MB0052 Slides Unit 04

7/24/2019 MB0052 Slides Unit 04

1/13

C o n f i d e n t i a l

1

Program : MBA

Semester : II

Subject Code : MB0052

Subject Name : Strategic Management

and Business Policy

Unit Number : 4

Unit Title : Corporate Strategy and

Corporate Governance

Lecture Number : 1

Lecture Title : Corporate Strategy and


HOME NEXT

7/24/2019 MB0052 Slides Unit 04

2/13


Corporate Strategy andCorporate Governance

Objectives :

Explain the conceptual difference between corporate strategy and corporate

governance.

Discuss the growing importance of corporate governance.

Analyse the complementarities and conflicts between corporate strategy

and corporate governance.

In this unit, we will discuss the definitional aspects of corporate

strategy and corporate governance, growing importance of corporate

governance, stakeholders expectations, major issues between corporate

strategy and corporate governance, code of corporate governance,

empowerment of the board, role of professional directors, code of best

practice, strategic audit, boardCEO relationship, the managed corporation

and the governed corporation.

2

HOME NEXTPREVIOUS

Unit-4 Corporate Strategy and CorporateGovernance

7/24/2019 MB0052 Slides Unit 04

3/13


Lecture Outline

Introduction

Definitions: Corporate Strategy and Corp.Governance

Growing Importance of Corporate Governance

Corporate Strategy and Corporate Governance: C & C

Code of Best Practice

Strategic Audit

Board and CEO Relationship

Summary

Check Your Learning

Activity

3

HOME NEXTPREVIOUS

Unit-4 Corporate Strategy and Corporate Governance

7/24/2019 MB0052 Slides Unit 04

4/13


Introduction

Corporate strategy and corporate governance are two important

tools that help in the functioning of any company. They are not

the same, but generally complementary to each other.

Corporate governance is more operational, and no strategy can

succeed without operational support. Similarly, no governance can

achieve organizational objectives without a strategy or strategic

management system.

There is, however, a basic difference between the roles of the

board and the CEO and other managers of a company. The board

represents the interest of the shareholders who are the owners of

a company whereas the CEO and other managers represent the

management of the company.4

HOME NEXTPREVIOUS


7/24/2019 MB0052 Slides Unit 04

5/13


Definitions: Corporate Strategy and


Corporate governance involves regulatory and market mechanisms, and the

roles and relationships between a companys management, its board, its

shareholders and other stakeholders, and the goals for which the

corporation is governed.

Corporate governance ensures that long-term strategic objectives and plans

are established and that the proper management structure (organization,

systems and people) is in place to achieve those objectives while at the

same time, making sure that the structure functions to maintain the

corporates integrity, reputation and responsibility to its various

constituencies. 5

HOME NEXTPREVIOUS


Corporate governance is equated with corporatemanagement, which is not correct. Corporate

management is a part of or can be a useful

partner in corporate governance.

7/24/2019 MB0052 Slides Unit 04

6/13


Growing Importance of CorporateGovernance

It involves the full set of relationships between a companys management,

its board, its shareholders and its other stakeholders, such as its employees

and the community in which it is located. The quality of governance is

directly linked to the policy framework.

A strong demand for evolving a good corporate governance system is

emerging from the corporate sector itself.

Over the years, organizations have witnessed frequent violations of

organizational and governmental regulations, increase in unethical and

corrupt corporate practices and also scams.

6

HOME NEXTPREVIOUS


Shareholders are also becoming more demanding and

more conscious about their rights and privileges. They

expect efficient management, good governance, high

profit and large dividends.

7/24/2019 MB0052 Slides Unit 04

7/13C o n f i d e n t i a l

Corporate Strategy and CorporateGovernance: Complementarity andConflict

Corporate Strategy and Corporate Governance both are important.

Because only good governance and effective strategies can lead to

simultaneous achievement of organizational objectives like profitability,

growth and diversification and stakeholders expectations like high return

on their capital, transparency, employee motivation and customer

satisfaction.

Some typical conflict situations between strategy and governance.

7

HOME NEXTPREVIOUS


7/24/2019 MB0052 Slides Unit 04


Code of Best Practice

For a company, the code of best governance practice and best strategic

practice may actually complement each other for improving the overall

organizational performance. Three major constituents of the code

prescribed by the Cadbury Committee are:

Separate positions of chairman and CEO: In every company, there should

be a separate CEO and chairman of the board of directors.

Role clarity of chairman and CEO: Chairmans function should be to manage

the affairs of the board, including hiring and firing of the CEO of the

company.

8

HOME NEXTPREVIOUS


Professional inputs from independent directors: Everycompany should have non-executive directors, who

bring to the board their professional experience and

expertise.

7/24/2019 MB0052 Slides Unit 04


Strategic Audit

Donaldson (1995) has suggested strategic audit as a new tool for

systematic review of strategy by board members without directly involving

themselves with management of companies. Accumulate forces

Strategic audit is a formal strategic-review process, which imposes its own

discipline on both the board and the management very much like the

financial audit process.

Donaldson has specified five elements of strategic audit. These are:

Establishing criteria for performance

Database design and maintenance

Strategic audit committee

Relationship with the CEO

Alert to duty (by board members)

9

HOME NEXTPREVIOUS


7/24/2019 MB0052 Slides Unit 04


Board and CEO Relationship

10


The delegation of authority and responsibility from the board to

the CEO should be expressed in the job description of the CEO.

There are three observations on the boards role and the board

CEO relationship. These are:

The Board is responsible for the successful perpetuation of the corporation.

That responsibility cannot be relegated to management9John G Surale,

non-executive chairman, General Motors (GM).

PREVIOUS HOME NEXT

The success of the non-executive chairman

arrangement is heavily dependent on the

chairmans relationship with the CEO.

7/24/2019 MB0052 Slides Unit 04


Summary

Corporate governance has more to do with ownership of a

company; corporate strategy has more to do with management of

a company. They are generally complementary to each other, but,

there can be conflicts between the two.

In companies, simultaneous focus on good corporate governance

and effective corporate strategies is important, as only this can

lead to simultaneous achievement of organizational objectives like

profitability, growth and diversification and stakeholder

expectations like high return on their capital, transparency,employee motivation and customer satisfaction.

11

HOME NEXTPREVIOUS


7/24/2019 MB0052 Slides Unit 04


Check Your Learning

1. Define Corporate governance.

Ans: The framework of rules and practices by which a board of directors

ensures accountability, fairness, and transparency in a company's

relationship with its all stakeholders.

2. Define Corporate strategy

Ans: The overall scope and direction of a corporation and the way in which itsvarious business operations work together achieve particular goals.

3. Mention Donaldsonsfive elements of strategic audit.

Ans: Donaldson has specified five elements of strategic audit. These are:

Establishing criteria for performance

Database design and maintenance

Strategic audit committee

Relationship with the CEO

Alert to duty (by board members

12

HOME NEXTPREVIOUS


7/24/2019 MB0052 Slides Unit 04


Activity

Choose a company that you are familiar with and design on

double (CEO and chairman) or single (either CEO or chairman)

role of the chief executive. Choose any other company and

compare with Nestle.

13

HOMEPREVIOUS


MB0052 Slides Unit 04

Documents

Transcript of MB0052 Slides Unit 04