Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Strategic management 4 The soft elements of the strategy: interest-groups,

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005

Strategic management 4Strategic management 4

The soft elements of the strategy: The soft elements of the strategy: interest-groups, governance, interest-groups, governance,

cultures, and ethics) cultures, and ethics)



Expectations andExpectations and PurposesPurposes


The logic of the analysis The logic of the analysis

1.1. Identification of oIdentification of organirganissational ational stakeholdersstakeholders

2.2. Stakeholder mappingStakeholder mapping

3.3. Corporate governanceCorporate governance

4.4. Ethical issuesEthical issues

5.5. CultureCulture


Complex role that people play in Complex role that people play in strategy developmentstrategy development

Strategy is aboutStrategy is about

• what people expect an organisation to what people expect an organisation to achieve achieve

• what influence people can have over what influence people can have over an organisation’s purposesan organisation’s purposes

There are two important groups of There are two important groups of peoples: ownes, and stakeholderspeoples: ownes, and stakeholders

Role of PeopleRole of People


The most important interest group:The most important interest group: the owners (stockholders) the owners (stockholders)

OwnersOwners Their main interestTheir main interestSmall investorsSmall investors Divident, share priceDivident, share price

Financial investorsFinancial investors Rise of value the assets in long Rise of value the assets in long termterm

Professional investorsProfessional investors Specific goals, rise of the assetsSpecific goals, rise of the assets

StateState Employment, taxEmployment, tax

BanksBanks Providing loans, share priceProviding loans, share price

Local governmentsLocal governments Employment, tax, contribution Employment, tax, contribution

Other companyOther company Business connectionBusiness connection

Management Management Long term carreer, dividentLong term carreer, divident


Classical rights of shareholdersClassical rights of shareholders

the right to sell the the right to sell the stockstock

the right to vote the right to vote the proxythe proxy

the right to bring the right to bring suit for damages if suit for damages if the managers or the managers or directors fail to directors fail to meet their meet their obligationsobligations

the right to have the right to have certain information certain information from the companyfrom the company


What is a corporation? What is a corporation?

collective ownership collective ownership of of anan enterpriseenterprise limited liability as essential elementlimited liability as essential element risk takingrisk taking and profit making organization and profit making organization flexibility in determining capital and flexibility in determining capital and

governance structuregovernance structure (within the corp. (within the corp. law)law)

has an independent legal status – separate has an independent legal status – separate - from its owners - from its owners

directed by its own management teams directed by its own management teams


Types of owners Types of owners

activeactive/ interested in the operation of / interested in the operation of corpcorporationoration too, not only in the profit too, not only in the profit (professional investors, majority (professional investors, majority owners)owners)

passive / passive / interested in simply the interested in simply the income (profit)income (profit)


Evolution of the Modern CorporationEvolution of the Modern CorporationEvolution of the Modern CorporationEvolution of the Modern Corporation

The businessenvironment

Organizationalconsequences

Strategic changes

Late 19thcentury

Early19thcentury

Early20thcentury

Local markets Firms specialized & Small firms.Transport slow focused on local Simple manage- Limited mechanization markets ment structures

Introduction of Geographical and Functional struct-railroads, telegraph vertical expansion ures. Line/staffindustrialization separation. Accou-

nting systems

Excess capacity in Product & Development of distribution. Growth multinational multidivisionalof financial institut- diversification corporationions & world trade


Evolution of the corporate-governance structure

1800 1900 1950 2000

Owner-manager

Investors General AssemblyOwners’s representatives Executive management

Investors

General assembly

Board (Directors)

Executive commity

Beneficiaries

Trustees of funds

Invetment funds

General assembly

Board

Executive managers

Managers


The Chain of Corporate Governance


Role of owners Role of owners inin this decade this decade

to participate in forming of corpto participate in forming of corporateorate s strategytrategy

not to interfere to daily operationsnot to interfere to daily operations assessment of directorsassessment of directors to keep the company in operationto keep the company in operation to improve results of companyto improve results of company to use profit for interests of to use profit for interests of

himself/herself and that of company himself/herself and that of company


Some common conflicts of expectations


Definition of the stakeholdersDefinition of the stakeholders

The terms of stakeholder refers to any (non The terms of stakeholder refers to any (non owner) group or individual who has an owner) group or individual who has an interets in existence of an organizaton and interets in existence of an organizaton and hwo has legitimate expectation about their hwo has legitimate expectation about their activities.activities.

