12CHAPTER

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Corporate Governance, Corporate Governance, Business Ethics, and Business Ethics, and Strategic LeadershipStrategic Leadership

Instructor:Dr.Gehan Shanmuganathan

12-2

LO 12-1 Describe and evaluate the relationship between strategic management and the role of business in society.

LO 12-2 Conduct a stakeholder impact analysis.

LO 12-3 Critically evaluate the relationship between corporate social performance (CSR) and competitive advantage.

LO 12-4 Describe the role of corporate governance and evaluate different governance mechanisms.

LO 12-5 Describe and evaluate the relationship between business strategy and ethics.

LO 12-6 Describe the different roles that strategic leaders play and how to become a strategic leader.

ChapterCase 12 ChapterCase 12 HP’s CEO Mark Hurd Resigns amid Ethics ScandalHP’s CEO Mark Hurd Resigns amid Ethics Scandal

• Mark HurdMark Hurd CEO of HP after Carly FiorinaCEO of HP after Carly Fiorina Low profile, no-nonsense, strategy execution forteLow profile, no-nonsense, strategy execution forte

• Highly successfulHighly successful Increasing market shares for computers and printersIncreasing market shares for computers and printers Stock rose 110% (well above that of NASDAQ)Stock rose 110% (well above that of NASDAQ)

• 2010 sexual harassment scandal2010 sexual harassment scandal Forced to resignForced to resign

With $45 million severance package

12-3

Strategic Management and the Role of Business in Society

• Public stock company is the backbone of our Public stock company is the backbone of our economyeconomy

• Four characteristics of public firmsFour characteristics of public firms Limited liability for investorsLimited liability for investors Transferability of investor interestTransferability of investor interest Legal personalityLegal personality Separation of ownership and controlSeparation of ownership and control

12-4

EXHIBIT 12.2 Honesty and Ethics Ranking of Different Professions

“How would you rate the honesty and ethical standards of people in different fields?”

Only 15% of “high” executives

12-5

Stakeholder Strategy

• Stakeholder theoryStakeholder theory How a wide variety of stakeholders interact to jointly How a wide variety of stakeholders interact to jointly

create and trade valuecreate and trade value Effective management of these relationships builds Effective management of these relationships builds

competitive advantagecompetitive advantage

• Why have stakeholder management?Why have stakeholder management? More cooperative and better informationMore cooperative and better information Increased trust lowers costsIncreased trust lowers costs Greater flexibility and adaptabilityGreater flexibility and adaptability Reduced riskReduced risk Stronger reputation Stronger reputation

12-6

EXHIBIT 12.3 Stakeholder Impact Analysis

12-7

Corporate Social Responsibility

• Milton Friedman circa 1962:Milton Friedman circa 1962: “ “the only social responsibility of business is … to the only social responsibility of business is … to

increase profitsincrease profits so long as it stays within the rules of so long as it stays within the rules of the game”the game”

• Today’s businesses tend to do more than just Today’s businesses tend to do more than just make profitsmake profits But does CSR help build competitive advantage? But does CSR help build competitive advantage?

The answer might depend on The answer might depend on wherewhere you do business… you do business… UAE, Japan, and India are UAE, Japan, and India are lessless interested in CSR interested in CSR

China, Brazil, and Germany are China, Brazil, and Germany are moremore interested in CSR interested in CSR

12-8

Corporate Governance• Corporate governance

Mechanisms to direct and control a firm Ensure the pursuit of strategic goal Address the principal–agent problem

• When corporate governance failed Accounting scandal Global financial crisis Bernard Madoff Ponzi scheme

• Information asymmetry Insider information ImClone and Galleon Group

12-9

1–10

STRATEGY HIGHLIGHT 12.1STRATEGY HIGHLIGHT 12.1 GE’s Board of Directors

• Diversity of GE’s board of directors (17 members)Diversity of GE’s board of directors (17 members)

Business, academia, politiciansBusiness, academia, politicians

4 women, 2 ethnic minorities4 women, 2 ethnic minorities

15 board members are independent outside directors15 board members are independent outside directors

Less likely to fall victim to Less likely to fall victim to groupthinkgroupthink

Organized into committees to functionOrganized into committees to function

• The separation of CEO/Board Chair dualityThe separation of CEO/Board Chair duality

Due to recent global financial crisisDue to recent global financial crisis

12-10

Corporate Governance Around the World

• Difference in national institutions and culture• “Free” market economies?

State-directed capitalism (less freedom). Ex: China Free market capitalism (more freedom). Ex: U.S.

• Germany Stakeholder capitalism Kurzarbeit

• France Stakeholder capitalism

• China State-owned enterprises

12-11

Strategy and Business Ethics

• Business ethicsBusiness ethics

Agreed-upon code of conduct in businessAgreed-upon code of conduct in business

• Legal conduct vs. Ethical conductLegal conduct vs. Ethical conduct

Legal, but may not be ethicalLegal, but may not be ethical

Mortgage brokers selling “option ARMs” Mortgage brokers selling “option ARMs”

Ethical, but may not be legalEthical, but may not be legal

Pharmaceutical firms discussing pricing to increase affordabilityPharmaceutical firms discussing pricing to increase affordability

• When facing an ethical dilemmaWhen facing an ethical dilemma Whether the actions fall in acceptable norms of professional Whether the actions fall in acceptable norms of professional

behavior?behavior?

Do you feel comfortable explaining and defending the decision in Do you feel comfortable explaining and defending the decision in

public?public?12-12

Strategic Leadership

• Strategic leadership Behaviors and styles of executives that influence

others

• Managerial discretion Steve Jobs at Apple Michael Dell at Dell Mark Zuckerberg at Facebook Bill Gates at Microsoft

12-13

EXHIBIT 12.8 Strategic Leaders: The Level 5 Pyramid

12-14

CHAPTERCASE 12/ Consider This…

• Larry Ellison (CEO at Oracle) hired Mark Hurd Larry Ellison (CEO at Oracle) hired Mark Hurd Oracle stock price Oracle stock price roserose by $10 billion! by $10 billion! Remember HP stock went Remember HP stock went downdown $10 billion… $10 billion…

• HP hired Leo Apotheker as CEO in Nov. 2010HP hired Leo Apotheker as CEO in Nov. 2010 Came from German firm SAP (enterprise software)Came from German firm SAP (enterprise software) Announced exit from (consumer) hardware market (PCs, Announced exit from (consumer) hardware market (PCs,

tablets), which is about 40% of HP's total revenues of roughly tablets), which is about 40% of HP's total revenues of roughly $100bn$100bn

Stock price dropped ~40%Stock price dropped ~40%

• HP fired Mr. Apotheker 11 months later! (with more than HP fired Mr. Apotheker 11 months later! (with more than $20 million+ golden parachute)$20 million+ golden parachute)

• In September 2011, Meg Whitman was appointed HP In September 2011, Meg Whitman was appointed HP CEOCEO

12-15