CORPORATE

GOVERNANCE and
STRATEGY
UNIT 6: LECTURE 14 CORPORATE GOVERNANCE & STRATEGY
Lesson Structure
 6.1 Lesson Objectives
 6.2 Introduction
 6.3 Concept of Corporate Governance
 6.4 Nature of Corporate Governance
 6.5 Key Elements of Corporate Governance
 6.6 Corporate Governance and Strategy
 6.7 Relationship between Corporate Governance and Strategy Implementation
 6.8 Ethical Challenges in Strategy Implementation
 6,9 Conclusion
 6.10 Model Questions
Lesson Objectives
 Explain the key stakeholders in corporate governance and their roles
(governance chain)
 Explain the principles of good corporate governance (e.g. transparency,
accountability, fairness, responsibility)
 Explain how effective corporate governance is critical for successful strategy
implementation
 Describe the role of corporate governance in risk management and
compliance with regulations
 Discuss methods for evaluating the effectiveness of a company’s corporate
governance practices.
Introduction
 Corporate governance is a system of rules, practices, and processes by which a company is
directed and controlled. It incorporates the relationship among a company’s various
stakeholders, namely its shareholders, board of directors, management, customers,
suppliers, financiers, government, and the wider community. The primary goal of corporate
governance is to ensure that a company is managed in a way that is ethical, transparent,
and accountable with the best interests of its shareholders and other stakeholders.
 Corporate governance is concerned with the structures and systems of control by which
managers are held accountable to those who have a legitimate stake in an organisation
(Johnson and Scholes 1997: 133).

 Effective corporate governance is essential for building and maintaining trust in a

company, attracting investment, and ensuring its long-term success.
 Corporate governance can vary by industry and by country and is generally influenced by
cultural and regulatory factors.
Introduction (Cont’d)

 Corporate governance has become critical to the effective management of

organisation as it entails: The separation of ownership and management
control, minimising Corporate scandals, and ensuring increased accountability
to the wider stakeholder interests.
 Just as the environment and organisation’s capabilities influences an
organisation’s strategic position of an organisation, corporate governance,
stakeholder expectations, and social responsibility and ethics influence the
strategic purpose of the organisation as illustrated below.
Reflection!

 Explain how organisations express their respective purpose? Give examples

 Why is a stakeholder analysis critical to strategic purpose?
Influences on strategic purpose

Governance
structure

Strategic
purpose

Social responsibility Stakeholder

& Ethics expectations
Key Elements of Corporate Governance
Key Elements of Corporate Governance
Corporate Governance, Legal &
Regulatory Framework – Zambia
Zambia’s Corporate Governance, legal & regulatory framework is governed by the
following:
 The Companies Act: The Companies Act of 2017 governs the formation,
management, and operations of companies in Zambia. It sets out the legal
framework for corporate governance, including the rights and responsibilities of
directors and shareholders.
 Securities and Exchange Commission (SEC): SEC is the primary regulatory body
that oversees corporate governance in the country. It plays a crucial role in
regulating the securities market and ensuring that companies listed on the
stock exchange comply with corporate governance standards.
 Listing Rules: Companies listed on the Lusaka Securities Exchange (LuSE) are
required to adhere to the LuSE’s listing rules. These rules stipulate various
corporate governance standards that listed companies must comply with.
Corporate Governance, Legal &
Regulatory Framework – Zambia
 Corporate Governance Code: This provides guidelines and principles for good
corporate governance. It covers various aspects, including the composition
and roles of boards of directors, disclosures and transparency, and the
protection of minority shareholders’ rights
LEGAL AND REGULATORY FRAMEWORK
 Constitution of Zambia: This provides the overarching legal framework for
the country.
 Bank of Zambia Act: Provides the regulatory framework for the country’s
central bank and the Bank of Zambia. This governs the banking and financial
sector.
 Competition and Consumer Protection Act: This Act establishes the legal
framework for competition law and consumer protection in Zambia
Corporate Governance, Legal &
Regulatory Framework – Zambia
 Environmental Management Act: This act sets out the legal requirements for
environmental protection and sustainable development
 Labour Laws: Zambia has various labour laws that govern employment
relationships, including the employment Act and the Industrial and Labour
Relations Act.
 Intellectual Property Laws: Intellectual property rights are protected under
various laws, such as the Patents and Companies Registration Agency (PACRA).
 Land Act: This act regulates land ownership and use in the country
 Mining Regulations: There are specific regulations governing mining
activities.
 Foreign Exchange Act: This acts governs foreign exchange controls, currency
regulations, and the management of foreign currency transactions.
WHY Corporate Governance

