Strategic Management Chapter 2

Affiliated directors

directors who, though not really employed by the corporation, handle the legal or insurance work for the company or are important suppliers

Agency theory

a theory stating that problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation

Board of directors’ continuum

a range of the possible degree of involvement by the board of directors (from low to high) in the strategic management process

Board of director responsibilities

commonly agreed obligations of directors, which include: 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; and caring for shareholder interest

Corporation

a mechanism established to allow different parties to contribute capital, expertise, and labor for their mutual benefit; governed by the board of directors overseeing top management, with the concurrence of the shareholders

Codetermination

the inclusion of a corporation’s workers on its board of directors

Corporate governance

the relationship among the board of directors, top management, and shareholders in determining the direction and performance of a corporation

Direct interlocking directorate

a condition that occurs when two firms share a director or when an executive of one firm sits on the board of a second firm

Due care

the obligation of board members to closely monitor and evaluate top management (direct the affairs, but not manage them)

Executive leadership

the directing of activities toward the accomplishment of corporate objectives; sets the tone for the entire corporation

Family directors

descendants of the founder and own significant blocks of stock

Golden parachute

a term given to the very generous exit packages provided when an executive leaves or is forced to leave an organization

Inside directors

an officer or executive employed by a corporation who serves on that company’s board of directors; also called management director

Indirect interlocking directorate

when two corporations have directors who serve on the board of a third firm

Interlocking directorate

useful for gaining both inside information about an uncertain environment and objective expertise about potential strategies and tactics

Key characteristics of effective CEOs

articulate a strategic vision for the corporation, present a role for others to identify with and follow, communicate high

Lead director

an outside director who calls meetings of the outside board members and coordinates the annual evaluation of the CEO; consulted by the Chair/CEO regarding board affairs and coordinates the annual evaluation of the CEO

Outside directors

members of a board of directors who are not employees of the board’s corporation; also called non

Poison pills

a term used for a collection of approaches utilized by a board of directors to create a situation that makes taking over a company more difficult

Role of the board in strategic management

monitor developments inside and outside the corporation, evaluate and influence management proposals/decisions/actions, initiate and determine the corporation’s mission and specify strategic options

Retired executive directors

past leaders of a company kept on the board of directors after leaving the company; partly responsible for past decisions affecting current strategy

Sarbanes-Oxley Act

legislation passed by the U.S. Congress in 2002 to promote and formalize greater board independence and oversight; designed to protect shareholders from excesses and failed oversight of board of directors, whistleblower procedures, improved corporate financial statements

Implementation of Sarbanes Oxley Act

SEC requires a company disclosure whether it has adopted a code of ethics that applies to CEO/CFO AND also requires that auditing, nominating, and compensation committees be staffed entirely by independent outside directors

S&P Corporate Governance Scoring System

researches four major issues: ownership structure and influence, financial stakeholders rights and relations, financial transparency and information disclosure, board structure and processes

Staggered boards

only a portion of board members stand for re-election when directors serve more than one-year terms

Strategic planning staff

charged with supporting both top management and the business units in the strategic planning process

Responsibilities of strategic planning staff

identify and analyze companywide strategic issues, and suggest corporate strategic alternatives to top management; work as facilitators with business units to guide them through the strategic planning process

Stewardship theory

a theory proposing that executives, because of their long tenure with the corporation, tend to be more motivated to act in the best interests of the corporation than in their own self

Strategic vision

a description of what the company is capable of becoming

Top management responsibilities

leadership tasks that involve getting things accomplished through, and with others in order to meet the corporate objectives

Transformational leadership

a leader who causes change and movement in an organization by proving a strategic vision