Factors That Determine Strategic Choice: Strategic analysis and choice are two important components of the implementation

stage of the strategic management plan. These two components are crucial links in the strategic management implementation procedure. Strategic analysis involves a number of steps. About Strategic Analysis and Choice Strategic implementation is the penultimate stage of strategic management and strategic analysis and choice are two significant constituents of that process. The strategy of a company refers to its all-inclusive plan or program for the purpose of accomplishing its aims and targets in the long run. Different types of strategies include business unit strategy, corporate strategy, operational strategy and others. Strategic analysis implies the examination of the present condition of a business and consequently developing an appropriate business strategy. Strategic analysis carries higher importance with regards to conglomerates that offer a wide range of diversified products. Strategic choice refers to the selection of the appropriate business strategy. At the time of performing strategic analysis and arriving at strategic choices, long term goals are fixed and different types of strategies are chosen that are most appropriate for the mission of the company and the variable conditions. Strategic analysis and choice of strategies are done with the help of a number of techniques. If the appropriate strategy is chosen, a company would become more efficient to establish sustainability in competitive advantage and maximize firm valuation. Factors Taken into Consideration for Strategic Analysis and Choice Key Internal Factors
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Marketing Management Operations/Production Accounting/Finance Computer Information Systems Research and Development

Key External Factors

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Political/Governmental/Legal Economy Technological Social/Demographic/Cultural/Environmental Competitive

Techniques Used in Strategic Analysis The following devices or techniques are used in the procedure of strategic analysis:
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Five Forces Analysis PEST Analysis (Political, Economic, Social and Technological Analysis) Market segmentation Scenario planning Competitor analysis Directional policy matrix SWOT Analysis (Strength, Weaknesses, Opportunities, and Threats Analysis) Critical Success Factor Analysis

Characteristics of Strategic Analysis and Choice Following are the features of strategic analysis and choice:
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Establishment of long term goals Producing strategy options Choosing strategies to act on Selecting the best option and accomplishing mission and goals

Strategic Choice Approach The Strategic Choice Approach is used in face to face workshops of a decision making group. Strategic choice is viewed as an ongoing process in which the planned management of uncertainty plays a crucial role. The Strategic Choice Approach: 1. Focuses on decisions to be made in a particular planning situation, whatever their timescale and whatever their substance. 2. Highlights the subtle judgments involved in agreeing how to handle the uncertainties which surround the decision to be addressed - whether these be technical, political or procedural. 3. The approach is an incremental one, rather than one which looks towards an end product of a comprehensive strategy at some future point in time. This principle is expressed through a framework known as a `commitment package'. In this, an explicit balance is agreed between decisions to be made now and those to be left open until specified time horizons in the future. 4. The approach is interactive, in the sense that it is designed not for use by experts in a backroom setting, but as a framework for communication and collaboration between people with different backgrounds and skills. The Essential Framework. There are three key elements of analysis which are used in structuring problems and working towards decisions

by making them successful. A manager is someone who gets results through other people. Results? Of course. however unanswered questions are far less dangerous than unquestioned answers.y y y The Decision Area The Comparison Area The Uncertainty Area . To this I would add. The best definition of a manager I know is based on a Harvard Business School text.divides into three broad categories o Uncertainties to do with the working environment Uncertainties to do with guiding values Uncertainties to do with related choices o o There are four modes of strategic choice y y y y Shaping Designing Comparing Choosing A Managerial Philosophy Unasked questions can lead to dangerous assumptions. why else would you employ him/her? .

Manage processes not people let people manage themselves while you manage the interfaces between them where interests are shared and connections are needed. Feel free to adapt the . elegantly and spontaneously to support objectives. eliminating silos by linking functions horizontally. Based on this definition.Through other people? Yes. that should flow horizontally. and by streamlining the work. Encourage self management by providing each person with a mandate a license to act/contribute and a set of agreed critical measurement indices for ongoing reporting. Define the value-added opportunities create a service chain from the individual contributions of all involved that will deliver client satisfaction through synergy. showing both organizational and personal achievements in the form of contributions and learnings. This could serve as a template for any individual in a managerial role. here s a simple nine-point philosophy that might fit for some. for it is this single factor that separates the good manager from the others. because people are the stock-in-trade for the manager. By making them successful? Certainly. and people are encouraged to learn and grow as an integral part of their responsibilities. Keep a dynamic balance with equal emphasis on planning. Facilitate communication the life blood of the organization and fuel for processes. Develop strategy driven by objectives where focus is on outcomes not methods. Manage change continuously since all processes must adapt and evolve to meet the demands of a changing market. Monitor and measure progress through use of a visible scoreboard. but start with the perceptions/beliefs of individuals. Create a success environment where recognition and rewards are immediate. performance and pulse-point awareness that allows all to see the big picture and relate to a shared future.

