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Stakeholders and Governance, Recruitment of Executives Outside the Firm,…
Stakeholders and Governance
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Public Firms Introduction
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Introduction of corporate governance
Capital ownership rights
as the investment property rights owned by investors
Agency Problem
Capital control rights
as managers' management and operating investors' investment and asset rights
:forbidden:Avoid：Managers acting in their own self-interests and some get very high profile
For Example
The state charter of all 50 states in the United States are different and have different corporate governance rules.
:check:Managerial actions affect the economy.
Stakeholder management is quite important and needed.
Introduction of
stakeholder & enterprise
Stakeholder
External stakeholder
Customers
Suppliers
Governments
Unions
Communities
General public
Internal stakeholder
Shareholders
The interest of the shareholders, has gotten elevated above all else and often to the detriment of other stakeholders
For example, in both management, education and practice, we often use the shorthand that the goal of managers is to maximize returns for shareholders.
Bondholders
Employees
Board members
Managers
Publicly traded corporation
Limited liability for investors
Many people would define that as a key to a publicly traded corporation
Transferability of investor interests
Means that the owners of stock can buy and sell stock
Legal personality
People sometimes discussion of the
idea of the corporation as a person.
The legal advantage of this idea of a single entity of a person is that the board of directors
Separation of ownership and control
In terms of income, the ownership is
with the stockholders.
Typically the managers in a firm have control rights
Derive the question of "will the managers act in the best interest of the shareholders?"
:star:Routines for doing a stakeholder impact analysis
What are the stakeholders interest and claims?
What are all the opportunities and threats to all these stakeholders present, You need to do a systematic analysis of all the stakeholder groups.
what should we do to effectively address the stakeholder concerns?
Who are the stakeholders?
Whoever can be affected or affect the corporation or typically included the stakeholders.
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Coporate Social Responsibility
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Pyramid
Economic responsiblities
Legal responsiblities
Ethical responsiblities
Philanthropic responsiblities
Discretionary responsiblities
Militon Friedman circa 1962
The only social responsiblity of business is to increase profits
But it might depend on where you do business
Whether the countries are interested in CSR
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Coporate Governance
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Governance Mechanisms
2.Internal Monitoring
Compensation Heavily Weighted Toward Stock Option
Give Them Personal Stakes
BOD
Evaluating
1.Governance Structure and Control
Separate Chairman and CEO
High Tech v.s. Grocery
Takeovers
Keep Stock at Certain Level
Market for Corporate Control
Multidivisional
3.Alignment of Incentives
The relationship among stakeholders is used to determine and control the strategic direction and performance of organization.
Agency problems
Agency costs
The costs incurred due to the principle and agent.
The different goals
Agent's goal not in best in principle
Difficult to measure the perfoemance
Asymmetric information problems
Adverse selectionproblems
EX: Leamon cars
Moral hazard problems
Significant changes responded and adopted to the shareholder centric worldview
Two rising interlinked challenges
Over-emphasis on shareholders and their interests
Generating a higher return on equity
Over-emphasis on measurable short-term financial metrics
Primarily financial
Have sought to explicitly broaden their mission
Corporate social responsibility and sustainability goals
Have paying attention to some of the long run impacts through sustainability goals
Company’s actions
Carbon-neutral goal
Balanced scorecard
Provide a more holistic performance and health assessment of the company
The rise of Ecosystem strategies or Ecosystem thinking in business
James Moore
Firm should consider as members of a business ecosystem comprising of various organizations and individuals
Suppliers and complementors
Government entities and customers
Google, Amazon, Facebook, Apple, Alibaba have created businesses value
To ensure the ecosystem as a whole continues to provide value and outcompete others
Another respond is to seek some degree of protection
Poison pill provisions
Netflix
Take the company private
Led to a huge growth in the private equity industry
The rise of the Unicorns
Startup companies with valuations that exceed a billion dollars
Even in public companies, two classes of share are also common
The voting rights are closely held by a core group that typically includes the founders of the company
Preference shares
Founders will serve as the guardians of the long-term interests of the company
Shortcoming
The private equity of being vetted by multiple analys and investors
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Recruitment of Executives Outside the Firm
Reputation and Prospect
Risk of Manipulating
Monitoring by Institutional Investors
Debt