h

Institutional owners are

financial institutions such as mutual funds and pension funds that control large-block shareholder positions.

When a firm is in the early stages of geographic diversification, cross-border alliances may be a good learning step before other forms of international expansion.

T

Recent emphasis on corporate governance stems mainly from the failure of corporate governance mechanisms to adequately monitor and control top-level managers' decisions. a. True b. False

a

Research suggests that institutional activism may not have a strong direct effect on firm performance but may indirectly influence the targeted firm's strategic decisions, including those concerned with international diversification and innovation. a. True b. False

a

The organizational structure for an internationally diversified firm requires trade-offs between global integration and local market responsiveness.

t

The selection of an organizational structure for an internationally diversified firm should consider the international corporate level strategy the firm is using.

t

Functional Structure with Integrated Cost/Differentiation strategy

- These firms create value through both low cost and uniqueness: a)Relatively low product cost through an emphasis on production and process engineering, with infrequent product changes b) Reasonable sources of differentiation based on new-product R&D - Difficult to implement, but frequently used in the global economy

The two basic approaches to successfully managing cooperative strategic alliances involve ____ and ____. a. cost minimization, opportunity maximization b. monitoring systems, multiple management approaches c. contractual systems, financial systems d. equity approaches, nonequity approaches

A

In the United States, the fundamental goal of business is to a. ensure customer satisfaction. b. maximize shareholder wealth. c. provide job security. d. generate profits.

B

If the market for corporate control were efficient as a governance device, then only _________ would be targets for takeovers. a. firms with unethical top executives b. firms earning above-average returns c. poorly performing firms d. over-valued firms

C

Financial Controls

Business - cost leadership strategy emphasize financial controls Corporate - unrelated diversification strategies where capabilities are not shared; emphasizes financial controls

A cooperative agreement between a hotel chain and a casino operator would be viewed as a horizontal complementary strategic alliance because as separate entities, the two firms would compete for the same customer.

F

A major risk of a network cooperative strategy is that firms gain access to their partner's partners thus exposing their proprietary processes to loss or theft.

F

A network strategy involves a series of horizontal acquisitions by firms that are committed to dominating a particular industry.

F

Although growing in popularity with small and medium-sized firms because they can gain economies of scale, large companies tend to avoid strategic alliances.

F

Because of U.S. legal restrictions concerning large foreign acquisitions, American firms can only to enter into diversifying alliances with other U.S. firms.

F

Close monitoring, formal contracts, and constant vigilance against opportunism increase the probability of alliance success.

F

Cooperation in slow-cycle markets is extremely rare because these industries are declining.

F

Franchising is most attractive in concentrated industries.

F

Horizontal complementary strategic alliances are designed so that each partner realizes equal benefits from equal investments in the alliance.

F

Competitive Form for Unrelated Strategy

Financial economies are pivotal for the unrelated strategy Creates value through two types of financial economies 1)Cost savings realized through improved allocations of financial resources based on investments inside or outside firm 2) Efficient internal capital market allocation: restructuring of acquired assets ● The *efficient internal capital* market is the key for this strategy, and requires divisional competition rather than cooperation. ● Specific performance expectations and accountability for independent divisions stimulate internal competition for future resources ● Divisions are independent and separate for financial evaluation purposes; and retain strategic control

Multidomestic Strategy

International strategy in which strategic and operating decisions are decentralized to each country to allow the units to tailor products to local markets

Cost leadership and the functional structure results:

Operations is the main function Process engineering is emphasized rather than new product R&D Few decision-making and authority layers Centralized corporate staff Highly formalized rules and procedures Low-cost culture Centralized staff decision-making authority Job specialization Simple reporting relationships Overall structure is mechanistic; structured job roles

Worldwide Geographic Area Structure

Organizational structure emphasizing national interests; facilitates efforts to satisfy local or cultural differences

Worldwide Product Divisional Structure

Organizational structure with centralized decision-making authority to coordinate/integrate decisions among divisional units

The cost minimization approach of managing alliances is more expensive to put into place and to use than in the opportunity maximization management approach.

T

A firm's continuing success leads to

Product diversification, or Market diversification, or Both product and market diversification

Growth Pattern

Simple Structure w/ Sales Growth -> Functional Structure w/ Sales Growth and Effective implementation -> Multidivisional Structure

Which of the following statements is about corporate governance in Germany is FALSE?

The Vorstand is elected by the firm's employees.

Which of the following reasons would NOT explain the difficulty of determining appropriate executive compensation?

The compensation committee may not have comprehensive firm performance data.

100. A virtually exclusive reliance on financial controls may occur when outsider-dominated boards exist. This may lead to all of the following EXCEPT a. high executive turnover. b. increased diversification of the firm. c. excessive management compensation. d. reduction in R&D expenditure.

a

104. Boards of directors are now becoming more involved in a. the strategic decision-making process. b. selecting new CEOs. c. the firm's tax issues. d. governmental relations.

a

The interests of multinational corporations' shareholders may be best served when there is

a variety of compensation plans for executives of foreign subsidiaries

Simon Leagreet, the Chairperson and CEO of L-EVA Industries, Inc., has long been the major power at L-EVA. A majority of the directors are concerned that while Mr. Leagreet has been responsible for the firm's earning above-average returns, he has been displaying a tendency toward personal extravagance at the firm's expense. In order to limit Mr. Leagreet's power, the board of directors plans to

appoint another individual as chairperson of the board of directors

A top-level manager's reputation is a dependable predictor of his/her future behavior. a. True b. False

b

____ is the degree to which decision making authority is retained at higher managerial levels. a. Formalization b. Centralization c. Specialization d. Unification

b

________ is an important influence in Japanese corporate governance structures. a. Innovation b. Consensus c. Competition d. Individualism

b

Reciprocal Relationship

change in one typically causes a change in the other, underscoring the interconnectedness between strategy formulation and strategy implementation

105. Research suggests that boards of directors perform better if a. the CEO is also the chairperson of the board of directors. b. the board includes employees as voting members. c. the board is homogenous in composition. d. outside directors own significant equity in the organization.

d

Corporate governance is important to nations because

firms seek to invest in nations with national governance standards that are acceptable

Strategic Network

group of firms that form around a core to create value by participating in multiple cooperative arrangements - Used to implement business-level, corporate-level, and international cooperative strategies

Controls

guides the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference is unacceptable. 1. Strategic 2. Financial

A virtually exclusive reliance on financial controls may occur when outsider-dominated boards exist. This may lead to all of the following EXCEPT

high executive turnover.

The top management team at *Sierra Infusion* is concerned about the declining performance of firms in their industry. The team members are becoming concerned about the security of their jobs at Sierra Infusion. At a meeting over dinner, the top management team agrees to go to the board of directors with a proposal for

increased diversification of Sierra Infusion.

