Chapter 2

Family Directors

Descendants of the founder and own significant blocks stock (with personal agendas based on a family relationship with the current CEO).

Executive Leadership

Directing of activities toward the accomplishment of corporate objectives. This is important because it sets the tone for the entire corporation.

Top Management responsibilities:

-getting things accomplished through and with others in order to meet the corporate objectives -multidimensional and oriented toward the welfare of the total organization

Poison Pills

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Strategic Vision

A description of what the company is capable of becoming.

Corporation

A mechanism established to allow different parties to contribute capital, expertise and labor for their mutual benefit.

Strategic planning staff

Charged with supporting both top management and the business units in the strategic planning process -Identify/analyze company-wide issues -Work as facilitators with business units to guide them through strategic planning

Lead Director

Consulted by the Chair/CEO regarding board affairs and coordinates the annual evaluation of the CEO.

Chairman of the Board

Ensure that the board and its committees perform their functions as stated in board's charter.

Chairman of the Board (Outside)

Expertise. Tends to be more objective.

*Inside Directors*

Sometimes called management directors, are typically *officers or executives employed by the corporation.*

*Outside Directors*

Sometimes called non-management directors, may be executives of other firms but are *not* employees of the board's corporation.

Indirect Interlock

Two corporations have directors who also service on the board of a third firm, such as a bank.

Direct Interlocking Directorate

Two firms share a director or when an executive of one firm sits on the board of a second firm.

Interlocking Directorates

Useful for gaining both inside information about an uncertain environment and objective expertise about potential strategies and tactics. *Illegal*

Conflict of interest

*Agency Theory* issue that occur in relationships between principals and their agents: This arises when the desires pf objectives of the owners and the agents conflict.

Moral hazard

*Agency Theory* issue that occur in relationships between principals and their agents: This refers to the situation where it is difficult or expensive for the owners to verify what the agents are actually doing.

Two-tiered System of codetermination

1) A supervisory board elected by shareholders and employees to approve or decide corporate strategy and policy 2) A management board appointed by the supervisory board to manage the companies activities. Germany pioneered this system.

*Three key characteristics of effective CEOs:*

1) Articulate a strategic vision for the corporation. 2) Present a role for others to identify with and follow. 3) Communicate high-performance standards and also show confidence in the followers' abilities to meet these standards.

*Stewardship Theory*

Because of the long tenure with the corporation, insiders (senior executives) tend to identify with the corporation and its success.

Transformational Leaders

Leaders who provide change and movement in an organization by providing a vision for that change.

Board of Directors

Selected by shareholders with the idea that they have their best interest in mind. Doesn't make management decision. -May influence -Set direction -Sustainability = long term and getting better

Role of the *Board in Strategic Management*

Monitor, evaluate and influence, initiate and determine

Affiliated Directors

Not really employed by the corporation, handle the legal or insurance work for the company or are important supplier.

Staggered Board

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

Chairman of the Board (Inside)

Passion, loyalty. Employed by the corporation.

*Agency Theory*

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.

*Corporate Governance*

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

Due Care

The board is required to direct the affairs of the corporation but not to manage them. This means that the careless director can be held personally liable for the harm done.

Codetermination

The inclusion of a corporation's workers on its board.

Sarbanes-Oxley Act

This act was designed to protect shareholders from the excesses and failed oversight that characterized criminal actives at Enron, Tyco, WorldCom, Adelphia Comunications, Qwest, and Global Crossing, among other prominent firms. -Whistleblower -Improved corporate

Retired Executive Directors

Those who used to work for the company, such as the past CEO who is partly responsible for much of the corporation's current strategy and who probably groomed the current CEO as his or her replacement.