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WK17.1 Agenda• Daily good deed, exam next Monday

September 27, 2010.• NY Mosque ethical dilemma• Thai-Muslim southern problems• Ethical presentation second chance (3rd Group)• CG lecture• Mind map• Ethical dilemma

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Corporate Governance• The relationship among

the board of directors, top management, and shareholders – determining the direction and performance of the corporation.

• The process by which a company is controlled or governed.

• Analogy: government of a nation

Board of directors

ShareholdersManagement

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Board of Directors• Responsibilities:– Setting strategy, overall

direction, mission, and vision.

– Hiring and firing top management.

– Controlling, monitoring top management.

– Reviewing and approving the use of resources.

– Caring for shareholder interests.

• Role in strategic management– Monitor– Evaluate and influence– Initiate and determine

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Board of Directors

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Shareholders• Individual stockholders:

Main Street investors, people who directly own shares of stock

• Institutions: pensions, mutual funds, and insurance companies

• Objective of stock ownership– Capital appreciation: stock

price rise– Dividend: company’s

earnings– Social investment

• Legal Rights of stockholders– To receive dividends– To vote on

• Member of board of directors• Major M&A• Charter and bylaw changes• Proposals by stockholders

– To receive annual reports– To bring shareholder suits

against the company and officers

– To sell their own shares of stock to others

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Management• Top management responsibilities

1. Provide executive leadership and strategic vision.

– The CEO articulates a strategic vision for the corporation.

– The CEO present a role for others to identify with and to follow.

– The CEO communicates high performance standards and also shows confidence in the followers’ abilities to meet these standards.

2. Manage the strategic planning process.

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Flow of Authority in CG• Theory• Law&Regulation

• Reality• Law&Regulaiton

MIB, BBA 2010

Shareholders

BOD

CEO

CEO

BOD

Shareholders

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Theories in CG• Agency theory: top managers are

hired hands (more interested in their personal welfare than that of the shareholders)

• Agency problem:-The desires or objectives of the owners and agents conflictM&A for more power and benefit, diversify to reduce risk and less effort on core product linereduction in stock price or dividend-Difficult of expensive to verify what the agent is actually doing.-Risk sharing problem (different attitude toward risk) Executives may not choose risky strategies because fear of losing their jobs.

• Stewardship theory:• Executives tend to be more

motivated to act in the best interest of the corporation than in their own self interests.

• Focus on higher need such as achievement and self actualization.

• Overtime CEO view the corporation as an extension of themselves.

• CEOs focus on the company long term success not the short term oriented shareholdersMIB, BBA 2010

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Sarbanes-Oxley Act of 2002• A federal statute designed to prevent financial fraud. It

enacted new regulations on auditing, financial reporting, and legal compliance such as– Outside directors could not accept consulting fees when

audit the book of the company.– Protect whistle blowers.– CEO and CFO must sign the financial statement.– Prohibits CEO from receiving loans unavailable to outsiders.– Establishes heavy penalty (25 years in jail).– Allow the SEC to bar individual offenders from serving as

directors or officers of the company.• What about Thai SET rule?

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Principle of Good Governance• Select outside directors to fill most positions.• Hold open elections for members of the board.• Appoint an independent lead director (chairman

of the board) and hold regular meetings without the CEO present(Separate the duties of CEO and chairman.

• Align director compensation with corporate performance.

• Evaluate the board’s own performance on a regular basis.

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Board Members• Inside directors: directors who are employees of

the company.• Outside directors: directors who are not

employees of the company.• Outsiders as insiders:– Affiliate directors: suppliers, lawyer or insurer– Retired directors– Family directors

• Independent directors: outside directors who do not have business dealings with a corporation that would impair their impartiality.

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Executive Compensation

Annual Cash Compensation

-Base salary: median salary for leaders at

similar firm-Cash Incentive: bonus when the company meets financial targets

Long term stock compensation

-Stock option: The right to buy the company’s stock at the fixed price in the

future and under the conditions determined by

the board of directors.-Performance shares:

Shares of company stock awarded after a fixed

period of years if individual and company performance goals are

met.-Restricted stock: A grant of stock with restrictions.

It can’t be sold until certain conditions are met, usually the lapse of a time

period or meeting a performance goal.

Other Compensations-Retirement Plans:

company contributes money in the executives

pension funds-Perks: extra benefits for the need and lifestyles of the executives: physical exams, parking, security

services, financial planning, tax preparation,

life insurance, club memberships, use of jets,

and leased car

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CompensationCriticism• Too much

compensation• Golden parachute• Misuse of options: back

dating, spring loading• Widening gap between

CEO compensation and average workers

Suggestion• Transparent information

of total pay and benefits of top officers.

