Corporate Domination: Chapter Two

Corporate
Domination
Chapter Two
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter Objectives
1. Define corporate and corporate governance.
2. Explain the responsibilities and criteria for a director.
3. Describe the nature and role of vision and mission
statements in strategic management.
4. Evaluate mission statements of different
organizations.
5. Explain how firms can best ensure that their code of
business ethics guides decision making instead of
being ignored.
6. Discuss specific ways that firms can be good stewards
of the natural environment.
7. Explain ISO 14000 and 14001.
2-2
Copyright ©2013 Pearson Education
Corporation & Corporate Governance
 A corporation is a mechanism
established to allow different parties to
contribute capital, expertise, and labor for
their mutual benefit.
 Corporate governance refers to the
relationship among the board of directors,
top management, and shareholders in
determining the direction and
performance of a corporation.
2-3
Board of Directors
 A group that has a fiduciary duty to

ensure that the company is run
consistently with the long – term interests
of the owners, or share holders of a
corporation and that acts as an
intermediary between the shareholders
and management.
2-4
Board of Directors
 Board of directors are elected

representatives of the shareholders. They
are charged with ensuring that the
interests and motives of management are
aligned or the same with those the
owners (Shareholders)
 Guidelines are also provided, to ensure
that management is acting in the best
interests of shareholders.
2-5
Responsibilities of BOD
 Setting corporate strategy, overall direction,

mission or vision
 Hiring and firing the CEO and top
management
 Controlling, monitoring, or supervising top
management
 Reviewing and approving the use of
resources
 Caring for shareholder interests
2-6
Members of BOD
 Chairman
 Inside directors (management directors)
 Typically officers or executives employed
by the corporation
 Outside directors (non-management
directors)
 May be executives of other firms but are
not employees of the board’s corporation
2-7
Criteria in A Good Director
 Is willing to challenge management when necessary
 Has special expertise important to the company
 Is available outside meetings to advise management
 Has expertise on global business issues
 Understands the firm’s key technologies and
processes
 Brings external contacts that are potentially valuable
to the firm
 Has detailed knowledge of the firm’s industry
 Has high visibility in his or her field
 Is accomplished at representing the firm to
stakeholders
2-8
Principles of Good Governance
1. No more than two directors are current or

former company executives
2. The audit, compensation, and nominating
committees are made up solely of outside
directors
3. Each director owns a large equity stake in
the company, excluding stock options
4. Each director attends at least 75 percent of
all meetings
6-9
Principles of Good Governance
5. The board meets regularly without

management present and evaluates its own
performance annually
6. The CEO is not also the chairperson of the
board
7. Stock options are considered a corporate
expense
8. There are no interlocking directorships (where
a director or CEO sits on another director’s
board)
6-10
Trends in Governance
 Board are getting more involved not only in

reviewing and evaluating company strategy but
also in shaping it
 Companies involved in class-action lawsuits by
shareholders are making concessions in
corporate governance as part of the settlements
 Institutional investors, such as pension funds,
mutual funds, and insurance companies, are
becoming active on boards and are putting
increasing pressure on top management to
improve corporate performance
2-11
 Shareholders are demanding that directors and
top managers own more than token amounts of
stock in a corporation
 Non-affiliated outside (non-management)
directors are increasing their numbers and power
publicly held corporations as CEOs loosen their
grip on boards
 Boards are getting smaller – partially because of
the reduction in the number of insiders but also
because boards desire new directors to have
specialized knowledge and expertise instead of
general experience 2-12
 Boards continue to take more control of board

functions by either splitting the combined
chair/CEO into two separate positions or
establishing a lead outside director position
 As corporations become more global, they are
increasingly looking for board members with
international experience
2-13
 Instead of merely being able to vote for or against

directors nominated by the board’s nominating
committee, shareholders may be allowed to
nominate board members
 Society, in the form of special interest groups,
increasingly expects boards of directors to
balance the economic goal of profitability with the
social needs of society
2-14
What Do We Want to Become?
 A vision statement should answer the

