Comprehensive Strategic Management & Corporate Governance Review

1987 UN Brundtland Commission Definition

Meeting the needs of the present without compromising the ability of future generations to meet their own needs.

1992 Deloitte / IISD Definition

Adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining, and enhancing the human and natural resources that will be needed in the future.

Normative Ethics

The branch of philosophical ethics that investigates the questions that arise regarding how one ought to act, in a moral sense.

Normative Ethics Creep

Slowly evolving the components of a concept that has already been accepted as ethically sound in order to inculcate new ideas under the existing ethical halo.

The Halo Effect

Once a concept is accepted as virtuous, small changes to its definition can be made incrementally without causing much pushback.

Corporate Social Responsibility (CSR)

Firms have obligations beyond profit.

Environmental, Social, Governance (ESG)

Standards measuring a company's impact on society and environment.

Circular Economy

Reduce, Reuse, Recycle, Remanufacture — focused on actionable resource stewardship.

Negative Externalities

When the production or consumption of a product or service results in a net cost to a third party.

Classical Economics and Sustainability

Negative externalities, private property, and agency theory are already accounted for in classical economic theory.

Measurement, Valuation, and Enforcement

Key problems in sustainability that remain to be addressed.

Business-Level Strategy

How a firm competes in a single line of business.

Corporate-Level Strategy

Actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets.

Diversification

The concept of managing a group of businesses to create value.

Single Business

A strategy type where 95%+ of revenues come from one business.

Dominant Business

A strategy type where 70-95% of revenues come from one business.

Related Constrained

A strategy type where all businesses share product, technological, and distribution linkages.

Forward Integration

A firm moves into the adjacent line of business closer to the end customer/delivery.

Economies of Scope

Cost savings that occur when a firm transfers capabilities and competencies developed in one of its businesses to another.

Good Market Power

Market power that allows a firm to earn above-normal rates of return in a competitive market.

Bad Market Power

Market power that restricts competition, leading to monopolistic pricing and anti-competitive behavior.

Corporate Governance

The set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations.

Common Shareholder

An owner of a publicly traded company.

Residual Claimant

A term for shareholders who receive what's left after all other claims are paid.

Separation of Ownership and Managerial Control

The modern corporate structure where professional managers make decisions while shareholders remain as investors.

Financial Economies

Risk-adjusted cost savings realized through improved allocations of financial resources.

Value Creating Diversification

Diversification that leads to increased value through synergies.

Value Neutral Diversification

Diversification that does not create synergy but adapts to external forces.

Risk Reduction

Diversifying across unrelated industries to reduce exposure to any single market's downturn.

Anti-Trust Legislation

Laws that discouraged horizontal and vertical mergers to prevent excess market power.

Agency Problem

The potential for conflicts of interest that arise from the separation of ownership and control in a company.

Agency Theory

A theory that explains the relationship between principals (shareholders) and agents (managers) in corporate governance.

Agency Relationship

Exists when one or more persons (the principal or principals) hire another person or persons (the agent or agents) as decision-making specialists to perform a service.

Managerial Opportunism

The seeking of self-interest with guile (cunning or deceit), which can lead to unpredictable behaviors by agents.

Internal Governance Mechanisms

Mechanisms within a company that help align the interests of shareholders and managers.

External Governance Mechanisms

Mechanisms outside a company that influence corporate governance, such as market forces and regulatory bodies.

Ownership Concentration

Defined by the number of large-block shareholders and the total percentage of the firm's outstanding shares they own.

Large-Block Shareholder

Typically owns 5% or more of a company's issued shares and has the incentive and resources to monitor management closely.

Institutional Shareholders

Financial institutions that control large-block shareholder positions, accounting for approximately 80% of equity in U.S. markets.

Board of Directors

An elected oversight body that works for the shareholders and provides governance without managing day-to-day operations.

Insiders

The firm's CEO and other top-level managers involved in day-to-day operations.

Outsiders

Independent individuals not involved in the firm's operations, providing oversight and counsel.

Sarbanes-Oxley (SOX)

A law passed in 2002 to improve transparency in financial reporting and corporate governance.

Golden Parachute

A lump-sum payment of cash given to top-level managers when the firm is acquired in a takeover bid.

Greenmail

The repurchase of a target firm's shares at a premium in exchange for an agreement that the acquirer will not target the company for takeover.

Poison Pill

An action taken by a target firm to make its stock less attractive to a potential acquirer.

Strike Price (Exercise Price)

The price at which the option holder is allowed to buy the share(s) of stock.

Cliff

The phased-in period during which stock options become tradable.

Vested Stock

When you are allowed to transact on an option; if it is NOT vested, you cannot exercise it.

