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Second lecture . Corporate Governance and Social Responsibility. Corporate Governance . Corporate Governance. Defined: Refers to the relationship among the board of directors, top management, and shareholders in determining the direction and performance of the corporation.

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second lecture

Second lecture

Corporate Governance

and

Social Responsibility

Developed by Prof. Dr. Majed El-Farra

corporate governance
Corporate Governance

Developed by Prof. Dr. Majed El-Farra

corporate governance3
Corporate Governance

Defined:

Refers to the relationship among the board of directors, top management, and shareholders in determining the direction and performance of the corporation.

Developed by Prof. Dr. Majed El-Farra

corporate governance4
Corporate Governance
  • Setting corporate strategy, overall direction,
  • mission or vision
  • Hiring and firing the CEO and top management
  • Controlling, monitoring, or supervising
  • top management
  • Reviewing and approving the use of resources
  • Caring for shareholder interests

Board of

Directors

Developed by Prof. Dr. Majed El-Farra

corporate governance5
Corporate Governance

Role of the Board in strategic management

  • Monitor
    • Developments inside and outside the corporation
  • Evaluate & Influence
    • Review proposals, advise, provide suggestions and alternatives
  • Initiate & Determine
    • Delineate\define corporation’s mission and specify strategic options

Developed by Prof. Dr. Majed El-Farra

board of directors continuum
Board of Directors Continuum

Developed by Prof. Dr. Majed El-Farra

board of directors
Board of Directors

Members:

Inside directors

  • “Management directors”
  • Officers or executives employed by corporation

Outside directors

  • May be executives of other firms but not employed by board’s corporation

Developed by Prof. Dr. Majed El-Farra

board of directors8
Board of Directors

Organization of the Board

  • Size
    • Determined by charter and bylaws
    • Average for publicly-held, large firm is 11 directors
    • Average for small/medium private firms is 7 to 8 directors

Developed by Prof. Dr. Majed El-Farra

board of directors9
Board of Directors

Corporate Governance

  • Boards more involved in review and shaping strategy
  • Institutional investors more active in pressuring for corporate performance
  • Shareholders demand that directors and executives own more than token amounts of stock
  • Nonaffiliated outside directors increasing

Developed by Prof. Dr. Majed El-Farra

board of directors10
Board of Directors
  • Executive Leadership
    • Strategic vision
    • Presents a role of others to identify with and follow
    • Communicates high performance standards and shows confidence in followers’ abilities

Top management responsibilities

Top management

Responsibilities

Developed by Prof. Dr. Majed El-Farra

strategic management process
Strategic Management Process

Strategic Planning Staff --

  • Supports top management and business units in the strategic planning process.

Developed by Prof. Dr. Majed El-Farra

strategic management process12
Strategic Management Process

Strategic Planning Staff

Responsibilities:

  • Identify and analyze company-wide strategic issues, suggest corporate strategic alternatives
  • Work as facilitators with business units to guide them through the strategic planning process

Developed by Prof. Dr. Majed El-Farra

styles of corporate governance
Styles of Corporate Governance

Degree of

Involvement

By top

management

Degree of involvement by board of directors

Developed by Prof. Dr. Majed El-Farra

styles of corporate governance14
Styles of Corporate Governance
  • Chaos Management
  • When both the board of directors and top management have little involvement in the strategic management process.
  • The board waits for top management to bring it proposals.
  • Top management is operationally oriented and continues to carry out strategies, policies, and programs specified by the founding entrepreneur who died years ago.
  • There is no strategic management being done here.

Developed by Prof. Dr. Majed El-Farra

styles of corporate governance15
Styles of Corporate Governance
  • Entrepreneurship Management
  • A corporation with an uninvolved board of directors but a highly involved top management has entrepreneurship management.
  • The board is willing to be used as a rubber stamp for top management's decisions.
  • The CEO, operating alone or with a team, dominates the corporation and its strategic decisions.

Developed by Prof. Dr. Majed El-Farra

styles of corporate governance16
Styles of Corporate Governance
  • Marionette Management
  • Probably the rarest form of strategic management style,
  • marionette management occurs when the board of directors is deeply involved in strategic decision making, but top management is primarily concerned with operations.
  • Such a style evolves when a board is composed of key stockholders who refuse to delegate strategic decision making to the president.
  • This style also occurs when a board fires a CEO but is slow to find a replacement.
  • Marionette Management occurred at Winnebago Industries when the company's Board of Directors, chaired by its founder, 72-year-old John K. Hanson, took away Ronald Haugen's title as chief executive officer, but left him as company president.

