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SMMC G4 [CS-4] Stakeholders and Governance, G4 (Mandy, Wendy, Thalia,…
SMMC G4 [CS-4]
Stakeholders and Governance
The public firm
An age of shareholder primacy
Main focus
the interest of stakeholders has gotten elevated above all else and often to the detriment of other stakeholders.
Shareholder and shareholder return
driving force in modern management
public corporations take money from equity investors
driven by a neo-liberal intellectual worldview
reinforced by the fact that modern financial markets are a very powerful force
Characteristics
Transferability of investor interest
Legal personality
Limited liability for investors
Separation of ownership and control
Stakeholders
Internal
Customers and Suppliers
The government and Community
External
Shareholders and Bondholders
Employees and Board Manager
Stakeholder impact analysis
What opportunities and threats do our stakeholders present?
What economic, legal, ethical, and philanthropic responsibilities do we have to our stakeholders?
What are our stakeholders' interests and claims?
What should we do to effectively address the stakeholder concerns?
Who are our stakeholders?
Hierarchy of authority
Board of directors
Management
Shareholders
Employees
State charter
Corporate social responsibility
The Pyramid
Ethical responsibilities
Right, just and fair
Bloom's Taxonomy
understand
look at its individual parts
put a synthesis
application
Doing the right things beyond the corporation
A corporate citizen to the world
Legal responsibilities
Laws and regulations
Define minimum acceptable standard
Philanthropic Responsibilities
Corporate citizenship
economic responsibilities
Gain and sustain competitive advantage
Milton Friedman statement- CSR is only increase profits
corporate governance
Agency costs
Principal is the one paying to have something done
The agent is the one who does it and the question is
Reduce the agency cost
The principal can monitor the agent's behavior more
To provide the agent with more incentives
Used to determine and control the strategic direction and performance of the organization
Mechanisms
To ensure the pursuit of the strategic goals of the company
Can minimize the agency cost
Asymmetric information problems
Adverse selection problem
The moral hazard problem
Does corporate social responsibility help
build competitive advantage?
Depend on where you do business.
Spain being the most social responsibility oriented managers on average
United Arab Emirates being at the other extreme in the variance in this figure.
Mechanisms of governance
Agency problems
Monitoring by boards of directors
The board of directors is certainly in charge of evaluating the CEO and top management team of the company.
Compensation heavily weighted toward stock options
They have lots of stock in the company.
Recruitment of executives from outside the firm
The CEO may be recruited by other companies
Monitoring by institutional investors
If shareholder interests are not attended to by the manager, there will be feedback from large institutional investors.
Debt (minimize free cash flow)
If the company is going to be bankrupt, then there is no free cash flow to play with.
Separate Chairperson and CEO
If the CEO is also the chairperson of the board of directors, then the CEO chairperson could be very influential in the board of directors.
Takeovers( The market for corporate control)
There's the threat that the company may be taken over if they don't keep the stock price at a certain level.
Internal control of Multidivisional
The CEO will be evaluated on profitability metrics within their own division.
Board of Directors
Functions of broad directors
selecting, evaluating and compensating the CEO
overseeing CEO succession plans
providing guidance on executives and their compensation
reviewing, monitoring and approving the strategic initiatives
conducting a risk assessment and mitigating those risks
valuating BPs
ensuring that the firm's audited financial statements are correct
ensuring a firm's compliance with the laws and regulations
General strategic oversight and guidance
Corporate Governance Around the World
Different by national and cultures
''Free'' market economy
State directed capitalism
China
Free market capitalism
U.S.
Stakeholder capitalism
Germany
focuses on labor representation on the board of directors
Recent developments
Two central challenges
Over-emphasis on shareholders and their interests(Generating a higher return on equity)
Over-emphasis on measurable short-run financial metrics
How to response these challenges
Broadening the Mission
corporate social responsibility
Sustainability goals( companies actions)
Balanced scorecard
Financial
EVA, profitability, growth
Customer
Differentiation, cost, quick response
Operations
Products developed, order fulfillment,
demand management
Organizational
Leadership, learning, ability to change
Ecosystem Strategies
Firms should not be viewed simply as members of an industry, but as members of a business ecosystem
interacting organizations and individuals
Example
Malls, Toyota supplier, Amazon, Facebook
Protection from Shareholders
Staying private
Shield it from the whims and pressures of the public financial markets
Unicorns
Startup companies with valuations that exceed a billion dollars
Dual class shares
Preference shares
Concerns
ordinary share
Old approaches
Poison pill provisions
Make it difficult and costly for shareholders to replace the company's management.
G4
Mandy
Wendy
Thalia
Allison
Charlie
Emily