Posted: March 12th, 2023
Module B assignment
[removed]
Corporate Governance is the framework of rules and practices
by which a board of directors
ensures accountability, fairness, and transparency
in a company’s relationship with its STAKEholders (financiers, customers, management, employees, government and the community). (Businessdictonary.com)
Recall from Previous Content
For-Profit and Non-Profit Corporations must have boards of directors.
State law in which the company/nonprofit is legally created spells out what is required for the first board of directors.
The Bylaws of the company/nonprofit provides the instructions/rules for running the company.
Legally, the board of directors is responsible for the actions of the company.
Being a board member is a big responsibility.
Board members have 2 fiduciary (legal) responsibilities to the company/public.
DUTY OF CARE
DUTY OF LOYALTY
Courts will not review the decisions made by board members so long as those decisions satisfy the Business Judgement Rule .
Made in Good Faith
Are reasonable held to the standard of a reasonably prudent board member in a similar situation
Made in the Best Interest of the Company/nonprofit
Outsourcing – Role of Board of Directors
Why Outsource?
Save labor costs
Focus on other business functions
Increase quality
Obtain expertise you do not have
Better exchange rates
Avoid regulations/requirements
Hidden Face of Globalization Video
(9 minutes)
Fill in these questions that also appear on the Module 4 assignment.
Module Assignment
Do the Math – Hidden Face of Globalization
As you watch the video of Hidden Face of Globalization, jot down this information:
In the clip at 6:03, it says:
A sewer makes between __11__ cents to _17___ cents an hour or as little as $__5.28________ a week. A sewer can work up to 107 hours a week.
The young girls who remove the string from the garments make __as little as $3.84 a week___.
“The corporations have practically wiped out the cost of labor.”
Now, do some math (worth 4 points).
For a sewer working 12 hours a day for 7 days of week getting paid 11 cents an hour, it costs a company ______ a week.
Repeat, they are getting 84 hours of labor for __________ a week. (same answer as A)
In the USA, a worker in TN would have to make minimum wage of $________ an hour. (can Google to find)
The first 40 hours of work would cost a company $ __________.
The remaining 44 hours would cost a company $ ____________ (rate of time and half)
Hours x (minimum wage + ½ minimum wage)
In Bangladesh, it costs a company $ ___________ for 84 hours of work. (same answer as A and B)
In USA, it costs a company $_____________ for 84 hours of work. (add D and E together)
A COMPANY OUTSOURCING LABOR TO BANGLEDASH WOULD SAVE HOW MUCH TO DO SO ON ONE WORKER IN COMPARISON TO WHAT IT WOULD COST THEM TO HIRE SOMEONE IN TN TO DO THE WORK AT MINIMUM WAGE.
(G – F = COST SAVINGS TO COMPANY)
Module Assignment. So what?
You answer this part.
Now, what could the Board of Directors decide to do with those cost savings which are magnified for each worker it outsources to a country like Bangladesh? When answering think about the stakeholders (sewers doing work in factories, factory owners, towns where factories are located, customers, employees of the company back home, shareholders).
What do Board of Directors typically do with all these cost savings?
What do you believe the ethical action is for a board in using these cost savings? Why do you believe this way?
The Board legally has the power to make the decisions.
Have companies been able to wipe out the cost of labor by offshoring?
What does that mean for humans? If you are working for so little in return, is that modern day slavery?
Why or why not?
If we believe child labor is wrong, why is it ok in another country?
If we believe working under certain conditions are unsafe for humans in the US, why is it ok in another country?
BOARD of DIRECTORS is responsible for the company’s ETHICS
Stated Rules or Beliefs
QUICK RESEARCH – Pick a company and find their corporate governance information. What is there?
Module Assignment Additional Questions
Pick a Company on the List, and Look at their Corporate Governance Info
Find an example of a Board Member (any company) breaching its duty of care or loyalty
Look at the board of directors. What do you notice about diversity of ethnicity? Gender? Experience? Age?
How many inside v. outside directors?
What perspective is the board missing? Who is not at the table?