Exercising a Stock Option

The act of transacting — exchanging your option for a share of stock.

Stock Option Value Formula

Value = (Current Stock Price − Strike Price) × Number of Options Exercised.

Sustainability

The ability to meet present needs without compromising the ability of future generations to meet their own needs.

Environmental Sustainability

The responsible interaction with the environment to avoid depletion or degradation of natural resources.

Social Sustainability

The ability of a community to develop processes and structures that not only meet the needs of its current members but also support future generations.

Economic Sustainability

The ability to support a defined level of economic production indefinitely.

Sustainable Development

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Carbon Footprint

The total amount of greenhouse gases produced directly and indirectly by an individual, organization, event, or product.

Renewable Resources

Natural resources that can be replenished naturally over time, such as solar energy, wind energy, and biomass.

Non-renewable Resources

Resources that do not replenish at a sustainable rate, such as fossil fuels and minerals.

Ecosystem Services

The benefits that humans derive from ecosystems, including provisioning, regulating, cultural, and supporting services.

Sustainable Agriculture

Farming practices that meet current food needs without compromising the ability of future generations to produce food.

Greenwashing

The practice of promoting misleading information about the environmental benefits of a product, service, or company.

Water Footprint

The total volume of freshwater used to produce the goods and services consumed by an individual or community.

Green Building

The practice of creating structures and using processes that are environmentally responsible and resource-efficient.

Waste Management

The collection, transportation, processing, recycling, or disposal of waste materials.

Sustainable Transportation

Transportation methods that are environmentally friendly and reduce carbon emissions.

Environmental Impact Assessment

A process used to evaluate the potential environmental impacts of a proposed project or development.

Sustainable Supply Chain

A supply chain that considers environmental and social impacts in its operations and sourcing.

Ecological Footprint

A measure of human demand on the Earth's ecosystems, comparing human demand with the planet's ecological capacity.

Value Chain

A model that describes the full range of activities required to create a product or service

Five Forces

A framework for analyzing the competitive forces that shape an industry

International Diamond Model

A model that explains why certain industries within a nation are competitive internationally

Corporate-Level Core Competencies

Complex sets of resources and capabilities that link different businesses through managerial and technological knowledge

Corporate Relatedness

The sharing of capabilities and competencies across business units through corporate headquarters

Operational Relatedness

Sharing resources among the operational activities of the firm across business units

Institutional Owners

Financial institutions that control large-block shareholder positions, accounting for approximately 80% of U.S. equity

Executive Compensation

A governance mechanism that seeks to align the interests of managers and owners

2022 UN Sustainable Development Agenda

A universal call to action to end poverty, protect the planet, and improve the lives and prospects of everyone, everywhere.

Triple Bottom Line

People + Planet + Profit; the sweet spot where economic, social, and environmental performance overlap.

Synergy

When the value created by business units working TOGETHER exceeds the value those same units create working independently.

Levels of Diversification

Categories determined by the amount of total revenues from a single business and the level of relatedness across businesses.

Related Linked

A strategy type with only limited linkages between dominant businesses.

Unrelated Diversified

A strategy type with no identifiable linkages between businesses, also called a conglomerate.

Backward Integration

A firm produces its own inputs, moving toward suppliers.

Market Power

The ability of a firm to sell its products at prices above the existing competitive level.

Tax Laws

Regulations that historically influenced corporate strategies regarding dividends and acquisitions.

Managerial Self-Interest

Actions of entrenched management that may prioritize their own job security over shareholder value.

Agency Costs

The sum of incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals due to governance mechanisms.

Divergent Risk Preferences

The difference in risk preferences between principals (shareholders) who prefer riskier investments and agents (managers) who prefer less risk.

Shareholder Activism

Actions shareholders take with the intent of influencing corporate policy and practice.

Related Outsiders

Individuals not involved with day-to-day operations but have a relationship with the firm, providing independent counsel.

Market for Corporate Control

An external governance mechanism active when a firm's internal governance mechanisms fail, involving the buying of undervalued corporations.

Stock Option (Call Option)

The right — but NOT the obligation — to buy a share of stock in a company at a given price within a given timeframe.

Biodiversity

The variety of life in the world or in a particular habitat or ecosystem.

Climate Change

Long-term alteration of temperature and typical weather patterns in a place.

Carbon Neutrality

Achieving net zero carbon emissions by balancing emitted carbon with an equivalent amount sequestered or offset.

Sustainable Energy

Energy that is produced and used in ways that do not deplete natural resources.

Sustainable Tourism

Tourism that respects the environment and local cultures while promoting conservation and sustainability.

CSR Pyramid

Economic, Legal, Ethical, Philanthropic responsibilities

Generic Strategies

Strategies that can be used by a firm to gain a competitive advantage