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Chapter 7

BU481 Chapter Notes - Chapter 7: Corporate Social Responsibility, Critical Role, The Roots

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Karin Schnarr

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BU481 Chapter 7 Notes
Value Creation, Capture and Distribution
- We need to determine how to reconcile the various stakeholder interests
Reconciling Stakeholder Interests
- There is no simple formula that determines the balance of stakeholder interests
- Practical matters exist such as the degree to which a stakeholder holds a significant
position of power vis-à-vis the firm
Corporate Governance
- Covers all the mechanisms that govern the managers’ behavior and delineates their
discretionary latitude
- The need for such mechanisms stems from the separation of ownership of the firm by
shareholders and control of the firm by management
- One of the primary criticisms is that the board tends to be dominated by internal
management or friends of management, rather than individuals who operate at arms
- Structure of the board to ensure sufficient understanding of the business:
oSeparating the roles of CEO and chairman of the board, and appointing more
outside directors and directors with greater diversity to increase the
representativeness of the board and enhance its objectivity
oManage executive compensation to better align the interests of management
- Pound’s recommendations:
o1. Board members must be expert
o2. Board meeting procedures should focus on debating new decisions, strategies
and policies not just on reviewing past performance
o3. Directors need better access to information
o4. Directors should be required to devote a substantial portion of their
professional time to the corporation
o5. Board members must have the right incentives
Corporate Social Responsibility
- strive to make a profit, obey the law, be ethical and be a good corporate citizen
Management as a Key Stakeholder
- given its role in both the formulation and execution of strategy, management is a critical
stakeholder group
Inconsistency Between Proposed and Preferred Strategy
- first type of conflict occurs when a strategic proposal is inconsistent with the
preferences of one or more of the influential managers in your business
Inconsistency Between Preferred Strategy and Other Realities
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- another and more complex conflict occurs when management preferences are actually
consistent with a strategic proposal, but the proposal itself is inconsistent with external
forces or business capabilities
- 2 manifestations:
osome managers become committed to a new strategic proposal that is otherwise
inconsistent with business conditions
omanagers want to preserve with a strategy that is becoming obsolete in the face
of changing conditions
The Role of Management Preferences
- management analytic work shapes the strategy direction of your business and your
actions put it into place
- Your personal preferences- what you want to business to accomplish and how you think
this should be done play an inevitable and critical role
- Management preferences clearly cut 2 ways:
oPositive side: preferences serve to focus and motivate the efforts of the firm
oNegative side: management preferences may lead to pressures for inappropriate
ventures, potential inflexibility, a focus on personal vs. shareholder interest, etc.
The Roots of Strategic Preference
- Personal attributes generate tendencies towards certain types of action; the job
contexts adds a web of behavioural incentives and constraints
Basic Needs
- Need for achievement
- Need for power
- Need for security
- Need recognition
- Managers with a strong need for achievement or power will likely favour expansionary
programs and accept the risks they may imply. Managers with a strong need for
security and order will favour more cautious and methodical strategic development
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