Corporate Governance Case Study
Description
Assignment Description
Governance and Activist Investors Outside of the U.S.
As students read the case study found on page 335 of our required textbook (Author: Hitt), they should think about which of the activist shareholder trends are going to help the world’s economy, as well as what effect these activists will have on the scope of globalization throughout the world.
Activism is spreading around the globe, and this case offers specific examples from Japan, Germany, and China. Japan’s new governance code, implemented in 2015, has opened the door to more “Western” corporate governance trends. For example, boards that once featured only company insiders now include more outsiders, and some “engagement,” or activist, funds have started to exert a stronger influence on the country’s organizations. Activist firms have also sprung up in Germany, although its governance code minimizes the effect of activist investors to some degree so there has been less CEO turnover than in other countries such as the United States. In Hong Kong, activist firms are taking a more active role, and homegrown activist funds have even come into play with such Chinese-based firms as Alibaba and Tencent.
Another type of investment fund is the sovereign wealth fund, and these funds are also taking a more active role in both developed and emerging economies around the globe. They have been known to make investments and exert their influence in a variety of industries. In some cases, these funds use investments to support their home country’s political agenda, for example, by investing in sustainable energy sources.
Assignment Instructions
After reading the short end-of-chapter case on Governance and Activist Investors Outside of the U.S., and answer questions in the areas of Analysis, Strategy, and Implementation & Performance.
Case Discussion Questions:
Why are many countries adopting “western” governance systems similar to those found in the United States and the United Kingdom that are more shareholder friendly?
What particular governance devices are helping or hindering good governance in these countries that are changing their governance systems? Please explain.
How do sovereign wealth funds affect governance of firms in home and foreign countries?
What would you recommend to improve the governance systems in Japan, Germany, and China, respectively, given the governance devices described in Chapter 10?
Unformatted Attachment Preview
CORPORATE
GOVERNANCE
Lynn University
Dr. Lisa Miller
OBJECTIVES
•Assess corporate governance
•Evaluate the external corporate governance mechanisms
•Summarize how corporate governance fosters ethical
decisions
•Demonstrate how firms create value
CORPORATE
GOVERNANCE
What words come to mind?
What people come to mind?
ASSESS CORPORATE GOVERNANCE
Corporate governance
the set of mechanisms
used to manage the relationships
among stakeholders
determines and controls the
strategic direction and performance
of organizations.
1) Integrated business management system (IBMS)
2) A documented policy management system.
3) ISO certification.
CORPORATE
GOVERNANCE
4) CAPA systems.
5) Routine internal audits.
6) Training management system.
7) Risk management.
CORPORATE
GOVERNANCE
1. Is an increasingly important part of
the strategic management process
2. Is concerned with identifying ways to
ensure that decisions (especially
strategic decisions):
1. Are made effectively
2. Facilitate a firm’s efforts to achieve
strategic competitiveness
EXTERNAL CORPORATE
GOVERNANCE
MECHANISMS
Government regulations
Media Exposure
Market Competition
Takeover controls
Public Release and review of financial information.
MARKET FOR CORPORATE CONTROL
External governance mechanism
Ensures that ineffective and/or
opportunistic top-level managers are
disciplined.
Active when a firm’s internal
governance mechanisms fail.
Because the top-level managers are
assumed to be responsible for the
undervalued firm’s poor
performance, they are usually
replaced.
EXTERNAL CORPORATE
GOVERNANCE MECHANISMS
People, Purpose, Process, and Performance.
Regulators
Governments
Trade unions and
Financial institutions
These objectives include adequate debt
management and legal compliance.
HOSTILE
TAKEOVER
Principal means by which the market for
corporate control is activated.
acquisition of a target company by an
acquiring firm
accomplished by going directly to the
company’s shareholders or fighting to
replace management in order to get the
acquisition approved.
Firms targeted for a hostile takeover may use
multiple defense tactics to fend off the
takeover attempt.
Increased use of the market for
corporate control has enhanced the
sophistication and variety of managerial
defense tactics that are used in
takeovers.
GOVERNANCE
MECHANISMS
Ensure that the interests of all
stakeholders are served.
1. Shareholders wealth
1. Employee satisfaction
2. Customer satisfaction
3. Suppliers
4. Community Relations
Dissatisfied stakeholders withdraw their
support from the firm and provide it to
another.
GOVERNANCE MECHANISMS
Governance mechanisms
carefully designed and
implemented
Not solely focused on maximizing
short-term returns
Consider the interests of all
stakeholders.
Mark Cuban
Some believe that the internal corporate governance
mechanisms designed and used by ethically responsible
leaders and companies increase the likelihood the firm will
be able to, at least, minimally satisfy all stakeholders’
interests.
The most effective boards of directors set boundaries for
their firms’ business ethics and values.