Why Corporate Governance

Corporate governance has become increasingly important in organisations for
the following reasons:
 The separation of ownership and management control. Most organisations
operate within a chain of governance
 To mitigate Corporate scandals: The recent years have been fraught with
corporate scandals such as the Enron corporate scandal.
 Please read up on the Enron Corporate Scandal and answer the following
Question: What mechanism in the governance chain should (or could) have
prevented what happened at Enron (Johnson & Scholes, 2008: 136)
 Increased accountability to wider stakeholder interests other than owners and
managers. Organisations are expected to be responsive to the wider social
interest.
WHY Corporate Governance (Cont’d)

Why Corporate Governance

 Governance chain helps highlight important issues that affect the
management of strategy such as who has responsibility to whom. For example
executives to shareholder.
 Who are the final beneficiaries, if managers see themselves as only responsive
to shareholders
 The role of institutional investors with regards to influence on strategy of the
firm
 Improved scrutiny and control in for example reporting.
Significance of Corporate Governance
Benefits of Corporate Governance include:
 Protection of shareholder rights: Such as the right to vote, and influence
important company decisions, the right to timely and accurate information
about the company.
 Transparency and Disclosure: Companies are expected to provide clear and
accurate financial and non financial information to shareholders and other
stakeholders
 Board of Directors: The board of directors plays crucial role in corporate
governance. It is responsible for overseeing management, and ensures that
the company operates in the best interests of shareholders.
 Accountability: Holds the company’s management and board of directors
accountable for their actions.
Significance of Corporate Governance
Benefits of Corporate Governance include:
 Ethical Behaviour: The company should act in an ethical and responsible manner,
avoiding conflicts of interests, and treating all stakeholders fairly.
 Risk Management: The company should at all times identify risks and address
potential risks that could impact the health of the company.
 Stakeholder Interests: Corporate governance should consider the interests of various
stakeholders not just shareholders.
 Compliance and Legal Requirements: Corporate governance should ensure
compliance to all applicable laws
 Long-Term Strategy: Corporate governance should focus on long term sustainability
and success , rather than short term gains.
 Communication and Engagement: Engagement with shareholders and other
stakeholders is key
 Executive Compensation: Ensure that executive compensation is fair.
The Corporate Governance Chain
The governance chain
 Most organisations operate within a hierarchy, or chain of governance
 Governance chain stipulates the roles and relationships of the different
groups involved in the governance of an organisation.
 Governance chain can range from a simple two to three layer chain in a small
family business to a more complex chain in for example a large public quoted
organisation.
 The governance chain in a large organisation could include Managers, senior
executives, executive directors, Board, investment managers, Trustees of
funds and Beneficiaries.
 Governance chains are not customized to organisations; all depends on type,
size etc. of organisation
Chain of Corporate Governance: Reporting
Structure
CORPORATE GOVERNANCE STRUCTURES
Different Governance Structures
The governing body of an organisation is the board of directors. The role of the
board is to ensure that an organisation fulfils the obligations of the primary
stakeholders/shareholders. In the public sector, the governing body is accountable
to a wing of government. These differences impact on strategy development, how
the purpose of an organisation are shaped and the role and composition of boards
 Broadly there are two governance structures: the shareholder model and the
stakeholder model.
 The shareholder model: this entails that managers and company directors make
decisions on behalf of the organisation that further the interest of shareholders
(Shareholder primacy norm). Focus is on maximising shareholder value.
CORPORATE GOVERNANCE
Different Governance Structures
 The Stakeholder model: This is based on the principle that wealth is created,
captured and distributed by a variety of stakeholders and therefore
management is to be responsive to multiple stakeholders; the wider interest
of stakeholders should be taken into account.
 There are advantages and disadvantages of both models of governance is
illustrated hereunder.
Benefits & Disadvantages of Governance
Systems
Shareholder model Stakeholder Model