Stakeholders are those individuals or groups Stakeholders are those individuals or groups whowho

depend on the organisation to fulfil their depend on the organisation to fulfil their own goalsown goals

and on whom the organisation dependsand on whom the organisation depends


External StakeholdersExternal Stakeholders

Stake-Stake-holdersholders

ExamplesExamples InfluenceInfluence

Market Market Suppliers, competitors, Suppliers, competitors, distributors, distributors, shareholdersshareholders

Economic/value Economic/value creationcreation

Social/Social/politicalpolitical

Policy makers, Policy makers, regulators, government regulators, government agenciesagencies

Social legitimacySocial legitimacy

Techno-Techno-

logicallogicalKey adopters, Key adopters, standards agencies, standards agencies, owners of competitive owners of competitive technologiestechnologies

Diffusion of new Diffusion of new technology/technology/

adoption of adoption of industry standardsindustry standards


StakeholdersStakeholders Their main interestTheir main interest

SuppliersSuppliers Long term connectionsLong term connections

BuyersBuyers Quality, quick reaction, small priceQuality, quick reaction, small price

Other business partnersOther business partners Long term connection, liquidityLong term connection, liquidity

Potencial entrans Potencial entrans Stable and business-like marketStable and business-like market

Substitute product producersSubstitute product producers Clear roles, and conditionsClear roles, and conditions

Workers, and their unionsWorkers, and their unions Good working conditions, wagesGood working conditions, wages

Employer’s associationEmployer’s association Rule-following behaviorRule-following behavior

Government’s regulatorsGovernment’s regulators Rule-following behaviorRule-following behavior

Enterprises in the industryEnterprises in the industry Acceptance some mutual rules Acceptance some mutual rules

1. Types of stakeholders


2. Types of stakeholders2. Types of stakeholders

StakeholdersStakeholders Their main interestTheir main interestLocal authoritiesLocal authorities Tax, subsidyTax, subsidy

Local communitiesLocal communities HelpHelp

Trade unionsTrade unions AcceptanceAcceptance

Customer groupsCustomer groups Consumer-friendly behaviorConsumer-friendly behavior

Employment associationEmployment association AcceptanceAcceptance

GovernmentGovernment Pay tax, follow the lawsPay tax, follow the laws

Press, mediaPress, media Provide infromation, and advertiseProvide infromation, and advertise

Pressure groupsPressure groups Specific interestSpecific interest

Foreign countriesForeign countries Follow the local customFollow the local custom


Stakeholder Mapping: the Power/Interest MatrixStakeholder Mapping: the Power/Interest Matrix


Use of Stakeholder MappingUse of Stakeholder Mapping Do actual levels of interest and power Do actual levels of interest and power

reflect corporate governance reflect corporate governance framework?framework?

Who are key blockers and facilitators of Who are key blockers and facilitators of a strategy?a strategy?

Is repositioning of stakeholders Is repositioning of stakeholders desirable/feasible?desirable/feasible?

Which are the key stakeholders whose Which are the key stakeholders whose interest and power must be maintained interest and power must be maintained to support the strategy?to support the strategy?


Corporate GovernanceCorporate Governance

The governance frameworkThe governance framework• whom the organisation serveswhom the organisation serves• how the purposes and priorities should be how the purposes and priorities should be

decideddecided• how an organisation should functionhow an organisation should function• how power is distributed among how power is distributed among

stakeholdersstakeholders


Corporate Governance (CG)Corporate Governance (CG)

CG is the CG is the systemsystem by which business corporations by which business corporations are directed and controlled. are directed and controlled.

The CG The CG structure structure specifies the distribution of specifies the distribution of rights and responsibilitiesrights and responsibilities among different among different participants in the corporation, such as, the participants in the corporation, such as, the board, managersboard, managers ,shareholders and other ,shareholders and other stakeholdersstakeholders and spells out the and spells out the rules and rules and proceduresprocedures for making decisions on corporate for making decisions on corporate affairs. affairs.

By doing this, it also provides the structure By doing this, it also provides the structure through which the company objectives are set, through which the company objectives are set, and the means of attaining those objectives and and the means of attaining those objectives and monitoring performance.monitoring performance.