As agents of the firm’s owners, the board—acting as
an internal governance mechanism—holds top-level
managers fully accountable for developing and
supporting an organizational culture in which only
ethical behaviors are permitted.
GOVERNANCE MECHANISMS
IF YOUR CEO SAID THIS . . .
: “As a top executive, the only agency relationship I am
concerned about is the one between me and the firm’s owners. I
think that it would be a waste of my time and energy to worry
about any other agency relationships.”
How would you respond to this person?
Do you accept or reject this view?
Support your position.
ETHICAL BEHAVIOR
What words describe ethics?
Are there companies that are more ethical?
Tim Cook
CASE STUDY
Avon Products, Inc., the beauty supply company,
is at a crossroads. Its customers and employees
are vocally unsatisfied with the way the
company has neglected their needs solely for
revenue. Also, profit and market share are down
because of a rapid increase in competitors. The
company overall is starting to lose its identity.
You are the new CEO charged with bringing
Avon back to success. The board has challenged
the new CEO to use Avon’s vision, mission, and
values to bring back its identity as the former
beauty giant.
AVON CASE STUDY
Vision:
To be the company that best understands and
satisfies the product, service, and selffulfillment needs of women—globally.
Mission:
• To be a leader in global beauty
• To be women’s choice for buying
• To be a premier direct-selling company
• To be a “most admired” company
• To be a “best place to work”
• To have the largest foundation dedicated
to women’s causes
Values:
• Belief
• Integrity
• Respect
• Trust
• Humility
Prioritize
Prioritize the sales representatives is also the correct move,
as that would be what the Avon of old had as its top priority.
Choose
Choose to satisfy the sales representatives and employees is
the correct first step when trying to rebuild the core values
of Avon.
NEXT STEPS
Be
Product rationalization will be better received than higher
prices; this is what the customers as stakeholders want.
Increase
Increase incentives and commissions to help motivate the
reps. Also, common complaints have been made that Avon
has too large of a selection of products.
GLOBAL TRENDS PREDICTED FOR 2021
Climate Change
Risk
Diversity, Equity
& Inclusion
(DE&I)
Convergence of
Sustainability
Reporting
Standards
Human Capital
Management
Return of
Activism and
Increased Capital
Markets Activity
Virtual Board &
Shareholder
Meetings: Here
to Stay
HOW FIRMS CREATE VALUE IN 2021
Theme
Mapping out new territory
Trends
Collective displacement
Do it yourself innovation
Reshape employees’ experience
Interaction wanderlust
Liquid infrastructure
Case Study
Avon Products, Inc., the beauty supply company, is at a crossroads. Its customers and
employees are vocally unsatisfied with the way the company has neglected their needs solely
for revenue. Also, profit and market share are down because of a rapid increase in
competitors. The company overall is starting to lose its identity.
You are the new CEO charged with bringing Avon back to success. The board has challenged
the new CEO to use Avon’s vision, mission, and values to bring back its identity as the former
beauty giant.
Vision:
To be the company that best understands and satisfies the product, service, and self-fulfillment
needs of women—globally.
Mission:
•
To be a leader in global beauty
•
To be women’s choice for buying
•
To be a premier direct-selling company
•
To be a “most admired” company
•
To be a “best place to work”
•
To have the largest foundation dedicated to women’s causes
Values:
•
Belief
•
Integrity
•
Respect
•
Trust
•
Humility
Purchase answer to see full
attachment
GOVERNANCE
Lynn University
Dr. Lisa Miller
OBJECTIVES
•Assess corporate governance
•Evaluate the external corporate governance mechanisms
•Summarize how corporate governance fosters ethical
decisions
•Demonstrate how firms create value
CORPORATE
GOVERNANCE
What words come to mind?
What people come to mind?
ASSESS CORPORATE GOVERNANCE
Corporate governance
the set of mechanisms
used to manage the relationships
among stakeholders
determines and controls the
strategic direction and performance
of organizations.
1) Integrated business management system (IBMS)
2) A documented policy management system.
3) ISO certification.
CORPORATE
GOVERNANCE
4) CAPA systems.
5) Routine internal audits.
6) Training management system.
7) Risk management.
CORPORATE
GOVERNANCE
1. Is an increasingly important part of
the strategic management process
2. Is concerned with identifying ways to
ensure that decisions (especially
strategic decisions):
1. Are made effectively
2. Facilitate a firm’s efforts to achieve
strategic competitiveness
EXTERNAL CORPORATE
GOVERNANCE
MECHANISMS
Government regulations
Media Exposure
Market Competition
Takeover controls
Public Release and review of financial information.
MARKET FOR CORPORATE CONTROL
External governance mechanism
Ensures that ineffective and/or
opportunistic top-level managers are
disciplined.
Active when a firm’s internal
governance mechanisms fail.
Because the top-level managers are
assumed to be responsible for the
undervalued firm’s poor
performance, they are usually
replaced.