sequence. 2. to produce satisfaction Define outcomes/end results. A sound management philosophy or strategy will become a source of both inspiration and comfort to you. Shift from managing people to managing a process Let individuals own the responsibility for managing themselves Allow them to worry about the knowledge/skills/attitudes relating to their function Work on the series of interfaces or value added points manage the white space Focus on the delivery of client satisfaction as a collective responsibility Manage the connections / the hand-off points Enable. facilitate. coach. involvement and commitment in operations Broaden activity bases. or serve some one who is . Define the process in value-added and real contribution terms Start with the client view your internal boss as your main supplier Build a service chain that delivers client satisfaction Serve the client. words and emphases to suit yourself. waste and inefficiencies through collaborative effort Encourage cooperation/collaboration eliminate boundaries Strive for simplicity/elegance. accountabilities and contributions Make information and resources easily available 3. which is where the fuller version can assist you. driven by Objectives. especially when you are up to your keester in alligators and asking yourself. Develop and implement strategy. encourage breed success. not methods Eliminate non-value adding work. What am I supposed to be doing about this? PERSONAL MANAGEMENT STRATEGY 1.

habits and. all processes are eroded and will break down over time People can fix themselves given the right environment. 5. not the people. accurate. and get staff to assist you Manage change. a new mindset.Fix the processes. individuals need consistent support / encouragement from you. skills. Focus on the Environment The best investment is to focus on system changes rather than on changing individuals In a rapidly changing market. consistent and accessible Organizational strategic intent. response and effectiveness through objectives and goals 4. most of all. gets fixed so design the new processes with this in mind. hard/soft) (CMIs) Measurement information must flow. and be highly visible to all who could be affected Good measurements are timely. Manage the Changes Change is emotionally based and uncomfortable for most so it is resisted Change requires new knowledge. Measurement is critical What gets measured. . focused. processes need attention Inadequate/ broken systems will impede individual performance few can surmount them. It is necessary to address significant adjustments to the beliefs and behaviors of others Individuals have to adjust in the node in order to accommodate a new process The necessary leverages are in measurements and goals as well as in functions To achieve change. Individual measures : locus of control (Vertical) All processes require built-in monitoring devices that include client inputs (Horizontal) 6. Measurement has to happen at the interface (internal/external.

a license to contribute (Scope. or essential decisions won t be made Spontaneous teamwork is necessary to make the right things happen when they should Reduce communication paths/ relay points to the minimum. 8. so manage the white space between them Assist those performing the node functions to manage their own responsibilities A Mandate . Time lines) Create / insist upon self-sufficient performance in the node. 7. you focus on connections Allow room to move. Deliverables. Encourage Self-Management There s little future in trying to manage people. thus reducing errors/delays Continuously review communications at every white space. Resources/Restraints. learn and even to fail safely they ll thank you for it Reward both outcomes and constructive effort both pay-out and investment. Communication is the Life Blood Information must flow to support the new processes.What most affects the client is lateral or cross-functional effectiveness/efficiencies Those individuals who relate to a role in the process will manage themselves successfully. it won t guarantee success . experiment. Communication lubricates change.it will guarantee . especially those close to clients Invest your coaching / training efforts in communication competencies they re lifeblood.

9. the two propositions go hand-in-hand. which tells managers to concentrate on the significant few rather than the insignificant many. stupid'. The virtue of devoting most of your efforts to the 20% of the customers who account for 80% of sales. You don't have to be super-intelligent to understand the rationale . Processes require Balance Planning Performance Pulse-awareness .the three vital components for your attention Planning (front-end effort) focuses the right things and makes your strategies coherent Performance shifts focus to efficiency doing things in the right way for optimal results Pulse awareness (back-end effort) ensures that your efforts are valuable to the client Everyone should be involved in all three aspects (see the big picture) so to contribute Those who are focused on contributing to common objectives are a joy to manage. is that the concentration simplifies as well as strengthens. The Clinton dictum is akin to the stipulation of Pareto's Law. taking out any superfluous processes or stages has the same impact as cutting down the attention paid to superfluous products. In Total Quality Management and other programmes for business improvment. Costs come down. or the 20% of components which create 80% of costs. Management philosophy: Don't be stupid. Even very bright managers will manage more effectively as a result. The underlying thought is either that. famous acronym KISS adds a further word to the above title: Stupid. Hence the instruction which worked such electoral wonders for President Clinton: 'It's the economy. the more likely they are to make a mess of their management: or that it's stupid not to concentrate your efforts on the main and all-important theme. the greater the complexity. and margins go up.failure. because managers are none too bright. In fact. keep your management philosophy simple The familiar. That supports another basic concept: that simplifying in most cases generates better performance.

