877
Senior Seminar in Business Administration
BUS 499
Corporate Governance
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Corporate Governance.
Please go to the next slide.
Objectives
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions.
Please go to the next slide.
Supporting Topics
Separation of Ownership and Managerial Control
Ownership Concentration
Board of Directors
Market for Corporate Control
International Corporate Governance
Governance Mechanisms and Ethical Behavior
In order to achieve these objectives, the following supporting topics will be covered:
Separation of ownership and managerial control;
Ownership concentration;
Board of directors;
Market for corporate control;
International corporate governance; and
Governance mechanisms and ethical behavior.
Please go to the next slide.
Separation of Ownership and Managerial Control
What is Corporate Governance
Shareholders
Purchase stock
Managing of their investment risk
Agency Relationships
Problems
Different interests and goals
Managerial Opportunism
Agency Costs
To start off the lesson, corporate governance is defined as a set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations. Corporate governance is concerned with identifying ways to ensure that decisions are made effectively and that they facilitate strategic competitiveness. Another way to think of governance is to establish and maintain harmony between parties.
Traditionally, U. S. firms were managed by founder- owners and their descendants. As firms became larger the managerial revolution led to a separation of ownership and control in most large corporations. This control of the firm shifted from entrepreneurs to professional managers while ownership became dispersed among unorganized stockholders. Due to these changes modern public corporation was created and was based on the efficient separation of ownership and managerial control.
The separation of ownership and managerial control allows shareholders to purchase stock. This in turn entitles them to income from the firm’s operations after paying expenses. This requires that shareholders take a risk that the firm’s expenses may exceed its revenues.
Shareholders specialize in managing their investment risk. Those managing small firms also own a significant percentage of the firm and there is often less separation between ownership and managerial control. Meanwhile, in a large number of family owned firms, ownership and managerial control are not separated at all. The primary purpose of most large family firms is to increase the family’s wealth.
The separation between owners and managers creates an agency relationship. An agency re.
Home Learning Week 81.) What is Corporate Social ResponsibilitSusanaFurman449
Home Learning Week 8
1.) What is Corporate Social Responsibility and why are companies engaged in it?
2.) Discuss the evolving phases of Corporate Social Responsibility
3.) Describe Carroll’s four-part definition of CSR and contrast it to Firedman’s “the business of business is business”
4.) Discuss why companies are engaged in Corporate Social Reporting
Senior Seminar in Business Administration
BUS 499
Corporate Governance
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Corporate Governance.
Please go to the next slide.
Objectives
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions.
Please go to the next slide.
Supporting Topics
Separation of Ownership and Managerial Control
Ownership Concentration
Board of Directors
Market for Corporate Control
International Corporate Governance
Governance Mechanisms and Ethical Behavior
In order to achieve these objectives, the following supporting topics will be covered:
Separation of ownership and managerial control;
Ownership concentration;
Board of directors;
Market for corporate control;
International corporate governance; and
Governance mechanisms and ethical behavior.
Please go to the next slide.
Separation of Ownership and Managerial Control
What is Corporate Governance
Shareholders
Purchase stock
Managing of their investment risk
Agency Relationships
Problems
Different interests and goals
Managerial Opportunism
Agency Costs
To start off the lesson, corporate governance is defined as a set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations. Corporate governance is concerned with identifying ways to ensure that decisions are made effectively and that they facilitate strategic competitiveness. Another way to think of governance is to establish and maintain harmony between parties.
Traditionally, U. S. firms were managed by founder- owners and their descendants. As firms became larger the managerial revolution led to a separation of ownership and control in most large corporations. This control of the firm shifted from entrepreneurs to professional managers while ownership became dispersed among unorganized stockholders. Due to these changes modern public corporation was created and was based on the efficient separation of ownership and managerial control.
The separation of ownership and managerial control allows shareholders to purchase stock. This in turn entitles them to income from the firm’s operations after paying expenses. This requires that shareholders take a risk that the firm’s expenses may exceed its revenues.
Shareholders specialize in managing their investment risk. Those managing small firms also own a significant percentage ...
BUS 499, Week 8 Corporate Governance Slide #TopicNarrationVannaSchrader3
BUS 499, Week 8: Corporate Governance
Slide #
Topic
Narration
1
Introduction
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Corporate Governance.