EXTERNAL CORPORATE
GOVERNANCE MECHANISMS
People, Purpose, Process, and Performance.
Regulators
Governments
Trade unions and
Financial institutions
These objectives include adequate debt
management and legal compliance.
HOSTILE
TAKEOVER
Principal means by which the market for
corporate control is activated.
acquisition of a target company by an
acquiring firm
accomplished by going directly to the
company’s shareholders or fighting to
replace management in order to get the
acquisition approved.
Firms targeted for a hostile takeover may use
multiple defense tactics to fend off the
takeover attempt.
Increased use of the market for
corporate control has enhanced the
sophistication and variety of managerial
defense tactics that are used in
takeovers.
GOVERNANCE
MECHANISMS
Ensure that the interests of all
stakeholders are served.
1. Shareholders wealth
1. Employee satisfaction
2. Customer satisfaction
3. Suppliers
4. Community Relations
Dissatisfied stakeholders withdraw their
support from the firm and provide it to
another.
GOVERNANCE MECHANISMS
Governance mechanisms
carefully designed and
implemented
Not solely focused on maximizing
short-term returns
Consider the interests of all
stakeholders.
Mark Cuban
Some believe that the internal corporate governance
mechanisms designed and used by ethically responsible
leaders and companies increase the likelihood the firm will
be able to, at least, minimally satisfy all stakeholders’
interests.
The most effective boards of directors set boundaries for
their firms’ business ethics and values.
As agents of the firm’s owners, the board—acting as
an internal governance mechanism—holds top-level
managers fully accountable for developing and
supporting an organizational culture in which only
ethical behaviors are permitted.
GOVERNANCE MECHANISMS
IF YOUR CEO SAID THIS . . .
: “As a top executive, the only agency relationship I am
concerned about is the one between me and the firm’s owners. I
think that it would be a waste of my time and energy to worry
about any other agency relationships.”
How would you respond to this person?
Do you accept or reject this view?
Support your position.
ETHICAL BEHAVIOR
What words describe ethics?
Are there companies that are more ethical?
Tim Cook
CASE STUDY
Avon Products, Inc., the beauty supply company,
is at a crossroads. Its customers and employees
are vocally unsatisfied with the way the
company has neglected their needs solely for
revenue. Also, profit and market share are down
because of a rapid increase in competitors. The
company overall is starting to lose its identity.
You are the new CEO charged with bringing
Avon back to success. The board has challenged
the new CEO to use Avon’s vision, mission, and
values to bring back its identity as the former
beauty giant.
AVON CASE STUDY
Vision:
To be the company that best understands and
satisfies the product, service, and selffulfillment needs of women—globally.
Mission:
• To be a leader in global beauty
• To be women’s choice for buying
• To be a premier direct-selling company
• To be a “most admired” company
• To be a “best place to work”
• To have the largest foundation dedicated
to women’s causes
Values:
• Belief
• Integrity
• Respect
• Trust
• Humility
Prioritize
Prioritize the sales representatives is also the correct move,
as that would be what the Avon of old had as its top priority.
Choose
Choose to satisfy the sales representatives and employees is
the correct first step when trying to rebuild the core values
of Avon.
NEXT STEPS
Be
Product rationalization will be better received than higher
prices; this is what the customers as stakeholders want.
Increase
Increase incentives and commissions to help motivate the
reps. Also, common complaints have been made that Avon
has too large of a selection of products.
GLOBAL TRENDS PREDICTED FOR 2021
Climate Change
Risk
Diversity, Equity
& Inclusion
(DE&I)
Convergence of
Sustainability
Reporting
Standards
Human Capital
Management
Return of
Activism and
Increased Capital
Markets Activity
Virtual Board &
Shareholder
Meetings: Here
to Stay
HOW FIRMS CREATE VALUE IN 2021
Theme
Mapping out new territory
Trends
Collective displacement
Do it yourself innovation
Reshape employees’ experience
Interaction wanderlust
Liquid infrastructure
Case Study
Avon Products, Inc., the beauty supply company, is at a crossroads. Its customers and
employees are vocally unsatisfied with the way the company has neglected their needs solely
for revenue. Also, profit and market share are down because of a rapid increase in
competitors. The company overall is starting to lose its identity.
You are the new CEO charged with bringing Avon back to success. The board has challenged
the new CEO to use Avon’s vision, mission, and values to bring back its identity as the former
beauty giant.
Vision:
To be the company that best understands and satisfies the product, service, and self-fulfillment
needs of women—globally.
Mission:
•
To be a leader in global beauty
•
To be women’s choice for buying
•
To be a premier direct-selling company
•
To be a “most admired” company
•
To be a “best place to work”
•
To have the largest foundation dedicated to women’s causes
Values:
•
Belief
•
Integrity
•
Respect
•
Trust
•
Humility
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