1 Multinational Business Relationships There Are Three Parties Who May Have Significant Interests in an International Business Venture The Multinational Corporation MNC The Host Country often Economically under developed The Home Country Economically Developed The state of economic development will significantly affect the interests of each country Governments of Home and Host countries may support oppose or have no position regarding a specific venture however they often have political agendas or strategic interests which affect their position Characteristics of Developed Economies Diversified economy Relatively self sufficient Significant export markets Good infrastructure communications transportation power grid Skilled productive workforce Economic political stability Benefits Typically Sought by the MNCs Raw Materials New Markets Lower cost Labor Efficiencies Operating Efficiencies Administrative Efficiencies Network Relationships with Other MNCs Interests of Less developed Host Country Often Include Income Security Allies Economic Development Diplomatic Influence Respect for their Culture and Citizens 2 Interests of the Home Country May Include Effect on Domestic Economy Economic productivity Balance of trade Inflation cost of living Domestic employment Security Access to critical resources Technology Transfer Dependence on foreign suppliers Diplomatic Interests Building Relationships Punitive or frustrating hostile governments Promoting economic development in other countries 3 Stakeholder Issues Basic Terms the shareholders Corporate Governance the structures procedures and policies established to protect the interests of Top Management the CEO and other managers who have responsibility for the entire organization Board of Directors Elected representatives of the shareholders with responsibility for hiring directing compensating and evaluating top management The Directors are NOT considered to be Management they represent owners The Role of The Board of Directors The relations between the Board and Top Management may take a number of different forms Supervisory Board actively engages management as representatives of the shareholders Consultative board generally defers to management but holds them accountable Protective Board trusts the CEO and s more likely to defend management than challenge them Subservient board is dominated by CEO and goes along with whatever the CEO wants Historical Changes in American Corporations KNOW Early Days Corporate equity was traded in large blocks by a relatively small number of people who were knowledgeable and involved Top management often included founders High level of personal knowledge between shareholders directors top management Now Institutional investors mutual funds pension funds etc represent investors who have little knowledge of the firms they are invested in Most CEO s are hired by Board of Directors from outside Little or no personal knowledge between shareholders and directors or top management Changing Views of Corporate Governance Traditional View The corporation is simply a legal structure that represents interests of the shareholders Shareholders directors and top managers had fundamentally the same interest equity investment There were legal logical and legitimate reasons for directors to be responsive to shareholders concerns The Autonomous Corporation Corporations are Social Institutions that seek to manage their environments to enhance success Shareholders directors and top management often have very different interest Directors believe they can represent the corporation and the legitimate interest of shareholders without input from shareholders Shareholder Reaction In general shareholders have not complained about how corporations were governed as long as the value of their investments was growing In recent years some highly publicized cases have led some shareholders to question whether some Board were protecting CEO s who were not delivering good value to the shareholders Specific Issues of Shareholder Concern 4 1 Executive Compensation Excessive Compensation Not connected to performance 2 Failure to address problems that threaten the firm 3 Failure of Boards to detect prevent illegal or improper acts by Top Managers 4 Board actions that protect the Top Management and others at the shareholders expense Why Some Boards are Dominated by the CEO 1 The CEO is also Chairman of the Board 2 The Composition of the Board Inside Directors Members of the Top Management Team Related Outside Directors CEO s of other firms with significant business ties to the company Unrelated Outside Directors Includes experienced executives politicians celebrities Many directors lacked the independence inclination or experience to challenge the CEO 3 Ability of the Board to control Elections and Proxies Traditional Remedies Available to Unhappy Shareholders 1 Sell their stock Market will communicate through lower stock price 2 Exercise power through corporate governance process Elect new directors Introduce shareholders resolutions 3 Change legal rules for corporate governance 4 File Shareholders Lawsuits Changing Position of Institutional Investors Toward Corporate Governance Traditionally Institutional Fun Managers limited there responsibilities to trading equity to optimize In recent years they have reconsidered the appropriateness of engaging corporate directors regarding investor outcomes concerns about stock performance Board Responses to Concerns of Institutional Investors 1 Separating the positions of Chairman and CEO 2 Reducing the number of Inside Directors 3 Selecting Unrelated Outside Directors with executive experience to fill Board positions 4 Directors limiting the number of Boards they serve 5 Compensating directors with treasury stock rather than cash and eliminating pensions for directors 6 Limiting terms and service for directors Tort Reform 5 Appeals Process in Tort Actions 1 Defendants may appeal based on procedural error or new evidence but not on findings of fact 2 Defendants may appeal the award as excessive or unwarranted The appellate court may reject the appeal take it under consideration or reduce it and take the case under consideration 3 The amount actually recovered by plaintiff and the terms of settlement are usually not reported After negotiation of damages expenses and contingency fees plaintiffs rarely get rich Does the Tort System Need to be Reformed In recent years some people have argued that the tort