Corporate governance and social responsibility

1. Annisa Haura
Fickar Mandela
M. Iqbal Saiful Islami

2.  Corporation is a mechanism established to allow different parties to contribute
capital, enterprise, and labor for their mutual benefit. The investor/shareholder
participates in the profits of enterprise without taking responsibility for the
operation.

3.  Setting corporate strategy, overall direction, mission or vision
 Hiring and firing CEO and top management
 Controlling, monitoring, or supervising top management
 Reviewing and approving the use of resources
 Caring for shareholder interest

4.  Monitor , board can keep abreast of development inside and outside the corporation,
bringing to management attention developments it might have overlooked
 Evaluate and influence , board can examine management’s proposals, decisions, and
actions; agree or disagree with them; give advice and offer suggestions; outline
alternatives
 Initiate and determine , board can delineate a corporation’s mission and specify strategic
options to its management

5.  The boards of most publicly owned corporations are composed of both inside and
outside directors
 Inside Directors are typically officer or executives employed by the corporation
 Outside Directors may be executives employed by the corporation
 Outside directors are less effective than are insiders because the outsiders are less
likely to have the necessary interest, availability, or competency.
There are several outsider that considered more as insider than as outsider, for
example:
 Affiliated directors who, though not really employed by the corporation, handle the
legal or insurance work for the company
 Retired directors who used to work for the company, such as the past CEO
 Family directors who are descendants of the founder and own significant blocks of
stock

6. Interlocking directorates occurs when two firms share a
director or when an executives of one firm sits on board of
a second firm. An indirect interlock occurs when two
corporations have directors who also serve on the board of
a third firm, such as bank

7. Traditionally the CEO of the corporation decided who to
invite to board membership and merely asked the
shareholders for approval in the annual proxy statement.
All nominees were usuakky elected

8. The size of the board is determined by the corporation’s
charter and its bylaws in compliance with state laws. The
average large, publicly-held firm has around 11 directors,
the average small/medium size privately-held company
has approximately to 8 members.

9.  Some of today’s trends in governance that are likely to continue
include
 Institutional investors, such as pensions funds, mutual funds and insurance
companies, are becoming active on boards and are putting increasing pressure
on top management to improve corporate performance
 As corporations become more global, they will increasingly add international
directors to their boards
 Shareholder are demanding that directors and top managers own more than
token amounts of stock in the corporation. Stock is increasingly being used as
part of a director’s compensation.

10.  The top management function is usually conducted by the CEO of the corporation
in coordination with the COO (Chief Operating Officer) or president, executive
vice-president, and vice-presidents of divisions and functional areas.
 Top management responsibilities, especially those of the CEO, involve getting
things accomplished through and with others to meet the corporate objectives. The
chief executive officer, in particular, must successfully handle two responsibilities
crucial to the effective strategic management of the corporation: (1) provide
executive leadership and a strategic vision, and (2) manage the strategic planning
process.

11.  They are able to command respect and to influence strategy formulation and
implementation because they tend to have three key characteristics:
 The CEO articulates a strategic vision for the corporation. The CEO envisions the
company not as it currently is, but as it can become.
 The CEO presents a role for others to identify with and to follow. The leader sets an
example in terms of behavior and dress.
 The CEO communicated high performance standards but also shows confidence in the
followers’ abilities to meet these standards. No leader ever improved performance by
setting easily attainable goals that provided no challenge.

12.  Many large organizations have a strategic planning staff charged with supporting
both top management and the business units in the strategic planning process.
This planning staff typically consists of just under ten people, headed by a senior
vise-president or director of corporate planning. The staff’s major responsibilities
are to:
 Identify and analyze companywide strategic issues, and suggest corporate strategic
alternatives to top management.
 Work as facilitators with business units to guide them through the strategic planning
process.

13.  The concept of social responsibility proposes that a private corporation has
responsibilities to society that extend beyond making a profit. A decision to
retrench by closing some plants and discontinuing product lines.
 Economic responsibilities of a business organization’s management are to produce goods and service of
value to society so that the firm may repay its creditors and shareholders.
 Legal responsibilities are defined by governments in laws that management is expected to obey.
 Ethical responsibilities of an organization’s management are to follow the generally held beliefs about
behavior in a society.
 Discretionary responsibilities are the purely voluntary obligations a corporation assumes.

14.  Some reasons for unethical behavior
 Cultural norms and values vary between countries and even between different
geographic and ethnic groups within a country. Another possible reason for what
is often perceived to be unethical behavior lies in differences in value between
business people and key stakeholders. behavior lies in differences in value
between business people and key stakeholders. Some business people may believe
profit maximization is the key goal of their firm, whereas concerned interest group
may have other priorities, such as the hiring of minorities and woman or the
safety of their neighborhoods.

15.  If business people do not act ethically, government will be forced to pass laws
regulating their actions-and usually increasing their costs. For self interest, if for
no other reason, managers should be more ethical in their decision making.
 Codes of ethics
 Codes of ethics specify how an organization expect its employees to behave while on the
job. Developing codes of ethics can be a useful way to promote ethical behavior.
 Guidelines for ethical behavior
 Utilitarian approach: This approach proposes that actions and plans should be judged by
their consequences.
 Individual rights approach: This approach proposes that human being have certain
fundamental rights that should be respecter in all decisions.
 Justice approach: This approach proposes that decision makers be equitable, fair, and
impartial in the distribution of costs and benefits to individuals and groups.

16.  The 21st century global society future in this chapter described a German-based
corporation adding non-Germans to its board of directors may need to become
more international on terms of their composition and orientation.
 Although codetermination seems to be primarily a European experience, it is
likely that employees at all levels will continue to become more involved in
strategic management.
 When making and approving strategic decisions, boards of directors will find that
they must consider the interest of all key stakeholders and not just those of the
people who own stock in the corporation. To avoid unwanted government
interference, boards must ensure that management’s actions do not antagonize
any important stakeholders.

17.  Questions of diversity in the workplace and the human rights of employees are
beginning to impact strategic decision making. Companies such as Reebok and
Nike have been criticized for paying low wages to female workers in emerging
economies.
 The ability to articulate a strategic vision and motivate people to achieve it may
soon be the most important characteristic required of a chief executive officer.
 As business firms become increasingly multinational in scope, they will need to
justify strategic and operational decisions on a basis other than self-interest
through moral relativism.