Developed by Prof. Dr. Majed El-Farra

styles of corporate governance17
Styles of Corporate Governance
  • Partnership Management
  • Probably the most effective style of strategic management,
  • partnership management is epitomized\embodied by a highly involved board and top management. The board and top management team work closely to establish the corporate mission, objectives, strategies, and policies.
  • Board members are active in committee work and utilize strategic audits to provide feedback to top management on its implementations of agreed-upon strategies and policies.
  • This appears to be the style emerging in a number of successful corporations such as General Electric Company.

Developed by Prof. Dr. Majed El-Farra

the business firm should try to get useful information about competitors by
The business firm should try to get useful information about competitors by:
  • Careful study of trade journals.
  • Buying competitors' products and taking them apart.
  • Hiring management consultants who have worked for competitors.
  • Rewarding competitors' employees for useful "tips."
  • Questioning competitors' customers and/or suppliers.
  • Buying and analyzing competitors' garbage.
  • Advertising and interviewing for non-existent jobs.
  • Taking public tours of competitors' facilities.
  • Releasing false information about the company in order to confuse competitors.
  • Questioning competitors' technical people at trade shows and conferences.
  • Hiring key people away from competitors.

Developed by Prof. Dr. Majed El-Farra

discussion
Discussion
  • What recommendations would you make to improve the effectiveness of today's corporate governance in Gaza private sector?

Developed by Prof. Dr. Majed El-Farra

un governance
UN Governance
  • Empowering the top management.
  • Beneficiary participation.
  • Rotation of top management.
  • Incentives.
  • Top management should be from locals.
  • Periodical review and reporting to board of directors.
  • Independent local steering committee.
  • Open channels of communication with public.
  • Specialized bodies in different services.
  • Some of the board should be from locals.
  • System and standards to evaluate top management.
  • Enriching the strategic staff from outside UN staff.
  • Power sharing between top and low level management.
  • Improve the role of CSOs.

Developed by Prof. Dr. Majed El-Farra

improving the efficiency of the pna governance
Improving the efficiency of the PNA Governance
  • Choose the best ministers
  • Qualified and competence legislators.
  • Separation between authorities
  • More controlling and monitoring of legislation.
  • Abide by law the common of the Palestine.
  • Using external consultants to the legislation council,
  • regular meeting.
  • Regular meeting and follow up.
  • Awareness campaign to all about their duties.
  • Improve cooperation and team work.
  • More role for residences\public.
  • Clear and agreed accountability techniques.
  • Form a controlling committee from the council.

Developed by Prof. Dr. Majed El-Farra

improving the efficiency of board of directors in ngos
Improving the efficiency of Board of Directors in NGOs
  • Select qualified persons.
  • People with enough time.
  • Sperate
  • Periodical reports.
  • Government role.
  • Provide incentives.
  • External and internal control development.
  • Internal monetary committee.
  • Periodical meeting.

Developed by Prof. Dr. Majed El-Farra

social responsibility
Social Responsibility

Broader responsibility:

  • Private corporation has responsibilities to society that extend beyond making a profit.

Developed by Prof. Dr. Majed El-Farra

social responsibility24
Social Responsibility

Friedman’s Traditional View

“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits…”

Developed by Prof. Dr. Majed El-Farra

social responsibility25
Social Responsibility

Carroll’s Four Responsibilities

  • Economic: produce goods and services of value to society.
  • Legal: abide by law, avoid discrimination.
  • Ethical: respect beliefs in society.
  • Discretionary/flexible :pure voluntary obligations.

Developed by Prof. Dr. Majed El-Farra

responsibilities of business
Responsibilities of Business

Developed by Prof. Dr. Majed El-Farra

social responsibility benefits
Social ResponsibilityBenefits
  • Environmental concerns may enable the firm to charge premium prices and gain brand loyalty
  • Trustworthiness may help generate enduring relationships with suppliers and distributors without spending time and money policing contracts
  • Can attract outstanding employees who prefer working for a responsible firm
  • More likely to attract capital from investors who view reputable companies as desirable

Ben & Jerry’s

Maytag

Procter &

Gamble

Rubbermaid

Developed by Prof. Dr. Majed El-Farra

social responsibility balancing commitments to stakeholders

Employees

Investors

Customers

Suppliers

Local Communities

Social Responsibility: Balancing Commitments to Stakeholders

Stakeholders: Groups, individuals, and organizations that are directly affected by the practices of an organization

CORPORATION

Developed by Prof. Dr. Majed El-Farra

social responsibility29
Social Responsibility
  • It refers to the way in which a business tries to balance its commitments to certain groups and individuals in its social environment.
  • Customers: Treat customers fairly and honestly (Examples of companies with excellent reputations in this area: L.L. Bean, Nordstrom, Dell Computer Corporation)
  • Employees: Treat employees fairly, with respect for their dignity and basic human needs (Examples of companies with excellent reputations in this area: 3M, Southwest Airlines)
  • Investors: Manage financial resources honestly and openly
  • Suppliers: Seek mutually beneficial partnerships
  • Local Communities: Minimize damage and maximize contributions to local communities

Developed by Prof. Dr. Majed El-Farra

reasons for unethical behavior
Reasons for Unethical Behavior

Moral Relativism

  • Morality is relative to some personal, social or cultural standard and that there is no method for deciding whether one decision is better than another.

