management topic 3 (governance & leadership)

Opportunities & Challenges for Woman in Leadership: Women comprise only _____% of senior executive positions The most common barrier for women is masculine stereotyping of desired qualifications for managerial roles Contrary to popular views, research data shows no difference in women and men's leadership styles in large organizations however in mid-size organizations women tend to rely more on their socialization skills while men tend to rely more on their authority Four factors contribute to women's increasing participation in senior roles: NAME EM

13.5 women are changing, leadership roles are changing, organizational practices are changing, and culture is changing

Downside of Bureaucratic Controls

A control system will not be effective without consideration of how employees and other parties will react to it For effective control of employee behavior, managers should consider three types of potential responses to control: 1. Rigid bureaucratic behavior 2. Tactical behavior 3. Resistance

oversight responsibilities of the board of directors

As part of their fiduciary responsibility, boards of directors are charged with keeping a close watch over the firm - this is referred to as the "oversight function" not there everyday but meet periodically Oversight responsibilities include: -Appointing, compensating, and evaluating the Chief Executive Officer (CEO). This may include, if necessary, firing the CEO. -Review, understand and monitor implementation of the firm's strategic plans -Review and understand the firm's risk assessment and oversee the firm's risk management processes -Review, approve, and monitor annual operating plans and budgets -Ensure the clarity and integrity of accounting and financial reporting -Advise management on significant issues facing the firm -Review and approve significant corporate actions, such as mergers and acquisitions -Oversee legal and ethical compliance

list the 3 broad strategies for achieving organizational control

Bureaucratic control Market control Clan control

responses to bureaucratic control: tactical behavior

Control systems will be ineffective if employees engage in tactics aimed at beating the system The most common type of tactical behavior is to manipulate information or report false performance data (work around it)

enterprise risk management

Enterprise Risk Management ("ERM") bridges both Corporate Governance as well as Controls -ERM is intended to help the firm achieve its strategic objectives -ERM regulates the behavior of managers and employees

3 types of control

Feedforward Control Concurrent Control Feedback Control

The use of clan controls has grown in organizations because:

The nature of work has changed in many businesses and sometimes there is no "best way" of doing a job The nature of management has changed in that jobs have become increasingly knowledge-based and it is not possible for managers to understand all jobs that they supervise The employment relationship has changed such that employees expect more engaging jobs and a chance to participate in decision making

enterprise risk management: In the late 1980's and 1990's, financial institutions began to build processes for managing financial risks associated with their core business, but these processes soon expanded to include non-financial risks This practice became known as "Enterprise Risk Management" or "ERM" - "Enterprise Risk Management" refers to the management of all of an enterprise's risks in a consistent and unified manner in order to help the firm achieve its strategic objectives Thus, ERM addresses all risks, both financial and other risks While financial institutions continue to lead the development and evolution of ERM, many non-financial corporations have begun to adopt ERM as well

noice

shareholders

The owners of a corporation They invest their money in the corporation and, in exchange, receive shares of common stock which evidence their ownership. The shareholders hope to earn a return on their investment. The magnitude of the return is highly influenced by the success of the corporation.

leadership

The process of influencing an organized group toward achieving its goals

market controls - transfer pricing

Transfer pricing is a common method used to regulate internal exchanges of goods or services between business units within the same organization "Transfer price" is the price charged by one business unit to another unit within the same organization This provides an incentive for business units to increase their productivity and cost effectiveness.

bureaucratic control - describe & examples

Uses formal rules, standards, hierarchy, and legitimate authority. Works best where tasks are certain and workers are independent. Budgets, statistical reports, performance appraisals

market control - describe & examples

Uses prices, competition, profit centers, and exchange relationships. Works best where tangible output can be identified and a market can be established between parties. Business units within a firm may be treated as profit centers and trade products or services with one another based on prices that reference economic prices set externally

clan controls

refer to the reliance on organizational culture and "empowerment" to regulate employee behavior - and an associated acceptance by employees of organizational culture, expectations, and values

empowerment (clan controls)

refers to the delegation of responsibility to employees for behaving and making decisions in the best interest of the firm

board of directors

a group that has fiduciary responsibility to ensure the the company is run consistent with the long-term interests of the shareholders.  acts as an intermediary between the shareholders and management. In the United States, the LAW imposes on the board a fiduciary (act in good faith & honest way to represent interests of owners) duty to ensure that the company is run consistent with the long-term interest of the shareholders.