The market for corporate control serves as a means of governance when

internal controls have failed.

Transnational strategy

international strategy through which the firm seeks to achieve both global efficiency and local responsiveness; usually implemented through global matrix structure and hybrid global design

Managerial employment risk is the

managers' risk of job loss, loss of compensation, and/or loss of reputation.

In the United States, the fundamental goal of business is to

maximize shareholder wealth.

Matrix organization may evolve

organization structure in which a dual structure combines both functional specialization and business product or product specialization

Combination structure

organizational structure in which characteristics and mechanisms are drawn from both the worldwide geographic area structure and the worldwide product divisional structure (used to implement transnational strategy)

Executive compensation is a governance mechanism that seeks to align managers' and owners' interests through all of the following EXCEPT

penalties for inadequate firm performance.

The board of directors of CyberScope, Inc., is designing a stock option plan for its CEO that will motivate the CEO to increase the market value of the firm. Consequently, the board is

setting the option strike price substantially higher than the current stock price.

In the United States, a firm's key stakeholder(s) is(are) the

shareholders

Corporate governance revolves around the relationship between which two parties?

shareholders and managers

RexMacDonald, Inc., uses a differentiation strategy that relies on cooperation, communication, and sharing of ideas among employees. In order to foster this behavior, RexMacDonald should emphasize strategic controls over financial controls.

t

Strategy has a more important influence on strategy, although once in place, structures influence strategy.

t

Ownership concentration is determined by both

the number of stockholders and total percentage of shares they own

Product diversification provides two benefits to managers that do not accrue to shareholders ____ and ____.

the opportunity for higher compensation through firm growth; a reduction in managerial employment risk

Multidivisional Structure

● Operating divisions each represent a separate business or profit center ● Top corporate officer delegates responsibilities for day-to-day operations and business-unit strategies to division managers ● Ties together all operating divisions ● Each division represents a separate business or profit center with its own functional hierarchy ● Each division is responsible for daily operations ● Business-unit strategy is delegated to the division

SBU

● SBU divisions related in terms of shared products/markets ● Divisions of one SBU have little in common with divisions of other SBUs ● Divisions within each SBU share product or market competencies to develop economies of scope ● Integrations used in cooperative form are equally effective for the SBU form ● Each SBU is a profit center; has its own budget for staff to foster integration ● Financial controls are more vital for evaluating performance

3 benefits of M-From

● Simplifies the problem of control through more accurate monitoring of the performance of each business ● Facilitates comparisons between divisions, which improves the resource allocation process ● Stimulates managers of poorly performing divisions to look for ways of improving performance

Is there a right structure?

● The firm must select a structure that is "right" for the chosen strategy ● Managers develop proper matches between strategies and organizational structures rather than searching for an "optimal" structure

International strategic alliances are less risky than domestic strategic alliances due to diversification across countries.

F

Mergers are the most common cooperative strategy used in standard-cycle markets.

F

Worldwide Product Divisional Structure for Implementing a global strategy

- Emphasizes economies of scale and scope - Corporate headquarters allocates financial resources in a cooperative way - Facilitated by improved global accounting and financial reporting standards - Produces lower risk - Less effective learning processes due to the pressures to conform and standardize

A ____ cooperative strategy helps the firm diversify in terms of products offered, markets served, or both. a. corporate-level b. business-level c. national-level d. industry-level

A

In a cross-border strategic alliance, the local partner is often a useful source of information about: a. local capital sources. b. the strengths of the foreign firm's technology. c. market synergies. d. long-term planning.

A

Differentiation Strategy should deliver

- An integrated set of actions designed by a firm to produce or deliver goods or services at an acceptable cost that customers perceive as being different in ways that are important to them - Target customers - perceived product value - Customized products - differentiating as many features as possible - Unusual features include responsive customer service, rapid product innovations, technological leadership, perceived prestige and status, different tastes, engineering design, performance

Hybrid From of Combination structure for Transnational strategy

- Assets and operations may be centralized/decentralized - Functions may be integrated/nonintegrated - Relationships may be formal/informal - Coordination mechanisms may leverage efficiency/flexibility - Mandates to subsidiaries may be global/ specialized-contribution/localized-implementation - competing objectives

Subjective Criteria; Evaluate the degree to which the firm focuses on the requirement to implement strategy

- Business-level: primary and support activities - Corporate-level (related): sharing of knowledge, markets, and technologies across business

Functional Structure

- CEO and limited corporate staff make all decisions - Functional line managers are in dominant organizational areas - Within: functional specialization results in active knowledge sharing within each area - Between: impeded communication and coordination among different functional areas - facilitates career paths and professional development in specialized functional areas - causes managers to focus on local issues - supports implement business-level strategies or some corporate level strategies with low levels of diversification when changing from simple to function, focus on and avoid value-destroying bureaucratic procedures

Differentiation and 5 forces of competition

- Customer loyalty: the most valuable defense against rivals - Unique products reduce customer sensitivity to raised prices - High margins (for differentiated products) insulate firm from supplier influence - Significant entry barriers: customer loyalty and product uniqueness - Firms with customers loyal to their products are positioned effectively against product substitutes

Objective Criteria used to measure firm's performance

- Focus on short-term financial outcomes - Include accounting-based measures: a)ROI (return on investment) b)ROA (return on assets) c)Include market-based measures d)EVA (economic value added) -Produce risk-averse managerial decisions - Are essential when a firm pursues a strategy with unrelated diversification

World Geographic Area for Multidomestic Strategy

- Focuses on variations of competition within each country - Emphasis is on differentiation by local demand to fit an area or country culture - Deals with uncertainty due to market differences - Corporate headquarters coordinates financial resources among independent subsidiaries

Increasing diversification creates problems beyond the scope of the functional structure

- Information Processing - Coordination - Control

Cost Leadership and Five Forces of Competition

- Low-cost position is a valuable defense against rivals - Powerful customers can demand reduced prices - Cost leaders are in a position to absorb supplier price increases and relationship demands, and to force suppliers to hold down their prices - Continuously improving levels of efficiency and cost reduction can be difficult to replicate and serve as significant entry barriers to potential competitors - Cost leaders hold an attractive position in terms of product substitutes, with the flexibility to lower prices to retain customers

Differentiation and the functional structure results:

- Marketing is the main function; new product ideas - New product R&D is emphasized - Most functions are decentralized, but R&D and marketing may have centralized staffs - Cross-functional product development teams - Complex and flexible reporting relationships - Development-oriented culture - Decentralized decision making - Broad job descriptions - Informal rules and procedures - Overall structure is organic; less structured job roles

Simple Structure

- Owner-manager makes all major decisions and monitors all activities - Staff acts as extension of manager's supervisory authority - Matched focus strategies and business level strategies: single product lines in single geographic market - few rules, limited task specialization, basic technology system

