CORPORATE GOVERNANCE

Concept of corporate governance

Corporate governance is the set of processes, custom, policies, laws, and institution
affecting the way a corporation is directed, administered or controlled. Corporate
Governance is also include the relationship among the many stakeholders involved and
the goals for witch the corporation is go is governed. The principal stakeholder are the
shareholder/members, management, and the board of directors. Other stakeholder
include labour (employees), customers, creditors (bank bond holders), suppliers,
regulators, and the community at large. For non profit corporation or other membership
organizations the “shareholders” .

Corporate Governance multi-faceted subject. An important theme of corporate

governance is to ensure the accountability of certain individuals in an organization
through mechanism that try to reduce or eliminate the principle-agent problem. A
related but separate thread of discussion focuses on the impact of a corporate governance
system in economic efficiency, with a strong emphasis shareholders’ welfare. There are
yet other aspects to the corporate governance subject. Such as – the stakeholder view and
the corporate governance models around the world.

Definition

It can be define as a set of system or process which ensure that a company is manage to
the best interest of all the stakeholders.

OR
The system by which companies are directed and controlled is called corporate
governance.
OR
Corporate governance is concerned with folding the balance between economic and
social goal and between individual and communal goal.
OR
This is the system by which companies are run and means by which they are responses to
their shareholder, employees and society.

Needs and Significance of corporate governance

1- Changing ownership structure

2- Social responsibilities.
3- Scams.
4- Globalization.
5- Corporate oligarchy.
Fundamental Principle of Corporate Governance

1- Transparency and discloser.

2- Accountability.
3- Rights and Equitable treatment of shareholders.
4- Merit based management.
5- Integrity and ethical behavior.

Corporate Governance model

1-Anglo American model -

Anglo American Model have many features.

• Give priority to shareholder’s interest.

• Recognize the interest of workers, managers, suppliers, customer and community.
• Corporate is governed by C.E.O. who is selected by directors.

2-Non- Anglo American Model –

Non Anglo- American Model known as Corporation
Wealth Maximization Model, it is followed in East Asian Country Pakistan and
Indonesia, Mexico, Italy, France, Argentina, and so on, where family owned companies
dominate main aspect of corporate Governance here are-

• A small number of listed companies.

• Shareholding is mainly in the hands of corporation families, government or
institutions.
• Main objective of management is wealth maximization.
• Ethical behavior.

3- Indians Governance Model- Indian Governance have many features.

• Enhancement of long term shareholders values.

• Audit.
• Protection of shareholders rights.

4- Other model-

• German Model.
• Japanese Model.
• Australian Model.
• Etc.
 STRATEGIC MANAGEMENT

Concept of Strategic Management

The concept of strategic management can e traced with the concept of long range
planning which was born amid of flurry of optimism and activity during the planning for
making strategies for industries. However, the contents and dimensions of long range
planning have changed considerably and the methodology followed for this sort of
planning has improved over the years.

Meaning of Strategic Management

Strategy is derived from the Greek word STRATEGOS, which means generalship,
therefore the literary meaning of strategy is the art of general. In Army, the work of
general is to arrange and plan the army to win the war, similarly in business world the
meaning of strategy is taken as long term planning ad and implementation to achieve the
mission/objectives.

“Strategy is a unified comprehensive and integrated plan design to assure, that the basic
objectives of enterprise are achieved.”

W.F. Glueck

“Strategy as the determination of the basic long term goals and objectives of an enterprise
and adoption of the course of action and the allocation of resources necessary for carrying
out these goals.”

Alferd D. Chadler

Needs for Strategic Management -

As per Joel Rose and Michael Kami “Without strategy an organization is like a ship like
Rubber, going around in circle.It is like a tramp; it has no place to go”.

Is beyond doubt to state that every organization necessarily formulate strategy. To state
specifically, strategy is necessary, in view of following reason ;

• It helps in taking in high quality decisions.

• It assure that the organization overall resources allocation pattern is efficient.
 • It saves money, time and executive talent.
• It develops internal ability to anticipate change.
• It guides for the search of new opportunities both inside and outside the firm.
• It identifies, develops and exploits potential opportunity.
• It forces a long-range view.
• It makes visible the resources allocation decision. Allowing allocation of
resources to dictated by the accounting system, political strength, inertia too easy.
• It provide both horizontal and vertical communication and coordination system;
• It helps in achieving synergy among multiple markets.

Limitation of Strategic Management

• It dose not provide a ready to use prescription for success.

• Strategic management reduces executive decision-making power, as it encourages
involvement through out the organization and empowers people to make decision
within the framework defined by Strategy management process.
• IT inhibits the change so it might inhibit creativity and dose not easily handle the
truly creative ideas.
• If misused, might became a tool for gaining control over decision, present and
future action, employee, market and customer.
• It might increase political activities among participants by increasing conflict
within the organization.
• Conditions change so fast, manager can not do long term planning.
• Attention to research gets limited.
• Environmental dynamism can not be properly assessed.

Planning Process The Strategic

In today's highly competitive business environment, budget-oriented planning or

forecast-based planning methods are insufficient for a large corporation to survive and
prosper. The firm must engage in strategic planning that clearly defines objectives and
assesses both the internal and external situation to formulate strategy, implement the
strategy, evaluate the progress, and make adjustments as necessary to stay on track.

A simplified view of the strategic planning process is shown by the following diagram:
 The Strategic Planning Process

Mission &
Objectives

Environmental
Scanning

Strategy
Formulation

Strategy
Implementation

Evaluation
& Control

Mission and Objectives

The mission statement describes the company's business vision, including the unchanging
values and purpose of the firm and forward-looking visionary goals that guide the pursuit
of future opportunities.

Guided by the business vision, the firm's leaders can define measurable financial and
strategic objectives. Financial objectives involve measures such as sales targets and
earnings growth. Strategic objectives are related to the firm's business position, and may
include measures such as market share and reputation.

Environmental Scan
The environmental scan includes the following components:

• Internal analysis of the firm

• Analysis of the firm's industry (task environment)
• External macroenvironment (PEST analysis)

The internal analysis can identify the firm's strengths and weaknesses and the external
analysis reveals opportunities and threats. A profile of the strengths, weaknesses,
opportunities, and threats is generated by means of a SWOT analysis

An industry analysis can be performed using a framework developed by Michael Porter

known as Porter's five forces. This framework evaluates entry barriers, suppliers,
customers, substitute products, and industry rivalry.

Strategy Formulation

Given the information from the environmental scan, the firm should match its strengths to
the opportunities that it has identified, while addressing its weaknesses and external
threats.

To attain superior profitability, the firm seeks to develop a competitive advantage over its
rivals. A competitive advantage can be based on cost or differentiation. Michael Porter
identified three industry-independent generic strategies from which the firm can choose.

Strategy Implementation

The selected strategy is implemented by means of programs, budgets, and procedures.

Implementation involves organization of the firm's resources and motivation of the staff
to achieve objectives.

The way in which the strategy is implemented can have a significant impact on whether it
will be successful. In a large company, those who implement the strategy likely will be
different people from those who formulated it. For this reason, care must be taken to
communicate the strategy and the reasoning behind it. Otherwise, the implementation
might not succeed if the strategy is misunderstood or if lower-level managers resist its
implementation because they do not understand why the particular strategy was selected.

Evaluation & Control

The implementation of the strategy must be monitored and adjustments made as needed.
Evaluation and control consists of the following steps:

1. Define parameters to be measured

2. Define target values for those parameters
3. Perform measurements
4. Compare measured results to the pre-defined standard
5. Make necessary changes