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Chapter 5 Corporate Governance and Corporate Compliance. Understanding Business Ethics Stanwick and Stanwick 2 nd Edition. 1. But I Fired You First. George Perlegos started Atmel in 1984, the company went public in 1991
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Chapter 5Corporate Governance and Corporate Compliance Understanding Business Ethics Stanwick and Stanwick 2nd Edition
1 But I Fired You First • George Perlegos started Atmel in 1984, the company went public in 1991 • After Sarbanes Oxley in 2002, the composition of the board shifted from an “insider” board to a dominated “independent” board • In 2005 “independent” board members found out that Perlegos and his brother Gust were allegedly misusing company travel funds
2 But I Fired You First • The board recommended that George, Gust, and general counsel Michael Ross be fired. • In May 2007, shareholders voted to support the current board members and reject George’s proposal to remove the board members who were responsible for his termination
3 Ethical Leadership • Defined as the demonstration of normatively appropriate conduct through personal actions and interpersonal relationship • and the promotion of such conduct to followers through two-way communication, reinforcement, and decision-making
4 Transformational Leadership • Focused on developing a long term vision for the company • Based on inspirational motivation, idealized influence, individualized consideration and intellectual stimulation • It is argued that ethical leadership is transformational
5 Transformational Leadership • Principles of Ethical Power • Purpose • Perspective • Patience • Persistence
6 Transactional Leadership • Focus on operational and routine activities within the firm • It is argued that this is more of a “managership” in which control is used to protect the status quo of the firm • Use contingent rewards and management by exception to manage employees
7 A Reconciliation of Ethical Values of Leadership Styles • Transformational Leaders • Have an organic and interdependent view of external events • Moral altruistic motives are supported by the deontological philosophical frameworks • Focus on social obligations
8 A Reconciliation of Ethical Values of Leadership Styles • Transactional Leaders • Have an independent view of external events • Mutual altruistic motives are supported by teleological philosophical frameworks • Focus on the individual obligations
9 The Transformation from a Moral Person to Ethical Leader • Traits • Behaviors • Decision Making • Moral Manager
10 The Transformation from a Moral Person to Ethical Leader • Moral Manager • Transfer of moral value within the moral manager to those he/she interacts with is based on how the moral manager is able to communicate the ethical values to others
11 Moral Persons and Moral Managers • Unethical Leader • Weak moral person and weak moral manager • Drive to reward their own self-interests • Examples include Jeff Skilling, Bernie Ebbers, and Dennis Kozlowski
12 Moral Persons and Moral Managers • Ethical Leader • Should be the ultimate ethical goal of any manager • Ability to use grounded ethical characteristics and transfer them to others within the organization through the characteristics of a moral manager
13 Moral Persons and Moral Managers • Hypocritical Leader • Manager has destroyed all three of the critical traits of a moral person • Says one thing about ethical values then acts unethically • Example is Martha Stewart
14 Moral Persons and Moral Managers • Inconsistent Leader • A manager who has strong ethical traits, behaviors and decision making of a moral person, but is not able to transfer those values to other employees • Inconsistent because of the contradictory strength of the individual moral values and weak characteristics of a moral manager
15 Corporate Governance • Defined as the system that is used by firms to control and direct their operations and the operations of their representatives, the employees. • Provides a method in which the ethical vision can be measured and validated
16 Board of Directors • Designed to represent the interests of the stockholders • Agency theory is based on the belief that managers are “agents” of the stockholders because they should be making decisions to benefit the stockholders
17 Board Member Classifications • Inside Board Member • Has direct financial ties to the firm • Outside Board Member • Does not have direct financial ties to the firm.
18 Core Ethical Values that Guide the Behaviors of Board Members • Honesty • Integrity • Loyalty • Responsibility • Fairness • Citizenship
19 Types of Boards of Directors • Passive Board • Certifying Board • Engaged Board • Intervening Board • Operating Board
20 Benefits of A Strong Board of Directors • Stanwick and Stanwick found that having a strong board does have a positive impact on the performance of the firm • Having good corporate governance supports the financial requirements established by the shareholders
21 CEO Compensation and Ethical Reputation • Stanwick and Stanwick Study on the relationship amoung CEO compensation, ethical reputation, and financial performance • No direct relationship between CEO compensation and the financial performance of the firm
22 Questions for Thought • In the opening vignette, who has the authority to fire the CEO? Who has the authority to fire a member of the board of directors? What is CEO duality? • What are some ways in which Board of Directors can increase its power? Under what circumstances can its power be decreased? • Do you perceive yourself as a transformational or transactional leader? Explain your answer.