2 main differing views of leadership

academics vs experience

control

any process that directs the activities of individuals toward the achievement of organizational goals Control is essential for the attainment of any management objective

Because of their ownership stake, shareholders have an interest in: -_____ a qualified chief executive officer and senior managers  -_____ the behavior and performance of the management team and their ability to operate the firm and achieve strategic objectives -Having the ability to _____ significant strategic decisions

selecting monitoring influence

standard

the expected performance for a given goal: a target that establishes a desired performance level, motivates performance, and serves as a benchmark against which actual performance is assessed.

corporate governance

deals with the relationship among shareholders, management, and the board of directors in determining the direction and performance of the corporation

concurrent control

entails collecting performance information in real time, while a task or project is done Corrective action can be taken immediately Example: FedEx and UPS use GPS tracking to monitor their delivery vehicles and make immediate adjustments to delivery routes

corporate governance helps align the ____ of managers & shareholders despite their separation

interests

feedback control

involves collecting performance information after a task or project is done Information is used to correct future performance of the same task or project Examples: receiving customer feedback after purchasing a product The disadvantage of a feedback control is that it may occur too late in order to improve a temporary project or process Feedback controls are used extensively in businesses despite their limitations

feedforward control

involves collecting performance information before a task or project is done Focuses on preventing future problems -Collect performance information about past performance and the information prior to starting a new task or project -Example: a restaurant can work with farmers to improve the quality of food supplies, which will then provide the restaurant with high quality ingredients

3 main mechanisms of corporate governance

1. A committed and involved Board of Directors that acts in the best interests of the shareholders to create long-term value (can be shareholders or maybe even selected by shareholders etc) 2. Shareholder activism, wherein owners become actively engaged in the governance of the corporation (meet w CEOs & managers) 3. Reward and compensation agreements The goal is to create incentive packages (compensation) to align the interests of managers with shareholders

The Board of Directors and the firm's managers have only four basic choices in risk management:

1. Avoid risk by choosing not to undertake some activities 2. Transfer risk to third parties through insurance, hedging, and outsourcing 3. Mitigate risk, such as operational risk, through preventive and detective control measures 4. Accept risk, recognizing that undertaking certain risk activities should generate shareholder value

processes that firms rely on to regulate the behavior of managers & employees

1. corporate governance 2. control 3. enterprise risk management

budgetary controls

(a type of bureaucratic control) -one of the most commonly used methods of managerial control -Commonly called "Budgeting" -Ties together feedforward control, concurrent control, and feedback control -"Budgeting": the process of investigating what is being done and comparing the results with the corresponding budget data to verify accomplishments or remedy differences -Budgeting typically begins with an estimate of sales, expenses, and expected income and then compares actual performance to the original estimate.

No control system is perfect. However, to optimize the effectiveness of control, managers should use the following 5 design principles:

1. Establish valid performance standards -Standards should be objective and quantifiable rather than subjective -Measures should not be capable of being faked -Managers should focus only a few key areas; too many measures create overcontrol and employee resistance 2. Provide adequate information to employees 3. Ensure acceptability to employees -Emphasize positive behavior rather than controlling negative behavior alone -Set standards with participation of employees 4. Maintain open communication between managers and employees 5. Use multiple approaches

Conditions for Clan Control to Be Effective

1. Managers must create a strong culture of high standards and integrity -Strong cultures, and therefore effective clan control, take a long time (multiple years) to develop 2. There is a strong understanding throughout the organization of management's values and expectations 3. Employees are motivated to act in accordance with values and expectations

4 major steps of typical bureaucratic control system

1. Setting performance standards: "What is the outcome we want?" 2. Measuring performance: "What is the actual outcome we got?" 3. Comparing performance against the standards and determining deviations: "How do the desired and actual outcomes differ?" 4. Taking action to correct problems and reinforce successes: "What changes should we make to obtain desirable outcomes?"

enterprise risk management (ERM) financial vs other risks

Financial Risks are risks associated with financial assets, liabilities, and financial contracts, including: -Market risk (the risk that the price of financial assets, such as investment securities will change) -Liquidity risk (the risk that the firm will not have access to available funds when required) -Credit risks (the risk that a counterparty will default on what they owe the firm) Other Risks include: Hazard risks (property damage, lawsuits, natural disasters) Operational risks (reputational damage, technology failures, employee fraud, loss of employees to competitors, etc.) Strategic risks (from competition, unforeseen external events, etc.)

market controls

In contrast to bureaucratic controls, market controls involve the use of economic forces Key feature: when output from an individual, department, or business unit has value to other people, a price can be negotiated for its exchange. This causes two effects: 1. Price becomes an indicator of the value of the good or service 2. Price competition has the effect of controlling productivity and performance (ex: pricing to estimate the value of work that is being done)

clan control

Involves culture, shared values, beliefs, expectations, and trust. Works best where there is no one way to do a job, and employees are empowered to make decisions. (Also known as "cultural control"). Based on the idea that employees may share the values, expectations, and goals of the organization and act in accordance with them. When employees share values, etc., other controls (bureaucratic, market) may be less necessary.

