hill and jones chapter 11 slides

8/13/2019 Hill and Jones Chapter 11 Slides

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Chapter

Eleven

Corporate

Performance,Governance,and Business

Ethics


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Copyright Houghton Mifflin Company. All rights reserved. 11 | 2

Stakeholders and CorporatePerformance

Stakeholders: Individuals or groups withan interest, claim, or stake in the company,in what it does, and in how well it performs.

Internal Stakeholders (e.g. employees,stockholders, etc.)

External Stakeholders (e.g. customers,creditors, governments, etc.)

A company must consider stakeholderclaims in developing and implementingstrategy


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Stakeholders and the Enterprise

Figure 11.1


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Identify stakeholders Identify stakeholders interests and

concerns

Identify what claims stakeholders arelikely to make on the organization

Identify stakeholders who are mostimportant, from the organizations

perspective Identify resulting strategic challenges

Stakeholder Impact Analysis


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Stockholders are a companys legal owners andthe provider of risk capital, a major source ofcapital to operate a business.

Maximizing long-runprofitability & profit growth is

the route to maximizingreturns to shareholders, as

well as satisfying the claims ofmost other stakeholder groups.

The Unique Role of Stockholders


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Profitability, Profit Growth,and Stakeholder Claims

1. Participating in a market that is growing

2. Taking market share away from competitors

3. Consolidating the industry via horizontal integration

4. Developing new markets

To grow p rof i ts , com panies must be doing oneor more of the fo l lowing :

Stockho lders receive their return s as:

Dividend payments Capital appreciation in market value of shares


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Agency Theory

Principal-Agent Relationships

Principal: person delegating authority Agent: person to whom authority is delegated

The Agency Problem: Agents and principals may have different goals

Agents may pursue goals that are not in the bestinterests of their principals

Agents may take advantage of information asymmetriesto maximize their interests at the expense of principals

It is difficult for principals to measure performance

Trust On-the-job consumption

Empire building

Agency relationshipsarise whenever one partydelegates decision-making authority or control overresources to another.



The Tradeoff Between Profitabilityand Revenue Growth Rates

Figure 11.2Need to maximize long-run shareholder returnsby seeking the right balance between companygrowth . . . and profitability and profit growth.



The Challenge for Principals

1. Shape the behavior of agents so that theyact in accordance with goals set by

principals2. Reduce information asymmetry between

agents and principals

3. Develop mechanisms for removing agents

who do not act in accordance with goals andprincipals

Confronted w ith agency prob lems, thechal lenge for p r incipals is to:

Principals try to deal with these challengesthrough a series of governance mechanisms.



Governance Mechanisms

Governance mechanisms serve to limitthe agency problem by aligningincentives between agents and principalsand by monitoring and controllingagents.

These mechanisms include: The Board of Directors

Stock-Based Compensation Financial Statements

The Takeover Constraint



Governance MechanismsInside a Company

Strategic control systems To establish standards against which performance can

be measured To create systems for measuring and monitoring

performance To compare actual performance against targets To evaluate results and take corrective actionsBalanced Scorecard model approach is used to drive

future performance

Employee incentives Employee stock options and stock ownership plans Compensation tied to attainment of superior efficiency,

quality, innovation, and responsiveness to customers

Internal agency problems can be reduced by :



A Balanced Scorecard Approach

Figure 11.3



Ethics and Strategy

Business ethicsare the accepted principles of rightor wrong governing the conduct of businesspeople.

An ethical strategy is one that does notviolate the accepted principles.

Ethical dilemmas occur when: There is no agreement over what the accepted principles are

None of the available alternatives seem ethically acceptable

Many accepted principles are codified into laws: Tort lawsgoverning product liability

Contract lawcontracts and breaches of contracts

Intellectual property lawprotection of intellectual property

Antitrust lawgoverning competitive behavior

Securities law -issuing and selling securities

Behaving ethicallygoes beyond staying within the law



Ethical Issues in Strategy

Self-dealingInformation manipulationAnticompetitive behavior

Opportunistic exploitationSubstandard working

conditions

Environmental degradationCorruption



The Roots of Unethical Behavior

Why do some managers behave unethically?No simple answers, bu t som e general izations:

1. Personal ethics code: will have a profoundinfluence on behavior as a businessperson

2. Do not realize they are behaving unethically:by failing to ask the right questions

3. Organizations culture: de-emphasizes ethicsand considers primarily economic consequences

4. Unrealistic performance goals: encouragingand legitimizing unethical behavior

5. Unethical leadership: that encourages andtolerates behavior that is ethically suspect



Phi losoph ical underpinning s of bus iness ethics that canprov ide managers with a mo ral compass to help navigatethrough di f f icul t ethical issues:

The Friedman DoctrineMilton Friedmans basic position is that the only social responsibility of

business is to increase profits, as long as the company stays within thelaw and the rules of the game without deception or fraud.

Utilitarian and Kantian EthicsThe moral worth of actions is determined by its consequencesleadingto the best possible balance of good versus bad consequences.Committed to the maximization of good and the minimization of harm.

Rights TheoriesRecognizes that human beings have fundamental rights and privileges.Rights establish a minimum level of morally acceptable behavior.

Justice TheoriesFocus on the attainment of a just distribution of economic goods andservices that is considered to be fair and equitable.

Philosophical Approachesto Ethics


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To make su re that ethical issues are considered inbus iness decis ions , managers shou ld:

1. Favor hiring and promoting people with a well-groundedsense of personal ethics.

2. Build an organizational culture that places a high value

on ethical behavior.3. Make sure that leaders not only articulate but also act in

an ethical manner.

4. Put decision-making processes in place that requirepeople to consider the ethical dimension of business

decisions.5. Use ethics officers.

6. Put strong corporate governance processes in place.

7. Act with moral courage and encourage others to do thesame.

Behaving Ethically

hill and jones chapter 11 slides

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