Please go to the next slide.
2
Objectives
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions.
Please go to the next slide.
3
Supporting Topics
In order to achieve these objectives, the following supporting topics will be covered:
Separation of ownership and managerial control;
Ownership concentration;
Board of directors;
Market for corporate control;
International corporate governance; and
Governance mechanisms and ethical behavior.
Please go to the next slide.
4
Separation of Ownership and Managerial Control
To start off the lesson, corporate governance is defined as a set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations. Corporate governance is concerned with identifying ways to ensure that decisionsare made effectively and that they facilitate strategic competitiveness. Another way to think of governance is to establish and maintain harmony between parties.
Traditionally, U. S. firms were managed by founder- owners and their descendants. As firms became larger the managerial revolution led to a separation of ownership and control in most large corporations. This control of the firm shifted from entrepreneurs to professional managers while ownership became dispersed among unorganized stockholders. Due to these changes modern public corporation was created and was based on the efficient separation of ownership and managerial control.
The separation of ownership and managerial control allows shareholders to purchase stock. This in turn entitles them to income from the firm’s operations after paying expenses. This requires that shareholders take a risk that the firm’s expenses may exceed its revenues.
Shareholders specialize in managing their investment risk. Those managing small firms also own a significant percentage of the firm and there is often less separation between ownership and managerial control. Meanwhile, in a large number of family owned firms, ownership and managerial control are not separated at all. The primary purpose of most large family firms is to increase the family’s wealth.
The separation between owners and managers creates an agencyrelationship. An agency relationship exists when one or more persons hire another person or persons as decision- making specialists to perform a service. As a result an agency relationship exists when one party delegates decision- making responsibility to a second party for compensation. Other examples of agency relationships are consultants and clients and insured and insurer. An agency relationship can also exist between managers and their employees, as well as between top- level managers and the firm’s owners.
The sep ...
BUS 499, Week 8 Corporate Governance Slide #TopicNarration.docxcurwenmichaela
BUS 499, Week 8: Corporate Governance
Slide #
Topic
Narration
1
Introduction
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Corporate Governance.
Please go to the next slide.
2
Objectives
Upon completion of this lesson, you will be able to:
Describe how corporate governance affects strategic decisions.
Please go to the next slide.
3
Supporting Topics
In order to achieve these objectives, the following supporting topics will be covered:
Separation of ownership and managerial control;
Ownership concentration;
Board of directors;
Market for corporate control;
International corporate governance; and
Governance mechanisms and ethical behavior.
Please go to the next slide.
4
Separation of Ownership and Managerial Control
To start off the lesson, corporate governance is defined as a set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations. Corporate governance is concerned with identifying ways to ensure that decisionsare made effectively and that they facilitate strategic competitiveness. Another way to think of governance is to establish and maintain harmony between parties.
Traditionally, U. S. firms were managed by founder- owners and their descendants. As firms became larger the managerial revolution led to a separation of ownership and control in most large corporations. This control of the firm shifted from entrepreneurs to professional managers while ownership became dispersed among unorganized stockholders. Due to these changes modern public corporation was created and was based on the efficient separation of ownership and managerial control.
The separation of ownership and managerial control allows shareholders to purchase stock. This in turn entitles them to income from the firm’s operations after paying expenses. This requires that shareholders take a risk that the firm’s expenses may exceed its revenues.
Shareholders specialize in managing their investment risk. Those managing small firms also own a significant percentage of the firm and there is often less separation between ownership and managerial control. Meanwhile, in a large number of family owned firms, ownership and managerial control are not separated at all. The primary purpose of most large family firms is to increase the family’s wealth.
The separation between owners and managers creates an agencyrelationship. An agency relationship exists when one or more persons hire another person or persons as decision- making specialists to perform a service. As a result an agency relationship exists when one party delegates decision- making responsibility to a second party for compensation. Other examples of agency relationships are consultants and clients and insured and insurer. An agency relationship can also exist between managers and their employees, as well as between top- level managers and the firm’s owners.
The sep.