 Benefits For Investors For Investors
 Higher rate of return  Wider interests of
 Reduced risk, can stakeholders taken
diversify their holding into account
in an equity market  Closer monitoring of
management
For the economy  Longer –term decision
 Encourages new horizon, reduces
Investors pressure for short-term
 Encourages growth results
entrepreneurship
 Encourages inward For Stakeholders
investment  Deterrent to high risk
decision
For Management
 Independence
Benefits & Disadvantages of Governance
Systems
Shareholder model Stakeholder Model
 Disadvantages For Investors For management
 Difficult to monitor  Potential interference,
management/from
pursuing own agendas  Slower decision making
 Reduced independence
For the economy
 The risk of short-term For the economy
gains from Managers  Reduced financing
opportunities for
 And top Management growth due fewer
greed reflected in alternatives for raising
bonuses, salaries etc. funds
 Long term investments
below market
expectations.
Influence of Corporate Governance on Strategic
Purpose and Direction of a Company
Corporate governance has a significant influence on the strategic purpose of a
company.
It impacts strategic decisions as follows:
 Corporate governance ensures alignment between shareholders and other
stakeholder interests.
 Board Oversight: A diverse and independent board provides valuable insights
and oversight in defining the company’s strategic purpose
 Brings emphasis of a long-term perspective
 Ensures effective Risk Management and compliance to applicable laws
 Ensures ethical behaviour and reputation, and fostering strategies that are
socially and environmentally responsible
Influence of Corporate Governance on
Strategic Purpose and Direction of a
Company (Cont’d)
 Corporate governance ensures the defining of performance metrics for executives
and management and holds them accountable to set targets. Metrics are aligned to
the company’s specific goals, and long term objectives and purpose
 Transparency and Reporting: Strong governance fosters transparent reporting to
shareholders and the public. Transparency influences the strategic purpose by
ensuring the company’s objectives, progress and results are clearly communicated,
making it easier for stakeholders to understand and support
 Companies with sound corporate governance structures tend to be more adaptable.
They can more easily adjust their strategic purpose with changing market
conditions.
 Effective corporate governance encourages effective engagement with shareholders
for alignment.
Corporate Governance and Strategy
Implementation
Corporate Governance and strategy implementation are interconnected and essential for
achieving long-term goals and sustainability by ensuring:
 Oversight and Accountability: Corporate governance structures ensure effective
implementation of the company’s strategic plans by holding management accountable
 Alignment of Interests – Interests of shareholders and management are aligned.
 Risk associated with strategy implementation are well managed
 Transparency and reporting fosters trust and accountability and allows shareholders to
assess whether the company is on track with its strategic goals
 Resource Allocation: Effective decisions on resource allocation ensures successful
execution of strategy.
 Ethical Behaviour and Compliance guides behaviour of management in the course of
implementing the strategy.
Corporate Governance and Strategy
Implementation
 Performance Metrics and Incentives: Corporate governance structures often
define performance metrics for executives and management. Metrics are
aligned with the strategic objectives. Incentives tied to strategy
implementation can motivate employees and management to achieve
strategic goals.
 Decision-Making Processes: Governance processes influence how strategic
decisions are made and executed. Clear decision-making processes ensure
that strategic decisions are made in a structured and informed manner.
 Adaptability and Flexibility: Effective corporate governance and structures
supports adaptability and flexibility in strategy implementation.
Ethical Challenges in Strategy
Implementation.
Organisations face a number of ethical challenges as they make strategic decisions.
Some ethical challenges emanate from setting the company vision, remuneration of
senior executives, implementing strategic changes, change in ownership, ethical
conduct in balancing pursuit of profits and growth with the principles of ethical
conduct and social responsibility, and general strategy execution issues.
Some challenges in the implementation of good corporate ethics in an organisation are
typically as a result of:
Lack of enforcement
Organisational culture
Poor leadership
Whistleblowing
Lack of ethics training
Ethical Challenges in Strategy
Implementation.