Differentiation Strategy Risks

- Price differential for differentiated product may be perceived as too large - Firms' means of differentiation may cease to provide value for which customers are willing to pay a premium price (successful rival imitation) - Experience can narrow customers' perceptions of the value of a product's differentiated features - Counterfeit goods may appear in the marketplace

Cost leadership strategy risks

- Processes can become obsolete - Focus on cost reductions can come at the expense of understanding customer perceptions and needs - Strategy could be imitated, requiring the firm to increase the value offered to retain customers

Subjective Criteria; Examine the fit of strategies

- What the firm might do (opportunities in the external environment) - What the firm can do (competitive advantages)

Chandler found that firms tends to grow in predictable patterns

- first by volume - then by geography - then by integration - finally through product/business diversification Growth Pattern determines structure

James Abercrombie has a thriving consulting firm specializing in training boards of directors in decision-making skills. Mr. Abercrombie has had striking success in reducing conflict and hostility among directors and allowing boards to develop more cohesiveness. Mr. Abercrombie is considering expanding his consulting practice overseas. Which of the following statements is most likely to be TRUE?

. Japanese firms will have little interest in Mr. Abercrombie's specialty because these skills are already practiced at a high level.

Which of the following is NOT an internal governance mechanism

. the market for corporate control

3 variation of multidivisional structure

1. Cooperative Form 2. SBU Form 3. Competitive Form

3 Benefits from internal competition

1. Creates flexibility and resources can then be allocated to the division with the greatest potential 2. Challenges the status quo and inertia 3. Motivates competition internally to be as intense as the challenge of external competition

3 Primary International Strategies

1. Multidomestic 2. Global 3. Transnational

3 key structural forms used to implement strategies

1. Simple Structure 2. Functional Structure 3. Multidivisional Structure

choice of functional structure is influenced by thsee *structural characteristics*

1. Specialization: departments are designed around areas of expertise—engineering to accounting 2. Centralization: highly centralized; staff are all together 3. Formalization: reporting roles are clearly defined; simple lines of communication

Choice of Differentiation Strategy

1. Specialization: departments are designed around areas of expertise—engineering to accounting 2. Centralization: the key departments are coordinated through a highly centralized office that reflects a focus on product design and marketing; otherwise DECENTRALIZED 3. Formalization: reporting roles are clearly defined; simple lines of communication

Strategic Center Firm's 4 primary tasks

1. Strategic Outsourcing 2. Competencies 3. Technology 4. Race to Learn

Two consideration regarding aligning structures

1. Structural stability: capacity firm requires to consistently and predictably manage its daily work routines 2. Structural flexibility: opportunity to explore competitive advantages firm will need to be successful in the future

A firm may pursue an international strategic alliance for all of the following reasons EXCEPT: a. to launch competitive responses against rivals' competitive actions. b. to leverage core competencies in new markets. c. to operate within government restrictions in the local country. d. to escape limited domestic growth opportunities.

A

A manufacturer of specialty jams and jellies has decided to ally itself with an orchard and vineyard growing rare strains of fruit. This is a(an) ____ strategy. a. vertical complementary b. horizontal complementary c. uncertainty reduction d. network

A

A strategic alliance in which the partners do not own equal equity is called a(n): a. equity strategic alliance. b. joint venture. c. nonequity strategic alliance. d. cooperative arrangement.

A

A strategic alliance in which the partners own different percentages of the new company they have formed is called a(an) a. equity strategic alliance. b. joint venture. c. nonequity strategic alliance. d. cooperative arrangement.

A

A virtually exclusive reliance on financial controls may occur when outsider-dominated boards exist. This may lead to all of the following EXCEPT a. high executive turnover. b. increased diversification of the firm. c. excessive management compensation. d. reduction in R&D expenditure.

A

All of the following are business-level cooperative strategic alliances EXCEPT a. synergistic strategic alliances. b. uncertainty reduction strategic alliances. c. complementary strategic alliances. d. competition response strategic alliances.

A

All of the following are business-level cooperative strategic alliances EXCEPT: a. cross-border strategic alliances. b. alliance networks. c. complementary strategic alliances. d. competitive response alliances.

A

Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum amounting to 3 years' salary because DictionAry has been bought in a hostile takeover by its main competitor. Ambrose received a. a golden parachute. b. a poison pill. c. greenmail. d. a silver handshake.

A

An agency relationship exists when one party delegates a. decision-making responsibility to a second party. b. financial responsibility to employees. c. strategy implementation actions to functional managers. d. ownership of a company to a second party.

A

As a form of business-level cooperative strategy, ____ alliances are more likely to create a sustainable competitive advantage and earn above-average returns. a. complementary b. uncertainty-reducing c. competition-reducing d. franchising

A

Boards of directors are now becoming more involved in a. the strategic decision-making process. b. selecting new CEOs. c. the firm's tax issues. d. governmental relations.

A

Broadly, the Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to a. align financial institutions' actions with society's interests. b. increase the number of foreign firms listing on U.S. stock exchanges. c. require CEOs to attest to the accuracy of their companies' financial reports. d. increase consumer protection in pharmaceutical products.

A

Dynamic alliance networks work best in industries a. where technological innovations are introduced frequently. b. that are mature and stable in nature. c. where the coordination of product and global diversity is critical. d. that are characterized by predictable market cycles and demand.

A

Firms participate in ____ to facilitate exploitation of economies between firms. a. stable alliance networks b. centralized alliance networks c. dynamic alliance networks d. internal alliance networks

A

Historically, have been at the center of German corporate governance structure. a. banks b. institutional shareholders c. public pension funds d. government agencies

A

In a cross-border alliance, the local partner is often a useful source of information about a. sources of capital. b. the strengths of the foreign firm's technology. c. market synergies. d. long-term planning.

A

In the franchising strategy, the most important competitive advantage for the franchisee is the franchisor's a. brand name. b. capital resources. c. access to a consolidated market. d. geographic locations.

A

Legitimately, a firm may pursue an international strategic alliance for all of the following reasons EXCEPT a. to enhance the compensation packages of top managers. b. to leverage core competencies in new markets. c. to operate within government restrictions in the local country. d. to escape limited domestic growth opportuni-ties.

A

Offshore Oil Exploration Partners (OOEP) has entered into a cooperative strategy with Malay Petroleum. The resulting documents are long, formal, and detailed. They specify detailed responsibilities of each partner and include methods of monitoring accounting and technical procedures. OOEP and Malay Petroleum are using the ____ management approach. a. cost minimization b. trust but verify c. opportunity maximization d. pragmatic realism

A

Reduction of competition can be accomplished through all of the following EXCEPT a. predatory alliances. b. explicit collusion. c. tacit collusion. d. mutual forbearance.

A

Reduction of competition can be accomplished through all of the following EXCEPT: a. comparative pricing. b. explicit collusion. c. tacit collusion. d. mutual forbearance.

