Corporate Strategy and Corporate Governance

Corporate Strategy and Corporate Governance

Corporate Governance is concerned with serving interest of the owners (stockholders) and, is much broader in perspective than corporate management Corporate Governance
Denotes direction and control of the affairs of the company Directors are subject to their duties Obligation and responsibilities to act in the best interest of their company To give direction and remain accountable to their shareholders and other beneficiaries for their action

Corporate Strategy and Corporate Governance

Corporate Governance Is primarily guided by the shareholders Concentrates on organizational structure, rules, procedures and systems for better governance Attempts to streamline operations for good governance Corporate Strategy Focuses more on market share, long term growth and development Also concerned with structure and system but focuses more on the strategic planning and resource allocation Depends more on strategic functions (manufacturing, finance, marketing and human resource) and strategic implementation Dictated by market, competitors and customers Assessed in terms of both financial and non financial indicators or measure of performance

The guiding force behind corporate governance is the shareholders Effectiveness of Corporate Governance is judged mostly by financial results

Importance of Corporate Governance

Corporate governance refers to the rules, procedures, and administration of the firm's contracts with its shareholders, creditors, employees, suppliers, customers, and government. Shareholders are becoming more demanding and more concerned about their rights and privelages They expect high profit and large dividents

Different Model of Corporate Governance

In the UK and the US, corporate governance mechanisms emphasize the relationship between shareholder and management. In countries such as France, Germany and the Netherland, the corporate governance mechanisms take a stakeholders' approach to governance, aiming to balance the interests of owners, managers, major creditors and employees.

Different Model of Corporate Governance

Anglo-Saxon Model (US and UK)
Strengths Dynamic market orientations Fluid Capital Internationalization possible approach Weaknesses Volatility and instability Short term approach Inadequate governance structure

Different Model of Corporate Governance

European Model (Germany)
Strengths Long term Industrial Strategy Very stable Capital Strong governance procedures Weaknesses Internationalization difficult Vulnerability of companies to global market

Different Model of Corporate Governance

Asian Model (Japan)
Strengths Long term Industrial Strategy Stable Capital Overseas Investments Weaknesses Growth of Institutional investor activism Growth of financial speculation Secretive procedures

Corporate Strategy and Corporate Governance: Complementarity and Conflict Corporate Strategy Conflict Corporate Governance
Long term Growth Development/ diversification to require additional funding (share issue or loan) Sacrifice of short term profitability, cash flow and pay level/ hikes Financial independence may be sacificed

Expanding capital base: public ownership of shares

More openness and accountability from the management

Cost efficiency through technology or new Job losses in the organisation investment Expanding into mass market; product and price strategy Family businesses to grow; induction of professional managers Decline in quality standards Owners may lose control

Sarbanes-Oxley Act
The Sarbanes-Oxley Act, informally referred to as Sarbox or Sox, is an attempt by the federal government in the United States to legislate several of the principles recommended in the Cadbury and OECD reports. Rights and equitable treatment of shareholders:[14][15][16]
openly and effectively communicating information and by encouraging shareholders to participate in general meetings.

Interests of other stakeholders:[17] Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers. Role and responsibilities of the board:[18][19] The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment Integrity and ethical behaviour:[20][21] Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. Disclosure and transparency:[22][23] Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.