Strategic ManagementChapter 1Dimensions of Strat.docxdessiechisomjj4
Strategic Management
Chapter 1
Dimensions of Strategic DecisionsStrategic issues require top-management decisionsStrategic issues require large amounts of the firm’s resourcesStrategic issues often affect the firm’s long-term prosperityStrategic issues are future orientedStrategic issues usually have multifunctional or multibusiness consequencesStrategic issues require considering the firm’s external environment
Multimedia Lecture Support Package to Accompany Basic Marketing
Lecture Script 6-*
Three Levels of Strategy
Corporate level: board of directors, CEO & administration [Highest]
Business level: business and corporate managers [Middle]
Functional level: Product, geographic, and functional area managers [Lowest]
Characteristics of Strategic Management Decisions: Corporate
Often carry greater risk, cost, and profit potential
Greater need for flexibility
Longer time horizons
Choice of businesses, dividend policies, sources of long-term financing, and priorities for growth
Characteristics of Strategic Management Decisions: BusinessHelp bridge decisions at the corporate and functional levelsLess costly, risky, and potentially profitable than corporate-level decisionsMore costly, risky, and potentially profitable than functional-level decisionsInclude decisions on plant location, marketing segmentation, and distribution
Characteristics of Strategic Management Decisions: FunctionalImplement the overall strategy formulated at the corporate and business levelsInvolve action-oriented operational issuesRelatively short range and low riskModest costs: depend upon available resourcesRelatively concrete and quantifiable
Company Mission
Chapter 2
Four Essential Components:Basic Product or Service Primary Market--WHOWhereFinancial position
Primary Company GoalsSurvival – A firm that can’t survive can’t satisfy its stakeholders. (Often taken for granted)Profitability –the mainstay goal of a business.Growth –is tied to survival and profitability. Broadly defined in terms of market share, etc.
Company Philosophy—BULLETS
Covers CustomersEmployeesManagementStockholders
Stakeholders SuppliersCommunitySocial responsibilityTaxesEnvironmental protection
AGENCY THEORY
Agency theory --based on the belief that the separation of the ownership from management creates a situation where managers will spend the stockholders’ money in ways they would not spend their own.
Agency Costs
The cost of agency problems plus the cost of actions taken to minimize agency problems are collectively termed agency costs.
How Agency Problems Occur
Moral hazard problem--Executives have disproportionate access to company information. Adverse selection--a problem caused by the limited ability of stockholders to determine the competencies and priorities of executives they hire.
Problems Resulting from Agency
Executives pursue growth in company size rather than earnings
Executives attempt to diversify their corporate risk
Executives avoid h.
Ed Jiminez from the Bangko Sentral ng Pilipinas speaks about the role Governance plays in Microfinance Institutions (Jan 29, PACAP Community Development Forum: Microfinance Amidst the Global Financial Crisis.
Unveiling the Secrets How Does Generative AI Work.pdfSam H
At its core, generative artificial intelligence relies on the concept of generative models, which serve as engines that churn out entirely new data resembling their training data. It is like a sculptor who has studied so many forms found in nature and then uses this knowledge to create sculptures from his imagination that have never been seen before anywhere else. If taken to cyberspace, gans work almost the same way.
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
www.seribangash.com
Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...BBPMedia1
Grote partijen zijn al een tijdje onderweg met retail media. Ondertussen worden in dit domein ook de kansen zichtbaar voor andere spelers in de markt. Maar met die kansen ontstaan ook vragen: Zelf retail media worden of erop adverteren? In welke fase van de funnel past het en hoe integreer je het in een mediaplan? Wat is nu precies het verschil met marketplaces en Programmatic ads? In dit half uur beslechten we de dilemma's en krijg je antwoorden op wanneer het voor jou tijd is om de volgende stap te zetten.
Attending a job Interview for B1 and B2 Englsih learnersErika906060
It is a sample of an interview for a business english class for pre-intermediate and intermediate english students with emphasis on the speking ability.
As a business owner in Delaware, staying on top of your tax obligations is paramount, especially with the annual deadline for Delaware Franchise Tax looming on March 1. One such obligation is the annual Delaware Franchise Tax, which serves as a crucial requirement for maintaining your company’s legal standing within the state. While the prospect of handling tax matters may seem daunting, rest assured that the process can be straightforward with the right guidance. In this comprehensive guide, we’ll walk you through the steps of filing your Delaware Franchise Tax and provide insights to help you navigate the process effectively.