OECD definitionOECD definition


Separation of ownership and control Separation of ownership and control

exclusive control of stocks by shareholderexclusive control of stocks by shareholder shareholders’ communities interest limited shareholders’ communities interest limited

to the price of the stockto the price of the stock control rights of corporation’s properties control rights of corporation’s properties

delegated to managementdelegated to management certificate of proportional share of corp.certificate of proportional share of corp.

THE CORP. ITSELF IS THE OWNER OF THE CORP. ITSELF IS THE OWNER OF ITS OWN PROPERTY!!!ITS OWN PROPERTY!!!








Rights of contemporary Rights of contemporary shareholdersshareholders

Control and economic rights no longer Control and economic rights no longer attach to the same individual or group.attach to the same individual or group.

The shareholder surrendered control The shareholder surrendered control over his wealth.over his wealth.

The shareholder is a The shareholder is a supplier of capitalsupplier of capital and a and a risk takerrisk taker..

Ultimate responsibility and authority of Ultimate responsibility and authority of ownership is attached to stock ownership is attached to stock ownership.ownership.


Level of governance: Corporate strategy, Corporate reponsibility, Mission of the corporation

Level of the management:Organizing activitiesImplemetation of strategyControling day-to day activities

Board

Management teams

Supervisory Board

Independent external auditor

CEO

Chairman

General Assembly

Employees

Executive committie


GovernanceGovernance – management by – management by bodiesbodies

The corporate The corporate governance isgovernance is CollectiveCollective DemocraticDemocratic ResponsibleResponsible Legally framedLegally framed Well structuredWell structured

managementmanagement


Key formKey formss of of CG CG :: the the bodies bodies

What is What is „„aa”” body? body?Body is a teamBody is a team, members created by , members created by

delegation, nomination or election delegation, nomination or election (voting)(voting)

Body haBody hass a leader (heading), named a leader (heading), named chairpersonchairperson

Bodies have Bodies have legal backgroundlegal backgroundBody haBody hass a a bylawbylawBodies have responsibilities by Bodies have responsibilities by

law or by the status of the bodylaw or by the status of the body


Bodies in the international Bodies in the international corporate governancecorporate governance

General AssemblyGeneral Assembly, the body of owners , the body of owners (shareholders)(shareholders)

BoardBoard;; members are elected by the General members are elected by the General Assembly. (In Germany board members are Assembly. (In Germany board members are elected byelected by the the Supervisory Board) Supervisory Board)

Supervisory BoardSupervisory Board;; members are elected by members are elected by the General Assembly. (In US/UK no Supervisory the General Assembly. (In US/UK no Supervisory Board)Board)

Management teamManagement team (not defined by law) (not defined by law)


Key Actors of BodiesKey Actors of Bodies Chairwoman/chairman of the General Chairwoman/chairman of the General

Assembly, elected by the ownersAssembly, elected by the owners Chairperson of the Board/Supervisory Chairperson of the Board/Supervisory

Board, elected by body membersBoard, elected by body members Board Committee leaders, nominated by Board Committee leaders, nominated by

the Boardthe Board Top management (executives), nominated Top management (executives), nominated

by the Boardby the Board Independent external auditor, contracted Independent external auditor, contracted

by the management oby the management orr the Board, the Board, accepted byaccepted by the the General Assembly General Assembly


Special bodiesSpecial bodies

Committees of the BoardCommittees of the Board Executive C.Executive C. Financial C.Financial C. Audit C.Audit C. Nominations C.Nominations C. Remunerations C.Remunerations C. Strategic C.Strategic C. Ad Hoc C. (e.g. for project, Ad Hoc C. (e.g. for project, M&AM&A))


Collective Responsibilities of OwnersCollective Responsibilities of Owners((General AssemblyGeneral Assembly))

Creation and change of Creation and change of the Incorporation the Incorporation Charter, Charter, Deed of Foundation (strictly Deed of Foundation (strictly regulated by Corporate Actregulated by Corporate Act))

Voting for Board (Supervisory Board) Voting for Board (Supervisory Board) membersmembers

Creating discussion issues of General Creating discussion issues of General AssemblyAssembly

