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Strategy Highlight 12.1
POWERPOINT SLIDE 20: GE’S BOARD OF DIRECTORS
The board of directors of GE is diversified so it avoids groupthink. The board of directors meets regularly to monitor the
firm’s performance. Board members use different committees to oversee the company’s operations. Ask students to review
the bios of the GE board members and identify one unique type of experience or qualification that each member brings as a
knowledge resource to the board.
END OF CHAPTER SMALL GROUP EXERCISE 2
POWERPOINT SLIDES 18 AND 50
It is not unusual for even large corporate boards to have no women or minorities on them. In the United States,
women held 19 percent of board seats at Fortune 500 companies in 2012. In her book, Lean In, Sheryl Sandberg
points out that this number has been flat for 10 years—or, as she puts it, there has been no progress in the past 10
years. In Europe, of the total number of board members in Britain, only 12 percent were women; Spain, France, and
Germany all had less than 10 percent. In Norway, by contrast, female members comprised nearly 40 percent of the
boards. So how did Norway do it? In 2003, the government of Norway gave public firms two years to change their
boards’ composition from 9 percent female to 40 percent female. Is this a good idea? Spain, Italy, France, and the
Netherlands must think so: Each country is implementing a similar system. Most recently Germany passed a law
requiring that by 2017, 30 percent of non-executive board of director seats of their largest firms be held by women.
Discuss in your group to what extent it is a problem that women are proportionally underrepresented on corporate
boards. Provide the rationale for your responses. Students will have a variety of answers since this can be a controversial
Why has representation by women on U.S. boards not increased over the past 10 years? What actions could be taken
by companies to increase participation? What actions could be taken by women who seek to be directors? Part of the
problem is that women continued to be underrepresented in the C-Suite executive offices. This is the talent pool that firms
Would a regulatory quota be a good solution? Why or why not? Even some who agree in number 1 that it is a problem
What other methods could be used to increase female and minority participation on corporate boards? Should it be
perceived as a problem when a company seeks minority women as directors so that both statistics rise? What data
would you gather in order to verify that such appointments are sincere? Stockholders can pressure boards to look for
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12.2 Corporate Governance LO 12–5
POWERPOINT SLIDES 22–24
STRATEGY SMART VIDEO LECTURE
POWERPOINT SLIDES 22 AND 54
This lecture by Insead Prof. Van der Heyden expresses a European viewpoint on U.S. CEO compensation and provides
theoretical support based on value creation and rent appropriation perspectives.
EXAMPLE
POWERPOINT SLIDE 22
A brief video by Professor Dan Ariely discusses executive pay and his experiments on the most effective compensation range
for physical and mental labors.
END OF CHAPTER ETHICAL/SOCIAL ISSUES 2
POWERPOINT SLIDE 22
As noted in the chapter, the average compensation for a CEO of a Fortune 500 company was $14m, and CEO pay was
300 times the average worker pay. This contrasts with historic values of between 25 and 40 times the average pay. In
August 2015 the U.S. Securities and Exchange Commission (SEC) approved a rule mandating that U.S. firms publicly
disclose the gap between their CEO annual compensation and the median pay of the firm’s other employees. What are
the potentially negative effects of this increasing disparity in CEO pay? Do you believe that current executive pay
packages are justified? Why or why not? AACSB 2015 Standard 9 Ethical understanding and reasoning (able to identify
ethical issues and address the issues in a socially responsible manner)
The majority of compensation for CEOs comes from stock options, which allows the CEO to purchase shares in company
stock at a set price that can be significantly lower than market value. The ability to buy stock at a lower price and sell when
stock prices are higher may motivate the CEO to find ways to exaggerate the value of company shares. This temptation can
INTEGRATION
Interactive Labeling: Corporate Governance
This interactive drag-and-drop exercise starts with a brief case furthering the principal–agent discussion from the text.
The student must read the textbook and also the case provided here. Then, the student will drag the elements to the correct
locations in the matching column of this activity. Finally the student will answer three questions about issues related to
corporate governance. Difficulty: Medium Blooms: Analyze AACSB: Analytic
Follow-Up Activity: The instructor can expand on the concepts from this interactive by discussing the second discussion
question in the end of chapter materials. The separation of CEO and chairman of the board continues to be a vital topic,
particularly at large companies like HP, but also at many others. Ask the students to research some large firms to see
which ones have one person as both CEO and chair of the board of directors. How long has this arrangement been in
place at these firms?
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be ready for the post.
12.3 Strategy and Business Ethics LO 12–6
POWERPOINT SLIDES 25–32
STRATEGY SMART VIDEO EXAMPLE
POWERPOINT SLIDES 29 AND 53
This video describes the culture and leadership problems that led to Tyco’s corruption problems and how the new
management team used corporate governance to restore ethical behavior.
EXAMPLES
POWERPOINT SLIDE 29
Although Napster was a huge disruptor to the music industry and broke all the rules of business in this staid setting, Napster
was shut down after losing a number of high-profile lawsuits that found it liable for copyright infringement, among other
illegal activity.
