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Strategic Management
, Sixth Edition
Charles W. L. Hill, University of Washington
Gareth R. Jones, Texas A&M University
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Chapter Summaries
Chapter 11: Corporate Performance, Governance, and Business Ethics
- The causes of persistently poor company performance include poor management,
a high cost structure, inadequate differentiation, extensive diversification,
structural shifts in demand, the emergence of powerful new competitors, and organization inertia.
- Instituting a successful turnaround strategy requires new leadership, a change
of strategy, and a change in organization.
- Stakeholders are individuals or groups that have an interest, claim, or stake
in the company, in what it does, and in how well it performs.
- Stakeholders are in an exchange relationship with the company. They supply
the organization with important resources (or contributions) and in exchange expect
its interests to be satisfied (by inducements).
- A company cannot always satisfy the claims of all stakeholders. The goals
of different groups may conflict. The company must identify the most important stakeholders and
give highest priority to pursuing strategies that satisfy their needs.
- A company's stockholders are its legal owners and the providers of risk capital, a major source of the capital resources that allow a company to operate
its business. As such, they have a unique role among stakeholder groups.
- Maximizing long-run ROIC is the route to maximizing returns to stockholders, and it is also consistent with satisfying the claims of several other
key stakeholder groups.
- Although maximizing long-run ROIC is the best way to satisfy the claims of
several key stakeholder groups, a company has the obligation to do so within the limits set by the law and in a manner consistent
with societal expectations.
- An agency relationship is held to arise whenever one party delegates decision-making
authority or control over resources to another.
- The essence of the agency problem is that the interests of principals and
agents are not always the same, and some agents may take advantage of information
asymmetries to maximize their own interests at the expense of principals.
- A number of governance mechanisms serve to limit the agency problem. These
include the board of directors, stock-based compensation schemes, and the
threat of a takeover.
- Many strategic decisions have an ethical dimension. Any action by a company
inevitably has an impact on the welfare of its stakeholders.
- The purpose of business ethics is not so much to teach the difference between right and wrong, but to give people the tools for dealing
with moral complexity-for identifying and thinking through the moral implications of strategic
decisions.
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