Accepting (or not) Board’s reportsAccepting (or not) Board’s reports Electing the chairperson of the General Electing the chairperson of the General

AssemblyAssembly


Responsibility of the Responsibility of the BoardBoard of of DirectorsDirectors

The Board is The Board is the the strategic strategic (and (and operational)operational) management body of the management body of the Corporation (firm)Corporation (firm)

Election of Board’s ChairpersonElection of Board’s Chairperson Nomination of management (President, Nomination of management (President,

CEO, etc.)CEO, etc.) Creation reports to General Assembly, Creation reports to General Assembly,

presenting the Annual Reportpresenting the Annual Report Sharing all duties with the management – Sharing all duties with the management –

bylaw regulationbylaw regulation RepresentingRepresenting officially officially the Corporation the Corporation


Board level decisionsBoard level decisions

The BoardThe Board –as the highest level decision –as the highest level decision making body of the corporation – making body of the corporation – sets sets direction, vision, strategy.direction, vision, strategy.

Makes decisions inMakes decisions in major investment, major investment, financial, organizational, market financial, organizational, market questions and appoints the very leading questions and appoints the very leading personspersons of of management. management.


Primary functions of the BoardPrimary functions of the Board

SELECT SELECT (C(CEOEO, board members, management , board members, management compensation)compensation)

REVIEW AND APPROVEREVIEW AND APPROVE (financial objectives, (financial objectives, strategicstrategic plan, adequacy of the system to law)plan, adequacy of the system to law)

ADADVVICE AND COUNCELICE AND COUNCEL (to the top (to the top management)management)

EVALUATE EVALUATE (board processes, performance)(board processes, performance) OTHERSOTHERS („umbrella definition) („umbrella definition)


Responsibility of the Responsibility of the Supervisory Supervisory BoardBoard

Control over the Board and Control over the Board and Management teamManagement team in order in order to save to save and preserve the owner’s interestsand preserve the owner’s interests

Control the legal conformity of the Control the legal conformity of the firm and they activity with laws, rules firm and they activity with laws, rules and prescriptionsand prescriptions

NotNot a a decision making body decision making body


Responsibility of Responsibility of Board’s Board’s CommitteesCommittees

Committee is notCommittee is not a a decision making body decision making body Consulting, Consulting, foundation of business foundation of business

decisiondecisionss, controlling function, controlling function Committee mCommittee members are embers are BoardBoard

members members andand experts experts Analysis for Analysis for the the Board and General Board and General

AssemblyAssembly


Responsibility of Responsibility of ManagementManagement Shared responsibility with the BoardShared responsibility with the Board Management of day-to-day operationManagement of day-to-day operation Functional and structural organization of Functional and structural organization of

businessbusiness Management of key processes and Management of key processes and

functionsfunctions (e.g. (e.g. production, production, marketing, marketing, controlling, logistic, human resources, controlling, logistic, human resources, sales, finances, organizational sales, finances, organizational development)development)

Expertise for the Board and General Expertise for the Board and General AssemblyAssembly


Market for Corporate ControlMarket for Corporate Control

Definition:Definition: Shares of public firms Shares of public firms are traded, and in large enough are traded, and in large enough blocks this means control over blocks this means control over corporations is traded. That puts corporations is traded. That puts some pressure on managers to some pressure on managers to perform, otherwise their corporation perform, otherwise their corporation can be taken over, and they will be can be taken over, and they will be fired. fired.


The Chain of Corporate The Chain of Corporate GovernanceGovernance

Chain or hierarchy of controlChain or hierarchy of control• Separation of ownership and management Separation of ownership and management

controlcontrol• Beneficiaries, trustees of funds, investment Beneficiaries, trustees of funds, investment

managers, board, executive directors, senior managers, board, executive directors, senior executives, managersexecutives, managers

Accountability and responsivenessAccountability and responsiveness• Wider range of stakeholdersWider range of stakeholders

Principal-agent relationshipsPrincipal-agent relationships


Governance Chain - IssuesGovernance Chain - Issues

Conflicts of interestConflicts of interest Directors’ responsibilities to Directors’ responsibilities to

shareholdersshareholders Accountability to stakeholdersAccountability to stakeholders Structure of targets, budgets and Structure of targets, budgets and

rewardsrewards


Corporate GovernanceCorporate Governance ReformsReforms Imperfections in governance chainImperfections in governance chain

