Significant changes in corporate or business strategy imply corresponding changes in capital needs, changes in management competence requirements, and changes in information processing structures. Therefore, such changes in strategy are always of interest to ownership, management, and corporate governance. In practice, the key step is to recognize what kind of changes in corporate and business strategy can take the firm into new territory and to adapt ownership, management, and corporate governance accordingly. As the case descriptions and the analysis in the following pages will show, significant changes in corporate or business strategy have the potential to undermine the long-run viability of the firm. Too often, the broader governance implications of changes in strategy are not recognized or are dealt with inadequately. Instead they should be seen as occasions for reviewing ownership, management, and making major adjustments to how the firm is set up.

Change in corporate strategy

A great deal of research in corporate strategy has been devoted to the question of diversification, with a particular emphasis on comparing the performance effects of related and unrelated diversification (where relatedness is a function of the extent to which the different businesses of the multibusiness firm share resources and markets).The study of why firms engage in corporate strategies of unrelated diversification despite the negative evidence on performance represents one of the few specific points of comparison between research in strategy and research in finance. Strategy explains the persistence of unrelated diversification in some cases by citing managerial competences in parenting, i.e., economies of scope in processes that can be brought to bear across businesses, such as finance, accounting, or planning. Finance is more skeptical about managerial competences and invokes managerial power over decision-making and managerial rent seeking to the detriment of shareholders who do not need management to diversify portfolio risk on their behalf (in the publicly listed firm). In the first approach, managerial competences are difficult to pinpoint and shareholders are not considered; in the second, management and shareholders have diametrically opposed interests. What if diversification in particular, and changes in corporate strategy in general, were analyzed in light of the interplay of the values among and between managers and shareholders instead?