Chapter 13 Notes

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Financial Accounting
Prof.Jan Klakurka

Chapter 13 Managing Strategic Risk - Strategic risks are managed primarily by communicating effective boundaries both business conduct and strategic and installing good internal control systems. - Boundary systems are designed to communicate risks to be avoided and to remove any ability to rationalize actions that could expose the firm to undesirable levels of risk - Internal control systems are designed to protect assets and to remove the opportunity for inadvertent error or wilful wrongdoing in transaction processing and performance measurement. BELIEFS AND BOUNDARIES - To ensure employees engage in the right type of activities, managers must first inspire commitment to a clear set of core values (the beliefs that define basic principles, purpose, and direction) - Core values provide guidance about responsibilities to customers, employees, local communities, and stockholders. They explicitly define top managements views on trade offs, and provide guidance to employees where rules and standard operating procedures alone cannot suffice. - Inspirational leaders: (1) articulate a vision that addresses the values of the participants, (2) allow each individual to appreciate how he or she can contribute to the achievement of that vision, (3) provide enthusiastic support for effort, and (4) encourage public recognition and reward for all successes. - In small companies, communication of core values can be accomplished informally, but large companies must formalize this process by articulating and communicating formal beliefs systems. - Belief systems are the explicit set of organizational definitions that senior managers communicate formally and reinforce systematically to provide basic values, purposes, and direction for the organization. - Managers should never delegate the preparation of missions and credos, they should personally reinforce core values and their importance. - Two ways to control human behaviour is to (1) tell them what to do (and not to do), and (2) hold them accountable for outcomes. - Managers inspire their employees to maximum effort and innovation by (1) creating shared beliefs and missions, (2) setting challenging goals, (3) linking incentives to accomplishments, (4) declaring certa
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