• Unequal division of powerUnequal division of power• Differing access to informationDiffering access to information

High profile cases of fraud or poor High profile cases of fraud or poor governancegovernance

Committees established for reformCommittees established for reform• Risk managementRisk management• EUEU

Real requirements:Real requirements:• Changes in board behaviourChanges in board behaviour• Strategic approachStrategic approach


Recommendations for the futureRecommendations for the future

Proposals to improve the performance of the Proposals to improve the performance of the Board:Board:

- improving director compensation (stock improving director compensation (stock options)options)

- increasing authority of independent directorincreasing authority of independent director- separation CEO and chairman positionsseparation CEO and chairman positions- Sarbanes – OxleySarbanes – Oxley- more executive session meetingmore executive session meetingmore independence and transparency in more independence and transparency in

decisionsdecisions- closer connection with the performance of closer connection with the performance of

companycompany


Role of Governing BodiesRole of Governing Bodies Different ownership structuresDifferent ownership structures

• Anglo-Saxon, Rhine, Latin, Japanese Anglo-Saxon, Rhine, Latin, Japanese modelsmodels

Important for international strategyImportant for international strategy• Does governance help or hinder Does governance help or hinder

investment?investment?• Does governance affect speed of Does governance affect speed of

investment?investment?• Which relationships are critical?Which relationships are critical?• How quickly will pay-offs be expected?How quickly will pay-offs be expected?


Strengths and Weaknesses of Governance Strengths and Weaknesses of Governance Systems (1)Systems (1)

st


Strengths and Weaknesses of Governance Systems (2)


Governing Bodies’ Influence on Governing Bodies’ Influence on Strategy (1)Strategy (1)

Two choicesTwo choices• Strategic management delegated to Strategic management delegated to

managementmanagement• Board engages with management in Board engages with management in

strategic managementstrategic management

High profile company failures focused High profile company failures focused attention on role of boardattention on role of board


Governing Bodies’ Influence on Governing Bodies’ Influence on Strategy (2)Strategy (2)

Implications of board involvementImplications of board involvement• Need to operate independently of Need to operate independently of

managementmanagement• Must be competent to scrutinise Must be competent to scrutinise

managers’ activitiesmanagers’ activities• Need time to do job properlyNeed time to do job properly• Importance of softer issues, e.g. trust, Importance of softer issues, e.g. trust,

respectrespect


Forms of Ownership (1)Forms of Ownership (1) Ownership has fundamental effect on Ownership has fundamental effect on

organisational purpose and strategiesorganisational purpose and strategies

• Private/public ownership of equityPrivate/public ownership of equity Public equity often required for growthPublic equity often required for growth

• Sale of all or part of the companySale of all or part of the company To a more suitable corporate parentTo a more suitable corporate parent

• Target for acquisitionsTarget for acquisitions Compare offer with expected future returnsCompare offer with expected future returns


Forms of Ownership (2)Forms of Ownership (2) Ownership has fundamental effect on Ownership has fundamental effect on

organisational purpose and strategiesorganisational purpose and strategies

• Mutual ownershipMutual ownership Customers are owners rather than Customers are owners rather than

shareholdersshareholders

• Privatisation Privatisation Market forces, customer needs, access to Market forces, customer needs, access to

capitalcapital


Key Points (1)Key Points (1) Expectations and purposesExpectations and purposes influenced influenced

by:by:• Corporate governance, stakeholder Corporate governance, stakeholder

expectations, business ethics and cultureexpectations, business ethics and culture

Corporate governanceCorporate governance• Whom organisation serves, how Whom organisation serves, how

purposes/priorities decidedpurposes/priorities decided

Stakeholders’ power and influenceStakeholders’ power and influence• Stakeholder mappingStakeholder mapping


Key Points (2)Key Points (2) Ethical stanceEthical stance

• Corporate social responsibilityCorporate social responsibility

Culture Culture • Levels of cultural frames of referenceLevels of cultural frames of reference• Layers of values, beliefs, behaviours and Layers of values, beliefs, behaviours and

taken-for-granted assumptionstaken-for-granted assumptions• Cultural webCultural web

Communication of organisational Communication of organisational purposespurposes• Values, mission, objectivesValues, mission, objectives


