Chapter 12 - Test 3 Flashcards
The Shared Value Creation Framework
Guides managers and helps reconcile gaining and sustaining competitive advantage with corporate social responsibility
Public Stock Company: Four Benefits
- Limited liability for investors
- Transferability of investor ownership through stock
- Legal personality, with rights and obligations
- Separation of legal ownership and management control
Milton Friedman’s Philosophy
“The social responsibility of business is to increase
its profits”
Creating Shared Value
Executives shouldn’t concentrate only on increasing
firm profits. Rather, they should focus on creating
shared value.
Reconnecting Economic and Societal Needs
- Expand the customer base to bring in nonconsumers
- Expand traditional internal firm value chains to
include non-traditional partners - Focus on creating new regional clusters (such as
Silicon Valley)
Corporate Governance
The mechanisms to direct and control an enterprise ensure that it pursues strategic goals successfully and
legally
Agency Theory
A theory that views the firm as a nexus of legal
contracts
Adverse Selection
An increased likelihood of selecting inferior alternatives
Moral Hazard
When one party is incentivized to take undue risks or shirk responsibilities
The Board of Directors
The centerpiece of corporate governance are elected by the shareholders
Responsibilities of the Board of Directors
- Strategic oversight and guidance
- Guide executive compensation
- Risk assessment and mitigation
Governance Mechanisms
- Executive compensation
- The market for corporate control
- Financial statement auditors, government regulators, and industry analysts
Business Ethics
An agreed-upon code of conduct in business
Bad Apples
Individuals who act opportunistically
Bad Barrels
An unethical organizational climate