Does the CEO have a formal position of the Board of Directors?
Look at the information posted at its Corporate Governance section of the website. How would you summarize its approach to corporate governance?
Search the website for an ethics statement or ethics program or ethics training or something related to ethics. Do they seem very committed to creating an ethical culture? Why or why not?
Write down the basics of what you found. Who, what, when, where, etc.
What was the harm caused by this person not acting in the company’s best interest or not putting the company’s interest above personal interest.
What happened to this board member? What happened to the company?
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Apr 6 – Corporate Governance & Nike – Case Study – watch content in class. You will need this to work on Module Assignment questions.
Apr 11 – Code of Conducts and Board Failures
Apr 13 – Module Assignment due Monday, April 18th at 12 noon. This is extended due date to account for speaker and Easter weekend.
April 18 – IN CLASS TEST moved to Mon, Apr 18th. We will start content 5 afterwards.
Start Module 4 – Creating a Framework for Ethical Company
Corporate Governance
Module 4 Assignment
Wed, Apr 6
Module 3
Corporate Governance
MGMT 3940
What is Corporate Governance?
Corporate Governance is the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with its STAKEholders (financiers, customers, management, employees, government and the community). (Businessdictonary.com)
What is a board of directors?
A group of people who manage or direct a company or organization.
All for-profit legal corporations and non-profit legal corporations MUST HAVE a board of directors.
The minimum number of people who are on the board of directors is determined by state corporate law. Initially this number is often 3.
Boards guide the success or failure of a company by steering the overall corporate direction, setting policy, choosing executives, and ensuring that major decisions are ethical and prudent.
For large corporations, board members are often elected by SHAREholders. Look to the BYLAWS and SHAREHOLDER rights document to learn how board members are selected/elected for the Board, the term, voting rights, roles.
In Theory and Legally
The Board of Directors is the ultimate entity to control what the company does. The buck stops with the board.
Corporate Governance Decisions
Made by the Board
(Ferrell, Freadrich, Ferrell, 2010)
In Reality (not what law says)
We look to the CEO as where the buck stops. But the CEO is hired/fired/rewarded by the Board of Directors.
The Board of Directors is the entity in control.
Board Members have legal responsibilities to the organization
Fiduciary Responsibilities – means legal responsibilities
To whom do they owe these responsibilities?
For-profit company
To the shareholders
What about STAKEholders? Depends.
Non-profit company
To the public?
To the people served?
This generally requires that a director pay attention, ask questions and act diligently in order to become and remain fully informed and to bring relevant information to the attention of other directors.
Loyalty
of
This generally requires that a director make decisions based on the corporation’s best interest, and not on any personal interest.
Can a Board Member be sued for the decisions they make?
Business Judgment Rule
Business Judgment Rule
Courts will not review business decisions of boards if board members meet three criteria:
1. Board member acted in GOOD FAITH
2. Board member acted with care of an ordinarily prudent person in a like position would exercise in a similar situation
3. Board member acted in a manner he/she believed to be in the best interest of the company.
Ordinarily Prudent Person
What you should have done. A person who is doing things right.
See posted Corporate Governance Duties of Boards posted PDF
Corporate Governance is the framework of rules and practices
by which a board of directors
ensures accountability, fairness, and transparency
in a company’s relationship with its STAKEholders (financiers, customers, management, employees, government and the community). (Businessdictonary.com)
Nike and its Offshoring Impact
CASE STUDY
Now, watch on your own the Behind the Swoosh video
(20 minutes)
Return to class at
_________________
Did Phil Knight know what was going on? Why or why not?
Think About this Question
You are a new board member to Nike’s board.
You have become aware of these issues with Nike’s offshoring practices.
What does your Duty of Care and Duty of Loyalty require you to do with regards to this issue? Why?
Module B Assignment
Has questions related to the NIKE Case Study
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Module 3
Corporate Governance
MGMT 3940
What is Corporate Governance?
Corporate Governance is the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with its STAKEholders (financiers, customers, management, employees, government and the community). (Businessdictonary.com)
What is a board of directors?
