Strategic Business Analysis Module 1.2 PDF

ACC0055 STRATEGIC BUSINESS ANALYSIS  Module 1 Corporate Governance and Social Responsibility Learning Outcomes: Know the role of Corporate Governance; Identify the role and responsibilities of the Board of Directors Understand the role of the Board in Strategic...

ACC0055 STRATEGIC BUSINESS ANALYSIS  Module 1 Corporate Governance and Social Responsibility Learning Outcomes: Know the role of Corporate Governance; Identify the role and responsibilities of the Board of Directors Understand the role of the Board in Strategic Management Know the social responsibilities of Strategic Decision Makers Define ethical decision making; and Enumerate the impact of the internet on corporate governance and social responsibility Introduction ► A corporation is a mechanism established to allow different parties to contribute capital, expertise, and labor for their mutual benefit. ► The investor/shareholder participates in the profits of the enterprise without taking responsibility of the operations. ► Management runs the company without being responsible for personally providing the funds. Management (Headed by the chief executive officer) Board of Directors Shareholders (Elected by the shareholders to (Owners) represent their interests)  Top 2000 Corporations www.forbes.com/lists/global2000/ 2024 Top Corporations in the Philippines Philippines’s Largest Companies by market capitalization, 2024 https://ceoworld.biz/2024  CORPORATE GOVERNANCE ► Relationship among stakeholders that is used to determine a firm’s direction and control on its performance. ▪ How firms monitor and control top-level managers’ decisions and actions affects the implementation of strategies ▪ Effective governance aligns manager’s decisions with shareholders’ interests can help produce a competitive advantage for the firm. Three (3) Internal governance mechanisms are used in modern corporation: ▪ Ownership Corporation – based on the number of large-block shareholders and the percentage of shares they own ▪ The Board of Directors – composed of insiders, related outsiders, outsiders. It has an obligation to approve all decisions that might affect the long-run performance of the corporation. ▪ Executive Compensations - seeks to align the interests of managers and owners through salaries, bonuses and long-term cash incentives i.e. stock awards and options. BOARD OF DIRECTORS ▪ Composed of insiders, related outsiders, outsiders. It has an obligation to approve all decisions that might affect the long-run performance of the corporation. ▪ an obligation to approve all decisions that might affect the long-run performance of the corporation. Responsibilities of the Board of Directors ▪ Laws and standards defining the responsibilities of boards of directors vary from country to country. 1. Setting corporate strategy, overall direction, mission or vision 2. Hiring and firing the CEO and top management 3. Controlling, monitoring, or supervision top management 4. Reviewing and approving the use of resources 5. Caring for shareholder’s interests PLDT FINANCIAL FIASCO IN Q1 2023 P48-billion budget overrun traced to its capital expenditures from 2019 to 2022 procured too many assets, particularly 5G sites, and failed to maximize them due to the slow adoption of the market. 5G hardware rollout but decided to cancel due to slow turn out Ordered 61 towers built by Huawei and 54 towers built by Ericsson → had to cancel towers it ordered as it had to shift to BTS or build-to-suit towers Other factors include transport costs, site rollout and the fiber-to-the-home build out En masse resignation of the key financial executives. PLDT senior vice president and network head Mario Tamayo took an early retirement effective April 14. PLDT senior vice president, chief financial officer and chief risk management officer Annabelle Chua had earlier taken an early retirement starting April 16. PLDT vice president Alexander Kibanoff has quit the telco by availing of its manpower reduction program. Role of the Board in Strategic Management How does a board of directors fulfill these many responsibilities? The role of the board od directors in strategic management is to carry out three basic tasks. ▪ Monitor: By acting through its committees, a board can keep abreast of developments inside and outside the corporation, bringing to management’s attention developments it might have overlooked. ▪ Evaluate and influence: A board can examine management’s proposals, decisions, and actions, agree or disagree with them, give advise, offer suggestions and outline alternatives. ▪ Initiate and determine: A board can delineate a corporation’s mission and specify strategic options to its management. Only the most active boards take on this task in addition to the two previous ones. Board of Directors Continuum ❑ A board of directors is involved in strategic management the extent that it carries out the three tasks of monitoring, evaluating and influencing and initiating and determining. LOW HIGH Passive Active Phantom Rubber Stamp Minimal Review Nominal Active Catalyst Participation Participation Never knows Permits officers to Formally reviews Involved to a Approves, Takes the leading what to do; if make all selected issues limited degree in questions, and role in anything, no decisions; it votes that officers the