Slide of strategic management w2

BMA799 STRATEGIC MANAGEMENT Lecture Two: • Governance and Sustainability Learning Objectives • Understand the meaning and boundaries of corporate governance • Appreciate the significance of stakeholder management in the context of corporate governance • Acknowledge the implications of the separation of ownership and management in the modern organisation • Analyse the internal and external governance structure of organisations Learning Objectives • Comprehend the structure and major roles of governing • • • • boards Recognise the relationship between managers and governing boards, and assess how this relationship is related to corporate performance Discuss current trends in corporate governance from global perspective Appreciate the value and importance of corporate governance in the public sector and the international arena Evaluate how corporate governance is related to the sustainability of modern organisations Introduction • How organisations are led and controlled by their leaders has emerged as one of the most important strategic management issue • A number of issues need to be considered including: • Disclosure statements issued to the Stock Exchange • Liability of all directors • Duty of care to shareholders and other stakeholders • These matter are becoming important throughout the Asia-Pacific region Corporate Governance: Basic Concepts • The process of how important strategic decisions are made and controlled in organisations is called corporate governance • Corporate governance is concerned with identifying ways to ensure that strategic decisions are made more effectively • It is used to establish order between the company’s owners and its top-level managers, whose interests may sometimes be in conflict Governance and Sustainability • Sustainability of organisations and corporate governance are closely linked • Appropriate corporate governance can promote the interest of all stakeholders of the organisation Boundaries and Relationships of Corporate Governance Fig 2.1 Corporate Governance: Social Responsibilities and Stakeholders • Corporate social responsibility (CSR) refers to the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large • Research suggests that investors now look beyond good financial indicator for ethical and socially responsible behaviour for organisations Corporate Governance: Social Responsibility • Five basic goals of corporate governance to enhance CSR are: • Recognition of ethical behaviour • A proactive stance towards the environment • Protection of the community • Enhancement of social responsibility in employment practices • Fairly sharing wealth creation with different stakeholders Corporate Governance and Social Responsibility Fig.2.2 Corporate Governance Mechanisms Fig 2.3 Institutional Control • Institutional control refers to the control of corporate governance through laws, regulations, social pressures and political factors • It includes regulatory frameworks, social pressure, and political impact • Social pressure is the combination of external influences that surround an organisation • Political impact comes primarily from the government, including the regulation and deregulation of business activities Corporate Market Control • Corporate market control is the process by which ownership and control of companies is transferred from one group of investors and managers to another • It is about the influence of the possible changes in ownership that may affect corporate governance practices • Share price of a public listed company is seen as good indicator of the quality of its governance Internal Governance Mechanisms • Internal governance mechanisms are the devices of the processes within an organisation that oversee managerial activities and performance They include: • ownership concentration • executive compensation • audit committees • decentralised multidivisional structure • governing board Internal Structure of a Governing Board ออออ ออออออ employee Outside pp Fig 2.4 Roles and Responsibilities of Governing Boards Fig 2.5 Roles and Responsibilities of Governing Boards • Roles of a governing board: • Controlling role • Strategy-making role • Networking role • Coordinating role Interaction Between Management and the Governing Board • It is critical to have proactive interaction between management and the governing board of an organisation • Two specific issues insufficiently explored in the literature are: • What is the role of managers in an organisation — an agent or a steward? • Should the position of chairperson of a governing board be occupied by the CEO of the organisation? Corporate Governance and Performance • It is accepted that good corporate governance, can strengthen business investment, corporate performance and economic growth • Companies therefore must have strong and effective corporate governance practices, which can help set corporate objectives Current Trends in Corporate Governance • Public sector governance is concerned with a desire for greater economy, efficiency and effectiveness in the use of public resources อออ อออ อออ อออออออ อออออ • Good public sector governance requires that the Government be held accountable to the stakeholders for the proper use and stewardship of public resources, and that there are effective checks and balances for monitoring the government’s performance International Corporate Governance • International corporate governance practices of differ among countries อออออ ออออ ออออออออออ ออ ออออออ • The governance mechanism of each country is shaped by its political, economic and social environment, as well as by its legal framework อออออออออ อออ อออ ออ • Despite the differences in shareholder philosophies across countries, good governance mechanisms need to be encouraged among all private and public organisations Commonwealth Association of Corporate Governance • The Commonwealth Association of Corporate Governance (CACG) was established in 1998 with the objective of promoting the best international standards on corporate governance through education, consultation and information throughout the countries of the Commonwealth as a means to achieve global standards of business efficiency, commercial probity and effective economic and social development • CACG has endorsed four generic corporate governance principles OECD Principles of Corporate Governance • The OECD is an inter-governmental international organisation that brings together the most industrialised countries of the market economy • Its objective is to coordinate economic and development policies of the member nations • The OECD Principles of Corporate Governance were developed to provide guidance for stock exchanges, investors, corporations, and other parties that have a role in the process of developing good corporate governance Convergence of Practices of Corporate Governance • The available evidence suggest that the process of convergence in corporate governance is gathering momentum • International investors and creditors are more comfortable in dealing with jurisdictions that adopt transparent and globally acceptable accounting and governance standards • Companies that comply with high governance standards invariably develop a better reputation in the global capital market Summary • Some of key points to remember are that: • 1.Corporate governance is important for strategic decision making • 2.These decisions should be made with reference to all stakeholders, including shareholders อออออ อออ อออ • 3.The primary cause of problems of corporate governance is the separation of ownership and management • 4.The current trends suggest a convergence of practices of private, public and international organisations ... boundaries of corporate governance • Appreciate the significance of stakeholder management in the context of corporate governance • Acknowledge the implications of the separation of ownership and management. .. importance of key people, groups of people, or institutions that may significantly influence the success of a company’s activities Separation of Ownership and Management • The separation of ownership... อออ • 3.The primary cause of problems of corporate governance is the separation of ownership and management • 4.The current trends suggest a convergence of practices of private, public and international