A

The top management team at Sierra Infusion is concerned about the declining performance of firms in their industry. The team members are becoming concerned about the security of their jobs at Sierra Infusion. At a meeting over dinner, the top management team agrees to go to the board of directors with a proposal for a. increased diversification of Sierra Infusion. b. the addition of outside directors to the board. c. increased shareholder participation in decision making. d. greater concentration on Sierra's core industry.

A

The two types of complementary strategic alliances are a. vertical and horizontal. b. macro and micro. c. outsourcing and insourcing. d. network and complementary

A

Mutual forbearance is a form of explicit collusion between firms in which competitors avoid attacking rivals they meet in multiple markets.

F

The board of directors of CyberScope, Inc., is designing a stock option plan for its CEO that will motivate the CEO to increase the market value of the firm. Consequently, the board is a. setting the option strike price substantially higher than the current stock price. b. insuring that the strike price value of the options can be lowered if the organizational environment becomes more risky. c. having the stock option plan designed by insiders on the board of directors who are familiar with day-to-day operations of the firm. d. consulting accounting advisors to make sure that the plan transfers wealth to the CEO without immediately appearing on the balance sheet of CyberScope.

A

The repurchase at a premium of the target firm's shares that were acquired by the aggressor firm in a hostile takeover in exchange for an agreement that the aggressor will no longer target the company for takeover is called a. greenmail. b. a standstill agreement. c. crossing the palm with silver. d. a poison pill.

A

The three main luxury hotels in a major tourist destination keep very close track of their competitors' room pricing, restaurant offerings, tour packages, and special services such as airport transportation and spa privileges. When one hotel makes adjustments in prices or offerings, the other hotels follow suit. It is possible that these hotels are a. engaging in tacit collusion. b. following uncertainty reducing strategies. c. monitoring business competitors for opportunistic behaviors. d. following a competitive response strategy.

A

As ownership of the corporation is diffused, shareholders' ability to monitor managerial decisions a. increases. b. decreases. c. remains constant. d. is eliminated.

B

Usually, large-block shareholders are considered to be those shareholders with at least __________ percent of the firm's stock. a. 5 b. 25 c. 50 d. 75

A

Which of the following is TRUE of trends in Japan's corporate governance structure? a. Compensation of CEOs in both private and public companies is being tied more closely to observable performance goals. b. Increased regulation in the financial sector has increased the cost of mounting hostile takeovers. c. Banks' influence over corporations is increasing. d. The gap in compensation between CEOs in public and private companies is increasing.

A

Compared to managers, shareholders prefer a. safer strategies with greater diversification for the firm. b. riskier strategies with more focused diversification for the firm. c. safer strategies with more focused diversification for the firm. d. riskier strategies with greater diversification for the firm.

B

____ are sometimes used to consolidate and spin off poor performing businesses and to allow a company to focus on its core businesses, thus lowering the firm's level of diversification. a. Joint ventures b. Synergistic alliances c. Horizontal complementary alliances d. Dynamic alliance networks

A

Why are cooperative strategies often used when firms pursue international strategies? What are the advantages and disadvantages of international cooperative strategies?

A cross-border strategic alliance is an international cooperative strategy in which firms head-quartered in different nations combine some of their resources and capabilities to create a competitive advantage. The typical reasons follow: 1) In general multinational firms outperform firms operating only on a domestic basis. Firms may be able to leverage core competencies developed domestically in other countries. 2) Limited domestic growth opportunities pushes firms into international expansion. 3) Some governments require local ownership in order for foreign firms to invest in businesses in their countries, which requires foreign firms to ally with local firms. 4) Local partners often have significantly more information about factors contributing to competitive success such as local markets, sources of capital, legal procedures, and politics, which makes an alliance useful for a foreign firm. 5) Cross-border alliances can help firms transform themselves or better use their competitive advantages surfacing in the global economy. On the negative side, cross-border alliances are more complex and risky than domestic strategic alliances.

Identify the three types of corporate-level cooperative strategies.

A diversifying strategic alliance allows firms to share some of their resources and capabilities to diversify into new product or market areas. A synergistic strategic alliance allows firms to share some of their resources and capabilities to create economies of scope. These alliances create synergy across multiple functions or multiple businesses between partner firms. Franchising is a strategy in which the franchisor uses a contractual relationship to describe and control the sharing of its resources and capabilities with franchisees. A franchise is a contract between two independ-ent organizations whereby the franchisor grants the right to the franchisee to sell the franchisor's product or do business under its trademarks in a given location for a specified period of time.

Identify and define the two different types of network strategies.

A network cooperative strategy is a cooperative strategy wherein several firms form multiple partnerships to achieve shared objectives. Stable alliance networks (primarily found in mature industries) usually involve exploitation of economies of scale or scope. In this type of network, the firms try to extend their competitive advantages to other settings while continuing to profit from operations in their core industries. Dynamic alliance networks (witnessed mainly in rapidly changing industries) are used to help a firm keep up when technologies shift rapidly by stimulat-ing product innovation and successful market entries. Dynamic alliance networks explore new ideas and typically generate frequent product innovations with short product life cycles.

Amos Ball, Inc., is a printing company in Iowa that has been family owned and managed for three generations. Which of the following statements is most likely to be TRUE? a. Agency costs at Amos Ball are high. b. If research findings are valid, Amos Ball, Inc., will perform better if a family member is CEO than if an outsider is CEO. c. At Amos Ball, the opportunity for managerial opportunism is high. d. The functions of risk-bearing and decision making are separate at Amos Ball.

B

A businessperson in Atlanta who wishes to develop a luxury pet kennel approaches the owner of the highly successful Pet Resort and Day Spa in Houston to see if the owner is interesting in franchising the Pet Resort brand. The Atlanta businessperson's goal is to a. get venture capital from Pet Resort. b. gain access to Pet Resort's tacit knowledge. c. collude with Pet Resort to diminish competi-tion in the kennel industry in Atlanta. d. join in a vertical complementary alliance with Pet Resort.

B

A cooperative strategy in which multiple firms agree to form partnerships to achieve shared objectives is a: a. cross-border strategic alliance. b. network cooperative strategy. c.franchise. d. complementary strategic alliance.

B

A dynamic strategic alliance is most useful in ____. a. managing a cooperative strategy with the cost minimization approach b. industries characterized by rapid product obsolescence c. standard-cycle industries d. cross-border cooperative strategies

B

A nonequity strategic alliance exists when a. two firms join together to create a new company. b. two or more firms have a contractual relationship to share resources and capabilities. c. two partners in an alliance own unequal shares in the combined entity. d. the partners agree to sell bonds instead of stock in order to finance a new venture.

