Professional Documents
Culture Documents
Hills, Jones
Chapter Eleven
Performance and Governance
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Agency Theory
Agency relationships arise whenever one party delegates decision-making authority or control over resources to another. Principal-Agent Relationships
Principal: person delegating authority Agent: person to whom authority is delegated
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Figure 11.2
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Governance Mechanisms
Governance mechanisms serve to limit the agency problem by aligning incentives between agents and principals and by monitoring and controlling agents. These mechanisms include:
The Board of Directors Stock-Based Compensation Financial Statements The Takeover Constraint
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Employee incentives
To establish standards against which performance can be measured To create systems for measuring and monitoring performance To compare actual performance against targets To evaluate results and take corrective actions Balanced Scorecard model approach is used to drive future performance
Employee stock options and stock ownership plans Compensation tied to attainment of superior efficiency, quality, innovation, and responsiveness to customers
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An ethical strategy is one that does not violate the accepted principles.
Copyright Houghton Mifflin Company. All rights reserved.
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Rights Theories
Recognizes that human beings have fundamental rights and privileges. Rights establish a minimum level of morally acceptable behavior.
Justice Theories
Focus on the attainment of a just distribution of economic goods and services that is considered to be fair and equitable.
Copyright Houghton Mifflin Company. All rights reserved.
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Behaving Ethically
To make sure that ethical issues are considered in business decisions, managers should:
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Favor hiring and promoting people with a well-grounded sense of personal ethics. Build an organizational culture that places a high value on ethical behavior. Make sure that leaders not only articulate but also act in an ethical manner. Put decision-making processes in place that require people to consider the ethical dimension of business decisions. Use ethics officers. Put strong corporate governance processes in place. Act with moral courage and encourage others to do the same.
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