Chapter 7 - The governing body and strategy Flashcards
Corporate governance and strategy
What is corporate governance?
The conduct of senior officers and the structure, direction, and control of an organization, setting objectives, and regulating relationships between management, the board, and shareholders.
Corporate governance and strategy
What is the UK Corporate Governance Code?
A shareholder-led code guiding effective board practices based on principles like accountability, transparency, integrity, and sustainable success.
Corporate governance and strategy
Name the five main sections of the UK Corporate Governance Code.
Leadership, Effectiveness, Accountability, Remuneration, and Relations with Shareholders.
Corporate governance and strategy
What is the role of non-executive directors (NEDs)?
To bring independence, scrutinize management performance, ensure financial integrity, set executive remuneration, and support succession planning.
Corporate governance and strategy
Define the shareholder model of governance.
A model where shareholders have the primary right to the organization’s wealth, common in the UK and USA, focusing on returns and reduced risk for investors.
Corporate governance and strategy
Define the stakeholder model of governance.
A model where wealth is distributed among various stakeholders for long-term benefit, more common in Germany.
Corporate governance and strategy
What are the advantages of the shareholder model?
Higher returns, reduced risk, entrepreneurship, and inward investment.
Corporate governance and strategy
What are the disadvantages of the shareholder model?
Risk of short-termism, top management greed, and difficulty in monitoring management.
Corporate governance and strategy
What are the advantages of the stakeholder model?
Long-term decisions, closer management monitoring, and deterrence of high-risk choices.
Corporate governance and strategy
Describe the pluralistic governance model.
An approach where the organization is seen as belonging to all stakeholders, focusing primarily on employees’ interests, commonly seen in Japan.
Corporate governance and strategy
What is Principle O of the 2018 UK Corporate Governance Code?
The board should establish procedures to manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives.
Stakeholder Expectations
What is a stakeholder?
Anyone with an interest or concern in a business who expects a return, response, or action, and has the ability to disrupt the business if their needs aren’t met.
Stakeholder Expectations
What are the three categories of stakeholders?
Internal (human resources), Connected (financially linked), and External (other interested parties).
Stakeholder Expectations
What is stakeholder mapping?
A tool to assess stakeholders based on their level of power and interest in the organization, guiding how to manage relationships with them.
Stakeholder Expectations
According to Mendelow’s matrix, who are “Key Players” in stakeholder mapping?
Stakeholders with high power and high interest, such as major clients or investors, who must be fully engaged in strategy decisions.
Stakeholder Expectations
How should stakeholders with high power but low interest be managed?
They should be kept satisfied to prevent them from becoming more involved in strategy, like large institutional shareholders.
Stakeholder Expectations
Describe the best approach for stakeholders with low power but high interest.
Keep them informed, as they may influence powerful stakeholders through channels like lobbying; examples include community representatives.
Stakeholder Expectations
What type of effort is needed for stakeholders with low power and low interest?
Minimal effort, as they have limited influence and interest; part-time staff often fall into this category.
Stakeholder Expectations
List some internal sources of stakeholder power.
Hierarchy and status, informal relationships, control of resources, knowledge or skills, and decision-making authority.
Stakeholder Expectations
List some external sources of stakeholder power.
Control over resources, involvement in strategic processes, knowledge, external dependencies, social position, and legal rights.
Stakeholder Expectations
Why do non-commercial organizations engage stakeholders more extensively
Due to social or public missions, which strengthens community ties but may also restrict strategic growth due to extensive involvement in decision-making.
Stakeholder Expectations
What is the significance of stakeholder analysis?
To recognize ongoing forces impacting the organization and its stakeholders, such as laws, best practices, societal expectations, and visibility.
Stakeholder Expectations
How does societal expectation impact an organization?
Organizations are expected to align with societal values, and failure to do so can lead to media criticism and reputational damage.
Stakeholder Expectations
What is the role of visibility in stakeholder relations?
Determining what information to share publicly can influence demands on governance and impact the organization’s transparency and reputation.
Risk, reputation and
strategy
What is risk in the context of risk management?
Risk is the combination of the likelihood of an event occurring and its consequences, which can be positive or negative.
Risk, reputation and
strategy
How does the UK Corporate Governance Code define risk management in relation to strategy?
The board should establish procedures to manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives.
Risk, reputation and
strategy
What are the three aspects of risk management in the governance context?
Identification (knowing current and emerging risks),
Evaluation (assessing risk size), and Mitigation (controlling or reducing impact).
Risk, reputation and
strategy
What is ‘risk appetite’?
The level of risk an organization is willing to accept to achieve its goals.
Risk, reputation and
strategy
Define ‘risk capacity’ and ‘risk tolerance’.
Risk capacity is the maximum risk a company can bear without financial instability, and risk tolerance is the risk level the board permits.
Risk, reputation and
strategy
List different types of organizational risk.
Financial, Operational, Competition, Environmental, People, and Reputation risks.
Risk, reputation and
strategy
What is a risk register?
A formal list that prioritizes organizational risks, notes responsible parties, and tracks actions, helping in decision-making and control analysis.
Risk, reputation and
strategy
What is a risk matrix?
A tool that assesses risk by comparing the likelihood of an event to its severity, helping in risk categorization and management.
Risk, reputation and
strategy
Define reputation risk.
Risk, reputation and
strategy
The risk of losing business due to the organization’s character or quality being questioned, affecting stakeholder trust.
Risk, reputation and
strategy
What are key performance indicators (KPIs) in risk management?
Measurable factors that track progress on objectives, ensuring actions are taken to mitigate risk.
Risk, reputation and
strategy
What are the core requirements of KPIs for risk management?
Clearly defined measures, accurate and current data, strategic relevance, and actionable outcomes.
Risk, reputation and
strategy
What are the three relationship-based capabilities for competitive advantage, according to John Kay?
Architecture (connections with stakeholders), Reputation (brand trust), and Innovation (industry-leading advancements).
Risk, reputation and
strategy
What are the types of risks that may impact an organization’s reputation?
Economic, Natural, Operational, People, Governance, and Human risks.