In working with SMEs.and tomorrow. visiting small to medium firms (SMEs) for a BBC TV series. you ignore the lessons . Stupidity comes into the picture if. Paul Spenley. though. disengagement and distraction spread throughout the system.like actually visiting the plants and talking to the people. COSTS. depending on the 'focus' and the 'energy' they bring to their tasks. Those last three words were chosen by Sir John Harvey-Jones for the title of a book based on his experiences at the grandly named Imperial Chemical Industries. The willing victims turned out to be as purposeless. But Bruch and Ghoshal's research has a painful message. all too often. A woman who worked for the company in those heady days remembers the remarkable impact that this one straightforward activist had right through the company.'making it happen'. This is the manager who throws himself into Pareto's 80% of time-wasters. At the time. my colleague in the Leading Change Partnership. never comes. disengaged and distracted as the worst corpocracies. But ICI also enshrined the corpocratic management which blunts purpose and lets procrastination. procrastinating. REVENUES. who puts off until tomorrow what should be done today . ICI is now only a third of the size of BASF. .the corpocracy again took charge. The high-energy. That leaves a tiny tenth of the managerial workforce whose high energy and focus make them 'purposeful' people. having understood. changed the climate of corpocracy by simple means . The manager with high focus and low energy is described as 'disengaged': lack of commitment means loss of effectiveness. EMOTIONAL STUPIDITY The stupidity is emotional rather than intellectual. Heike Bruch and SumantraGhoshal explain this admirably in a Harvard Business Review article (February 2002) which places managers in four compartments. who are committed activists . and I have found that keeping it simple holds the key to success. These three ineffective types are in an overwhelming majority: they account for 90% of all the managers studied. QUALITY After his retirement. But when he left .as do all too many managers. ICI was as grand as its name . low-focus type is 'distracted'. promoted to the chair when ICI fell into traumatic losses. The manager with low focus and low energy is a 'procrastinator'.Britain's industrial colossus and a company large and able enough to joust with the Big Three of German chemicals and America's Du Pont.after the five years that took him to retirement age . having spun off the jewel in its crown (the pharmaceutical business) and found no replacement strategy.of the results. Harvey-Jones made a big hit as The Troubleshooter. Harvey-Jones.

do you want to? YES/NO 5. Do you know why your customers choose to buy from you. would you like to? YES/NO 10. Do you plan to introduce new or radically improved goods/services over the next year? YES/NO If not. do you want to? YES/NO THE DDP FACTOR The sad fact is that. Once you realise this sorry truth. Do you know how many of your customers regard your goods and/or services as good or excellent? YES/NO If not. Do you have plans to enter new markets.In the final analysis. disengagement and procrastination (DDP) get in the way . The RCQ formula is essentially simple. Do you have a business plan to raise revenues. In other words. . You become purposeful by having a purpose. COSTS. If not. do you concentrate on making them lower? YES/NO 8. The purposes of any manager must surely include raising revenues. do you want one? YES/NO 2. reducing costs per unit of output. but fail because. and much else will fall neatly into place. Do you know what percentage of the customers you had a year ago still buy from you today? YES/NO If not.possibly all three at once. would you like to? YES/NO 9. Do you know how your costs compare with best practice by competitors and others? YES/NO If not. management comes down to three simple words: REVENUES. Try these Ten Key Questions yourself: 1. the remedy is within easy grasp. rather than from anybody else? YES/NO. static or falling? YES/NO If yes. reduce costs and improve quality? YES/NO If not. and notably improving the quality of internal processes and external perceptions. it's simple stuff. would you like to? YES/NO 4. Do you know which 20% of activities account for 80% of your direct costs? YES/NO If yes. QUALITY. Do you know whether your profit margins are rising. either in new regions or new product lines? YES/NO If not. You are not locked into disengagement. while it's very easy to get ten positive answers to the first halves of the questions. would you like to? YES/NO 7. would you like to? YES/NO 3. distraction and procrastination. do you have plans to increase them? YES/NO 6. but it does involve asking some penetrating questions and getting answers which imply and demand action. distraction. however. Do you know which of your critical processes could be speeded up and made more cost-effective? YES/NO If not. Get these three right. Again. time and again. managers in the main want to be purposeful. you rarely get ten negatives to the second halves.