B

A nonequity strategic alliance exists when: a. two firms join together to create a new company. b. a contract is granted to a company to supply, produce, or distribute a firm's goods. c. two partners in an alliance own equal shares in the combined entity. d. the partners agree to sell bonds instead of stock in order to finance a new venture.

B

A state-wide alliance of independent hospitals has formed in order to do group purchasing of medical supplies. Group purchasing allows the hospital alliance to negotiate lower prices with suppliers because of the large quantity of materials ordered. This is an example of the advantage of ____ resulting from an alliance. a. explicit collusion. b. economies of scale. c. opportunistic behavior. d. distribution opportunities.

B

Corporate governance is important to nations because a. shareholders want large stock returns. b. firms seek to invest in nations with national governance standards that are acceptable to them. c. company boards have lobbied for strong governance. d. the United States requires that other nations adopt its governance practices.

B

Corporate governance revolves around the relationship between which two parties? a. shareholders and the board of directors b. shareholders and managers c. the board of directors and managers d. None of the these options are correct.

B

Ericsson, international producer of telecommunications equipment, is ____ for a cooperative arrangement that promotes open industry standards and provides interoperability testing for its members. a.a franchisor b.the strategic center firm c.coalition leader d. an alliance network

B

Firms entering into synergistic strategic alliances expect to attain a. technological complexity. b. economies of scope. c. monopolistic market power. d. learning curve efficiencies.

B

Firms in ____ markets cooperate to pool resources and gain market power. a. slow-cycle b. standard-cycle c. fast-cycle d. hyper-cycle

B

Firms in ____ markets cooperate to pool resources and gain market power. a. slow-cycle b. standard-cycle c. fast-cycle d. trending

B

For the purpose of diversification, a corporate-level cooperative strategy may be preferable to a merger or acquisition for all the following reasons EXCEPT a. a host nation may forbid a merger or acquisition. b. opportunistic behaviors are less likely. c. cooperative strategies require fewer resources. d. cooperative strategies allow greater flexibil-ity.

B

Generally, a board member who is a source of information about a firm's day-to-day activities is classified as a(n) __________ director. a. lead independent b. inside c. related d. encumbered

B

In contrast to managers' desires, shareholders usually prefer that free cash flows be a. used to diversify the firm. b. returned to them as dividends. c. used to reduce corporate debt. d. re-invested in additional corporate assets.

B

In free market economies ____ must decide how rivals can collaborate with their competitors without violating established regulations. a. the invisible hand b. the government c. consumers d. the business community

B

In free market economies ____ must decide how rivals can collaborate with their competitors without violating established regulations. a. associations b. the government c. consumers d. the free market itself

B

In general, cross-border alliances are more ____ and ____ than domestic alliances. a. profitable, investment intensive b. complex, risky c. contract-driven, focused d. common, useful

B

In general, cross-border alliances are more ____ and ____ than domestic alliances. a. uncertainty reducing, diversifying b. complex, risky c. highly leveraged, tightly monitored d. flexible, trust-based

B

In the U.S., cooperative strategies to reduce competition may result in ____ if they are explicit. a. higher production output b. litigation c. higher levels of product quality d. indirect price fixing

B

In the U.S., cooperative strategies to reduce competition may result in ____ if they are explicit. a. increased tax liabilities b. litigation c. government takeover of the firms d. dissolution of the firm

B

In the franchising strategy, the most important competitive advantage for the franchisee is ____. a. the franchisor's capital resources b. the franchisor's brand name c. the franchisor's access to a consolidated market d. the franchisor's geographic locations

B

International Food Services (IFS) has a contract with the Marines to supply meals for its troops in Afghanistan and other foreign assignments. As a means of increasing profits, IFS has used substandard ingredients in these meals and has consistently lied about this practice during quality investigations by the Marines. Who is ultimately responsible for the corporate climate that resulted in this wrongdoing? a. the director of food service for IFS b. the board of directors of IFS c. the employees directly involved in the wrongdoing d. the head of contract services for the Marines

B

James Abercrombie has a thriving consulting firm specializing in training boards of directors in decision-making skills. Mr. Abercrombie has had striking success in reducing conflict and hostility among directors and allowing boards to develop more cohesiveness. Mr. Abercrombie is considering expanding his consulting practice overseas. Which of the following statements is most likely to be TRUE? a. Mr. Abercrombie will have a large market in Japan because the culture highly values consensus decision making. b. Japanese firms will have little interest in Mr. Abercrombie's specialty because these skills are already practiced at a high level. c. German firms will not be interested in Mr. Abercrombie's services because the German system of decision making is based on authority and few conflicts emerge. d. Mr. Abercrombie should find significant need for his services in companies in transitional economies.

B

Managers in the United States receive _____________ compensation than managers in the rest of the world. a. equivalent b. higher c. lower d. more variable

B

Managers may decide to invest ___________ in products that are not associated with the firm's current lines of business to increase the firm's level of diversification and decrease their employment risk. a. unsubstantial profits b. free cash flows c. marginal profits d. frozen assets

B

Moon Flower cosmetics company executives are aware that their Asian customer base is interested in advanced skin care treatments beyond Moon Flower's traditional herbal and organic compounds. Moon Flower and a large American chemical company are in discussions to create a 50-50 partnership in a new firm which would create skin care treatments based on innovative chemical formulations which would be marketed both in Asia and in the U.S. Beyond being a cross-border alliance, this partnership can be called a(an) a. nonequity strategic alliance. b. joint venture. c. horizontal complementary alliance. d. equity strategic alliance.

B

Mutual forbearance is a. illegal in the U.S. b. a type of competition reducing strategy. c. a variety of risk-sharing by firms in highly fragmented industries. d. exercised when alliance partners refrain from opportunistic behaviors.

B

Nasdaq OMX formed an alliance with Bolsa Electronica de Chile in order to ____. a. address competitive pressures in the U.S. b. expand its global exhange services c. provide advisory services and technology to the ailing Latin American exhange d. transfer knowledge into new world markets

B

Of the various business-level strategic alliances, ____ alliances have the most probability of creating sustainable competitive advantage, and ____ have the lowest. a. horizontal complementary, vertical comple-mentary b. vertical complementary, competition reducing c. competition reducing, horizontal complemen-tary d. uncertainty reducing, competition reducing

B

Ownership concentration is determined by both a. the number of stockholders and the parties they represent. b. the number of stockholders and total percentage of shares they own. c. the number of outside directors and the parties they represent. d. the number of outside directors and total percentage of shares they own.

B

Research on the global aircraft industry demonstrates ____. a. the difficulty of coordinating cross-border alliances when each partner is a potential competitor b. the fact that research and development costs make it difficult to undertake major projects without alliances c. the problems involved with sharing sufficient knowledge and resources to provide synergy without losing unique competitive advantages d. the challenges involved in dealing with multiple organizational and national cultures in an alliance

B

Research suggests that the activism of institutional investors such as TIAA-CREF and CalPERS a. increases shareholder value significantly. b. may not have a direct effect on firm performance. c. is so aggressive that boards of directors have become overly cautious. d. has weakened the effect of other governance mechanisms.

