Program

MBA

Semester

II

Subject Code

MB0052

Subject Name

Strategic Management
and Business Policy

Unit Number

Unit Title

Corporate Strategy and

Corporate Governance

Lecture Number :

Lecture Title

Corporate Strategy and

Corporate Governance
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Unit-4 Corporate Strategy and Corporate

Governance

Corporate Strategy and

Corporate Governance
Objectives :

Explain the conceptual difference between corporate strategy and corporate

governance.

Discuss the growing importance of corporate governance.

Analyse the complementarities and conflicts between corporate strategy

and corporate governance.
In this unit, we will discuss the definitional aspects of corporate
strategy and corporate governance, growing importance of corporate
governance, stakeholders expectations, major issues between corporate
strategy and corporate governance, code of corporate governance,
empowerment of the board, role of professional directors, code of best
practice, strategic audit, boardCEO relationship, the managed corporation
and the governed corporation.
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Unit-4 Corporate Strategy and Corporate Governance

Lecture Outline

Introduction
Definitions: Corporate Strategy and Corp.Governance
Growing Importance of Corporate Governance

Corporate Strategy and Corporate Governance: C & C

Code of Best Practice
Strategic Audit

Board and CEO Relationship

Summary
Check Your Learning
Activity
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Unit-4 Corporate Strategy and Corporate Governance

Introduction

Corporate strategy and corporate governance are two important

tools that help in the functioning of any company. They are not
the same, but generally complementary to each other.

Corporate governance is more operational, and no strategy can

succeed without operational support. Similarly, no governance can
achieve organizational objectives without a strategy or strategic
management system.

There is, however, a basic difference between the roles of the

board and the CEO and other managers of a company. The board
represents the interest of the shareholders who are the owners of

a company whereas the CEO and other managers represent the

management of the company.
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Unit-4 Corporate Strategy and Corporate Governance

Definitions: Corporate Strategy and

Corporate Governance

Corporate governance involves regulatory and market mechanisms, and the

roles and relationships between a companys management, its board, its
shareholders and other stakeholders, and the goals for which the
corporation is governed.

Corporate governance is equated with corporate

management, which is not correct. Corporate
management is a part of or can be a useful
partner in corporate governance.

Corporate governance ensures that long-term strategic objectives and plans

are established and that the proper management structure (organization,
systems and people) is in place to achieve those objectives while at the
same time, making sure that the structure functions to maintain the
corporates integrity, reputation and responsibility to its various
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Unit-4 Corporate Strategy and Corporate Governance

Growing Importance of Corporate

Governance

It involves the full set of relationships between a companys management,

its board, its shareholders and its other stakeholders, such as its employees
and the community in which it is located. The quality of governance is
directly linked to the policy framework.

A strong demand for evolving a good corporate governance system is

emerging from the corporate sector itself.

Over the years, organizations have witnessed frequent violations of

organizational and governmental regulations, increase in unethical and

corrupt corporate practices and also scams.

Shareholders are also becoming more demanding and

more conscious about their rights and privileges. They
expect efficient management, good governance, high
profit and large dividends.
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Unit-4 Corporate Strategy and Corporate Governance

Corporate Strategy and Corporate

Governance: Complementarity and
Conflict

Corporate Strategy and Corporate Governance both are important.

Because only good governance and effective strategies can lead to

simultaneous achievement of organizational objectives like profitability,
growth and diversification and stakeholders expectations like high return
on their capital, transparency, employee motivation and customer
satisfaction.

Some typical conflict situations between strategy and governance.

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Unit-4 Corporate Strategy and Corporate Governance

Code of Best Practice

For a company, the code of best governance practice and best strategic
practice may actually complement each other for improving the overall
organizational performance. Three major constituents of the code
prescribed by the Cadbury Committee are:

Separate positions of chairman and CEO: In every company, there should

be a separate CEO and chairman of the board of directors.

Role clarity of chairman and CEO: Chairmans function should be to manage

the affairs of the board, including hiring and firing of the CEO of the

company.

Professional inputs from independent directors: Every

company should have non-executive directors, who
bring to the board their professional experience and
expertise.
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Unit-4 Corporate Strategy and Corporate Governance

Strategic Audit

Donaldson (1995) has suggested strategic audit as a new tool for

systematic review of strategy by board members without directly involving
themselves with management of companies. Accumulate forces

Strategic audit is a formal strategic-review process, which imposes its own

discipline on both the board and the management very much like the
financial audit process.

Donaldson has specified five elements of strategic audit. These are:

Establishing criteria for performance

Database design and maintenance

Strategic audit committee
Relationship with the CEO

Alert to duty (by board members)

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Unit-4 Corporate Strategy and Corporate Governance

Board and CEO Relationship

The delegation of authority and responsibility from the board to

the CEO should be expressed in the job description of the CEO.

There are three observations on the boards role and the board
CEO relationship. These are:
The Board is responsible for the successful perpetuation of the corporation.
That responsibility cannot be relegated to management9John G Surale,
non-executive chairman, General Motors (GM).

The success of the non-executive chairman

arrangement is heavily dependent on the
chairmans relationship with the CEO.

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Unit-4 Corporate Strategy and Corporate Governance

Summary

Corporate governance has more to do with ownership of a

company; corporate strategy has more to do with management of
a company. They are generally complementary to each other, but,
there can be conflicts between the two.

In companies, simultaneous focus on good corporate governance

and effective corporate strategies is important, as only this can
lead to simultaneous achievement of organizational objectives like

profitability, growth and diversification and stakeholder

expectations like high return on their capital, transparency,
employee motivation and customer satisfaction.

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Unit-4 Corporate Strategy and Corporate Governance

Check Your Learning

1. Define Corporate governance.

Ans: The framework of rules and practices by which a board of directors
ensures accountability, fairness, and transparency in a company's
relationship with its all stakeholders.
2. Define Corporate strategy

Ans: The overall scope and direction of a corporation and the way in which its
various business operations work together achieve particular goals.
3. Mention Donaldsons five elements of strategic audit.
Ans: Donaldson has specified five elements of strategic audit. These are:

Establishing criteria for performance

Database design and maintenance
Strategic audit committee
Relationship with the CEO
Alert to duty (by board members

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Unit-4 Corporate Strategy and Corporate Governance

Activity

Choose a company that you are familiar with and design on

double (CEO and chairman) or single (either CEO or chairman)
role of the chief executive. Choose any other company and
compare with Nestle.

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