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Strategic Board Leadership in Corporate Governance

This chapter explores the role and impact of the board of directors in corporate governance, including stewardship theory, agency theory, and the strategic management process. It delves into the various board structures and dynamics, such as the continuum of board members, interlocking directorates, and nominations and elections. The significance of transformational leadership, successful CEOs, and executive leadership in shaping corporate strategy and performance is also discussed.

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Strategic Board Leadership in Corporate Governance

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  1. CHAPTER 2 Corporate Governance

  2. Corporate Governance The relationship among the board of directors, top management, and shareholders – determining the direction and performance of the corporation

  3. Corporate Governance • Role of Board • Monitor • Evaluate and influence • Initiate and determine

  4. Board of Directors Continuum

  5. Board of Directors • Members -- • Inside directors • “management directors” • Officers or execs employed by the firm • Outside directors • “non-management directors” • Execs of other firms not employed by the board’s corporation

  6. Agency Theory • Agency Problem – • Objectives of owners & agents in conflict • Difficult for owners to verify agent performance • Risk Sharing Problem – • Owners & agents risk assessment in conflict

  7. Stewardship Theory Executives more motivated to act in best interest of the corporation than their own self-interests. Theory that over time, senior executives tend to view corporation as extension of selves.

  8. Board of Directors • When Outsiders can be considered Insiders • Affiliated Directors • Retired Directors • Family Directors

  9. Board of Directors • Codetermination • The inclusion of a corporation’s employees on its board of directors

  10. Board of Directors • Interlocking Directorates • Direct Interlocking • Indirect Interlocking

  11. Board of Directors • Nominations & Elections • Traditional Approach • CEO invitation to membership • Shareholders approval in annual proxy statement • All nominees usually elected • Staggered Board Approach • Staggered terms of service/election

  12. Board of Directors • Sarbanes-Oxley • Code of Ethics • Audit, Nominating, and Compensation Committees all outside directors

  13. Board of Directors • Corporate Governance • Review & shaping of strategy • Pressure for corporate performance • Demand for executive stock ownership • Outside directors increasing • Impact of Sarbanes-Oxley

  14. Board of Directors • Transformational leaders • Change agents through vision for change

  15. Board of Directors • Successful CEO’s • Strategic vision • Passion for the company • Strong communication • charisma

  16. Board of Directors • Executive Leadership • Strategic vision • Role model • Communication of performance standards • Demonstrates confidence in abilities of followers

  17. Strategic Management Process • Strategic Planning Staff • Supports top management & business units in the strategic planning process • Identify & analyze company-wide strategic issues • Generate strategic alternatives • Facilitate business units in coordinating activities related to strategic planning process

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