Remote sensing and monitoring are changing the mining industry for the better. These are providing innovative solutions to long-standing challenges. Those related to exploration, extraction, and overall environmental management by mining technology companies Odisha. These technologies make use of satellite imaging, aerial photography and sensors to collect data that might be inaccessible or from hazardous locations. With the use of this technology, mining operations are becoming increasingly efficient. Let us gain more insight into the key aspects associated with remote sensing and monitoring when it comes to mining.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
What are the main advantages of using HR recruiter services.pdfHumanResourceDimensi1
HR recruiter services offer top talents to companies according to their specific needs. They handle all recruitment tasks from job posting to onboarding and help companies concentrate on their business growth. With their expertise and years of experience, they streamline the hiring process and save time and resources for the company.
Cracking the Workplace Discipline Code Main.pptxWorkforce Group
Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
• Four (4) workplace discipline methods you should consider
• The best and most practical approach to implementing workplace discipline.
• Three (3) key tips to maintain a disciplined workplace.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
2. Chapter 2 Strategic Leadership Chapter 4 The Internal Organization Chapter 6 Competitive Rivalry and Competitive Dynamics Chapter 9 International Strategy Chapter 1 Introduction to Strategic Management Chapter 3 The External Environment Chapter 5 Business-Level Strategy Chapter 8 Acquisition and Restructuring Strategies Chapter 11 Corporate Governance Strategic Intent Strategic Mission Chapter 7 Corporate-Level Strategy Chapter 10 Cooperative Strategy Chapter 12 Strategic Entrepreneurship Strategic Analysis Strategic Thinking Creating Competitive Advantage Monitoring And Creating Entrepreneurial Opportunities The Strategic Management Process
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19. Manager and Shareholder Risk and Diversification Risk Diversification Dominant Business Unrelated Businesses Related Constrained Related Linked Managerial (employment) risk profile Shareholder (business) risk profile B S A M
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Editor's Notes
Corporate Governance Instructor notes are provided for four topics in this set of slides: • How to increase product diversification and how to intensify effort to innovate without increased agency problems (see first slide titled “Agency Relationship: Owners and Managers“ • The growing influence of institutional owners (see first slide titles “Governance Mechanisms“) • A discussion of the risks associated with boards dominated by outsiders (see third slide titled “Governance Mechanisms“) • A continued discussion of the role played by outsiders (see first slide titled “Corporate Governance and Ethical Behavior“) Note: See text for citation list.
Agency Relationships Owners and Managers How to increase product diversification and how to intensify effort to innovate without increased agency problems? Firms undertake a variety of actions to reduce risk through diversification, including entering diverse lines of business, joining alliances, taking on temporary partners, and outsourcing risky projects, including R&D. The challenge, as explained in the book, is that shareholders do not directly benefit from risk-reducing diversification strategies when they can replicate this diversification on their own. Diversification, therefore, is often seen as managers’ opportunistic pursuit of their own self-interests at the expense of the shareholders who can, if they so desire, diversify their individual portfolios simply by buying shares in other companies. While this view reflects the influence of agency theory, recently such views have been challenged by stewardship theory (Donaldson, 1990a; Donaldson & Davis, 1991), a framework presuming that managers are actually seeking to maximize organizational performance. For instance, one reason for diversifying would be to enhance company profit and growth prospects by reducing dependence on static or declining products, markets, and even industries. In the parlance of the I/O model discussed in Chapter 1, such a motive might lead companies to increase diversification into technologies or industries where profit rates are increasing most and to those where the competitive dynamism is relatively more stable. Managers might also opt to diversify for earnings stability and economies of scale. In short, diversification strategies might represent opportunism, but it might also reflect management rational and genuine response to financial adversity and/or the need for improved financial performance for their company.
