Lecture 9Governance and Business Ethics.ppt

Lecture 9Governance and Business Ethics Outline Stakeholder analysis Corporate governance The principal-agent problem Business ethics Stakeholders and Corporate Performance Stakeholders are in an exchange relationship with the company Contributions: they supply the organization with important resources Inducements: in exchange they expect their interests to by satisfied Stakeholders and the Enterprise Stakeholder Impact Analysis Identify stakeholders Identify stakeholders’ interests and concerns Identify resulting claims stakeholders are likely to make Identify most important stakeholders from the organizations perspective Identify the resulting strategic challenges The Unique Role of Shareholders Shareholders are a company’s legal owners and the provider of risk capital, a major source of capital to operate a business. Value of risk capital – no guaranteed payment, no guarantee of capital preservation Maximizing long-run profitability profit growth is the route to maximizing returns to shareholders Also helps to satisfy the claims of most other stakeholder groups. Shareholder Claims Shareholders receive their returns as: Dividend payments Capital appreciation in market value of shares ROIC is an excellent measure of profitability. A company generating positive ROIC is adding to shareholders’ equity and increasing shareholder value. Agency Theory Principal-agent relationships arise whenever one party delegates decision-making authority or control over resources to another. Principal: person delegating authority Agent: person to whom authority is delegated The agency problem: Agents and principals may have different goals. Agents may pursue their own goals that are not in the best interests of their principals. The Corporate Governance Problem The evolution of the corporate enterprise Owner-managed small enterprises Partnerships Limited liability joint stock corporations Joint stock enterprises are characterized by Separation of ownership from management