The most important interest group:The most important interest group: the owners (stockholders) the owners (stockholders)

OwnersOwners Their main interestTheir main interestSmall investorsSmall investors Divident, share priceDivident, share price

Financial investorsFinancial investors Rise of value the assets in long Rise of value the assets in long termterm

Professional investorsProfessional investors Specific goals, rise of the assetsSpecific goals, rise of the assets

StateState Employment, taxEmployment, tax

BanksBanks Providing loans, share priceProviding loans, share price

Local governmentsLocal governments Employment, tax, contribution Employment, tax, contribution

Other companyOther company Business connectionBusiness connection

Management Management Long term carreer, dividentLong term carreer, divident





the right to get the right to get dividentdivident




Types of owners Types of owners

activeactive/ interested in the operation of / interested in the operation of corpcorporationoration too, not only in the profit too, not only in the profit (professional investors, majority (professional investors, majority owners)owners)

passive / passive / interested in simply the interested in simply the income (profit)income (profit)



SuppliersSuppliers Long term connectionsLong term connections

BuyersBuyers Quality, quick reaction, small priceQuality, quick reaction, small price

Other business partnersOther business partners Long term connection, liquidityLong term connection, liquidity

Potencial entrans Potencial entrans Stable and business-like marketStable and business-like market

Substitute product producersSubstitute product producers Clear roles, and conditionsClear roles, and conditions

Workers, and their unionsWorkers, and their unions Good working conditions, wagesGood working conditions, wages

Employer’s associationEmployer’s association Rule-following behaviorRule-following behavior

Government’s regulatorsGovernment’s regulators Rule-following behaviorRule-following behavior

Enterprises in the industryEnterprises in the industry Acceptance some mutual rules Acceptance some mutual rules

1. Types of stakeholders


2. Types of stakeholders2. Types of stakeholders


Local authoritiesLocal authorities Tax, subsidyTax, subsidy

Local communitiesLocal communities HelpHelp

Trade unionsTrade unions AcceptanceAcceptance

Customer groupsCustomer groups Consumer-friendly behaviorConsumer-friendly behavior

Employment associationEmployment association AcceptanceAcceptance

GovernmentGovernment Pay tax, follow the lawsPay tax, follow the laws

Press, mediaPress, media Provide infromation, and advertiseProvide infromation, and advertise

Pressure groupsPressure groups Specific interestSpecific interest

Foreign countriesForeign countries Follow the local customFollow the local custom


Corporate governanceCorporate governance

The relationship between the The relationship between the shareholders, Board of Directors, and shareholders, Board of Directors, and the management of the company to the management of the company to ensure that management acts in a ensure that management acts in a way to protect the interets of the way to protect the interets of the investors (including creditors) in the investors (including creditors) in the company. company.


Evolution of the corporate-governance structure

1800 1900 1950 2000

Owner-manager

Investors General AssemblyOwners’s representatives Executive management

Investors

General assembly

Board (Directors)

Executive commity

Beneficiaries

Trustees of funds

Invetment funds

General assembly

Board

Executive managers

Managers


The Chain of Corporate Governance


Level of governance: Corporate strategy, Corporate reponsibility, Mission of the corporation

Level of the management:Organizing activitiesImplemetation of strategyControling day-to day activities

Board

Management teams

Supervisory Board

Independent external auditor

CEO

Chairman

General Assembly

Employees

Executive committie


GovernanceGovernance – management by – management by bodiesbodies

The corporate The corporate governance isgovernance is CollectiveCollective DemocraticDemocratic ResponsibleResponsible Legally framedLegally framed Well structuredWell structured

managementmanagement


Key formKey formss of of corporate governance corporate governance :: the the bodiesbodies

What is What is „„aa”” body? body?Body is a teamBody is a team, members created by , members created by

delegation, nomination or election delegation, nomination or election (voting)(voting)

Body haBody hass a leader (heading), named a leader (heading), named chairpersonchairperson

Bodies have Bodies have legal backgroundlegal backgroundBody haBody hass a a bylawbylawBodies have responsibilities by law Bodies have responsibilities by law

or by the status of the bodyor by the status of the body


Bodies in the international Bodies in the international corporate governancecorporate governance