What are they like? 3.the way the business obtains income and incurs costs . who you look after with the tenderest loving care. FOUR KEY ELEMENTS As he says.like 'consultant'.They take into account either deliberately or subconsciously other. The consequences of this simple analysis are equally simple. You concentrate maximum effort on trying to convert the Promiscuous Pragmatists into Visionary Philes. that is) does its business differ from that of other consultancies? How is that difference reflected in the value offered to clients? Does the business model . and you don't waste time on the Conservative Phobes. The second question. the 'customers rarely buy "the product" alone. What business does the client think he's in? The first answer might be something apparently straightforward . Pragmatists ('I'll see whether it works for other firms') and Conservatives ('it will never work/sell'). all of which go into making a buying decision'. and you can move purposefully to the next stage: what Spenley calls 'Winning Market Acceptance'. There's a parallel division between Philes (who love you and your products and/or services: Phobes (who hate you and all your works): and Promiscuous buyers. the questioners found that none of the bosses could explain how his own organisation differed from the competition. What do they need? 4.. Who are the customers? 2. You divide the people or firms targeted into three groups: Visionaries (the entrepreneurs and innovators). for instance. who jump into bed with any supplier who catches their fancy. How do we persuade them? The simplicity is deceptive. The process that he recommends has four key elements. expressed in four very simple-sounding questions: 1. It's an overall anti-DDP strategy of which Pareto would have approved. but only because most managers have not considered these basic issues in any kind of depth.derive from the definition? Question Two applies: why should the customer buy from you rather than anybody else? As previously reported in Thinking Managers. . is answered by 'value mapping'.That's the starting point for the Leading Change Partnership's work. when the Royal Society of Arts in London interviewed chief executives for its Tomorrow's Company survey. Judging by experience in the field. more intangible factors. Get a convincing answer to the above questions. it doesn't take very long to emerge from a state in which ignorance is not bliss.. But what kind of consultant? In what important way (important to the customers.

Five bases of power Social psychologists John R. The CEO called in 20 senior managers. however. Again. French and Bertram Raven. then he would accept bankruptcy. unless you can also fully identify your delegates and other colleagues with your purpose. developed a schema of sources of power by which to analyze how power plays work (or fail to work) in a specific relationship. As the authors observe. If they determined that it could not be saved'. What am I doing to achieve that purpose that can only be done by me? 3. and turned Lufthansa round from loss to profit. Once initial shock had been absorbed. after deciding on your purpose. dillydallying and remoteness that do neither you nor the organisation any good. in a now-classic study (1959. P. The basic time management techniques offer an excellent solution. With this knowledge. What am I doing that need not be done at all? CHALLENGE AND CHOICE You obviously delegate (3). What is my purpose? 2. What am I doing that can be done by others? 4. admitted that he had no solution. the managers quickly formed ambitious purposes. That will accomplish less than you need. adopted 130 proposals for radical change (of which 70% were enacted). and gave them three days 'to develop ways to save Lufthansa. they feel emboldened'. Lufthansa is their case in point. scrap (4) and concentrate on (2). You couldn't ask for two simpler or more powerful truths. there are four simple questions. adapted from a wellknown Peter Drucker catechism: 1. . is to adopt effective habits that will counter the time-wasting. you can plan your activities so that the balance shifts decisively towards the purposes to which you are now committed.But what about yourself and your own. The airline was heading for a financial crash in 1992. managers feel needed. Start by keeping a time-log and finding out exactly how little of your days and weeks are spent on purposeful activities. Asked for their choices. Bruch and Ghoshalemphasise the power of 'challenge and choice' in achieving this outcome. personal strategy? The first step towards the Purposeful target. too. 'Presented with a challenge for which their contributions are essential. Keeping it simple isn't for the stupid: it's for the highly intelligent.

