Lesson 5: Analysing The Political Context Flashcards
Why should we look at corporate governance?
Separation between ownership and management:
Differences in interest between stakeholders, incentives.
Corporate scandals concerning bankruptcy:
Affect many people
Many resources are often at stake
Increasing focus on organisational responsibility:
Corporate goverance
Corporate social responsibility (CSR)
What are the differences in corporate structures?
In UK and US we have a one board system = usually very powerful CEO.
In Japan, we can find one board systems, but also cross boarder ownerships and highly involved banks.
In Germany, France, Holland and Scandinavia, we have a two board system, namely a board of directors (executive directors) and a board of trustees (representatives of shareholders and employees).
What is the formal chain of governance?
1) General meeting of shareholders:
Private investors, pension and insurance funds, capital funds, sharehodler market analysts, meetings with institutional investors, annual meeting with shareholders.
2) Shareholders’ committee
Big shareholders, representatives of shareholders, often divided geographically
3) Board of trustees
Representatives of shareholders, public representatives, employee representatives.
4) Board of Directors
Professional managers hired by the trustees, executive managers, responsible of daily operations
5) Middle managers and employees
What are the differences in interest with shareholders?
Traditionally shareholders focus on return and risk.
Professional managers focus on growth
Strategies balance between growth, return and risk
Shareholders can have many different interests
A board can also have many different interests
Strong groups of employees can also play a role in the power structure
How do we manage incentives?
Often managers have more knowledge about the business than the owners, and they act on their own.
Professional managers potentially act opportunistic = they are ready to break agreements.
What are the models for corporate governance?
1) Shareholder perspective = profit maximization
Benefits: focus on return, innovation, growth and professional management
Minus: difficult for stakeholders to get insight, managers follow own interest, short term decision making and risk of greed
2) Stakeholder perspective = stakeholder balance
Benefits: high interest and involvement in decision-making creates high motivation and goodwill. Shareholders have insight in the company. Often a more long-term perspective.
Minus: slow decision-making. Returns are sometimes lower. Difficult to get risk willing capital. Innovation and growth can as a consequence be slower.
What are the benefits and disadvantages of the shareholder model?
Benefits:
1) For investors: higher rate of return, reduced risk
2) For the economy: encourages entrepreneurship, encourages inward investment.
3) For management: independence
Disadvantages:
1) For investors: difficult to monitor management
2) For the economy: the risk of short-termism, top management greed
What are the benefits and disadvantages of the stakeholder model?
Benefits:
1) Investors: Closer monitoring of management, longer-term decision horizons
2) For stakeholders: deterrent to high-riskdecisions
Disadvantages:
1) Management: potential interference, slower decision-making, reduced independence
2) For the economy: reduced financing opportunities for growth, weak market for corporate control.
What are the areas of ethics?
1) Economic responsibility:
Responsibility towards employees, customers and local community.
2) Social responsibility towards employees:
Education and retraining
Retirement policies and pension arrangements
Supply chain responsibility
Policies on illness and abuse
Physical and physical environment
3) Environmental responsibility Pollution Use of poisonous materials Energy consumption Recycling programs Handling of hazardous waste
What are the different stances of social responsbility?
1) Laissez-faire = no attention on social and environmental issues
2) Forum for stakeholder interaction:
Forum for stakeholder interaction, profit is only one out of several goals
3) Enlightened self-interst
Profit maximization on the long term, it can be profitable to invest in people
4) Shaper of society
Profit is only a mean to achieve other more important goals.
What is stakeholder analysis?
1) Who are the stakeholders in a particular matter?
2) Categorise the stakeholders according to their level of interest?
3) Estimate the power of stakeholders
4) Are the stakehodlers for or against the matter?
5) What should we then do? A) Talk to the stakeholders, B) Change the project/strategy? C) Mobilise stakeholders? D) Go around stakeholders
What is stakeholder mapping?
Categorise the stakeholders in the particular case:
1) Power:
Ability to persuade, induce or coerce –> course of action.
Look at a variety of indicators of power: STatus, representation, claim on resources, symbols of power, resource dependence
2) Attention or level of interest
A) Criticality: eg. Health and safety, important for employees, not for shareholders.
B) Channels = good channels of informtion.
C) Cognitive capacity: information overload, forced to reduce complexity.
What are the sources of power?
1) Within organsations: Formal hierarchy (formal power), influence (informal power), control over strategic resources, knowledge and skills, control of factors in the environment, involved in the implementation of the strategy.
2) External stakeholders:
Contorl over strategic resources, involved in the implementation of the strategy, possession of knowledge, connections.
What are the indicators of power?
1) Within organsations
Status, claim on resources, representation, symbols
2) External stakeholders:
Status, resource dependence, negotiating arrangements, symbols.
What is strategic purpose?
1) Mission: The reason why the organsation exists. The primary need it fulfills. Motivate the employees Guide daily decisions and actions
2) Vision: A desired future state for the organsation
3) Values:
Guide organsational decision-making, articulate what is right and wrong, create a share identity.
4) Objectives:
Can be of qualitative or quantitive nature, quantitative goals can be measured
5) Simple rules:
Indirect management which creates flexibility
Simple rules can be about values, boarders, priorities, timing and exit.
