URGENT HOMEWORK DUE IN 6 HOURS
Ricardo2222
mgmt_552.pptx
Take-Away Concepts
LO 12-1
Describe the framework and its relationship to competitive advantage.
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Value Creation
Shared Value
Competitive Advantage
By focusing on financial performance, many companies have defined value creation too narrowly.
Companies should instead focus on creating shared value, a concept that includes value creation for both shareholders and society.
The shared value creation framework seeks to identify connections between economic and social needs, and then leverage them into competitive advantage.
Take-Away Concepts
LO 12-2
Explain the role of corporate governance.
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Corporate Governance
Principal Agent Problems
Corporate governance involves mechanisms used to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally.
Corporate governance attempts to address the principal–agent problem, which describes any situation in which an agent performs activities on behalf of a principal.
Take-Away Concepts
LO 12-3
Apply agency theory to explain why and how companies use governance mechanisms to align interests of principals and agents.
Agency theory views the firm as a nexus of legal contracts.
The principal–agent problem concerns the relationship between owners (shareholders) and managers and also cascades down the organizational hierarchy.
The risk of opportunism on behalf of agents is exacerbated by information asymmetry: Agents are generally better informed than the principals.
Governance mechanisms are used to align incentives between principals and agents.
Governance mechanisms need to be designed in such a fashion as to overcome two specific agency problems: adverse selection and moral hazard.
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Take-Away Concepts
LO 12-4
Evaluate the board of directors as the central governance mechanism for public stock companies.
The shareholders are the legal owners of a publicly traded company and appoint a board of directors to represent their interests.
The day-to-day business operations of a publicly traded stock company are conducted by its managers and employees, under the direction of the chief executive officer (CEO) and the oversight of the board of directors. The board of directors is composed of inside and outside directors, who are elected by the shareholders.
Inside directors are generally part of the company’s senior management team, such as the chief financial officer (CFO) and the chief operating officer (COO).
Inside directors are generally part of the company’s senior management team, such as the chief financial officer (CFO) and the chief operating officer (COO).
Outside directors are not employees of the firm. They frequently are senior executives from other firms or full-time professionals who are appointed to a board and who serve on several boards simultaneously.
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Take-Away Concepts
LO 12-5
Evaluate other governance mechanisms.
Other important corporate mechanisms are executive compensation, the market for corporate control, and financial statement auditors, government regulators, and industry analysts.
Executive compensation has attracted significant attention in recent years. Two issues are at the forefront: (1) the absolute size of the CEO pay package compared with the pay of the average employee and (2) the relationship between firm performance and CEO pay.
The board of directors and executive compensation are internal corporate-governance mechanisms. The market for corporate control is an important external corporate-governance mechanism. It consists of activist investors who seek to gain control of an underperforming corporation by buying shares of its stock in the open market.
All public companies listed on the U.S. stock exchanges must file a number of financial statements with the Securities and Exchange Commission (SEC), a federal regulatory agency whose task it is to oversee stock trading and enforce federal securities laws. Auditors and industry analysts study these public financial statements carefully for clues of a firm’s future valuations, financial irregularities, and strategy.
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Take-Away Concepts
LO 12-6
Explain the relationship between strategy and business ethics.
The ethical pursuit of competitive advantage lays the foundation for long-term superior performance.
Law and ethics are not synonymous; obeying the law is the minimum that society expects of a corporation and its managers.
A manager’s actions can be completely legal, but ethically questionable.
Some argue that management needs an accepted code of conduct that holds members to a high professional standard and imposes consequences for misconduct.
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