Strategic Managment

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For use with Strategic Management: Competitiveness and Globalization (EMEA Edition) by Henk W. Volberda, Robert E. Morgan, Patrick Reinmoeller, Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson 1408019183© 2011 Cengage Learning

International corporate governance

• The stability associated with German and Japanese governance structures has historically been viewed as an asset, but the governance systems in these countries are changing, similar to other parts of the world. And, the importance of these changes has been heightened by the global economic crisis. These changes are partly the result of multinational firms operating in many different countries and attempting to develop a more global governance system.
• Corporate governance in Germany and Japan
• Corporate governance in China

For use with Strategic Management: Competitiveness and Globalization (EMEA Edition) by Henk W. Volberda, Robert E. Morgan, Patrick Reinmoeller, Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson 1408019183© 2011 Cengage Learning

Global corporate governance and ethical behaviour

• Countries want to attract foreign investment, but they must be confident of adequate corporate governance
• Top-level managers, as agents of the firm’s owners, must make strategic decisions which serve the best interests of the entire group of stakeholders
• Ethically responsible companies design and use governance mechanisms which serve all stakeholders’ interests
• The decisions and actions of a corporation’s Board of Directors can act as an effective deterrent to unethical behaviours
• Proper corporate governance enables the firm to achieve strategic competitiveness and above-average returns

For use with Strategic Management: Competitiveness and Globalization (EMEA Edition) by Henk W. Volberda, Robert E. Morgan, Patrick Reinmoeller, Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson 1408019183© 2011 Cengage Learning

Closing case: Europe’s Enron - Parmalat

1. The court ruled that officials of the involved banks and accounting firms were not to blame for the financial scandal at Parmalat. In your view, what is the extent to which the responsibilities of both groups of actors should range (i.e., did they get off the hook too easily or not)?

2. One could argue that the presence of corporate governance scandals such as Parmalat and Ahold are simply the excesses of market capitalism. To what extent do you think that we should reconsider our economic models to prevent such crises?

3. Compare and contrast this case with the others provided in the Opening Case and the Strategic Focus of this chapter. What are the commonalities? And how do they inform us about the effectiveness of the various discussed external and internal corporate governance mechanisms in this chapter?

Search for background information about the Italian

corporate governance context. To which extent do you think

that the institutional context and national culture have

facilitated this crisis?

For use with Strategic Management: Competitiveness and Globalization (EMEA Edition) by Henk W. Volberda, Robert E. Morgan, Patrick Reinmoeller, Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson 1408019183© 2011 Cengage Learning

Summary

• Effective corporate governance aligns managers’ decisions with shareholders’ interests to produce competitive advantage
• Internal governance mechanisms include ownership concentration, board of directors and executive compensation, externally there is the market for corporate control
• Owner shareholders hire agent managers to maximise firm value – the divorce between ownership and control is thus an agency relationship which can involve conflict
• Shareholders and boards of directors are becoming more vigilant, but this mechanism can fail, making the market for corporate control a more important governance mechanism
• Governance structures differ between different countries, but developed economies and transitional economies are moving towards a similar model
• Effective governance mechanisms ensure the interests of both capital market stakeholders and internal organisational stakeholders, also

promoting ethical formulation and implementation of strategies

For use with Strategic Management: Competitiveness and Globalization (EMEA Edition) by Henk W. Volberda, Robert E. Morgan, Patrick Reinmoeller, Michael A. Hitt, R. Duane Ireland and Robert E. Hoskisson 1408019183© 2011 Cengage Learning

Review questions

What is corporate governance? What factors account for the considerable amount of attention corporate governance receives from several parties, including shareholder activists, business press writers and academic scholars? Why is governance necessary to control managers’ decisions?

2 . What is meant by the statement that “ownership is separated from managerial control in the corporation”? Why does this separation exist?

3. What is an agency relationship? What is managerial opportunism? What assumptions do owners of corporations make about managers as agents?

4. How is each of the three internal governance mechanisms – ownership concentration, boards of directors and executive compensation – used to align the interests of managerial agents with those of the firm’s owners?

What trends exist regarding executive compensation? What is the effect of the increased use of long-term incentives on executives’ strategic decisions?

6. What is the market for corporate control? What conditions generally cause this external governance mechanism to become active? How does the

mechanism constrain top level managers’ decisions and actions?

What is the nature of corporate governance in Germany, Japan

and China?

How can corporate governance foster ethical strategic decisions

and behaviours on the part of managers as agents?