POWERPOINT SLIDE 29
China sentenced employees of Australian mining giant Rio Tinto to long prison terms on alleged bribery and industrial
espionage charges.
POWERPOINT SLIDE 29
In Russia, BP did not consult its existing Russian joint-venture partner TNK-BP before striking a new deal in Russia with the
government-owned Rosneft, an energy company. TNK-BP is an equity partnership between BP and a group of Russian
investors. By failing to seek approval from TNK-BP for the deal with Rosneft, BP did not follow standard communication
POWERPOINT SLIDE 29
Volkswagen installed software on their automobiles that overrode emissions controls allowing the vehicles to emit much
higher levels of NOX than were registered when the cars were approved for sale by the EPA (see “Volkswagen emissions
scandal relates to 11 million cars” W Boston and S Sloat 9/22/15 The Wall Street Journal).
POWERPOINT SLIDE 29
Bribery of government officials to get them to permit business growth is not solely a problem of emerging markets. United
Carey and T Mann 9/8/15 The Wall Street Journal).
POWERPOINT SLIDE 29
Toshiba has dramatically restructured its leadership following a major accounting scandal; 8 out of 16 board members are
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Strategy Highlight 12.2
POWERPOINT SLIDE 28: DID GOLDMAN SACHS AND THE “FABULOUS FAB” COMMIT SECURITIES FRAUD?
This is a clear example of a firm and individuals within a firm capitalizing on information asymmetry. It is clear that if they
DISCUSSION TOPICS
discussion question: “We know that how we present data often can affect the audience’s conclusions about the data. In a
recent article from Travel Weekly on the Department of Transportation’s on-time stats for airline arrivals, the argument is
made that the airline industry pads its own statistics in order reap cost benefits, which may or may not be passed on to
consumers. Is the reporting difference an ethical breach of confidence between the consumer and the industry?”
END OF CHAPTER ETHICAL/SOCIAL ISSUES 3
POWERPOINT SLIDES 30–32
The MBA oath (shown in Exhibit 12.4) says in part, “My decisions affect the well-being of individuals inside and
outside my enterprise, today and tomorrow.” One example of a large firm reorienting toward this approach is
PepsiCo. In the last few years, PepsiCo has been contracting with small farmers in impoverished areas (for example,
in Mexico). What started as a pilot project in PepsiCo’s Sabritas snack food division has now spread to over 1,000
farmers providing potatoes, corn, and sunflower oil to the firm. PepsiCo provides a price guarantee for farmers’
crops that is higher and much more consistent than the previous system of using intermediaries. The farmers report
that since they have a firm market, they are planting more crops. Output is up about 160 percent, and farm incomes
have tripled in the last three years. The program has benefits for PepsiCo as well. A shift to sunflower oil for its
Mexican products will replace the 80,000 tons of palm oil it currently imports to Mexico from Asia and Africa, thus
slashing transportation and storage costs. AACSB 2015 Standard 9 Social responsibility, including sustainability, and
ethical behavior and approaches to management
What are the benefits of this program for PepsiCo? What are its drawbacks?
INTEGRATION
Video Case: Strategy and Business Ethics in South Africa
This video case analysis focuses on the place of ethics in running a major corporation. Students will need to carefully
read Section 12.3 in the chapter before watching the video and answering the questions. This video is about six minutes
long and has five embedded questions contained in it. Difficulty: Medium Blooms: Analyze AACSB: Analytic
Video Case Tips: We suggest setting the “attempts” policy to “revise the previous attempt” for video cases. This enables
students to watch parts of the video and edit their answers without needing to watch the entire video again for each
attempt at the questions.
Follow-Up Activity: The instructor can expand on the concepts in this video case by discussing Strategy Highlight 12.2
about Goldman Sachs. How would things have unfolded at Sachs if a senior executive there held the same positions that
Ms. Ramos describes in the video? In graduate classes, this is a good opportunity to expand on the MBA Oath (Exhibit
12.4), as well as the PepsiCo example as described in Ethical/Social question 3.
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What other societal benefits could such a program have in Mexico?
If you were a PepsiCo shareholder, would you support this program? Why or why not?
END OF CHAPTER ETHICAL/SOCIAL ISSUES 1
POWERPOINT SLIDE 27
Assume you work in the accounting department of a large software company. Toward the end of December, your
supervisor tells you to change the dates on several executive stock option grants from March 15 to July 30. Why
would she ask for this change? What should you do? AACSB 2015 Standard 9 Ethical understanding and reasoning (able
to identify ethical issues and address the issues in a socially responsible manner)
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12.4 Implications for Strategists
POWERPOINT SLIDES 33–36
DISCUSSION TOPIC
POWERPOINT SLIDE 34
Harvard Business Review published “The best-performing CEOs in the world” in January/February 2013. Ask students to
choose one leader from this list and investigate the firm’s activities in social responsibility and the strength of the firm’s
Research Update
Connelly, B. L., Ketchen, D. J., Gangloff, K. A., and Shook, C. L. (2015), Investor perceptions of CEO successor selection in the
wake of integrity and competence failures: A policy capturing study.
