CORPORATE GOVERNANCE

AND
SOCIAL RESPONSIBILITY
2.1. CORPORATE GOVERNACE:
ROLE OF BOARED OF DIRECTORS
Corporation:
A mechanism established to allow different parties to
contribute capital, expertise and labor for their
mutual benefit.

N.B. Corporation is governed by the board of

directors that oversees top management with the
concurrence of the shareholders.
CORPORATE GOVERNACE: ROLE OF
BOARED OF DIRECTORS Cont..
Corporate Governance:
The relationship among the board of directors, top
management and shareholders in determining the direction
and performance of the corporation.
Role of Board of Directors
Responsibilities of the Board of Directors:
Sets corporate strategy, overall direction, mission, or
vision
 Hires and fires the CEO and top management
 Controls, monitors, or supervises top management
 Reviews and approves the use of resources
 Cares for shareholders’ interests
Role of Board of Directors Cont..
Role of the Board in Strategic Management
 3 basic tasks
 Monitor: developments inside and outside the
corporation(any board)
 Evaluate and Influence: management’s
proposals, decisions and actions(Active boards)
 Initiate and Determine: the corporation’s
mission and strategies(Only the most active boards)
Board of Directors Continuum
Role of Board of Directors Cont..
Members of a Board of Directors

 Inside Directors (Mgmt directors) are

officers or executives employed by the board’s
corporation

 Outside Directors(Non-mgmt
directors) are executives of other firms but are
not employees of the board’s corporation
Role of Board of Directors Cont..
Outsiders can be considered Insiders. They can be for
example:
1. Affiliated directors - not employed by the
corporation, handle legal or insurance work.

2.Retired executive directors- used to work for

the corporation, partly responsible for past decisions
affecting current strategy.

3. Family directors- descendents of the founder and

own significant blocks of stock.
Role of Board of Directors Cont..
Nomination and Election of Board Members

Criteria for a good director include:

 Willingness to challenge management when necessary
 Special expertise that is important to the company
 Available for outside meetings to advise management
 Expertise on global issues
 Understands the firm’s key technologies and processes
 Brings external contacts that are potentially valuable to the firm
 Has detailed knowledge of the firm’s industry
 Has high visibility in his/her field
 Is accomplished at representing the firm to stakeholders
2.2. Corporate Governance: Role of
Top Management
Responsibilities of Top Management:

1. Provide Executive leadership and

Strategic Vision
 Executive leadership is the directing of activities toward
the accomplishment of corporate objectives. Sets the
tone for the entire corporation

 Strategic vision description of what the company

is capable of becoming.
Role of Top Management
Cont..
 Transformational Leaders provide change
and movement in an organization by providing a vision
for that change.
Characteristics include:
CEO articulates a strategic vision for the corporation
CEO presents a role for others to identify with and to
follow
CEO communicates high performance standards and also
shows confidence in the followers’ abilities to meet these
standards
Role of Top Management
Cont..
2. Manage the Strategic Planning Process

Approaches:
 Bottom-up strategic planning
 Top-down strategic planning
 Concurrent strategic planning
 Strategic planning staff
Role of Top Management
Cont..
Strategic planning staff- supports both top management and the
business units in the strategic planning process

Major responsibilities include:

Identifying and analyzing company-wide strategic issues, and

suggesting corporate strategic alternatives to top management.
Work as facilitators with business units to guide them through
the strategic planning process.
2.3. Social Responsibility of
Strategic Decision Makers
Concept of social responsibility:

 A private corporation has responsibilities to society

that extend beyond making a profit.

N.B. Strategic decisions often affect more than just the

corporation.
Social Responsibility of
Strategic Decision Makers Cont..
Responsibilities of A Business Firm

Two contrasting views of the responsibilities of

business firms to society offered by Milton Friedman
and Archie Carroll
Social Responsibility of
Strategic Decision Makers Cont..
Friedman’s traditional View of Business Responsibility:

There is one and only one social responsibility of business-to use

its resource and engage in activities designed to increase its
profits so long as it stays within the rules of the game, which is
to say, engages in open and free competition without deception
or fraud.
Social Responsibility of
Strategic Decision Makers Cont..
Carroll’s Four Responsibilities of Business in order of
priority.
Social Responsibility of
Strategic Decision Makers Cont..

According to Carroll, therefore, social responsibility

includes both ethical and discretionary, but not
economic and legal, responsibilities.