Corporate Performance, Governance, And Business Ethics Flashcards
What are the steps in stakeholder impact analysis
- Identify the stakeholders as well as their interests and concerns
- Identify the claims of stakeholders that relate to the organisation the most
- Identify important stakeholders from org’s perspective
- Identify the resulting strategic challenge
Discuss ways to increase profitability, profit growth and dealing with stakeholder claims
- stockholders receive return on investment from dividend payments and capital appreciation in the market value of a share
- ways to grow profits include:
- participating in a growing market
- taking market share from competitors
- consolidation of industry through horizontal integration
- developing new markets through expansion, vertical integration, or diversification
Define and describe the agency theory
- the business relationship problems when decision-making power is delegated from one person to another
- information asymmetry: when agent has more information about resources being managed than principal
- on-the-job consumption: behaviour of senior management’s use of company funds to acquire perks
- empire building: buying new businesses to increase the size of the company through diversification
Discuss the challenges for principals
- shaping agents behaviour to be in sync with goals set
- reducing information asymmetry
- developing mechanisms for removing agents who do not act in line with the goals
What are the different types of directors
- Inside directors: senior employees of the company
- outside directors: not full-time employees of the company
- provide objectivity to the monitoring and evaluation of processes
Discuss Stock-based compensation
- stock options: the right to purchase company stock at a predetermined price at some point in the future
- strike price - stock’s trading price when the option was originally granted
- motivate managers to employ strategies that increase stock price
- has become increasingly controversial
- aligns management and stockholder interests
Discuss the financial statements and auditors
- quarterly and annual reports of publicly traded companies are filled with the SEC
- to give accurate information about the way the agents run the company
- SEC requires that the accounts be audited by an independent and accredited accounting firm
- to make sure managers do not misrepresent the financial information
Takeover constraint
- the risk of being acquired by another company
- corporate raiders - purchase large blocks of shares in companies that appear to be pursuing strategies inconsistent with maximizing stockholder wealth
- greenmail: pushing companies to either change their strategy to benefit stakeholders, or charging a premium for the stocks when the company wants to buy them back
Describe Governance mechanisms inside a company
- strategic control systems - formal target-setting, measurement, and feedback systems
- employee incentives - motivate employees to work toward goals central to maximizing long term profitability
Discuss ethics with regards to strategy
-ethics: the approved principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an org
-business ethics: accepted principles of right and wrong governing the conduct of businesspeople
-ethical dilemmas: situations where there is no agreement over exactly what the accepted principles of right and wrong are
-noblesse oblige: responsibility of people of high birth to give back to the society that made their success possible
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List the unethical behaviour arising from agency problem
- self-dealing
- opportunistic exploitation
- information manipulation
- substandard working conditions
- corruption
- anticompetitive behaviour
- environmental degredation
List some internal and external stakeholders
Customers E Suppliers E Creditors E Government E Unions E Local communities E General public E Stockholders I Employees I Managers I Board members I