performance makes final establishing and degree of as the officers brings to its or review of decision on modifying the involvement recommend on attention selected key mission, strategy, mission, action issues decisions, policies and objectives, indicators, or objectives; Has strategy and programs of active board policies. It has a management committees; very active Performs fiscal strategy and management committee audits Members of the board of directors ▪ The boards of most publicly owned corporations are composed of both inside and outside directors. ▪ Inside directors (sometimes called management directors) are typically officers or executives employed by the corporation. ▪ Outside directors (sometimes called non-management directors) may be executives of other firms but are not employees of the board’s corporation. ▪ Affiliated Directors – who though not really employed by the corporation, handles the legal or insurance work for the company or are important suppliers; ▪ Retired Directors – who used to work for the company, such as the past CEO (who is partly responsible for much of the corporation’s current strategy and who has probably groomed the current CEO as his or her replacement); ▪ Family Directors – Who are descendants of the founder and own significant blocks or stocks; Trends in Corporate Governance ▪ Some today’s trend in governance that are likely to continue include the following: 1. Boards are getting more involved not only in reviewing and evaluating company strategy but also in shaping it 2. 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 governance 3. Shareholders are demanding that directors and top managers own more than token amounts of stock in the corporation 4. Non-affiliated outside (non-management) directors are increasing their numbers and power in publicly held corporations as CEOs loosen their grips on boards. 5. Boards are getting smaller, not only 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 Trends in Corporate Governance ▪ Some today’s trend in governance that are likely to continue include the following: 6. Boards continue to take more control of board functions by either splitting the combined Chair/CEO position into two separate positions or establishing a lead outside director position 7. As corporations become more global, they are increasingly looking for international experience in their board members 8. Society, in the form of special interest groups, increasingly expect board of directors to balance the economic goal of profitability with the social needs of society. Corporate Governance: The Role of Top Management ► The top management function is usually conducted by the CEO of the corporation in coordination with the COO or President, Executive Vice President and Vice President of divisions and functional areas. ► Even though strategic management involves everyone in the organization, the board of directors holds top management that is primarily responsible for the strategic management of the firm. Responsibilities of Top Management a. Involves getting things accomplished through and with others in order to meet the corporate objectives b. Top management’s job is multidimensional and is oriented toward the welfare of the total organization. c. Specific top management’s task vary from firm to firm and are developed from an analysis of the mission, objectives, strategies and key activities of the corporation. d. Task are typically divided among the members of the top management teams with a diversity of functional and educational backgrounds ad length of time with the company e. Improvements in corporate market share and profitability f. Provide executive leadership and a strategic vision g. Manage the strategic planning process Provide Executive Leadership and Strategic Vision ▪ Executive leadership is the directing of activities toward the accomplishment of corporate objectives. Executive leadership is important because it sets the tone for the entire corporation. ▪ Strategic Vision is a description of what the company is capable of becoming. It is often communicated in the mission statement. ▪ People in an organization want to have a sense of mission, but only the top management is in the position to specify and communicate this strategic vision to the general workforce. ▪ “Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion.” – John Welch Provide Executive Leadership and Strategic Vision ▪ Three key characteristics of the Chief Executive Officer (CEO) a. The CEO articulates a strategic vision for the corporation b. The CEO presents a role for other to identify with and to follow c. The CEO communicates high performance standards and also shows confidence in the followers’ abilities Social Responsibilities of a Business Firm ▪ The concept of social responsibility proposes that a private corporation has responsibilities to society that extend beyond making a profit ▪ There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. – Friedman  Social Responsibilities of a Business Firm ▪ Carroll’s Four Responsibilities of Business I. Economic Responsibilities II. Legal Responsibilities III. Ethical Responsibilities IV. Discretionary Responsibilities (MIGHT DO) (SHOULD I DO) (HAVE TO DO) (MUST DO) Corporate Stakeholders ▪ The concept that business must be socially responsible sounds appealing until we ask, “Responsible