Introduction to management

CORPORATE GOVERNANCE

Our focus now will be on private company.

"Corporate governance is about the procedures and processes according to which an organization is directed and controlled" meaning

There's different prospective where we can analyze it:

A perspective, which is more a generic definition, tell us; corporate relationship governance involves the relationship among various participants, including the CEO, the management, shareholders and employees, in determining the direction and performance of corporations.

A we have; corporate governance is the process by which corporations are more responsive to the rights and wishes of the stakeholders. Way too focused on stakeholders.

A perspective; corporate governance deals with the way suppliers of finance assure themselves of getting a return of their investment.

Those are the actors involved; we will talk of some of them only, specifically:

The board of directors, also called in Italy CDA

(consiglio di amministrazione), and On top we have CEO, COO, CFOCommentato [SB1]:the managers:it will be a discussion of how the decisions are taken focusing on the two actorsWhich are the relationship between CEO, top managers and shareholders(azionisti) ?this is our framework, we’ll just some actors, so little by little we are going to discussthe relationship between the board and the management.

Governance; The work of board of directions or other governing body.

Management; the work of the executive management team.[stiamo ragionando sul rapporto tra il consiglio di amministrazione e verticeaziendale]we could say the relationship between who makes decisions and who applies them,

Can we explore/analyze what the board does? Yes, there are 4 different possiblealternatives activities…

The board of directions should defined the strategies and priorities, so the actions ofmanagement depend on the decisions of the board. For understanding and analyzewhat are the actions run by

the board we take in consideration the model, matrix made of variables; we have to ask if the board is outward-looking or inward-looking? Outside or inside the company, are they focused on the future or on the present and past? Past and present-focused and outward-looking lead us on accountability: on achieving goals, analyzing the performance in a market outward of a certain period. Past and present-focused and inward-looking lead us to another activity, supervising executive activities, which means analyzing internally, inside the company. A future-focused and inward-looking lead us to the third activity, Policymaking meaning for example defending internal rules, in order to modify the organigram or reorganize internally. The fourth is future-looking and outward-looking, the last activity is strategy formulation, it is about increasing the market share, the revenues, the profits etc. These are four possible alternatives, by combining these two dimensions (inward/outward-looking and

In the context of management, there are four quadrants representing four activities, none of which is considered better than the others. It is important to note that these activities can vary for each unique firm. Using the same matrix, we can gather information and make decisions, with the involvement of the CEO. The CEO is positioned between the general framework of management and the board of directors. While the board is the most important unit, both the CEO and the board are complementary to each other.

The focus of the board determines the orientation of the work. If the board is more future-focused, the work is more performance-oriented. On the other hand, if the board is more present and past-focused, the work is more conformance-oriented, aiming to understand the purpose, nature, and goals of the firm while proudly serving the community.

There are five different types of board directions:

1. Nobody from the outside: The board of directors consists of top managers who are also executive directors. There are no non-executive directors appointed from the outside.
2. Family: The board of directors consists of family members.
3. Insiders: The board of directors includes top managers who are also executive directors, along with non-executive directors appointed from within the organization.
4. Outsiders: The board of directors consists of non-executive directors appointed from outside the organization, along with top managers who are also executive directors.
5. Hybrid: The board of directors includes a combination of insiders and outsiders, with both top managers who are also executive directors and non-executive directors appointed from outside the organization.

Businesses and startups are structured in a specific way. The framework includes boards of directors and management, which often overlap.

There are non-executive directors from various fields who bring specific market knowledge. The board of directors consists of 9 people, with 3 external non-executive directors and 6 top managers who are executive directors. An example of such a structure is Eni.

Some companies choose to have a majority of non-executive directors on their board. For instance, a company may have 8 board members, with 5 non-executive directors (who work for other companies) and 3 executive directors (usually the CEO, CFO, and COO, who are well-compensated from a financial standpoint).

