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Chapter 01 - Lecture Notes
1-9
supervisor or next highest uninvolved
managerial level.
b. If immediate supervisor is the CEO,
consider the board of directors or the
audit committee.
c. Contact above immediate supervisor
should only be initiated with
supervisor’s knowledge, assuming the
supervisor is not involved.
d. Except where legally prescribed,
communication with individuals not
employed by the organization is not
appropriate.
e. Clarify relevant ethical issues with an
objective advisor, such as a member of
the IMA’s Ethics Counseling Service.
f. Consult an attorney regarding your
legal obligations.
iii. Ethical standards are motivated by a very
practical consideration—if the standards are
not followed in business, then the economy
and all of us would suffer.
iv. Abandoning ethical standards would lead to a
lower standard of living with lower-quality
goods and services, less to choose from, and
higher prices.
C. A strategic management perspective
i. Definition
1. A strategy is a “game plan” that enables a
company to attract customers by distinguishing
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itself from competitors.
ii. Customer value propositions
1. Companies that adopt a customer intimacy
strategy respond to individual customer
needs better than competitors. Examples of
companies that pursue this strategy include:
a. Ritz-Carlton, Nordstrom, and Virtuoso
2. Companies that adopt an operational
excellence strategy strive to deliver products
and services faster, more conveniently, and
at a lower price than competitors. Examples
of companies that pursue this strategy
include:
a. Southwest Airlines, Wal-Mart, and the
Vanguard Group
3. Companies that adopt a product leadership
strategy strive to offer higher quality
products than competitors. Examples of
companies that pursue this strategy include:
a. Apple, Cisco Systems, and W.L. Gore
D. Enterprise risk management
i. Enterprise risk management is a process
used by a company to proactively identify the
risks that it faces and manage those risks.
ii. Once a company identifies its risks, the most
common risk management tactic is to reduce
risks by implementing specific controls.
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1. This slide contains a subset of the business
risks and controls shown in Exhibit 1-5 of
the textbook. Collectively, these examples
illustrate the diversity of risks that
companies can face.
E. A corporate social responsibility perspective
i. Corporate social responsibility (CSR) is a
concept whereby organizations consider the
needs of all stakeholders when making
decisions. CSR extends beyond legal
compliance to include voluntary actions that
satisfy stakeholder expectations.
ii. Stakeholders include groups, such as
customers, employees, suppliers,
communities, and envrionmental and human
rights advocates, whose interests are tied to
the company’s performance.
1. This slide presents examples of corporate
social responsibilities that are of interest to
the six stakeholder groups just mentioned.
F. Process management skills
i. Key definitions
1. A business process is a series of steps that
are followed in order to carry out some task
in a business.
2. A value chain consists of the major
business functions that add value to a
company’s products and services.
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ii. Lean production is a management approach
that organizes resources such as people and
machines around the flow of business
processes and that only produces units in
response to customer orders.
1. Lean production is often called just-in-time
(JIT) production because products are only
made in response to customer orders and
they are completed just-in-time to be
shipped to customers.
2. Traditional manufacturing methods organize
work departmentally and encourage those
departments to maximize their output even it
exceeds customer demand and bloats
inventories.
3. Because lean thinking only allows
production in response to customer orders,
the number of units produced tends to
equal the number of units sold.
4. The lean approach also results in fewer
defects, less wasted effort, and quicker
customer response times than traditional
production methods.
G. A leadership perspective
i. To be an effective leader, you’ll need to
understand how intrinsic motivation, extrinsic
incentives, and cognitive bias influence the
behavior of your fellow employees.
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IV. Appendix 1A: Corporate governance (slide #40 is a title
slide)
A. Key definitions/concepts
i. Corporate governance is the system by
which a company is directed and controlled.
1. If properly implemented, the corporate
governance system should provide
incentives for the board of directors and top
management to pursue objectives that are in
the interests of the company’s owners and
it should provide for effective monitoring of
performance.
B. The Sarbanes-Oxley Act of 2002
i. The Sarbanes-Oxley Act of 2002 was
intended to protect the interests of those who
invest in publicly-traded companies by
improving the reliability and accuracy of
corporate financial reports and disclosures.
Six key aspects of the legislation include:
1. The Act requires both the CEO and CFO to
certify in writing that their company’s
financial statements and disclosures fairly
represent the results of operations.
2. The Act establishes the Public Company
Accounting Oversight Board to provide
additional oversight to the audit profession.
3. The Act places the power to hire,
compensate, and terminate public
accounting firms in the hands of the audit
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committee.
4. The Act places restrictions on audit firms,
such as prohibiting public accounting firms
from providing a variety of non-audit
services to an audit client.
5. The Act requires a company’s auditor to
issue an opinion on the effectiveness of the
company’s internal control over financial
reporting to accompany management’s
assessment, and both are included in the
company’s annual report.
6. The Act establishes severe penalties for
certain behaviors, such as:
a. Up to 20 years in prison for altering or
destroying any documents that may be
used in an official proceeding.
b. Up to 10 years in prison for retaliating
against a “whistle blower.”
C. Internal control—A closer look
i. Internal control is a process designed to
provide reasonable assurance that objectives
are being achieved.
ii. A preventive control deters undesirable
events from occurring. A detective control
detects undesirable events that have already
occurred.
iii. These two slides contain seven examples of
internal controls for financial reporting. Each
control is described and classified as
preventive and/or detective.
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iv. Internal controls cannot guarantee that
objectives are achieved because:
1. Even well-designed internal control systems
can break down.
2. Two employees may collude to circumvent
the control system.
3. Senior leaders may manipulate financial
results by intentionally overriding
prescribed policies and procedures.
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