to effect the desired outcome. including a reduction in A's own power. this type of power is . Nationalism and patriotism count towards an intangible sort of referent power. although the individual may have little real credibility outside the sports arena. and gains satisfaction from being an accepted follower. Here the person under power desires to identify with these personal qualities. Advertisers have long used the referent power of sports figures for products endorsements. power is fundamentally relative it depends on the specific understandings A and B each apply to their relationship. It is usually accompanied by various attributes of power such as uniforms. Legitimate power is formal authority delegated to the holder of the position. but the most effective. This is the most obvious and also the most important kind of power. Positional power Also called "legitimate power". Conceived this way. French and Raven argue that there are five significant categories of such qualities. Unlike the others.6). it is the power of an individual because of the relative position and duties of the holder of the position within an organization. power must be distinguished from influence in the following way: power is that state of affairs which holds in a given relationship. who identifies 14. A person may be admired because of specific personal trait. offices etc. while not excluding other minor categories. For example. The charismatic appeal of the sports star supposedly leads to an acceptance of the endorsement. and this admiration creates the opportunity for interpersonal influence. soldiers fight in wars to defend the honor of the country. Handy (1976). while others have suggested a simpler model for practical purposes for example. Drawing on the wrong power base can have unintended effects. This is the second least obvious power. Further bases have since been adduced in particular by Morgan (1986: ch.who recommends three. A-B. and. Referent power Referent power is the power or ability of individuals to attract others and build loyalty. A must draw on the 'base' or combination of bases of power appropriate to the relationship. Expert power Expert power is an individual's power deriving from the skills or expertise of the person and the organization's needs for those skills and expertise. such that a given influence attempt by A over B makes A's desired change in B more likely. interestingly. It's based on the charisma and interpersonal skills of the power holder.According to French and Raven. requires B's recognition of a quality in A which would motivate B to change in the way A intends. for example.

shareholders. Coercive power tends to be the most obvious but least effective form of power as it builds resentment and resistance from the people who experience it. promotions or increases in pay or responsibility. on a voluntary basis. Reward power Reward power depends on the ability of the power wielder to confer valued material rewards. government). time off. investors. . customers.usually highly specific and limited to the particular area in which the expert is trained and qualified. The desire for valued rewards or the fear of having them withheld that ensures the obedience of those under power. Corporate Social Responsibility (CSR Policy) Corporate Social Responsibility is a concept whereby companies integrate social and environmental concerns into their business operations and in their interaction with their stakeholders (employees. This power is obvious but also ineffective if abused. it refers to the degree to which the individual can give others a reward of some kind such as benefits. local communities. It includes the ability to demote or to withhold other rewards. People who abuse reward power can become pushy or became reprimanded for being too forthcoming or 'moving things too quickly'. Coercive power Coercive power is the application of negative influences. desired gifts.

In response to these issues we have incorporated CSR into IndustryPlayer. . but also based on the immediate and long-term social and environmental consequences of their activities. CSR is rapidly becoming a major part of all business management courses and a key global issue. products and services Managing the risks a company faces How does IndustryPlayer integrate CSR into it's Simulation? y Every Product has it s CSR rating based on its Carbon Footprint and other ecological factors. Contributing to and supporting CSR does not have to be costly or time consuming and more and more businesses active in their local communities are seeing significant benefits from their involvement: y y y y y y y Reduced costs Increased business leads Increased reputation Increased staff morale and skills development Improved relationships with the local community. every contribution is important and provides a number of benefits to both the community and business. Governments and international governmental organisations are increasingly encouraging CSR and forming CSR partnerships.Sustainability CSR is closely linked with the principles of Sustainability. which argues that enterprises should make decisions based not only on financial factors such as profits or dividends. A Global Issue CSR has become prominent in the language and strategy of business and by the growth of dedicated CSR organisations globally. How companies benefit from the CSR concept No matter the size of an organisation or the level of its involvement with CSR. partners and clients Innovation in processes.

and global levels. For each game holding a CSR rating is calculated and shown. and controlled. national. creditors. In recent years. or laws by which businesses are operated. To that end. and policy makers. An integral part of an effective corporate governance regime includes provisions for civil or criminal prosecution of individuals who conduct unethical or illegal acts in the name of the enterprise.y y y (An emissions trade calculator shows the impact of the underlying CO2 Emissions on the holding's profit) The handling of wages and product quality each contributes 1/3 to the holding's CSR rating. clients. corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power and.   Interests of other stakeholders:Organizations should recognize that they have legal. and government regulations. alleged criminal activity by corporate officers. and market driven obligations to non-shareholder stakeholders. investors. contractual. The term can refer to internal factors defined by the officers. customers. social. works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards and best practices as well as to formal laws. The CSR driven tax system gives companies a tax discount of up to 50% based on their CSR rating. suppliers. as well as to external forces such as consumer groups. local communities. . They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings. in some cases. processes. organizations have been formed at the regional. corporate governance Corporate governance is a term that refers broadly to the rules. including employees. A well-defined and enforced corporate governance provides a structure that. at least in theory. stockholders or constitution of a corporation. regulated. Principles of corporate governance Rights and equitable treatment of shareholders:Organizations should respect the rights of shareholders and help shareholders to exercise those rights.

