You can give them this assignment on the first day of class and then use the second day to discuss Chapter 1 and the various strategic decisions people have found. This is a good way to encourage student participation in the class. These are the people who are primarily tasked with the strategic management process if the corporation is to have long-term success in accomplishing its mission.
The responsibilities of both are described and explained. Agency theory is contrasted with stewardship theory. The chapter explains how the composition of the board can affect both its performance and that of the corporation. It also describes the impact of the Sarbanes-Oxley Act on corporate governance in the U. Top management is discussed in terms of executive leadership, strategic vision, and managing the strategic planning process.
Describe the role and responsibilities of the board of directors in corporate governance 2. Understand how the composition of a board can affect its operation 3. Discuss trends in corporate governance 5. Role of the Board of Directors a. Responsibilities of the Board b. Members of a Board of Directors c. Nomination and Election of Board Members d. Organization of the Board e. Impact of the Sarbanes-Oxley Act on U. Corporate Governance f. Trends in Corporate Governance 2.
The Role of Top Management a. What are the roles and responsibilities of an effective and active Board of Directors? The board of directors is required by law to direct the affairs of the corporation, but not to manage them. Stuart has written that a board is responsible for 1 effective leadership, 2 strategy of the organization, 3 the balance of risk and initiative, 4 succession planning, and 5 sustainability. The role of the board is to carry out three basic tasks: 1 monitor; 2 evaluate and influence; and 3 initiate and determine.
The board of directors holds the top management team responsible for implementing and guiding the strategy set forth. There are several red flags that would indicate the need for oversight of a management team.
When the corporate objectives are not being met, management teams may be at fault. When a clear vision is not articulated, the CEO must be responsible. Also, when the strategic planning process is not being monitored by the top management team, oversight may be called for. When does a corporation need a board of directors? A good case can be made that a small, closely-held corporation has no need for a board. Since the owners are likely to compose both top management and board membership, the board becomes superfluous at best, and may even create more problems than it solves by getting in the way of management's quick response to opportunities and threats.
The board meets only to satisfy legal requirements. Even when stock is more widely owned in a publicly- held corporation, the board may be composed of nothing but a few insiders who occupy key executive positions and a few friendly outsiders who go along with the CEO on all major issues.
Nevertheless, the rationale for the board of directors seems to be changing from simply one of safeguarding stockholder investments to a broader role of buffering the corporation from its task environment and forcing management to manage strategically. If nothing else, the board can do the corporation a great service by simply offering top management a different point of view. The board's connections to key stakeholders in the corporation's task environment can also provide invaluable information for strategic decision making.
This is the main reason why advisory boards are often used by companies that are not incorporated and thus have no shareholders. Who should and should not serve on a board of directors? What about environmentalists or union leaders?
LO 2 This is a wide-open question with no simple answer. Some may argue that representatives from each stakeholder group in the corporation's task environment should be included so as to keep top management aware of key environmental considerations. Others may argue that only outsiders with no personal stake in the corporation i. This is the point of view taken in the U. A good argument can be started by suggesting that a representative from labor be a director.
This is done in Germany. If this makes some sense, who should it be — a union member who is an employee of the corporation or an employee of another corporation? If the firm is not unionized, what then? Further discussion can be generated by suggesting that the composition of the board reflects the key demographics of the corporation's workforce in terms of race, sex, and age.
This question provides the instructor with the opportunity to get the class involved in a discussion of agency and stewardship theories. Agency theory suggests that insiders should be kept to a minimum and that the board be heavily composed of objective outsiders who own large blocks of stock. Because of their stake in corporate decisions, affiliated directors would not be considered for board membership. This is the point of view taken by the Sarbanes-Oxley Act in the U.
Stewardship theory suggests that the board should be composed of people who can provide important information from the task environment and valuable insight to top management. It would work to consider interests beyond shareholder value. The chapter states that the average board member of a U. For these and other reasons, well-interlocked firms are better able to survive in a highly competitive environment.
The CEO is likely to bring back information and contacts that can be very useful to the corporation. There is a down side, however, to allowing a CEO to sit on the boards of other firms. Given the increasing pressure placed on board members, such service is becoming increasingly onerous. Consequently, a board should work closely with its CEO to decide which other boards are most useful to the company for the CEO to join.
LO 2 One result would be a board composed primarily of outsiders who would be objective, but also dependent upon the CEO for information about the company and its activities. Fortune companies. As of , the typical U. Fortune board had an average of ten directors, only two of whom being insiders. The number of insiders tends to be higher for boards in other countries. A negative result would be the lessened opportunity to view potential successors in action or to obtain alternate points of view to management decisions.
Should all CEOs be transformational leaders? Would you like to work for a transformational leader? LO 5 According to the text, top management must successfully handle two responsibilities that are crucial to the effective strategic management of the corporation: 1 provide executive leadership and a strategic vision and 2 manage the strategic planning process.
The text further argues that successful CEOs often provide this executive leadership by taking on many of the characteristics of the transformational leader by communicating a clear strategic vision, demonstrating a strong passion for the company, and communicating clear directions to others. They not only articulated a strategic vision, but they also presented a role for others in the company to identify with and follow.
Their communication of high performance standards coupled with their confidence in their fellow employees often raised performance to a high level. Nevertheless, such transformational leaders can be very difficult to work for and their overconfidence may even get the firm in trouble. Their forcefulness may drive other competent people away when they fail to allow for differences of opinion. Hint to the instructor: Once the class has discussed the pros and cons of transformational leaders, ask them how many would like to work for such an executive?
You may be surprised by the number of people who would not like to work for such a CEO. Irum Khan. Wendors Wendors. Clang Santiago. Kaan Canayaz. Shubham Goel. Marielle Salan. Roqia Arshad. Nilesh Jetani. Teh Chu Leong.
Samanta Singcol. Neeraj Choithwani. Musaddiq Khan Risad. Syafiq Muhammad Ahmad Bawazier. Ali Shan. Ayesha Mansoor. More From remon4hr. Shahrukh Shah. Popular in Investment. Lachlan Markay. Asham Sharma. Angel Broking. Mahesh Tejani. Amit Sinha. Accounting for people who think they hate accounting. Basic concepts in strategic management -- Ch.
Corporate governance -- Ch. Ethics and social responsibility in strategic management -- Ch. Environmental scanning and industry analysis -- Ch. Internal scanning : organizational analysis -- Ch. Strategy formulation : situation analysis and business strategy -- Ch. Strategy formulation : corporate strategy -- Ch. Strategy formulation : functional strategy and strategic choice -- Ch. Strategy implementation : organizing for action -- Ch. Heinz Company food.
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