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Module 2 strategic management, Summaries of Strategic Management

Arellano University (AU)Strategic Management

Module 2 strategic management of university

Typology: Summaries

2022/2023

Uploaded on 02/20/2023

wise-plays
wise-plays 🇵🇭

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Role of Board of Directors
Corporations allow parties to share capital, expertise, and labor. Investors/shareholders receive
dividends and stock price gains without managing the business. Management runs the company without
giving finances. Shareholders have limited accountability and engagement in a corporation due to laws.
However, shareholders can elect directors who must represent and preserve their interests. Directors
set and enforce essential corporate policies as shareholders' representatives. Thus, the board must
approve any choices that may affect the company's long-term performance. The board of directors
oversees top management, with shareholder approval. Corporate governance is how these three parties
decide the company's direction and performance. Shareholders, activist investors, and interest groups
are questioning the role of corporate boards. They worry that inside board members may use their
position to enrich themselves and that outside board members typically lack the knowledge, interest,
and zeal to monitor and advise top management.
Responsibilities of the Board
An article by Spencer Stuart written by an international team of contributors suggested the following
five board of director responsibilities:
1. Effective board leadership including the processes, makeup, and output of the board
2. Strategy of the organization
3. Risk vs. initiative and the overall risk profile of the organization
4. Succession planning for the board and top management team
5. Sustainability
Research Based-Survey
McKinsey & Company began surveying the board of directors about their understanding of company
issues in 2011. Their latest survey results revealed the following statistics about board members who
felt they had a complete or a good understanding of the following:
Financial Position – 91%
Current Strategy – 87%
Value Creation – 74%
Industry Dynamics – 77%
Risks the company faces 69% In addition, 73% now report that they believe they have a high or very
high impact on company financial success.
Role of the Board in Strategic Management
Monitor: A board can alert management to internal and external developments through its committees.
At least a board should do this.
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Role of Board of Directors Corporations allow parties to share capital, expertise, and labor. Investors/shareholders receive dividends and stock price gains without managing the business. Management runs the company without giving finances. Shareholders have limited accountability and engagement in a corporation due to laws. However, shareholders can elect directors who must represent and preserve their interests. Directors set and enforce essential corporate policies as shareholders' representatives. Thus, the board must approve any choices that may affect the company's long-term performance. The board of directors oversees top management, with shareholder approval. Corporate governance is how these three parties decide the company's direction and performance. Shareholders, activist investors, and interest groups are questioning the role of corporate boards. They worry that inside board members may use their position to enrich themselves and that outside board members typically lack the knowledge, interest, and zeal to monitor and advise top management. Responsibilities of the Board An article by Spencer Stuart written by an international team of contributors suggested the following five board of director responsibilities:

  1. Effective board leadership including the processes, makeup, and output of the board
  2. Strategy of the organization
  3. Risk vs. initiative and the overall risk profile of the organization
  4. Succession planning for the board and top management team
  5. Sustainability Research Based-Survey McKinsey & Company began surveying the board of directors about their understanding of company issues in 2011. Their latest survey results revealed the following statistics about board members who felt they had a complete or a good understanding of the following:  Financial Position – 91%  Current Strategy – 87%  Value Creation – 74%  Industry Dynamics – 77%  Risks the company faces 69% In addition, 73% now report that they believe they have a high or very high impact on company financial success. Role of the Board in Strategic Management Monitor: A board can alert management to internal and external developments through its committees. At least a board should do this.

Evaluate and influence: A board can evaluate management's plans, choices, and actions, agree or disagree, advise, and recommend alternatives. Active boards also monitor. Initiate and determine: The board can define a company's mission and offer strategic options to management. This task is only performed by the most active boards. Board of Directors Composition Most public company boards have inner and outside directors. Management directors are usually corporate officers or executives. Outside directors, often known as non-management directors, may be executives of other companies but not board employees. There is no evidence that a high representation of outsiders on a board improves financial performance. Agency Theory Versus Stewardship Theory in Corporate Governance Agency theory is concerned with analyzing and resolving two problems that occur in relationships between principals (owners/shareholders) and their agents (top management):

  1. Owners and agents may have conflicting goals. Risk perceptions vary. Agents may avoid riskier tactics to keep their jobs.
  2. Moral hazard occurs when owners can't easily or affordably monitor agents. Stewardship Theory Stewardship theory implies that leaders are more driven to serve the organization than themselves. Stewardship theory emphasizes achievement and self-actualization, while agency theory emphasizes remuneration and security.
  3. Affiliated directors, who are not employees but provide legal or insurance services or are significant suppliers (and so rely on the current management for a key part of their business)
  4. Retired executive directors, such as the company's former CEO, who likely groomed the present CEO. As a courtesy, many boards of large corporations kept the recently retired CEO on the board for a year or two following retirement, especially if the CEO had performed well.
  5. Family directors, relatives of the founder who control considerable equity (with personal objectives based on a family link with the current CEO). The Schlitz Brewing Company was sold because family members on the board wanted their money out, preventing a non-family CEO from completing its turnaround strategy. Nomination and Election of Board Members The CEO traditionally invited board members and sought shareholders for approval in the annual proxy statement. All nominees generally won. However, letting the CEO nominate directors is risky. The CEO may choose board members who will not disrupt corporate policy and operations.

The CEO communicates high-performance standards and also shows confidence in the followers’ abilities to meet these standards: Leaders inspire confidence in followers. Setting easy goals never boosted performance. Expectations can boost performance. CEOs must coach. Thus, employees find their work meaningful and motivating. Verizon Communications CEO Ivan Seidenberg trusted his subordinates to lead major projects and represent the company in public. His managers were loyal to him and the organization, grateful for his trust. Managing the Strategic Planning Process As businesses become more like learning organizations, strategic planning can originate from everywhere. In two-thirds of 156 large organizations worldwide, business units proposed strategies and sent them to headquarters for approval. Planning won't produce a strategy without senior management's cooperation. Top management must lead strategic planning in most companies. It may start by asking business units and functional areas to provide strategic plans, or it may develop a corporate plan within which the units can build their own plans. Research reveals that bottom-up strategic planning may be best for multidivisional organizations in stable contexts and top-down planning for turbulent ones. After receiving the organization's mission and goals, other organizations' units create their own strategic plans. This planning staff typically consists of fewer than 10 people, headed by a senior executive with the title of Director of Corporate Development or Chief Strategy Officer. The staff’s major responsibilities are to:

  1. Identify and analyze companywide strategic issues, and suggest corporate strategic alternatives to top management.
  2. Work as facilitators with business units to guide them through the strategic planning process.