Governance Mechanisms The Growing Influence of Institutional Owners (p. 350) The discussion of the relationship between corporate ownership and performance was initiated as far back as the 1930s, but it remains an issue today. Pioneering researchers in corporate governance show that companies with separated ownership and control functions operate with different managerial rules in investment decision-making from those in which ownership and control are combined in a single decision-maker. Different managerial rules are caused by the different basis on which the stakeholders optimize the tradeoff between their profit and utility maximization and the distribution of decision-making and risk-bearing functions. With diffused ownership and a lesser number of shares, an individual shareholder’s control is diluted while a manager’s control increases. This gives rise to conflict of interests resulting in less than optimal value for the shareholders. Erosion of value also comes from agency costs arising from ensuring that management acts in shareholders’ interests. A manager may behave opportunistically by choosing to exchange profits for personal benefits, such as “on-the-job” consumption. Thus consuming away the economic goods today rather than preserving them for the future. It is assumed that large-block investors and institutional ownership have both the size and the incentive to discipline ineffective managers and thus to influence a firm’s strategic choice. The shift in governance whereby ownership of many modern corporations is concentrated in the hands of institutional investors might come with a high price tag vis-à- vis strategic choice and long-term planning. For example, institutional investors are overly focused on current profitability, which might conflict with future period earnings due to investments in risky R&D projects and exploration of new business models. Moreover, as suggested in the book, even very strong institutional investors might not avert financial disaster. For example, CalPERS, which provides retirement and health coverage to over 1.3 million employees and is one of the largest public employee pension funds in the United States, had invested in Enron! (Continued on next slide.)
Governance Mechanisms (cont.) The Growing Influence of Institutional Owners (p. 350) (cont.) Interestingly, over the past decade the world’s leading private equity firms consistently have delivered internal rates of return twice as large as the S&P 500’s. They’ve achieved this is by adding value to the underlying operations (Rogers, Holland, & Haas, 2002). For example, private equity firms: • Clearly define their investment thesis and its time frame to fruition • Hire managers who act like owners • Focus on a few measures of success that all employees understand • Make capital work hard or otherwise re-deploy under-performing assets quickly • Make the center an active shareholder Ask Can institutional owners understand and act like managers of private equity firms? (Continued on next slide.)
Governance Mechanisms (cont.) The Growing Influence of Institutional Owners (p. 350) (cont.) Board of Directors (p. 353) Much of the governance literature advocates boards dominated by outsiders. What might be some of the risks associated with boards dominated by outsiders? As discussed in the book, a large number of outsiders can create several problems. First, outsiders have limited contact with the firm’s day-to-day operations and incomplete information about managers. This, in turn, leads to ineffective assessments of managerial decisions and initiatives. Second, in the absence of full information, outsider-dominated boards emphasize the use of financial, as opposed to strategic, controls to gather performance information to evaluate managers’ and business units’ performances. Strong reliance on financial evaluations shifts risk to managers, who, in turn, may reduce R&D investments, increase diversification, and pursue higher compensation to offset their employment risk. (Continued on next slide.)
Governance Mechanisms (cont.) The Growing Influence of Institutional Owners (p. 350) (cont.) Board of Directors (p. 353) (cont.) Recently, Phan and his colleagues (2002) explained the relationships between corporate governance and innovation (R&D expenditures, patents, and new products) in 86 publicly listed pharmaceutical firms. Consistent with agency theory, they found that the presence of large block private and institutional shareholders—controlling for firm size and performance — positively influenced innovation. They demonstrated that CEO duality was positively related to R&D expenditures, and that boards with more insiders were positively associated with the number of new products. In short, in the highly turbulent pharmaceutical industry, where risky decisions have to be made under substantial uncertainty, active ownership, unitary command structures, and strategically involved boards provide superior explanatory power for the governance-innovation link.
Corporate Governance and Ethical Behavior To improve corporate governance, watchdog groups advocate separating the chairperson and the chief executive positions and creating corporate boards that are dominated by outsiders. Here is where the S&P 500 currently stands in relation to this issue: • Fifteen instances where Chairperson is not CEO and is an Independent Director, 16 instances where Chairperson is not CEO and is an Outside Related Director, 65 instances where Chairperson is Former CEO, three instances where Chairperson is not CEO and is an Executive, six instances where Chairperson is not CEO and is a Former Executive, 392 instances (78%) where Chairperson is ALSO the CEO (CEO duality). Source : The Corporate Library. 2003. Exclusive special report on CEO/Chairman splits in the S&P 500: How Many and How Independent? (http://www.thecorporatelibrary. com/spotlight/boardsanddirectors/SplitChairs.html)
