strategic control & governance chapter 9 built by stambaugh/2005 don't worry when you are...
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Strategic Control & GovernanceChapter 9
Built by Stambaugh/2005Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Jeff StambaughDillard College of Business/Rm 257A
[email protected]://faculty.mwsu.edu/business/jeff.stambaugh
Objectives
Built by Stambaugh/2005
■ Understand Traditional & Contemporary approaches to corporate control
■ Understand triad of: culture, rewards, and boundaries
■ Know basic roles of boards of directors■ Understand basic governance mechanisms
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Traditional and ContemporaryView of Strategic Control
Built by Stambaugh/2005
Adapted from Exhibits 9.1 and 9.2 Dess, et al 2007
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Informational Control
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■ Key Question: Does our strategy/goals still fit?■ Attributes of good control systems
■ Focus on info having potential strategic impact■ Important enough to demand attention from all■ Best interpreted and discussed face-to-face■ Catalyst for debate
Information on the questions that keep you awake at night
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Double-Loop Learning
Built by Stambaugh/2005
McGraw-Hill/IrwinStrategic Management, 3/e
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Strategies
Assumptions
Premises
Goals
The Firm’s
Continuously• Monitor• Test• Review
Contemporary Control System
Update and challenge the assumptions
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Triad of Behavioral Control
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Non-stop process
Fair and equitable
• Focus efforts on priorities
• Short-term obj / action plans
• Improve Operational Efficiency / Effectiveness
• Minimize bad conduct
Adapted from Exhibit 9.3 Essential Elements of Strategic ControlCopyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Speaking of Rewards
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■ Effective reward systems:■ Clear / accepted objectives w/ rewards linked to
performance■ Clear / prompt feedback■ Flexible
■ Performance rewards work best when:■ Need for interdependence is low / want competition■ Tight cost controls■ Performance is easily (and accurately) measured
■ Behavioral awards work best when■ Need for interdependence is high■ Strong culture
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Pros and Cons of Each
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Culture: a system of unwritten rules that form an internalized influence over behavior.
Approach Some Situational Factors
Often found in professional organizations
Associated with high autonomy Norms are the basis for behavior
Rules: Written and explicit guidelines that provide external constraints on behavior.
Associated with standardized output
Tasks are generally repetitive and routine
Little need for innovation or creative activity
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Pros and Cons of Each
Built by Stambaugh/2005
Rewards: The use of performance-based incentive systems to motivate.
Approach Some Situational Factors
Measurement of output and performance is rather straightforward
Most appropriate in organizations pursuing unrelated diversification strategies
Rewards may be used to reinforce other means of control
Adapted from Exhibit 9.5 Organizational Control: Alternative Approaches
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Corporate Governance
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MANAGEMENT■ Run the company■ Limited Investments
BOARD■ Elected by Shareholder■ Responsible to
Shareholders
■ Limited Liability■ Reap Profits■ Limited Involvement
SHAREHOLDERS
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Planning the Business Trip
Built by Stambaugh/2005Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Agency Issues
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■ What if Principals (owners / shareholders) differ from Agents (management) on:
■ Goals? (and it is hard to verify what managers are actually doing)
■ Risk
Key is to align interests and then monitor: mission of Board and Activist Shareholders
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Role of Boards
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■ Monitor Management■ CEO tenure and pay / incentives■ Approve major strategies, objectives, and plans■ Insure Compliance
■ Provide Advice and Counsel■ Provide “Resources” (especially for start-ups)
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Good Boards
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■ Active participants■ Independent (meaning only a few are company
officers or tied to the CEO)■ Own a good chunk of company’s stock■ What are the issues with the above and SARBOX?■ Should the Board Chairman and CEO be the same
person?
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Other Control Mechanisms
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■ Activist shareholders / institutional investors■ Mutual funds / retirement funds / private equity
■ Pay for performance■ Unsolicited takeovers (throw the bums out)■ Auditors■ Banks / Analysts■ Regulators (SEC)■ Media / Public activists
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Boards and CEOs
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■ CEO firings■ Board responsibilities■ CEO pay
Immelt
Waxman
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln
Summary
Built by Stambaugh/2005
■ Traditional vs Contemporary Strategic Control■ Informational and Behavioral … values, rewards,
boundaries■ Corporate Governance
Don't worry when you are not recognized, but strive to be worthy of recognition … Lincoln