basic question, “What do we want to
become?”
 The vision statement should be short,
preferably one sentence, and as many
managers as possible should have input
into developing the statement.
2-15
Vision Statement Examples
2-16
What Is Our Business?
 Mission statement
 a declaration of an organization’s “reason for
being.”
 answers the pivotal question “What is our
business?”
 essential for effectively establishing
objectives and formulating strategies
2-17
Mission Statement
 Mission statement
 reveals what an organization wants to be and
whom it wants to serve
 Also called a creed statement, a statement of
purpose, a statement of philosophy, a
statement of beliefs, and a statement of
business principles
2-18
Vision versus Mission
 Shared vision creates a commonality of

interests that can lift workers out of the
monotony of daily work and put them into
a new world of opportunity and challenge.
2-19
Importance of Vision and
Mission Statements
1. To ensure unanimity of purpose within the
organization
2. To provide a basis, or standard, for
allocating organizational resources
3. To establish a general tone or
organizational climate
2-20
Importance of Vision and
Mission Statements
4. To serve as a focal point for individuals to
identify with the organization’s purpose
and direction
5. To facilitate the translation of objectives
into a work structure
6. To specify organizational purposes
2-21
Characteristics of a
Mission Statement
 First, a good mission statement allows

for the generation and consideration of a
range of feasible alternative objectives
and strategies without unduly stifling
management creativity.
 Second, a mission statement needs to be
broad to reconcile differences effectively
among, and appeal to, an organization’s
diverse stakeholders
2-22
Benefits of Having a Clear
Mission and Vision
2-23
A Customer Orientation
A mission statement should:

define what the organization is and what
the organization aspires to be
be limited enough to exclude some
ventures and broad enough to allow for
creative growth
distinguish a given organization from all
others
2-24
A Customer Orientation
A mission statement should also:
serve as a framework for evaluating both current
and prospective activities
be stated in terms sufficiently clear to be widely
understood throughout the organization
A good mission statement reflects the
anticipations of customers.
The operating philosophy of organizations
should be to identify customers’ needs and then
provide a product or service to fulfill those needs.
2-25
Mission Statement Components
1. Customers—Who are the firm’s customers?

2. Products or services—What are the firm’s
major products or services?
3. Markets—Geographically, where does the firm
compete?
4. Technology—Is the firm technologically
current?
5. Concern for survival, growth, and
profitability—Is the firm committed to growth
and financial soundness?
2-26
Mission Statement Components
6. Philosophy—What are the basic beliefs,

values, aspirations, and ethical priorities of the
firm?
7. Self-concept—What is the firm’s distinctive
competence or major competitive advantage?
8. Concern for public image—Is the firm
responsive to social, community, and
environmental concerns?
9. Concern for employees—Are employees a
valuable asset of the firm?
2-27
Characteristics of a
Mission Statement
2-28
Example Mission Statements
 We aspire to make PepsiCo the world’s (3)

premier consumer products company, focused
on convenient foods and beverages (2). We
seek to produce healthy financial rewards for
investors (5) as we provide opportunities for
growth and enrichment to our employees (9),
our business partners and the communities (8)
in which we operate. And in everything we do,
we strive to act with honesty, openness,
fairness and integrity (6).
2-29
 Dell’s mission is to be the most successful

computer company (2) in the world (3) at
delivering the best customer experience in
markets we serve (1). In doing so, Dell will meet
customer expectations of highest quality; leading
technology (4); competitive pricing; individual and
company accountability (6); best-in-class service
and support (7); flexible customization capability
(7); superior corporate citizenship (8); financial
stability (5).
2-30
 Procter & Gamble will provide branded

products and services of superior quality and
value (7) that improve the lives of the world’s
(3) consumers. As a result, consumers (1) will
reward us with industry leadership in sales,
profit (5), and value creation, allowing our
people (9), our shareholders, and the
communities (8) in which we live and work to
prosper.
2-31
Social Responsibility,
Environmental Sustainability
 Social responsibility
 actions an organization takes beyond what is
legally required to protect or enhance the well-
being of living things
 Sustainability
 the extent that an organization’s operations and
actions protect, mend, and preserve rather than
harm or destroy the natural environment
 Business ethics
 principles of conduct within organizations that
guide decision-making and behavior
10-32
Seven Principles of Admirable
Business Ethics
i. Be trustful
ii. Keep an open mind
iii. Meet obligations
iv. Have clear documents
v. Become community involved
vi. Maintain accounting control
vii.Be respectful
10-33
Code of Business Ethics
 To ensure that the code of ethics is read,

