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Chp 10 + 11 Corporate Governance, Org Structure and Control (Agency Theory…

- - - - the relationship of size to managerial compensation
      - Reduction of managerial employment risk
    - - Managers prefer to invest these funds in additional product diversification
      - Shareholders prefer the funds as dividends so they control how the funds are invested
- - - - direct the affairs of the organization
      - punish and reward managers
      - protect owners from managerial opportunism
    - - Monitor
      - evaluate management’s proposals, decisions & actions; offer advice, suggestions & alternatives
      - involvement in setting corporation’s mission and specifying strategic options
      - Classification on board members in exhibit 2 in appendix
    - - Too readily approve managers’ self-serving initiatives
      - Exploited by managers with personal ties to board members
      - Not vigilant enough in hiring and monitoring CEO behavior
      - Lack of agreement about the number of and most appropriate role of outside directors
    - - More diversity in the backgrounds of board members
      - Stronger internal management and accounting control systems
      - More formal processes to evaluate the board’s performance
      - Adopting a “lead director” role
      - Changes in compensation of directors.
  - - - Salaries, bonuses, long-term performance incentives, stock awards, stock options
    - - Strategic decisions by top-level managers are complex, non-routine and affect the firm over an extended period
      - Other variables affecting the firm’s performance over time
    - - Unintended consequences of stock options
      - Firm performance not as important as firm size
      - Balance sheet not showing executive wealth
      - Options not expensed at the time they are awarded
- - - - Concerned with examining the fit between
        
        what the firm might do (opportunities in its external environment).
        
        what the firm can do (competitive advantages).
      - Evaluate the degree to which the firm focuses on the requirements to implement its strategy
    - - Accounting-based measures
        
        Return on investment
        
        Return on assets
      - Market-based measures
        
        Economic Value Added (EVA)
- - - - production
      - marketing
      - engineering
      - human resources
      - accounting
      - R&D
    - - Single or dominant business with low levels of diversification
    - - impede communication and coordination.
      - increase the need for CEO to integrate decisions and actions of business functions.
      - facilitate career paths and professional development in specialized functional areas.
      - cause functional-area managers to focus on local versus overall company strategic issues.
  - - - Corporate officers are able to more accurately monitor the performance of each business, which simplifies the problem of control.
      - Facilitates comparisons between divisions, which improves the resource allocation process.
      - Stimulates managers of poorly performing divisions to look for ways of improving performance.
  - - - decision-making patterns that are partially centralized and partially decentralized.
      - semi-specialized jobs.
      - rules and procedures that allow both formal and informal job behaviors.
  - - - Information processing, coordination
      - Control
      - requires changing to multi divisional structure
      - Different levels of diversification create the need for implementation of a unique form of the multidivisional structure.
        
        The different types of multi-divisional structure
        
        Cooperative form
        
        Horizontal integration is used to bring about interdivisional cooperation.
        
        Sharing divisional competencies facilitates development of economies of scope.
        
        To foster divisional cooperation, the corporate office emphasizes centralization of
        
        strategic planning
        
        human resources
        
        marketing
        
        For diagrammatic representation, refer to exhibit 10
        
        Strategic business unit form
        
        refer to exhibit 11
        
        Competitive form
        
        Exhibit 12
        
        other structures
        
        multi domestic
        
        Exhibit 13
        
        world wide product divisional structure
        
        exhibit 14
        
        hybrid form for transnational strategy
        
        exhibit 15
        
        matrix structure
        
        exhibit 16
        
        Responds well to internal pressure for efficiency or specialization AND external market pressure to satisfy particular market needs or customers
        
        Frequent changes to products and markets (allows flexible use of human resource)
        
        Strengths
        
        Achieves coordination
        
        Flexible use of human resources
        
        Works well in medium-sized firms with multiple products
        
        Weaknesses
        
        Dual authority can cause frustration and confusion
        
        Excellent interpersonal skills needed
        
        Additional training can be expensive
        
        Time consuming, frequent meetings
        
        Great effort to maintain power balance