General AssemblyGeneral Assembly, the body of owners , the body of owners (shareholders)(shareholders)

BoardBoard;; members are elected by the General members are elected by the General Assembly. (In Germany board members are Assembly. (In Germany board members are elected byelected by the the Supervisory Board) Supervisory Board)

Supervisory BoardSupervisory Board;; members are elected by members are elected by the General Assembly. (In US/UK no Supervisory the General Assembly. (In US/UK no Supervisory Board)Board)

Management teamManagement team (not defined by law) (not defined by law)


Key Actors of BodiesKey Actors of Bodies Chairwoman/chairman of the General Chairwoman/chairman of the General

Assembly, elected by the ownersAssembly, elected by the owners Chairperson of the Board/Supervisory Chairperson of the Board/Supervisory

Board, elected by body membersBoard, elected by body members Board Committee leaders, nominated by Board Committee leaders, nominated by

the Boardthe Board Top management (executives), nominated Top management (executives), nominated

by the Boardby the Board Independent external auditor, contracted Independent external auditor, contracted

by the management oby the management orr the Board, the Board, accepted byaccepted by the the General Assembly General Assembly


New corporate governance rules between 1994-2006New corporate governance rules between 1994-2006

The different rules The different rules 19941994 19981998 20022002 20062006

Renumeration pay by performance Renumeration pay by performance MayMay MayMay MUSTMUST MUSTMUST

Renumeration disclosure Renumeration disclosure MayMay MayMay MayMay MUSTMUST

Audit committee creation Audit committee creation MayMay MUSTMUST MUSTMUST MUSTMUST

Audit committee independence Audit committee independence MayMay MUSTMUST MUSTMUST MUSTMUST

Board independence Board independence MayMay MUSTMUST MUSTMUST MUSTMUST

Removal of cross-shareholding Removal of cross-shareholding MayMay MayMay MUSTMUST MUSTMUST

Liability of the Board Liability of the Board MayMay MayMay MayMay MUSTMUST

Comply or explain Comply or explain MayMay MayMay MayMay MUSTMUST

Separation of Chairman and CEO Separation of Chairman and CEO MayMay MayMay MayMay MayMay


Two side of the governance: business Two side of the governance: business judgement rule and checks/balancesjudgement rule and checks/balances

Rule granting directors of publicly listed Rule granting directors of publicly listed companie’s immunity from liability if their actions companie’s immunity from liability if their actions were executed in good faith, using sound were executed in good faith, using sound business judgement and exercised with resonable business judgement and exercised with resonable care. care.

It also refers to the defence of corporate It also refers to the defence of corporate sovereignty, which means that courts do not sovereignty, which means that courts do not intervene into company’s affaires until the intervene into company’s affaires until the decisions of the company are in accordance with decisions of the company are in accordance with good faith and resonable care. good faith and resonable care.

On the other hand there are rules and processes On the other hand there are rules and processes for governance and control of private sector for governance and control of private sector companies, which balance the authonomycompanies, which balance the authonomy


The balancing institutions The balancing institutions

The most important balances are the The most important balances are the corporate governance rules, and corporate governance rules, and bodies, and structures, bodies, and structures,

The other types of important The other types of important balances are rules determining fair balances are rules determining fair behavior in business relations:behavior in business relations:• The code of ethics, and The code of ethics, and • The business cultureThe business culture


The stories of corporate disasters

Ineffective board

Dominant CEO („one man” show)

Disaster

Greed, hubris, irresponsibility

Poor strategy

Ill-judged acquisitions, over-expansions

Inadequate

con

trol

en

vir

onm

ent

Accidental external trigger

Inadequate

con

trol

en

vir

onm

ent

Conformist culture



Corporate social responsibilityCorporate social responsibility

Corporate social responsibility (CSR) is a Corporate social responsibility (CSR) is a company’s obligation to be company’s obligation to be accountable to all of its stakeholders accountable to all of its stakeholders in all its operations and activities with in all its operations and activities with the aim of achieving sustainable the aim of achieving sustainable development not only in the development not only in the economical dimensions but also in the economical dimensions but also in the social and environmental dimensions.social and environmental dimensions.

Documents

Exploring Corporate Strategy, Seventh Edition, © Pearson Education Ltd 2005 Strategic management 4 The soft elements of the strategy: interest-groups,