to whom?” ▪ A corporation’s task environment includes a large number of groups with interest in a business organization’s activities. ▪ The above mentioned groups are referred to as a Corporate stakeholders, because they are affect or affected by the achievement of the firm’s objectives. Should a corporation be responsible only to some of these groups, or does a business have an equal responsibility to all of them ALL ABOUT ETHICS, CSR AND SUSTAINABILITY Ethics, corporate social responsibility, and sustainability are “social” issues that arise frequently in international business. Ethics are the core starting point. refers to accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization. Business ethics are the accepted principles of right or wrong that govern the conduct of businesspeople. Ethical strategy refers to a strategy, or course of action, that does not violate a company’s business ethics. Can you give an example of an unethical behavior? ETHICS AND INTERNATIONAL BUSINESS Many ethical issues rooted in differences in political systems, laws, economic development, and culture. Might be normal in one country and illegal in another. Most common ethical issues involve: Employment practices. Human rights. Environmental regulations. Corruption. Moral obligations of multinational corporations. DETERMINANTS OF ETHICAL BEHAVIOR Personal Decision- Ethics Organization Making al Culture Process Ethical Behavior Unrealistic Societal performance Culture goals Leadership Moral Relativism ► Moral relativism may believe that all moral decisions are deeply personal and that individuals have the right to run their own lives, each person should be allowed to interpret situations and act on his or her own moral values..  Kohlberg’s Level of Moral Development I. The preconventional level is characterized by a concern for self. Small children and others who have not progressed beyond this stage evaluate behaviors on the basis of personal interest – avoiding punishment or qui pro quo II. The conventional level is characterized by considerations of society’s laws and norms. Actions are justified by an external code of conduct III. The principled level is characterized by a person’s adherence to an internal moral code. The individual at this level looks beyond norms or laws to find universal values or principles. Code of Ethics ❖ Code of ethics specify how an organization expects its employees to behave while on the job. ❖ Developing code of ethics can be a useful way to promote ethical behavior, especially for people who are operating the conventional level of moral development. ❖ Importance of code of ethics are: ✓ Clarifies company expectations of employee conduct in various situations ✓ Makes clear that the company expects its people to recognize the ethical dimensions in decisions and actions Guidelines for Ethical Behavior ▪ Ethics is defined as the consensually accepted standards of behavior for an occupation, a trade or a profession. ▪ Law refers to formal codes that permit or forbid certain behavior and may or may not enforce ethics or morality Guidelines for Ethical Behavior ► Three basic approaches to ethical behavior 1. Utilitarian approach – This approach proposes that actions and plans should be judge by their consequences 2. Individual rights approach – This approach proposes that human beings have a certain fundamental rights that should be respected in all decisions 3. Justice approach – This approach proposes that decision makers be equitable, fair, and impartial in the distribution of costs and benefits to individual and groups. Guidelines for Ethical Behavior ► Cavanagh proposes that we solve ethical problems by asking the following three questions regarding an act or a decision 1. Utility – Does it optimize the satisfaction of all stakeholders? 2. Rights – Does it respect the right of the individual involved? 3. Justice – It is consistent with the canons of justice? ► Another approach is Immanuel Kant’s two principles of categorical imperatives. 1. A person’s action is ethical only if that person is willing for that same action to be taken by everyone who is similar situation. Remember the golden rule: Treat others as you would like them to treat you. 2. A person should never treat another person simply as a means, but always as an end. This means that an action morally wrong for a person if that person uses others merely as means for advancing his or her own interests. Impact of the internet on corporate governance and social responsibility ► Electronic commerce is offering a great deal of benefits, but it is also raising a number of issues related to social responsibility and stakeholders. Such as user’s privacy, decency standards, etc. ► A number of problems may make it difficult to keep the Internet unregulated. Some of these are: 1. Cybersquatting – This occurs when a private speculator purchases the right to a valuable corporate brand name domain, such as businessweek.com and then sells it to the company at an exorbitant price. 2. Fraud – The internet is an excellent source of information – information that can be used to defraud innocent people by temporarily stealing their identity. 3. Taxation – In international trade, goods tend to be subject to tariffs, whereas services are not. The internet is making this distinction difficult 4. Public Interest