Common issues that bring about ethical challenges include:

 Conflict of Interest: Decision-making may be influenced by personal interests
or relationships, rather than acting in the best interests of the company.
 Short-Term vs Long-Term Goals: Management may be under pressure to
deliver short-term financial at the expense of long-term sustainability and
responsible business practices
 Community and Stakeholders Impact: Social impact on communities e.g.
pollution
 Innovation and Competitive Practices: Unethical competitive practices in
the marketplace due to competitive pressures, industrial espionage, unethical
decisions in innovation, and patents
Ethical Challenges in Strategy
Implementation.
 Transparency and Disclosures: Ethical issues can arise when companies fail to
provide accurate and transparent information to stakeholders. For example,
financial reporting, product safety information, and potential conflicts of
interest within the organisation.
 Product Safety and Quality: Companies may be tempted to use underhand
methods in the production process to reduce costs or speed up production
 Compliance and Legal Issues: Companies may grapple with whether to comply
with the letter of the law or also adhere to the spirit of the law to avoid
potential negative impacts on society. For example, tax avoidance by
Multinational Corporation through transfer pricing.
 Environmental and Social Responsibility: Companies my struggle whether to
invest in eco-friendly technologies, improve working conditions, or donate to
social causes while also delivering profits to shareholders.
Ethical Challenges in Strategy
Implementation.

 Supply Chain and Labour Practices: Balancing supply chain practices with
cost considerations can be difficult. For example, suppliers adhering to fair
labour practices, avoiding child labour, or forced labour.
 Employee Relations and Fair Compensation: companies may face ethical
challenges related to employee relations, fair wages, workplace diversity,
equal opportunities, and fair compensation.
 Customer Privacy and Data Security: For example in Banks, e-commerce
companies
 Crisis Management and Transparency: For example, the Zambeef case. Was
the company’s response ethical or not?
Ethical Challenges in Strategy
Implementation.
Addressing ethical challenges in strategic decision-making requires a
commitment to ethical principles, clear corporate values, adherence to legal and
regulatory standards, the involvement of stakeholders, and the Board, in guiding
ethical conduct.
Companies that successfully navigate these challenges will maintain trust and
sustainability in the long term.
THINK & SHARE……
CONCLUSION
Model Questions
Scenario 1
An E-commerce company has a strategic plan to invest heavily in new technology
and infrastructure to maintain a competitive edge, However, unforeseen
challenges, such as supply chain disruptions, may pose a risk.
QUESTIONS
1. What mechanisms might the company use to assess and address potential
risks that could hinder the strategy execution?
2. In the face of unexpected supply chain disruptions, how can the board of
directors and management adapt the strategy to minimise negative impacts
while maintaining the company’s governance principles.
Model Questions
Scenario 2
A large, publicly-traded company has recently unveiled an ambitious strategic
plan to expand into the new international markets. The Board of Directors is
responsible for overseeing the implementation of this strategy
Questions
1. How can the board of directors ensure that the Company’s management team
is effectively executing the international expansion strategy while
maintaining corporate governance standards?
2. What mechanisms can be put in place to hold the executive team accountable
for achieving the strategic objectives related to international expansion.
3. How might the board assess whether the strategy’s execution is aligning with
the long-term interests of shareholders?
Model Questions
Scenario 3
A pharmaceutical company is developing a new drug with potentially life-saving
properties. Corporate governance is essential in ensuring that the drug’s development
and marketing adhere to ethical and regulatory standards?
Questions
1. How does corporate governance help ensure that the company’s strategy for drug
development is ethically sound and in compliance with the industry regulations?
2. What specific governance measures can be implemented to monitor and manage
potential ethical issues in the drug development process?
3. How might stakeholders, including the Board, oversee and evaluate the company’s
ethical conduct during the drug’s development and commercialisation?