• Reveal pay and performance relationship (difficult but doable)

• Tied bonus to long term performance.

• Shareholders should be able to vote on executive compensation.

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Global CG• Germany two tiered system

– A supervisor board elected by the shareholders and employees to approve or decide on strategy and policy.

– Management board, appointed by the supervisory board, to manage the company activities.

• Japan: shareholders have less control on the management team because most firms raise money through their major banks. Banks as the owners and creditors of the companies have good relationship with CEOs. Banks would control the management as well as give financial suggestions.

• France and UK increase the number of outside directors (50%).

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Thai Government Budget

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Budget Expenditure Classified by Functions 2008-2009

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UBU Budget from the Government

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Mind Map & Ethical Dilemma

• Do the mind map for this CG lecture.• Working in pair and discuss the following

ethical dilemma.

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Mind Map

Ethic

Corporate Governance

CSR

• Utility?• Right?• Justice?• Creative solution?

• Govern with dharma• Separation of powers

• Strategy alignment• Core business• Need of the stakeholders

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17.2-17.3 Agenda

• CG Mind map explanation• Ethical dilemma• Summit the ethic report• Ethic in the news: 3G, Khun Thaksin, Film RS

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Ten Royal Virtues ทศพิ�ธราชธรรม1. Giving ทาน (ทานํ�) หมายถึงการให� การเสี�ยสีละ นํอกจากเสี�ยสีละทร�พย�สี��งของแล�ว ย�งหมาย

ถึงการให�นํ��าใจแก�ผู้!�อ"�นํด้�วย2. Self Conduct (ศี�ล�) คื"อคืวามประพฤติ�ท��ด้�งาม ท��ง กาย วาจา และใจ ให�ปราศีจากโทษ ท��งในํการ

ปกคืรอง อ�นํได้�แก� กฎหมายและนํ�ติ�ราชประเพณี� และในํทางศีาสีนํา3. Giving up, sacrifice บร�จาค (ปร�จาคื�) คื"อ การเสี�ยสีละคืวามสี/ขสี�วนํตินํ เพ"�อคืวามสี/ขสี�วนํรวม4. Straightness, honesty ความซื่��อตรง (อาชชว�) คื"อ คืวามซื่"�อติรงในํฐานํะท��เป2นํผู้!�ปกคืรอง

ด้�ารงอย!�ในํสี�ติย�สี/จร�ติ5. Gentleness ความอ�อนโยน (ม�ททว�) คื"อ การม�อ�อนํโยนํ ม�สี�มมาคืารวะติ�อผู้!�อาว/โสีและอ�อนํโยนํ

ติ�อบุ/คืคืลท�� เสีมอก�นํและติ��ากว�า6. Perseverance ความเพิ�ยร (ติป4) หร"อคืวามเพ�ยร ม�คืวามอ/ติสีาหะในํการปฏิ�บุ�ติ�งานํ โด้ย

ปราศีจากคืวามเก�ยจคืร�านํ7. Non-anger ความไม�โกรธ (อก6โกธ) หร"อคืวามไม�แสีด้งคืวามโกรธให�ปรากฏิเห8นํเช�นํท�าร�ายผู้!�

อ"�นํแม�จะลงโทษผู้!�ท�าผู้�ด้ก8ท�าติามเหติ/ผู้ล8. No harm, not encroach ความไม�เบ�ยดเบ�ยน (อว�ห�งสีา) การไม�เบุ�ยด้เบุ�ยนํ หร"อบุ�บุคื��นํ ไม�ก�อ

ท/กข�หร"อเบุ�ยด้เบุ�ยนํผู้!�อ"�นํ9. Endurance, patience ความอดทน (ข�นํติ�) การม�คืวามอด้ทนํติ�อสี��งท� �งปวง ร�กษาอาการ กาย

วาจา ใจให�เร�ยบุร�อย10. Righteously, justice ความเท��ยงธรรม (อว�โรธนํ�) คืวามหนํ�กแนํ�นํ ถึ"อคืวามถึ!กติ�อง เท��ยง

ธรรมเป2นํหล�ก ไม�เอนํเอ�ยงหว��นํไหวด้�วยคื�าพ!ด้ อารมณี� หร"อลาภสี�กการะใด้ๆ