MODULE 2- CORPORATE GOVERNANCE Flashcards
refers to the relationship of BOD, Top management and Shareholders in determining the direction and performance of the corporation
CORPORATE GOVERNANCE
RESPONSIBILITIES OF BOARD OF DIRECTORS
- Setting corporate strategy, overall direction, mission, or vision
- Hiring and firing the CEO and top management
3.Controlling, monitoring, or supervising top management - Reviewing and approving the use of resources
- Caring for shareholder interests
ROLE OF THE BOARD IN STRATEGIC MANAGEMENT
- Monitor
- Evaluate and influence
- Initiate and determine
By acting through its committees, a board can keep abreast of developments inside and outside the corporation, bringing to management’s attention developments it might have overlooked. A board should at the minimum carry out this task.
MONITOR
A board can examine management’s proposals, decisions, and actions; agree or disagree with them; give advice and offer suggestions; and outline alternatives. More active boards perform this task in addition to monitoring.
EVALUATE AND INFLUENCE
A board can delineate a corporation’s mission and specify strategic options to its management. Only the most active boards take on this task in addition to the two previous ones.
INITIATE AND DETERMINE
DEGREE OF INVOLVEMENT IN STRATEGIC MANAGEMENT
- PHANTOM
- RUBBER STAMP
- MINIMAL REVIEW
- NOMINAL PARTICIPATION
- ACTIVE PARTICIPATION
- CATALYST
Never knew what to do; if anything, no degree of involvement
PHANTOM
Permits officer to make all decisions. It votes as the officers recommended on action issues
RUBBER STAMP
Formally reviews selected issues that officers brings to its attention
MINIMAL REVIEW
Involved to a limited degree in the performance or review of selected key decisions, indicators, or programs of management
NOMINAL PARTICIPATION
Approves, questions, and make final decisions on mission, strategy, policies, and objectives. Has active board committees. Performs fiscal and management audits
ACTIVE PARTICIPATION
Takes the leading role in establishing and modifying the mission, objectives, strategy, and policies. It has a very active strategy committee
CATALYST
(sometimes called management directors) are typically officers or executives employed by the corporation.
Inside directors
MEMBERS OF A BOARD OF DIRECTORS
- INSIDE DIRECTORS
- OUTSIDE DIRECTORS
(sometimes called non-management directors) may be executives of other firms but are not employees of the board’s corporation.
Outside directors
THEORIES ABOUT INTERNAL & OUTSIDE BOD
- Agency Theory
- Stewardship Theory
states that problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation. The theory suggests that a majority of a board needs to be from outside the firm so that top management is prevented from acting selfishly to the detriment of the shareholders.
Agency Theory
proposes that, because of their long tenure with the corporation, insiders (senior executives) tend to identify with the corporation and its success. Rather than use the firm for their own ends, these executives are thus most interested in guaranteeing the continued life and success of the corporation.
Stewardship Theory
NOMINATION AND ELECTION OF BOARD MEMBERS
In the past, CEOs of companies could choose who they wanted to be on their board of directors and shareholders usually agreed
many companies now use a nominating committee to suggest new board members for shareholders to vote on
the inclusion of a corporation’s workers on its board
CODETERMINATION
The new Code has sixteen (16) principles that are distributed among five (5) main sections, namely:
Principles 1-7: Board’s Governance Responsibilities
Principles 8-11: Disclosure and Transparency
Principles 12: Internal Control System and Risk Management Framework
Principles 13: Cultivating a Synergic Relationship with Shareholders
Principles 14-16: Duties of Stakeholders
INTERLOCKING DIRECTORATES
- direct interlocking directorate
- indirect interlock
occurs when two firms share a director or when an executive of one firm sits on the board of a second firm.
direct interlocking directorate
occurs when two corporations have directors who also serve on the board of a third firm
indirect interlock
ROLE OF TOP MANAGEMENT
(1) provide executive leadership and a strategic vision and
(2) manage the strategic planning process.
the directing of activities toward the
accomplishment of corporate
objectives.
EXECUTIVE LEADERSHIP
a description of what the company is
capable of becoming.
It is often communicated in the
company’s mission and vision
statement
STRATEGIC VISION
Transformational leaders who provide change and movement in an organization by providing a vision for that change
- Oprah Winfrey
- Barack Obama
- Nelson Mandela
- Steve Jobs
THREE KEY CHARACTERISTICS OF A TRANSFORMATIONAL LEADERS
- The CEO articulates a strategic vision for the corporation
- The CEO presents a role for others to identify with and follow
- The CEO communicates high-performance standards and also shows confidence in the followers’ abilities to meet these standards