Strat. Mgmt. J.,
doi: 10.1002/smj.2430
EXPERIENCED FACULTY: These authors study hiring a new CEO to restore investor confidence in a firm. They find that
when the previous CEO is fired for ethical misconduct, outside or interim successor CEOs are preferred by investors to an
internal promotion. When the previous CEO is fired for incompetence, then investors view an outside successor CEO
positively and are ambivalent to an interim candidate or an internal promotion.
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Extended Discussion
POWERPOINT SLIDE 34
EXPERIENCED FACULTY: Many observers place the blame for HP’s loss in competitive advantage and stellar reputation
squarely on its board of directors because of major strategic errors committed over the last decade. Consider the turbulence
in HP’s CEO office. Carly Fiorina was fired due to loss of confidence after poor competitive performance post-Compaq
merger. Mark Hurd improved the firm’s performance, but then engaged in unethical behavior and was replaced by Leo
Apotheker. Apotheker led the company poorly and was replaced after only 11 months, following a huge decline in
shareholder value (show a 10–year chart of HP’s stock price relative to the S&P 500). Meg Whitman has had trouble getting
the firm to perform competitively and has flip–flopped on the strategic issue of whether to separate the consumer-based PC
and printer businesses from the enterprise parts of the business. HP’s recent history demonstrates the difficult decisions that
a board of directors must make when governing a public company: How should a company deal with a situation in which
internal stakeholders leak sensitive information to outsiders? Should the board force a highly successful CEO to resign
when ethical shortcomings are discovered but before an investigation proves or disproves illegal behavior? Would the
much action in one boardroom makes it an interesting discussion topic for this chapter.
Who has been to blame for HP’s shareholder value destruction—the CEO, the board of directors, or both? What
Meg Whitman asserted for years that the firm’s turnaround efforts were being slowed by long-term underinvestment in new
product development. Both the board and past CEOs should be held accountable for that. Shareholders can (and have) sued
HP. Shareholders can continue to “vote with their feet” and sell their positions or refuse to purchase HP shares going
forward.
values going forward, but the culture needs to be reformed to value compliance with the value system. Perhaps part of the
problem was the extensive acquisition efforts of the firm—Compaq, Tandy, Digital Equipment, Autonomy, to name but a
few. These serial major horizontal acquisitions and the accompanying process of continuous layoffs and reorganizations
may have sapped the coherence of the culture. It could be reinvigorated with new artifacts and stronger norms through a
socialization process (see Chapter 11). You might want to bring the class discussion back to topics covered in Chapter 2.
Ms. Whitman entered a company in crisis with demoralized employees and a seeming loss of strategic focus. Positive
actions in that situation would have been to prioritize the internally oriented roles of strategic leadership, such as leader,
monitor, disseminator, and resource allocator. Using these roles to gather the pertinent background from key employees, she
around. Given the firm’s strong performance under Hurd’s leadership, was the decision by the board of directors to force
Mr. Hurd to resign right or wrong?
Discuss the general lessons in terms of corporate governance and business ethics that can be drawn from HP’s last
decade. Students can find a variety of answers here but some of the areas to focus on are the following: Clearly HP is a case
organization!
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Strategy Term Project
Term Project Module 12
In this section, you will study the corporate governance structure of your firm.
Find a list of the members of the board of directors for your firm. How large is the board? How many independent
(non-employee) members are on the board? Are any women or minorities on the board? Is the CEO also the chair of
the board? AACSB 2015 Standard 9 Application of knowledge (able to translate knowledge of business and management
into practice)
Who are the largest stockholders of your firm? Is there a high degree of employee ownership of the stock?
In reviewing press releases and news articles about your firm over the past year, can you find examples of any actions
the firm has taken that, though legal, may be ethically questionable?
You have now completed 12 modular assignments about your selected firm. You know a lot about its mission,
strategies, competitive advantage, and organization. Is this a company you would like to work for? If you had $1,000
to invest in a firm, would you invest it in the stock of this firm? Why or why not?
INTEGRATION
Running Case: HP
While offering each student the opportunity to explore and analyze the company of his/her choice can add interest to the
exercise, there are many advantages for an instructor when the entire class works on the same firm. Connect allows you to
do this with a running case for a single firm that encompasses every chapter in the textbook and tracks the Strategy Term
Project. Hewlett-Packard is provided as an example firm your students can use to see what information and analysis
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my
Strategy
POWERPOINT SLIDE 48
ARE YOU PART OF GEN-Y OR WILL YOU MANAGE GEN-Y WORKERS?
As this cohort enters the work force, do you expect to see a different set of business ethics take hold?
Are efforts such as the MBA Oath (discussed in this chapter) reflections of a different approach that Gen-Y will take
to the business environment, compared with prior generations? AACSB 2015 Standard 9 Reflective thinking (able to
understand oneself in the context of society)