B

Simon Leagreet, the Chairperson and CEO of L-EVA Industries, Inc., has long been the major power at L-EVA. A majority of the directors are concerned that while Mr. Leagreet has been responsible for the firm's earning above-average returns, he has been displaying a tendency toward personal extravagance at the firm's expense. In order to limit Mr. Leagreet's power, the board of directors plans to a. elect an insider as the lead director. b. appoint another individual as chairperson of the board of directors. c. require Mr. Leagreet to personally certify the firm's financial reports. d. reduce the size of the stock option package provided to Mr. Leagreet.

B

Stable alliance networks will most often a. be used to enhance a firm's internal opera-tions. b. appear in mature industries with predictable market cycles. c. emerge in industries with short product life cycles. d. emerge in declining industries as a way to increase process innovations.

B

The CEO of Skyco, a publicly-traded company that has been earning below-average returns, has been publicly criticized by shareholders for persuading the board of directors to give her interest-free loans, for having the company purchase and furnish a lavish apartment in Paris for her personal use on her twice-yearly trips there, and for excessive stock options. The CEO's behavior may be indication of a. reasonably compensating a CEO. b. a weak board of directors. c. the laxity of institutional investors. d. the difference in risk propensity between owners and managers.

B

The New York Stock Exchange requires that the audit committee be a. available to comment to external analysts. b. headed by outside directors. c. liable for any illegal actions by the top management team. d. made up of CPAs with auditing experience.

B

The board of directors of CamCell, Inc., wishes to design a CEO compensation plan that will align the personal interests of the CEO with the interests of the shareholders in long-term firm performance. The board wishes the CEO to take more short-term risks in order to achieve potentially higher long-term returns. Consequently, the board has decided on an incentive plan that involves payout based on the firm's performance five years in the future. CamCell is presently searching for a new CEO. Which of the following statements is true? a. This plan will be very attractive in luring candidates for the CEO position. b. CamCell may have to over-compensate its CEO in order to offset the personal risk a CEO would undertake under this plan. c. Institutional investors disapprove of long-term executive incentive plans and they may sell their blocks of stock in CamCell. d. This type of plan is likely to cause the CEO to underinvest in R&D in order to boost CamCell's long-term profitability.

B

The longer the focus of managerial incentive compensation, the greater the __________ top-level managers. a. earnings potential for b. risks borne by c. incentives for d. potential tax burden for

B

The main reason that IBM is involved in multiple alliances is to a. consolidate a fragmented industry and thus gain market power. b. stay on the cutting edge of technology. c. capture the intangible resources of competi-tors in order to gain a competitive advantage against them in the future. d. avoid government anti-trust regulations which would apply if IBM were to acquire the firms it allies itself with.

B

The market for corporate control serves as a means of governance when a. the firm is overpriced in the market. b. internal controls have failed. c. the corporation has greatly exceeded performance expectations. d. the top management team's interests and the owners' interests are aligned.

B

The two basic approaches to successfully managing cooperative strategic alliances involve ____ and ____. a. monitoring systems, multiple objectives management b. cost minimization, opportunity maximization c. trust building, financial control reporting d. alliance portfolio management, social capital maximization

B

Which of the following is NOT a risk for firms engaged in cooperative strategies? a. Misrepresentation of a partner's competencies b. Conflicting managerial frames of reference c. False perception of partner trustworthiness d. Failure of partners to make complementary resources available to the partnership

B

Which of the following statements is TRUE? a. Most cooperative strategies are successful if the basic agreements are well written and include appropriate monitoring strategies. b. The large majority of cooperative strategies fail despite potential synergies. c. Opportunistic behaviors are usually focused on gaining the use of the partner's manufactur-ing and financial resources. d. Problems with international cooperative strategies usually concern financial-system differences between the partners.

B

Which of the following statements is about corporate governance in Germany is FALSE? a. The Vorstand (management board) of a German corporation makes decisions about strategy and management. b. The Vorstand is elected by the firm's employees. c. Employees, union members, and shareholders appoint members to the Aufsichsrat (the supervisory tier of the board). d. Large institutional investors such as pension funds, and insurance companies are relatively insignificant owners of corporate stock.

B

Which type of strategic alliance is best at passing tacit knowledge between firms? a. primary cooperative strategic alliances b. joint ventures c. equity strategic alliances d. nonequity strategic alliances

B

Which type of strategic alliance is best at passing tacit knowledge between firms? a. Primary cooperative strategic alliances b. Joint ventures c. Equity strategic alliances d. Nonequity strategic alliances

B

____ have stronger focus on creation of value than do ____ alliances. a. Competition-reducing strategic alliances, complementary strategic alliances b. Complementary strategic alliances, competition-reducing strategic alliances c. Uncertainty-reducing strategic alliances, complementary strategic alliances d. Collusive strategic alliances, uncertainty-reducing strategic alliances

B

____ strategic alliances have stronger focus on creation of value than do ____ strategic alliances. a. competition reducing, complementary b. complementary, competition reducing c. uncertainty reducing, complementary d. collusive, uncertainty reducing

B

________ is an important influence in Japanese corporate governance structures. a. Innovation b. Consensus c. Competition d. Individualism

B

Strategic Controls

Business - differentiation strategy emphasizes controls Corporate - related diversification strategy where sharing among business units is critical; emphasizes strategic control

Different forms of the functional organizational structure to support their strategy

Business-level strategies are: - Cost leadership (broad or focused) - Differentiation (broad or focused) - Integrated cost leadership/differentiation Structural choices are: - Simple - Functional - Multidivisional

Agency costs reflect all of the following EXCEPT _________ costs. a. monitoring b. enforcement c. opportunity d. incentive

C

All of the following are consequences of the Sarbanes-Oxley Act EXCEPT a. a decrease in foreign firms listing on U.S. stock exchanges. b. internal auditing scrutiny has improved and there is greater trust in financial reporting. c. an increased number of IPOs (initial public offerings) are expected. d. Section 404 creates excessive costs for firms.

C

China allows U.S. companies to ally with Chinese firms by purchasing minority ownership positions in the Chinese firms. These relationships are called a. joint ventures b. network strategies c. equity strategic alliances d. nonequity strategic alliances

C

Compared to business-level strategies, corporate-level cooperative strategies are all of the following EXCEPT: a.broader in scope. b. more costly to implement. c. more likely to be value-creating. d. more complex.

