Slide of strategic management w2

Learning Objectives• Comprehend the structure and major roles of governing boards • Recognise the relationship between managers and governing boards, and assess how this relationship is

Learning Objectives

• Understand the meaning and boundaries of

corporate governance

• Appreciate the significance of stakeholder

management in the context of corporate

Learning Objectives

• Comprehend the structure and major roles of governing boards

• Recognise the relationship between managers and

governing boards, and assess how this relationship is related to corporate performance

• Discuss current trends in corporate governance from global perspective

• Appreciate the value and importance of corporate

governance in the public sector and the international arena

• Evaluate how corporate governance is related to the

sustainability of modern organisations

• How organisations are led and controlled by their leaders has emerged as one of the most important strategic

management issue

• A number of issues need to be considered including:

• Disclosure statements issued to the Stock Exchange

• Liability of all directors

• Duty of care to shareholders and other stakeholders

• These matter are becoming important throughout the

Asia-Pacific region

Corporate Governance: Basic Concepts

• The process of how important strategic decisions are made and controlled in organisations is called

corporate governance.

• Corporate governance is concerned with identifying ways to ensure that strategic decisions are made more effectively

• It is used to establish order between the company’s owners and its top-level managers, whose interests

may sometimes be in conflict

Governance and Sustainability

• Sustainability of organisations and

corporate governance are closely linked

• Appropriate corporate governance can

promote the interest of all stakeholders of the organisation

Boundaries and Relationships of

Corporate Governance

Fig 2.1

Corporate Governance:

Social Responsibilities and Stakeholders

• Corporate social responsibility (CSR) refers to the

continuing commitment by business to behave

ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large

• Research suggests that investors now look beyond good financial indicator for ethical and socially

responsible behaviour for organisations

Corporate Governance:

Social Responsibility

• Five basic goals of corporate governance to

enhance CSR are:

• Recognition of ethical behaviour

• A proactive stance towards the environment

• Protection of the community

• Enhancement of social responsibility in employment

practices

• Fairly sharing wealth creation with different stakeholders

Corporate Governance

and Social Responsibility

Fig.2.2

Management of Stakeholders

• Who are stakeholders?

• Stakeholders are organisations and individuals to whom the organisation has a commitment and who have expectations of what the organisation does

• What is stakeholder management?

• It is the process of managing the expectations of people,

groups or organisations that have an interest in a company and will be affected by

its activities

Stakeholder Analysis

• What is stakeholder analysis?

• Stakeholder analysis is the process of systematically gathering and analysing qualitative information to

determine whose interests should be taken into

account when developing and implementing a policy

or program

• It is a technique that can be used to identify and

assess the importance of key people, groups of

people, or institutions that may significantly influence the success of a company’s activities

Separation of Ownership

and Management

• The separation of ownership and management —

an unavoidable phenomenon of modern

organisations, can cause few problems for

corporate governance

• Shareholder (principals or owners) of

organisations want to see their residual income maximised

• Professional managers (agents) who are

appointed to manage the organisations do not

always see this as a top priority

Separation of Ownership

and Management

• Two problems emerge due to the separation:

• Managerial opportunism - the use of corporate

resources, whether they are tangible or

intangible, for a manager’s benefit at the expense

of the company’s investors

• Moral hazard is the situation in which managers

do not need to take up the full consequences and responsibilities of their decisions

Corporate Governance Mechanisms

Fig 2.3

Institutional Control

• Institutional control refers to the control of corporate

governance through laws, regulations, social pressures and political factors

• It includes regulatory frameworks, social pressure, and political impact

• Social pressure is the combination of external influences

that surround an organisation

• Political impact comes primarily from the government,

including the regulation and deregulation of business

activities

Corporate Market Control

• Corporate market control is the process by which ownership and control of companies is

transferred from one group of investors and

managers to another

• It is about the influence of the possible changes

in ownership that may affect corporate

governance practices

• Share price of a public listed company is seen as good indicator of the quality of its governance

Internal Governance Mechanisms

• Internal governance mechanisms are the devices

of the processes within an organisation that

oversee managerial activities and performance They include:

Internal Structure of a Governing Board

Fig 2.4

employee Outside pp ออออ ออออออ

Roles and Responsibilities of Governing

Boards

Fig 2.5

Roles and Responsibilities of GoverningBoards

• Roles of a governing board:

• Controlling role

• Strategy-making role

• Networking role

• Coordinating role

Interaction Between Management and

the Governing Board

• It is critical to have proactive interaction between management and the governing board of an

• Should the position of chairperson of a

governing board be occupied by the CEO of the organisation?

Corporate Governance

and Performance

• It is accepted that good corporate governance, can strengthen business investment, corporate performance and economic growth

• Companies therefore must have strong and

effective corporate governance practices, which can help set corporate objectives

Current Trends in

Corporate Governance

• Public sector governance is concerned with a

desire for greater economy, efficiency and

effectiveness in the use of public resources อออออออออออออออออออออ

• Good public sector governance requires that the Government be held accountable to the

stakeholders for the proper use and stewardship

of public resources, and that there are effective checks and balances for monitoring the

government’s performance

International Corporate Governance

differ among countries อออออออออออออออออออออ

ออออออ

• The governance mechanism of each country is

shaped by its political, economic and social

environment, as well as by its legal framework

• Despite the differences in shareholder

philosophies across countries, good governance mechanisms need to be encouraged among all

private and public organisations

Commonwealth Association of Corporate

Governance

• The Commonwealth Association of Corporate

Governance (CACG) was established in 1998 with the

objective of promoting the best international standards on corporate governance through education, consultation

and information throughout the countries of the

Commonwealth as a means to achieve global standards

of business efficiency, commercial probity and effective economic and social development

• CACG has endorsed four generic corporate governance principles

OECD Principles of Corporate Governance

• The OECD is an inter-governmental international organisation that brings together the most

industrialised countries of the market economy

• Its objective is to coordinate economic and

development policies of the member nations

• The OECD Principles of Corporate Governance were developed to provide guidance for stock

exchanges, investors, corporations, and other

parties that have a role in the process of

developing good corporate governance

Convergence of Practices of Corporate Governance

• The available evidence suggest that the process

of convergence in corporate governance is

gathering momentum

• International investors and creditors are more

comfortable in dealing with jurisdictions that adopt transparent and globally acceptable accounting and governance standards

• Companies that comply with high governance

standards invariably develop a better reputation

in the global capital market

• Some of key points to remember are that:

• 1.Corporate governance is important for strategic decision making

• 2.These decisions should be made with reference to all stakeholders, including shareholders อออออ อออ อออ

• 3.The primary cause of problems of corporate governance

is the separation of ownership and management

• 4.The current trends suggest a convergence of practices

of private, public and international organisations