why are controls important

Left to their own devices, employees may act in ways that do not benefit the firm Control systems are designed to direct consistent behavior and keep employees focused toward achieving the goals of the firm Control systems are a steering mechanism for guiding resources and for helping each individual act on behalf of the organization

implications of separation between owners & managers

Managers may have different interests (e.g. preserve their jobs) than shareholders Shareholders can't easily observe managers

responses to bureaucratic control: resistance

Often people resist control systems. They do so for several reasons: -Control systems can uncover mistakes, threaten people's job security and status, and decrease people's autonomy -Control systems can change expertise and power structures -Control systems can change the social structure of an organization -Control systems may be seen as an invasion of privacy, lead to lawsuits, and cause low morale

why are planning and control both required processes for firms to operate effectively

Once managers form plans and strategies, they must ensure that the plans are carried out

responses to bureaucratic control: rigid bureaucratic behavior

People often act in ways that will help them look good on the control system's measures. This can be good because it focuses employees on behaviors deemed desirable by managers. But it can result in rigid, inflexible behavior geared toward doing only what the system requires. (bc must be in compliance) Other desirable outcomes, like customer service or innovation, may suffer

effectiveness of the board of directors: The simple existence of a Board of Directors does not guarantee that they will perform their duties effectively  Boards that perform effectively typically exhibit some or all of the following characteristics: -The board has a _____ view of the firm and understanding of its operations -Individual board members have expertise that ______ the background of the management team -Board size is manageable; typically with ____ to _____members -Individual members of the board actively participate in meetings -The board has a balanced focus both on _____ & _____ -Board members trust one another and engage in honest discussion

broad complements 5-11 current performance and future direction

board of directors responsibility for risk management: As part of their responsibilities, corporate boards are charged with risk management governance and oversight. More specific board responsibilities include: 1. Ensure that the board develops a clear understanding of the firm's _______ and the fundamental risks and rewards that this implies 2. Make sure the risks are _______ to managers and stakeholders through adequate internal and external disclosure 3. Oversee the development and management of risk limits 4. Ensure that appropriate policies, methodologies and infrastructure are in place (people, hardware, systems, data) 5. Ensure that the information the board receives about risk management is accurate and reliable

business strategy transparent

Leadership Interactional Framework

leader (Personality, Position,Expertise, Etc.) followers (Values, Norms, Cohesiveness, Etc.) situation (Task, Stress, Environment, Etc.)

market controls - transfer pricing examples For an automobile manufacturer, assume there are two business units: -One business unit manufactures automobile parts -The other business unit assembles parts into a finished car Under transfer pricing, a "transfer price" will be set for the parts that the first business unit ships to the assembly unit  The transfer price ideally will reflect prices set by the market The automobile manufacturer will assess the managers of each business unit on its stand-alone profitability Under this transfer pricing structure: The parts business unit (first business unit): -Seeks to minimize the cost of parts production -Seeks to set transfer price at level competitive with market prices; otherwise the assembly business unit has an incentive to acquire parts from external sources The assembly business unit (second business unit): -Seeks to ensure that the transfer price it pays for parts is competitive with external sources -Seeks manufacturing cost advantages vs. outside competitors in order to maximize profit These behaviors help the automobile manufacturer to maximize its profit when the results of all business units are combined

long

need for controls: Lax top management - Senior managers do not emphasize or value the need for controls, or they set a bad example Absence of policies - The firm's expectations are not established in writing Lack of agreed-upon standards - Organization members are unclear about what needs to be achieved "Shoot the messenger" management - Employees feel their careers would be at risk if they reported bad news Lack of periodic reviews - Managers do not assess performance on a regular, timely basis Bad information systems - Key data are not measured and reported in a timely and easily accessible way Lack of ethics in the culture - Organization members have not internalized a commitment to integrity

this is noice

qualifications for members of board of directors

typically comprised of a broad diversity of members in terms of professional expertise, industry experience, and personal characteristics such as gender, demographic background, personality, etc. Despite the diversity of directors on a typical board, qualified individual directors typically share some common characteristics: -Very experienced and accomplished in their field, with a relevant perspective that adds to the collective expertise of the board -Relevant profiles can include: 1. Current or former executives from within or outside the firm's industry 2. Individuals qualified to represent different stakeholders, such as customers or regulators

budget controls: types of budgets Sales budget - consists of a forecast of sales, or revenue Production budget - relates to physical units of product that will be manufactured Cost, or expense, budget Cash budget - forecasts anticipated receipts and expenditures of cash, along with available cash balances Capital budget - used for the cost of fixed assets such as "plant and equipment" Master budget - includes the activities of all other budgets and can be thought of as a budget of budgets

yerrrrrr