C

Complete the following: In small firms, managers often own a __________ percentage of the firm, which means there is ___________ separation between ownership and managerial control. a. small; small b. small; large c. large; small d. large; large

C

DDD Partners, a U.S. business consulting firm is considering a cooperative alliance with an Indian business consulting firm that has a wide practice in the Mid-East and Asia. DDD has some European clients, but it sees the Mid-East and Asia as growth opportunities. It hopes to learn how to navigate the different cultures and business practices in this part of the world from its alliance with the Indian firm. DDD's greatest risk here is that the Indian firm will a. insist on excessively close monitoring of DDD's actions. b. gain access to DDD's core competencies and use them to become a future competitor. c. not fully share its intangible resources. d. not make equivalent investments to the alliance as does DDD.

C

Dynamic alliance networks work best in industries: a. that are mature and stable in nature. b. where the coordination of product and global diversity is critical. c. where technological innovations are introduced frequently. d. that are characterized by predictable market cycles and demand.

C

Firms in a standard-cycle market may form alliances in order to a. take advantage of opportunities in emerging market countries. b. more quickly distribute new products. c. capture economies of scale. d. share risky R&D investments.

C

Firms in a standard-cycle market may form alliances in order to: a. more quickly distribute new products. b. take advantage of opportunities in emerging market countries. c. capture economies of scale. d. share risky R&D investments.

C

German executives are not dedicated to the maximization of shareholder value to the degree that is the case for executives in the UK and United States largely because a. the roles of CEO and chairperson of the board of directors are usually combined. b. large institutional investors control large blocks of stock. c. private shareholders and large institutional investors rarely have large ownership positions in firms. d. of the focus on stewardship-management in German firms rather than the financial performance focus of U.S. firms.

C

Given the demands for greater accountability and improved performance, which of the following is NOT a voluntary change many boards of directors have initiated? a. moving toward having directors from different backgrounds b. strengthening the internal management and accounting control systems c. compensating directors with stock options rather than with fixed remuneration d. establishing and using formal processes to evaluate the board's performance

C

Horizontal partnerships often focus on: a. decreasing the purchasing power of consumers. b. the development of just-in-time inventory systems. c. long-term product development and distribution opportunities. d. lobbying Congress to deregulate the industry.

C

If GM and Ferrari were to combine some of their automobile manufacturing operations to make a new line of cars under a new brand name, this would be characterized as a(an) a. collusive tactic. b. merger. c. cross-border strategic alliance. d. international acquisition.

C

If GM and Toyota were to combine some of their automobile manufacturing operations, this would be characterized as a(n): a. collusive tactic. b. merger. c. cross-border strategic alliance. d. international acquisition.

C

In a(an) ____ the firms involved own equal shares of a newly-created venture. a. equality-based strategic alliance b. non-equity strategic alliance c. joint venture d. equity strategic alliance

C

In a(n) ____ the firms involved typically own equal shares of a newly-created entity. a. equality-based strategic alliance b. nonequity strategic alliance c. joint venture d. equity strategic alliance

C

In managing cooperative strategies, research indicates that ____ can be a capability that is valuable, rare, imperfectly imitable, and often nonsubstitutable giving these firms a competitive advantage. a. extensive capitalization b. stability c. trustworthiness d. Internet competency

C

In managing cooperative strategies, research indicates that ____ can be a valuable, rare, imperfectly imitable, and often nonsubstitutable capability, providing firms with a distinct competitive advantage. a.collaboration skills b.relational advantages c.Trustworthiness d.Internet competency

C

In the United States, a firm's key stakeholder(s) is(are) the a. government. b. executives. c. shareholders. d. customers.

C

Institutional owners are a. shareholders in the large institutional firms listed on the New York Stock Exchange. b. banks and other lending institutions that have provided major financing to the firm. c. financial institutions such as mutual funds and pension funds that control large-block shareholder positions. d. prevented by the Sarbanes-Oxley Act from owning more than 50 percent of the stock of any one firm.

C

Managerial employment risk is the a. risk that managers will behave opportunistically. b. risk undertaken by managers to earn stock options. c. managers' risk of job loss, loss of compensation, and/or loss of reputation. d. risk managers will not find a new top management position if they should be dismissed.

C

One disadvantage of developing effective monitoring systems to manage a strategic alliance is that a. firms will have to accept greater risks. b. trust will be eroded. c. spontaneous opportunities are minimized. d. power coalitions will still develop.

C

One disadvantage of developing effective monitoring systems to manage a strategic alliance is that: a.firms will have to accept greater risks. b.returns will often be decreased. c.spontaneous opportunities are minimized. d.power coalitions will still develop.

C

One means that is considered to improve the effectiveness of outside directors is a. mandating that all outside directors be drawn from government or academia rather than industry. b. requiring that outside directors be former executives of the firm. c. requiring outside directors to own significant equity stakes in the firm. d. requiring that outside directors be truly objective by having no ownership interest in the firm.

C

Prices above the competitive level in the branded breakfast cereal market suggest that cereal producers are engaging in ____. a. excessive cooperation. b. joint ventures. c. tacit collusion. d. strategic alliances.

C

Research on competitors in the personal computer industry reveals ____ in pricing and new product introduction practices. a. legal explicit collusion b. free market competitive behavior c. mutual forbearance d. tacit collusion that is illegal in the U.S., but is legal in many developing nations

C

Several members of the board of directors of American Textile Products (ATP) have proposed creating the position of lead director. What circumstances would most likely have initiated this proposal? a. ATP has been the initiator of several hostile takeovers in the last 2 years. b. The board has been successful in reducing the percentage of CEO pay that is composed of stock options. c. The CEO/chairperson of the board has been suspected of opportunistic behavior. d. The firm is traded on the New York Stock Exchange and must change its corporate governance to comply with the NYSE's new rules.

C

Smith Commercial Lighting, Inc., which sells lighting for factories and businesses has entered an alliance with Revelation Lighting, Inc., a retailer of home decor lighting in order to expand into the trend of using industrial-type lighting in non-traditional style homes. Smith has invested 40% and Revelation has invested 60% into the new operation. This is an example of a(an) a. joint venture. b. nonequity alliance. c. horizontal complementary strategic alliance. d. vertical complementary strategic alliance.

C

Some governments, such as those of India and China: a. encourage high levels of foreign ownership. b. adamantly oppose foreign ownership of a firm. c. often put limits on the level of foreign ownership in a local firm. d. restrict the entry mode into the domestic market to licensing only.

C

The fact that the prices consumers pay for branded breakfast cereals are above the prices that would exist if there were true competition suggests that the cereal manufacturers are engaging in a. excessive cooperation. b. joint ventures. c. tacit collusion. d. horizontal strategic alliances.

C

The information technology (IT) industry is a: a. mixed-cycle market. b. slow-cycle market. c. fast-cycle market. d. standard-cycle market.

C

The main goal of franchising for the franchisor, such as Wendy's or Dunkin Donut, is a. use of the brand name. b. as a test for potential future acquisitions. c. growth. d. access to technology.