factual information. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. audit committee. they may not always result in more effective corporate governance and may not increase performance. fire and compensate top management. It could be argued. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear. Whilst non-executive directors are thought to be more independent. Regular board meetings allow potential problems to be identified. Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance. and compliance with laws and regulations. operating efficiency. It also needs adequate size and appropriate levels of independence and commitment to fulfill its responsibilities and duties. with its legal authority to hire. therefore. safeguards invested capital. Internal corporate governance controls Internal corporate governance controls monitor activities and then take corrective action to accomplish organisational goals.  Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability. that executive directors look beyond the financial criteria. Internal control procedures and internal auditors: Internal control procedures are policies implemented by an entity's board of directors. Different board structures are optimal for different firms. Examples include:  Monitoring by the board of directors: The board of directors.  Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate officers and board members. ex ante. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. discussed and avoided. the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes. management. Internal auditors are personnel within an organization who test the design and implementation of the entity's internal control procedures and the reliability of its financial reporting  . and other personnel to provide reasonable assurance of the entity achieving its objectives related to reliable financial reporting. Moreover.

 In publicly-traded U. This application of separation of power is further developed in companies where separate divisions check and balance each other's actions. it is relatively rare elsewhere. boards of directors are largely chosen by the President/CEO and the President/CEO often takes the Chair of the Board position for his/herself (which makes it much more difficult for the institutional owners to "fire" him/her). External corporate governance controls External corporate governance controls encompass the controls external stakeholders exercise over the organization.S. require that the President be a different person from the Treasurer. Such incentive schemes. another group review and can veto the changes. Examples include:        competition debt covenants demand for and assessment of performance information (especially financial statements) government regulations managerial labour market media pressure takeovers Systemic problems of corporate governance Demand for information: In order to influence the directors. Balance of power: The simplest balance of power is very common. It may be in the form of cash or non-cash payments such as shares and share options.K. While this practice is common in the U. and a third group check that the interests of people (customers. and can elicit myopic behavior.  . shareholders. superannuation or other benefits. however. are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behavior. The practice of the CEO also being the Chair of the Board is known as "duality".S. One group may propose company-wide administrative changes. corporations. employees) outside the three groups are being met. the shareholders must combine with others to form a voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting. It is illegal in the U. Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance..

The Chief Executive Officer andChief Financial Officer are crucial participants and boards usually have a high degree of reliance on them for the integrity and supply ofaccounting information. Monitoring costs: A barrier to shareholders using good information is the cost of processing it. Changes enacted in the United States in the form of theSarbanes-Oxley Act (following numerous corporate scandals. This may result in a conflict of interest which places the integrity of financial reports in doubt due to client pressure to appease management. especially to a small shareholder. GAAP allow managers some choice in determining the methods of measurement and criteria for recognition of various financial reporting elements. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. be corrected by the working of the external auditing process. They oversee the internal accounting systems. ideally. which suggests that the small shareholder will free ride on the judgments of larger professional investors. corporation financial reports must be audited by an independent external auditor who issues a report that accompanies the financial statements (see financial audit). to select and dismiss accounting firms contradicts the concept of an independent auditor. . more fundamentally. Similar provisions are in place under clause 49 of SEBI Act in India. This should.  Financial reporting and the independent auditor The board of directors has primary responsibility for the corporation's external financial reporting functions. Current accounting rules under International Accounting Standards and U. The traditional answer to this problem is the efficient market hypothesis (in finance. The potential exercise of this choice to improve apparent performance (see creative accounting and earnings management) increases the information risk for users. and are dependent on the corporation's accountants and internal auditors. To reduce these risk and to enhance the perceived integrity of financial reports. It is One area of concern is whether the auditing firm acts as both the independent auditor and management consultant to the firm they are auditing.S. culminating with the Enron scandal) prohibit accounting firms from providing both auditing and management consulting services. the efficient market hypothesis (EMH) asserts that financial markets are efficient). Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Financial reporting fraud. The power of the corporate client to initiate and terminate management consulting services and. including non-disclosure and deliberate falsification of values also contributes to users' information risk.

