Advanced Strategic Management Stakeholder and Governance PDF

Advanced Strategic Management Stakeholder and Governance Introduction So far, you have seen that firms’strategies can be shaped by Internal resources and capabilites Competitive environment (es. Customers, sss Suppliers, Competitors)...

Advanced Strategic Management Stakeholder and Governance Introduction So far, you have seen that firms’strategies can be shaped by Internal resources and capabilites Competitive environment (es. Customers, sss Suppliers, Competitors) What else? 2 For example… GOVERNMENT 3 For example… SHAREHOLDERS 4  More formally… Stakeholders are those individuals or groups that depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends. Every firm is embedded in a network of relationships with different stakeholders, what is different is the approach that they can adopt to manage such relationships. 5  Managing stakeholder relationships Arms-lenght Approach Integrative Interactions with stakeholders are The firm’s interactions with based on bargaining power, which stakeholders are based on fairness drives the process to divide the value considerations. Fairness drives the created by the nexus of stakeholders. process to divide the value created An arms-length approach is by the nexus of stakeholders among manifested in organizational practices the different parties. This translates such as the use of secrecy and into organizational practices such as information asymmetries, and playing an open and honest exchange of stakeholders off against each other. relevant information, an inclination An arms-length approach is also to resolve problems through characterized by a reliance on collaboration, and the use of open economic and legal sanctions to ended poorly defined contracts. enforce obligations specified in elaborate formal contracts. Bridoux & Stoelhorst 2014 6  Managing stakeholder relationships What are the implications for firms? 7  Desiderable and Indesiderable outcomes STRATEGIC DRAWBACKS STRATEGIC CASE Overinvestment in stakeholder relationship, Support for implementing Relational inertia long term strategies. MANAGING MULTIPLICITY EARLY WARNING LEARNING cognitive complexities associated Identify emerging issues that have with attending to multiple signals the potential to become mainstream CONFLICTING INPUTS RISK MANAGEMENT CASE Conflict emergence Conflict mitigation 8 Conflicting expectations Pursuit of short-term profits may suit shareholders and managerial bonuses but come at the expense of investment in long-term projects Investing in growth strategies may require additional funding through share issue or loans, but thereby risk financial security and independence. In public services, excellence in specialised services might divert resources from standard services used by the majority (e.g. heart transplants come at the cost of preventative dentistry). Solutions? 9 Conflicting expectations Prioritize certain stakeholders at the expenses of others based on their likelihood/ability to influence strategic decisions. There are several frameworks that can be used to identify key stakeholders. Es. Power, Legitimacy Urgency (Mitchell, Angle and Wood (1997) or the Power-Attention matrix (Newcome 2003) Determining purpose and strategy –> whose expectations need to be prioritised? Identify the key blockers and facilitators of strategy Forecast stakeholder reactions according to the issue/strategy being considered 10  Stakeholder management ▪ Evidence about focusing the attention towards certain stakeholder category is mixed – Laplume et al (2021) – Bettinazzi & Zollo (2022) – Bridoux & Vishwanathan (2021) – Romito, Vurro & Russo (wp) – ! SPACE FOR MORE RESEARCH 11  Owners – a key type of stakeholder Owners are a key staholder. Their role and involvement vary alongside 2 dimensions: modes of management and purpose. 4 main owneship archetypes (+several hybrid forms) 12  Role of Ownership Entrepreneurial businesses Such businesses are substantially owned and controlled by their founders With growth, more professional managers and external investors are required. They typically focus on profit to survive and grow but may also have personal missions favored by the founder(s). 13  Role of ownership State-owned enterprises Organisations wholly or majority owned by national or regional governments. They are especially important in developing economies Politicians delegate day-to-day control to professional managers but may intervene on strategic issues. They need a financial surplus to fund investment but also pursue other objectives in line with government policy. 14  Role of ownership Family businesses Ownership has been passed on from the founding entrepreneur to descendants. Typically small to medium-sized enterprises (SMEs) but may be large Professional managers may be employed but ultimately the family remain in control. The need to retain family control may lead to rejecting high-risk strategies or those requiring substantial external finance 15  Role of ownership Publicly-quoted companies Shares are sold to the general public or financial institutions. Such companies are usually managed by professional managers. Their objective is to make a financial return for the owners (profit focus). Unsatisfied shareholders will sell their shares or seek to remove the managers 16  Corporate governance The varying power and attention of owners, and their frequent reliance on professional managers, raise issues of corporate governance. Corporate governance is concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation. Connecting shareholders (stakeholders) interests with management action is a vital part of strategy. Failures in corporate governance have contributed to calamitous strategic choices in many leading companies 18  Corporate governance This the governance chain (representation of roles and relationships of different groups involved in the governance of an organization) of a large, listed firm. Which typs of problems can emerge? 19  Corporate governance The governance issues in principal–agent theory arise from three problems: Knowledge imbalances Agents typically know more than principals about what can and should be done. Monitoring limits It is very difficult for principals to monitor closely the performance of their agents. This limit is made worse because principals usually have many investments, so their attention is likely to be split several ways. Misaligned incentives Unless their incentives are closely aligned to principals’ interests, agents are liable to pursue other objectives that reward them better. Principals might introduce bonus schemes in order to incentivize desired performance, but then agents may game the system: for example, they might use their superior knowledge to negotiate bonus targets that are in reality easy to meet. 20