A group of people who manage or direct a company or organization.
All for-profit legal corporations and non-profit legal corporations MUST HAVE a board of directors.
The minimum number of people who are on the board of directors is determined by state corporate law. Initially this number is often 3.
Boards guide the success or failure of a company by steering the overall corporate direction, setting policy, choosing executives, and ensuring that major decisions are ethical and prudent.
For large corporations, board members are often elected by SHAREholders. Look to the BYLAWS and SHAREHOLDER rights document to learn how board members are selected/elected for the Board, the term, voting rights, roles.
In Theory and Legally
The Board of Directors is the ultimate entity to control what the company does. The buck stops with the board.
Corporate Governance Decisions
Made by the Board
(Ferrell, Freadrich, Ferrell, 2010)
In Reality (not what law says)
We look to the CEO as where the buck stops. But the CEO is hired/fired/rewarded by the Board of Directors.
The Board of Directors is the entity in control.
Board Members have legal responsibilities to the organization
Fiduciary Responsibilities – means legal responsibilities
To whom do they owe these responsibilities?
For-profit company
To the shareholders
What about STAKEholders? Depends.
Non-profit company
To the public?
To the people served?
This generally requires that a director pay attention, ask questions and act diligently in order to become and remain fully informed and to bring relevant information to the attention of other directors.
Loyalty
of
This generally requires that a director make decisions based on the corporation’s best interest, and not on any personal interest.
Can a Board Member be sued for the decisions they make?
Business Judgment Rule
Business Judgment Rule
Courts will not review business decisions of boards if board members meet three criteria:
1. Board member acted in GOOD FAITH
2. Board member acted with care of an ordinarily prudent person in a like position would exercise in a similar situation
3. Board member acted in a manner he/she believed to be in the best interest of the company.
Ordinarily Prudent Person
What you should have done. A person who is doing things right.
See posted Corporate Governance Duties of Boards posted PDF
Corporate Governance is the framework of rules and practices
by which a board of directors
ensures accountability, fairness, and transparency
in a company’s relationship with its STAKEholders (financiers, customers, management, employees, government and the community). (Businessdictonary.com)
BOARD of DIRECTORS is responsible for the company’s ETHICS
Stated Rules or Beliefs
QUICK RESEARCH – Pick a company and find their corporate governance information. What is there?
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Corporate Governance – Board of Directors
Excerpt from http://biztaxlaw.about.com/od/startingacorporation/a/boardduties.htm
Duties of a Board of Directors
The individuals who are selected to be on the board of directors of a corporation have overall responsibility for
the activities of the corporation. The board acts on behalf of the shareholders to make overall policy decisions
and provide oversight. A corporate board has great power and also great responsibility. Specific duties of the
board of directors and of individual board members, committees, and officers are set by the corporate bylaws.
Here are the primary duties of a corporate board:
Fiduciary responsibility
Corporate board members have a fiduciary responsibility to care for the finances and legal requirements of
the corporation. They must act in good faith and with a reasonable degree of care, and they must not have
any conflicts of interest. That is, the interests of the company must take precedence over personal interests of
individual board members.
Mission and Vision
Board members are responsible for setting the mission of the company and assuring that all actions are
related to and adhere to that mission. The board can change the mission, but only after careful deliberation.
Oversight
Corporate boards of directors do not participate in day-to-day decision-making; instead, they set overall
policy, based on the corporate mission and vision, and they exercise an oversight function, reviewing the
actions of corporate officers and executives.
Annual Meeting
At the annual meeting of the corporation, the board announces the annual dividend, oversees election of
corporate board members, elects or appoints officers and key executives, and amends the bylaws, if
necessary.”
Basis for business judgment rule (source: Wikipedia)
Given that the directors are not insurers of corporate success, the business judgment rule specifies that the court
will not review the business decisions of directors who performed their duties (1) in good faith; (2) with the care
that an ordinarily prudent person in a like position would exercise under similar circumstances; and (3) in a
manner the directors reasonably believe to be in the best interests of the corporation.[4] As part of their duty of
care, directors have a duty not to waste corporate assets by overpaying for property or employment services.