Federal Reserve Board economist Weisbenner) determined options may be employed in concert with stock buybacks in a manner contrary to shareholder interests. while other researchers found that the relationship between share ownership and firm performance was dependent on the level of ownership. Even before the negative influence on public opinion caused by the 2006 backdating scandal. and less interested in the welfare of their shareholders. rather than the short-term. performance of the company. corporate stock buybacks for U. and external and internal monitoring devices may be more effective for some than for others. Gumport issued in 2006.Executive Remuneration/Compensation Research on the relationship between firm performance and executive compensation does not identify consistent and significant relationships between executives' remuneration and firm performance. Some researchers have found that the largest CEO performance incentives came from ownership of the firm's shares. These authors argued that.S. in part.S. Some argue that firm performance is positively associated with share option plans and that these plans direct managers' energies and extend their decision horizons toward the long-term. A particularly forceful and long running argument concerned the interaction of executive options with corporate stock repurchase programs. Standard &Poors 500 companies surged to a $500 billion annual rate in late 2006 because of the impact of options. the backdating of option grants as documented by University of Iowa academic Erik Lie and reported by James Blander and Charles Forelle of the Wall Street Journal. Not all firms experience the same levels of agency conflict. The results suggest that increases in ownership above 20% cause management to become more entrenched. in particular. A compendium of academic works on the option/buyback issue is included in the study Scandal by author M. use of options faced various criticisms. and various alternative implementations of buybacks surfaced to challenge the dominance of "open market" cash buybacks as the preferred means of implementing a share repurchase plan. ETHICS? . Numerous authorities (including U. A combination of accounting changes and governance issues led options to become a less popular means of remuneration as 2006 progressed. However. that point of view came under substantial criticism circa in the wake of various security scandals including mutual fund timing episodes and.

as another attempt to pull the wool over the eyes of a gullible public. The term appears to be everywhere. values. The second is called. 1 This statement is not offered as a definition of business ethics. p. have two separate sets of issues. It could also be construed. Peter Madsen and Jay M. and with the inclusion of the term µideals¶. 3 Essentials Of Business Ethics. AIDS policies.. It is a sign that large organizations are thinking deeply about their standards of behaviour. 1 Murray. Pp. or to be free or to achieve material prosperity. as well as the causes of such behaviour and remedies available to eradicate them. Policies and practices.Shafritz. and is concerned with the illegal. equally without a doubt. these two sets of concerns comprise the field of business ethics. each more specific than the last. promotion decisions. 4 Ibid. Questions dealing with plant closing. The first is called managerial mischief. in turn. David. flexible. (1997). Eds. Constituency relations. Integrity. Kogan Page. freedom and material prosperity are equally. but rather to indicate the territory to which moral considerations are applied throughout this piece. Values 2 have become serious business. which are part of daily business decision making. or questionable practices of individual managers or organizations. Business ethics can be divided into two separate areas. p. A person may. with total integrity and with a view to the long term. 2. there are an ever-increasing number of major organizations around the world treating their corporate values very seriously indeed. But. wish to act with integrity. and dilemmas. and is concerned with the numerous ethical quandaries managers must wrestle with. and whistle blowing are representative concerns of the moral mazes managers must resolve. Taken together. which. cynically at that.3 Corporate ethics is a subject to be dealt with at three levels.To manage all our relationships. Continuing on this note.15. Both terms are extremely. about the principles underlying the ways in which they operate. Ethics In Organizations. 2 The terms µvalues¶ and µprinciples¶ are interchangeable. 3. 1-2. by this definition. the three can be construed as coterminous. unethical.21. both internal and external. . 4 1. it could also stem from the creative imagination of an advertising executive. being or achieving. (1990). for example. moral mazes in management. Meridian. problems. The corporate mission. µValues¶ are basically a sustained and deeply held preference for a mode of acting.