In some cases, all board members are from outside the company. They have supervisory functions but no managerial implications, as the management is not represented. The CEO plays a strong role, having access to all company information and being the sole decision-maker in terms of management.

with two-tier or supervisory board, it has two board of directions; the supervisory board and management board, which could have both internal and external directions. there is an advisory board and a practical one that is in duty with the executive part. We can see it's a combination of the models 2/3 and 4. This last case has the supervisory body also call the boards, for example, one advisory of their actions is to provide ideas or make recommendations. Naturally all the non-executive directors should be independent because they don't work for the company, the idea is to advise and consult in an impartial way. In the last few years because of the law there is a new topic to take into consideration; Board Diversity - In terms of genders; the two have to be represented, in Italy there's a law (quote rosa) that says in each of the board there should be a number of Females. - In terms of stakeholders; also have to be represented - Society meaning the people; somebodyrepresenting society and its representatives (Bocconi; Lombardy region, then the province of Milan, municipality of Milan are representing the society) reasons: there will be more ideas or advices but a possible conn could be less control PART 2 COSTING We are starting to analyze the tools and focusing on private for-profit companies. The main question that we are going to answer is: How much does it cost to produce this product/the production of a certain good? From the managerial speaking, it means how much does it cost to produce that specific good? The answer is complicated because it depends on the situations. The first tool is costing, but actually the word used in English is Accounting; in Italian, contabilità e bilancio, the meaning we are going to use is related to managerial accounting. What Managers do is taking decisions, which is the key function of managers. We said we are going to study the tools that mainly act to specific decisions, for example "determine the selling price of a"

The main focus of our discussion is on costs, not prices. We need to analyze costs in order to make decisions about our products or services. Costing is crucial in determining how much it will cost to produce a certain unit of a good or service. We are not concerned with the final price at this point.

Costs refer to the expenses incurred in using raw materials to produce a specific product. Expenses, on the other hand, are the outflow of cash when purchasing raw materials (for example, a restaurant buying pasta for cooking). The timing of costs and expenses may differ, as you may have costs without any expenses (such as buying pasta but not having any clients yet).

Answering the main question is complex because there are different cost configurations. Let's analyze some of them:

1. Variable costs: These costs are affected by quantity. They are called variable because they change, and the more you produce, the higher they will go. For example, the cost of raw materials for making pasta.

don’t change. The cost of the personell is fixed. Fixed ; In order to calculate the total cost we have to combain the variable. Total cost+ fixed costs. (the cooking pasta)In order to calculate the “cooking past” for example, I have to combain fixed andvariable costs for having the total cost.Y = ax + b; this is the formula, knowing there’s the part fixed and the part whichchange.a = is the variable costsb = is the fixed costif the x is 0 than y is equal to b4. fixed cost per unitthe fixed costs per unit are also fixed as the fixed costs? No because each units we’llhave fixed costs and variable cost. The variable cost change, total cost change as well;the more student the more over amount of fixed costs per student goes down,when the units increase the costs decrease (cost devided per the number of unit)b/Volumeb = fixed costsvolume = the quantity, the unitsif you increase the volume, b divede by the volume will decrease; the quantity offixed costs per

unit goes down, in fact if we have 1000 $ (the cost of a chef) and just 1 client the cost per client is 1000$, with 2 clients the cost per client is 500$, with 10 clients the cost per client is 100$.5. marginal cost in Italian we say "derivate". is the cost of producing the n + 1 quantity of a good, knowing that n is very high. We can say for example, is the cost to produce one additional meal when you already produce 1000 meals. The marginal cost goes down at a certain point, up to a certain point. The average cost is stable.

Contribution statement is defined as the total revenues less total variable costs, or unit less variable cost per unit. C.S. = p - a. Does it mean you are profitable? We don't know because we are using variable costs and not the total cost. If it is positive, the costs of a meal, for example, are covered by the price. If the price is not able to cover the costs, the restaurant will have a major issue.

p is the unit price, a is the variable cost per unit.

The variable cost per unit (b) is the fixed cost (x) multiplied by the number of outputs (T.R. = px), which represents the total revenues, what the firm gets back from the sales.

The total cost (y = ax + b) is the sum of the fixed cost and the variable cost per unit.

When total revenues are equal to total costs, there is no profit and the cost is covered by revenues.

I. T.R. = T.C.; T.R. = px and T.C. = ax + b;

II. px = ax + b;

III. px - ax = b (porto di là e cambio il segno);

IV. x (p - a) = b. (raccolgo);

V. x = b / (p - a) it is the point, when the total revenues are equal to the total costs, when you are covering all the cost.

The contribution margin is important because if it is positive, it might not be profitable, but you can cover partially the fixed cost.