The business judgment rule is very difficult to overcome and courts will not interfere with directors unless it is
clear that they are guilty of fraud or misappropriation of the corporate funds, etc.[5]
In effect, the business judgment rule creates a strong presumption in favor of the Board of Directors of a
corporation, freeing its members from possible liability for decisions that result in harm to the corporation. The
presumption is that “in making business decisions not involving direct self-interest or self-dealing, corporate
directors act on an informed basis, in good faith, and in the honest belief that their actions are in the
corporation’s best interest.”[6] In short, it exists so that a Board will not suffer legal action simply from a bad
decision. As the Delaware Supreme Court has said, a court “will not substitute its own notions of what is or is
not sound business judgment” [7] if “the directors of a corporation acted on an informed basis, in good faith and
in the honest belief that the action taken was in the best interests of the company.” [8]
http://biztaxlaw.about.com/od/glossarys/g/stockholders.htm
http://biztaxlaw.about.com/od/glossaryb/g/bylaws.htm
http://biztaxlaw.about.com/od/glossaryf/g/fiduciary.htm
http://en.wikipedia.org/wiki/Good_faith
http://en.wikipedia.org/wiki/Business_judgment_rule#cite_note-3
http://en.wikipedia.org/wiki/Business_judgment_rule#cite_note-4
http://en.wikipedia.org/wiki/Presumption
http://en.wikipedia.org/wiki/Business_judgment_rule#cite_note-5
http://en.wikipedia.org/wiki/Delaware_Supreme_Court
http://en.wikipedia.org/wiki/Business_judgment_rule#cite_note-Aronson-6
http://en.wikipedia.org/wiki/Business_judgment_rule#cite_note-7
Duty of Care and Duty of Loyalty
Although a distinct common law concept from duty of care, duty of loyalty is often evaluated by courts in
certain cases dealing with violations by the board. While the business judgment rule is historically linked
particularly to the duty of care standard of conduct,[9] shareholders who sue the directors often charge both the
duty of care and duty of loyalty violations. This forced the courts to evaluate duty of care (employing the
business judgment rule standard of review) together with duty of loyalty violations that involve self-interest
violations (as opposed to gross incompetence with duty of care). Violations of the duty of care are reviewed
under a gross negligence standard, as opposed to simple negligence. Consequently, over time, one of the points
of review that has entered the business judgment rule was the prohibition against self-interest transactions.
Conflicting interest transactions occur when a director, who has a conflicting interest with respect to a
transaction, knows that she or a related person is (1) a party to the transaction; (2) has a beneficial financial
interest in, or closely linked to, the transaction that the interest would reasonably be expected to influence the
director’s judgment if she were to vote on the transaction; or (3) is a director, general partner, agent, or
employee of another entity with whom the corporation is transacting business and the transaction is of such
importance to the corporation that it would in the normal course of business be brought before the board.[10]
Standard of Review
The following test was constructed in the opinion for Grobow v. Perot, 539 A.2d 180 (Del. 1988), as a guideline
for satisfaction of the business judgment rule. Directors in a business should:
act in good faith;
act in the best interests of the corporation;
act on an informed basis;
not be wasteful;
not involve self-interest (duty of loyalty concept plays a role here).
Ten Commandments for Board of Directors
Remain Independent
Direct, Don’t Manage
Appreciate the CEO
Prepare for meetings
Don’t miss meetings
Participate in Long Range Planning
Be a Pleasant Skeptic
Keep Information Confidential
Don’t focus on Personal Liability
Manage Major Constituencies
http://en.wikipedia.org/wiki/Duty_of_care
http://en.wikipedia.org/wiki/Duty_of_loyalty
http://en.wikipedia.org/wiki/Business_judgment_rule#cite_note-8
http://en.wikipedia.org/wiki/Business_judgment_rule#cite_note-9
https://investors.nike.com/investors/corporate-governance/default.aspx
Board of Directors
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