DRAFTING A MODEL CODE For the purpose of developing a truly useful code. In order of priority. product. The misappropriation of proprietary information for personal enrichment. or to help a competitor. Rights are treatments to which a person has a just claim. or community notions of dignity. Issues of honesty arise both in connection with corporate behaviour and with employees acting under the company s nominal supervision. is an abuse of trust. Corporate financial and executive assistance and efforts to generate public support for programs are believed to be an important element of the company s ethical profile. Rights. Misleading advertisements. they are: . The origin of the claim may be legislation. In all of these circumstances it is the employee who has an ethical responsibility. there are certain points that need to be considered. legal precedent. Honesty and the Exercise of corporate power. questionable financial and cash management procedures. Honesty in corporate ethics relates to integrity and truthfulness of a company s actions or policies. They seek to defend individual autonomy from encroachment by powerful institutions or the community at large. and waste or fraud in the performance of government contracts are examples of corporate behaviour that may be labeled dishonest. and the reciprocal obligation of employees to observe company and community standards in their business dealings. Societies have started accepting the concept of rights to varying degrees. apart from any established legal or human right.. Corporations recognize a responsibility to contribute to community enterprises that are consistent with their mission and with their commitments to the various constituencies they serve. gifts for foreign officials. Business organizations also acknowledge the ethical component of adhering to standards for workplace. but a company cannot escape the consequences of lack of proper supervision. Modern views of rights are generally protective in nature. and environmental safety. Conflicts of interest between employee activities outside the workplace and company interests can create situations of divided loyalty. Acceptance of inappropriate gifts can corrupt the purchasing process. Equity is generally used to mean basic fairness. Other honesty issues arise in connection with company s responsibility to supervise those who act in its name.The various issues in the areas of corporate ethics can be enumerated as Equity.

2.especially external Codes to which the organization and/or its individual people have subscribed. . and the reflective work done by business ethicists and others in this discipline manifest one or more of these three forms of analyses. An understanding of existing predecessor Codes and how they function.1. A development process that involves people who will be affected by the Code. 4. Business management must meet the above requirements if it needs to be at par with other professions. 3. There exist three main issues that can be employed in the analyses of ethical questions about business organizations and business executives. A structure of content which is practical and relevant to people in the organization.5 They can be listed as:    The member of the profession is required to have an acceptable standard of excellence. A clear purpose. 6. and also with obtaining feedback to help review and update it. He is required to follow a code of conduct developed within the profession and not imposed externally. The concept of business ethics is a multidimensional field evading a uni-dimensional definition. 5. There are three basic characteristics in most professions that go in to contributing to the formation of a sound Code. before his own personal interests. These approaches are among the most prevalent in the field of business ethics. It is a discipline that addressed numerous issues. A family of vital values or principles on which the Code will be based.6 They are: y y y Identifying practical issues and assigning responsibilities. One must know why it is being done. A two-way promotional process to help with communicating and implementing the Code. He is required to accept the fact that the interests of the society should come first. problems and dilemmas. Raising fundamental philosophical problems and offering suggested resolutions to them. doing so from a variety of perspectives and methodologies. Critiquing the ethics of various business practices.

This is not quite the same as having a code of conduct. Codes tend to specify behaviour in greater detail. a set of shared values can generate emotional commitment to a way of thinking and working. be borne in mind that in sph Personnel managers will inevitably have to face up to social changes. respect for life and property.books usually reflect closely the traditions and laws of the society in which they were initially formulated. The shibboleth the future is now could well be adopted for this last decade of the twentieth century as well as those in time to come. or principles. even new kinds of situations which have never been faced before. Codes can never cover every eventuality. many are choosing to articulate and publicize their corporate values. . Technological change has become so commonplace that no one shows surprise at space exploration. but a set of basic values can help people make decisions in areas which the code does not touch. Worldwide. telecommunications. Predictions of the future are becoming more difficult as the pace of change accelerates.As we approach the end of the twentieth century. Values can often cross national boundaries. fairness and loyalty are admired and sought after. The future issues for personnel management will become such that they will require extreme flexibility and imagination in formulating solutions on the part of personnel managers. It is sometimes argued that there can never be a consensus about values because they are so intensely personal and culture-specific. Managers need to be aware of the forces shaping society and to plan strategies to meet the challenges to come. and organizations face new problems. in their consultancy. values such as honesty. Experience shows otherwise. although there may be differences in detailed implementation and in the relative importance given to them. Whereas a rule-book is cold . the wonders of micro-electronics. are what underlie codes. Values. while rule. problemsolving and resourcing roles. The ethical change agenda for the new millenium could be7: j Re-inventing the organization. The aim is to enable people throughout their many departments and locations to make decisions based on common principles. j Experimenting with new approaches to top-level guidance and governance of the organization.

j Building a values-driven organization. j Incorporating the values into all decision processes at all levels. but as an opportunity for growth and human development. . The future must be viewed not as a threat. in all areas and aspects of the organization.

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