understood, believed, and remembered,
periodic ethics workshops are needed to
sensitize people to workplace
circumstances in which ethics issues may
arise
10-34
An Ethics Culture
 Whistle-blowing
 refers to policies that require employees to
report any unethical violations they discover
or see in the firm
 Ethics training programs should include
messages from the CEO or owner of the
business emphasizing ethical business
practices, the development and discussion of
codes of ethics, and procedures for discussing
and reporting unethical behavior
10-35
Bribes
 Bribery
 the offering, giving, receiving, or soliciting of
any item of value to influence the actions of
an official or other person in discharge of a
public or legal duty
10-36
Social Policy
 Social policy
 concerns what responsibilities the firm has to
employees, consumers, environmentalists,
minorities, communities, shareholders, and
other groups
 Firms should strive to engage in social
activities that have economic benefits
10-37
Environmental Sustainability
 Employees, consumers, governments, and

society are especially resentful of firms that
harm rather than protect the natural
environment
 Conversely people today are especially
appreciative of firms that conduct operations
in a way that mends, conserves, and
preserves the natural environment
10-38
Lack of Standards Changing
 Uniform standards defining environmentally

responsible company actions are rapidly
being incorporated into our legal landscape
 It has become more and more difficult for
firms to make “green” claims when their
actions are not substantive, comprehensive,
or even true
10-39
Managing Environmental
Affairs in the Firm
 Environmental strategies can include:
 developing or acquiring green businesses
 divesting or altering environment-damaging
businesses
 striving to become a low-cost producer
through waste minimization and energy
conservation
 pursuing a differentiation strategy through
green-product features
10-40
Reasons Why Firms Should
“Be Green”
1. Consumer demand for environmentally safe products
and packages is high.
2. Public opinion demanding that firms conduct business
in ways that preserve the natural environment is strong.
3. Federal and state environmental regulations are
changing rapidly and becoming more complex.
5. More lenders are examining the environmental
liabilities of businesses seeking loans.
6. Many consumers, suppliers, distributors, and investors
should not do business with environmentally weak
firms.
7. Liability suits and fines against firms having
environmental
problems are on the rise. 10-41
Be Proactive, Not Reactive
 A proactive policy views environmental

pressures as opportunities and includes
such actions as developing green
products and packages, conserving
energy, reducing waste, recycling, and
creating a corporate culture that is
environmentally sensitive.
10-42
ISO 14000/14001 Certification
 The ISO 14000 family of standards concerns
the extent to which a firm minimizes harmful
effects on the environment caused by its
activities and continually monitors and
improves its own environmental performance.
 ISO 14001 is a set of standards adopted by
thousands of firms worldwide to certify to their
constituencies that they are conducting
business in an environmentally friendly manner
 Results in an environmental management
system 10-43
Major Requirements of an Environmental
Management System (EMS)
 Show commitments to prevention of

pollution, continual improvement in
overall environmental performance, and
compliance with all applicable statutory
and regulatory requirements
 Identify all aspects of the organization’s
activities, products, and services that
could have a significant impact on the
environment, including those that are not
regulated 10-44
Major Requirements of an Environmental
Management System (EMS)
 Set performance objectives and targets for the

management system that link back to three
policies: (1) prevention of pollution, (2) continual
improvement, and (3) compliance
 Meet environmental objectives that include training
employees, establishing work instructions and
practices, and establishing the actual metrics by
which the objectives and targets will be measured
 Conduct an audit operation of the EMS
 Take corrective actions when deviations from the
EMS occur
10-45
2-46

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Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

 A group that has a fiduciary duty to

 Board of directors are elected

 Setting corporate strategy, overall direction,

1. No more than two directors are current or

5. The board meets regularly without

 Board are getting more involved not only in

 Boards continue to take more control of board

 Instead of merely being able to vote for or against

 A vision statement should answer the

 Shared vision creates a commonality of

 First, a good mission statement allows

A mission statement should:

1. Customers—Who are the firm’s customers?

6. Philosophy—What are the basic beliefs,

 We aspire to make PepsiCo the world’s (3)

 Dell’s mission is to be the most successful

 Procter & Gamble will provide branded

 To ensure that the code of ethics is read,

 Employees, consumers, governments, and

 Uniform standards defining environmentally

 A proactive policy views environmental

 Show commitments to prevention of

 Set performance objectives and targets for the

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