BUSI ch 12/13

Agency Problem

A consequence of the separation of ownership (shareholders/principals) and control (managers/agents) in the corporation. Agency problems occur when the goals or principals differ from those of agents

Inside Directors

Executives or managers working inside the company who also hold seats on the board of directors.

Agents

Individuals or groups hired to administer the property or resources of principals. The managers of a corporation are considered to be agents of the shareholders

Outside Directors

Members of the board of directors not employed by the corporation in any other role

What Steers Managerial Incentives

Rewards: - Pay for Performance - Bonuses Stock Based Compensation: - Stock Option: option to buy stock at a certain price for a future date - Stock Grant: giving stock, primarily to executives

Stakeholder primacy model

- Community grants the company the right to exist - Stakeholders have rights to voice - Describes what managers actually do - Stakeholders can assist in creating competitive advantage

The Soft Square

- Shared Values - Staffing - Skills - Style

Creating An Ethical Climate

- Shared Values: Mission Statement‐A formal declaration of a company's core values, business objectives, and ethical aspirations. - Style: Tone and behavior of leadership team

The Hard Triangle

- Strategy - Structure - Systems

Shareholder Primacy model

- The shareholder puts money up, at risk -no guarantee of return - Legal owners, right to residuals and the right to monitor management action • Financial capital the critical resource • A single objective to maximize

Board Of Directors

A group of individuals appointed by principals to monitor the executive team of the corporation and ensure that those executives are acting in the best interests of the shareholders

Corporation

A legal structure for organizing where the organization is a distinct and separate entity from its owners

Partnerships

A legal structure for organizing where the owners of a business share ownership

Individual Proprietorship

A legal structure for organizing where the same person owns and runs the business.

Nexus Of Contracts

A model of the corporation suggesting that the firm is the sum total of its contracts with different stakeholders.

Culture

A pattern of behavioral assumptions that are considered appropriate and correct for organizational members.

Balanced Scorecard

A tool that measures four broad areas of organizational performance: financial results,customer goals, internal business processes, and learning and growth

Proxy Fight

An attempt by dissatisfied investors or stakeholders to gain seats on the board of directors, or to influence corporate policy.

Tender Offer

An offer by those hoping to control the corporation to purchase shares of dissatisfied investors. Typically initiated by activist shareholders looking to change management.

Stakeholder

Any person or group that can affect or is affected by the activities of the corporation

Example Stakeholders:

Customers, Employees, Suppliers, Investors, Communities, Government

Stakeholder model

The belief that a corporation should be run for the benefit of its entire stakeholder set, with no group enjoying primacy in decision making

Fiduciary Duty

The legal obligation of an agent, a fiduciary, to act in the best interests of the principal, or owner. Fiduciary duties include the duty of loyalty, to work for the optimal good of the owner, and the duty of care, to not take undue risk that would jeopardize the principal.

Principle of Line Of Sight

The notion that individual members in an organization should be able to connect their daily work and tasks to the overall strategic goals of the organization.

Principals

The owners of a resource or piece of property. In the corporation, shareholders are considered principles

Corporate Governance

The processes and structures that provide the ultimate decision making authority for the firm

Property Rights

The rights of owners to: (1) claim the residual earnings of the corporation, or the profits after all other stakeholders have been paid, and/or (2) monitor the management team to make sure that the team works in their best interests.

What Steers The Role of Business Ethics

Utilitarianism (John Stuart Mill) -Greatest good for the greatest number Rights (Immanuel Kant) - Treat everyone as an end, never a means Liberty (Robert Nozick) - Freedom of expression; individual freedom Ethic of Care (Carol Gilligan) - Relationships matter most

Shareholder Primacy

the belief that a corporation should be run, primarily or exclusively, for the benefit of its shareholders (owners) because it is they who are putting their capital at risk.