Developed by Prof. Dr. Majed El-Farra

social responsibility31
Social Responsibility

Kohlberg’s Levels of

Moral Development

  • Preconventional Level
    • Concern for self
  • Conventional\conservative Level
    • Consideration of laws and norms
  • Principled Level
    • Adherence to internal moral code

Developed by Prof. Dr. Majed El-Farra

social responsibility32
Social Responsibility

Code of Ethics:

  • Specifies how an organization expects its employees to behave while on the job.

Developed by Prof. Dr. Majed El-Farra

what is ethical behavior
What Is Ethical Behavior?

Ethics: Right and wrong, good and bad, in actions that affect others. shaped by personal values and morals

Ethical Behavior: Conforming to generally accepted ethical norms.

Business ethics: Ethical or unethical behaviors of managers and employers of an organization.

Developed by Prof. Dr. Majed El-Farra

discussion34
Discussion
  • Identify examples of ethical and unethical business practices.
    • Ethical Business Practices: Examples: Donating a percentage of profits to charity and community causes (Ben & Jerry’s donates 7-1/2% of pre-tax profits, and Levi Strauss donates 2.4% of pre-tax profits to a variety of causes), encouraging employees to engage in volunteer work using paid work-release time (Walt Disney’s VoluntEARS program), recycling (McDonald’s has a far-reaching environmental protection program).
    • Unethical Business Practices: Examples: Forwarding “marketing research” results to sales people, excessive violence in video games, and of course all forms of illegal behavior (e.g. deliberately selling cigarettes to minors).

Developed by Prof. Dr. Majed El-Farra

social responsibility35
Social Responsibility

Approaches to Ethical Behavior

  • Utilitarian

Actions and plans judged by consequences

  • Individual Rights

People have fundamental rights to be respected in all decisions

  • Justice

Distribution of costs and benefits to be equitable, fair, and impartial\objective.

Developed by Prof. Dr. Majed El-Farra

social responsibility36
Social Responsibility

Approaches to Ethical Behavior

  • Categorical imperatives\crucial

“golden rules”

Not restrict others behavior

Developed by Prof. Dr. Majed El-Farra

responsibility toward the environment
Responsibility Toward the Environment
  • Encompasses three main areas:
  • Air pollution
  • Water pollution
  • Land pollution
    • Toxic\deadly waste
    • Recycling

Developed by Prof. Dr. Majed El-Farra

responsibility toward customers
Responsibility Toward Customers

Consumer Rights

Unfair Pricing

Ethics in Advertising

Developed by Prof. Dr. Majed El-Farra

responsibility toward employees
Responsibility Toward Employees
  • Legal and social commitments: Legally, companies are required to refrain from discrimination against any worker based on race, gender, religion, nationality or other irrelevant factors. Ethically, many people feel that companies should ensure that the workplace is physically and socially safe.
  • How far should companies extend themselves to help employees who are laid off?

Developed by Prof. Dr. Majed El-Farra

responsibility toward investors
Responsibility Toward Investors
  • Improper financial management:
  • Offenses are typically unethical, rather than illegal. Examples include excessive salaries, and lavish\plentiful or frivolous perks\bonus (e.g. regular corporate “retreats” to exotic\interesting island resorts).
  • Check kiting:
  • Responsibility towards investors has several components:
  • Illegal practice of writing checks against money that has not yet arrived at the bank on which it is drawn.
  • Insider trading:
  • Illegal practice of using confidential information to gain from the purchase or sale of stocks.
  • Misrepresentation of finances:
  • Typically, this takes the form of overly optimistic projections of earnings.

Developed by Prof. Dr. Majed El-Farra

review
Review
  • What are the Carroll’s four social Responsibilities of companies? Is there a consensus on the concept of social responsibilities? What is the relationship between social responsibility and ethics? Try to be practical in your answer.

Developed by Prof. Dr. Majed El-Farra

discussion42
Discussion
  • Should all CEOs be transformation leaders? Would you like to work for a transformational leader?
  •  According to the text, top management must successfully handle two responsibilities that are crucial to the effective strategic management of the corporation: (1) provide executive leadership and a strategic vision and (2) manage the strategic planning process. The successful CEOs often provide this executive leadership by taking on many of the characteristics of the transformation leader by communicating a clear strategic vision, demonstrating a strong passion for the company, and communicating clear directions to others. Such transformational leaders, like Bill Gates at Microsoft, Steve Jobs at Apple, and Anita Roddick at The Body Shop, are able to command respect and energize their employees.

Developed by Prof. Dr. Majed El-Farra