C

The market for corporate control may not be as efficient as previously thought as recent findings suggest that those firms targeted for takeover by active corporate raiders are a. usually on the verge of bankruptcy. b. typically under-performing their industry. c. often performing above their industry averages. d. always outperforming their industry.

C

The opportunity maximization approach is more difficult to establish in international relationships than in domestic relationships because of all of the following EXCEPT: a. differences in law and politics. b. differences in culture. c. differences in technological development levels. d. differences in trade policies.

C

The separation between firm ownership and management creates a(n) ________ relationship. a. governance b. control c. agency d. dependent

C

Nonequity strategic alliances are formed when one partner owns a much larger (or inequitable) share of the joint venture than do the remaining partner(s).

F

Which of the following firms would be most likely to enter an alliance in order to maintain market stability? a. large home appliance manufacturing b. electronic consumer goods manufacturing c. natural gas utility d. clothing retailing

C

Which of the following is FALSE about corporate governance in China? a. The Chinese governance system may be tilting toward the Western model. b. With increasing frequency, the compensation of top executives of Chinese companies is closely related to prior and current financial performance of the firm. c. The state still uses direct and/or indirect controls to influence the strategies employed by most firms. d. Firms with higher state ownership tend to have lower market value and more volatility in those values over time.

C

Which of the following is NOT a risk for firms engaged in cooperative strategies? a. misrepresentation of a partner's competencies b. false perception of partner trustworthiness c. insufficient variation in firms' core compe-tencies. d. failure of partners to make complementary resources available to the partnership

C

____ are a common strategy for firms investing in China. a. Joint ventures b. Franchises c. Cross-border strategic alliances d. Dynamic alliance networks

C

____ are rare and quickly disappearing. a. Fast-cycle markets b. Standard-cycle markets c. Slow-cycle markets d. Mixed-cycle markets

C

Which of the following is TRUE of trends in Japan's corporate governance structure?

Compensation of CEOs in both private and public companies is being tied more closely to observable performance goals.

____ is an important influence in Japanese corporate governance structures.

Consensus

As illustrated by the alliance between legal firms Davies Arnold Cooper and Seguros Lex, many firms form business-level strategic alliances in order to ____. a. share resources from different stages of the value chain. b. reduce competition. c. find a common voice for dealing with an important external stakeholder. d. reduce uncertainty.

D

Nonequity strategic alliances exist when two or more firms join together to create an independent firm.

F

Identify the competitive risks associated with cooperative strategies.

Cooperative strategies are not risk free strategy choices; as many as 70% fail. If a contract is not developed appropriately and fails to avert opportunistic behavior, or if a potential partner firm misrepresents its competencies or fails to make available promised complementary resources, failure is likely. Furthermore, a firm may make investments that are specific to the alliance while the partner does not. This puts the investing firm at a disadvantage in terms of return on invest-ment. The core of many failures is the lack of trustworthiness of the partner(s) who act opportu-nistically.

A ____ allows firms to expand into new product or market areas without having to make an acquisition. a. complementary strategic alliance b. competition-reducing coopertive strategy c. merger d. diversifying strategic alliance

D

A competitive advantage that is developed through a cooperative strategy is called a collaborative or a ____ advantage. a. economic b. collusive c. alliance d. relational

D

A hostile takeover defense wherein the target firm makes its stock less attractive to a potential acquirer is called a. greenmail. b. a standstill agreement. c. crossing the palm with silver. d. a poison pill.

D

A major conflict of interest between top executives and owners, is that top executives wish to diversify the firm in order to _________, whereas owners wish to diversify the firm to _________. a. generate free cash flows; reduce the risk of total firm failure b. increase the price of the firm's stock; increase the dividends paid out from free cash flows c. reduce the risk of total firm failure; reduce their total portfolio risk d. reduce their employment risk; increase the company's value

D

A relatively young firm has developed a method of transferring photographic images of surface textures onto any type of hard surface. This potentially has a huge market in the home-decorating field as well as any hard surface that is typically painted, such as car bodies. The type of alliance partner this firm would be searching for would be one with a. low-cost labor production facilities in another country. b. similar products who could help the firm establish economies of scale. c. access to franchises in new markets. d. excess resources for investing.

D

According to recent statistics, ____ in annual U.S. retail sales is generated through franchised outlets. a. $50 million c. $ 50 billion b. $2.1 billion d. $2.1 trillion

D

Agricultural Chemicals, Inc., was the target of a hostile takeover 6 months ago. The CEO and the top executives successfully fended off the takeover and are concentrating on strategies to improve the performance of the firm. Which of the following is most likely to be TRUE? a. Hostile takeover attempts are so common that they do not reflect negatively on the firm's performance. They are more a function of general market conditions. b. The fact that a hostile takeover has occurred is proof that the firm was under-performing. c. Research shows that once a hostile takeover has been defeated, the firm is safe from other hostile takeover attempts for many years. d. The CEO and top executives should not consider their jobs secure.

D

All of the following EXCEPT ____ are ways in which a cost minimization approach can be more expensive than an opportunity maximization approach. a. the loss of unexpected opportunities b. the cost of extensive monitoring mechanisms c. the costs of writing detailed contracts d. the reluctance of some parties to go beyond the terms of formal contracts

D

All of the following are areas covered by the Dodd-Frank Wall Street Reform and Consumer Protection Act EXCEPT a. consumer protection. b. CEO compensation. c. regulation of derivatives. d. retirement accounts.

D

All of the following statements are TRUE about the use of defense tactics by the target firm during a hostile takeover EXCEPT a. defense tactics are usually beneficial for the executives of the target firm. b. defense tactics are opposed by institutional investors. c. defense tactics vary in their effectiveness as a defense to takeovers. d. defense tactics make the costs of a takeover lower.

D

Firms in standard-cycle markets seek to gain economies of scale through cooperative alliances.

T

CNOOC (China National Offshore Oil Corporation) has been focusing on alliances that are "upstream" from its core business. This type of alliance is classified as a(an) ____ strategic alliance. a. synergistic b. opportunistic c. horizontal d. diversifying

D

Corporate governance is all of the following EXCEPT a. mechanisms used to determine and control the strategic direction and performance of organizations. b. a means to establish and maintain harmony between owners and top managers whose interests may conflict. c. ensuring that top managers' interests are aligned with the interests of stockholders. d. resolve conflicts among corporate employees.

D

Executive compensation is a governance mechanism that seeks to align managers' and owners' interests through all of the following EXCEPT a. bonuses. b. long-term incentives such as stock options. c. salary. d. penalties for inadequate firm performance.

D

Firms participate in strategic alliances for all the following reasons EXCEPT to a. enter markets more quickly. b. acquire technology. c. create values they could not develop acting independently. d. retain tight control over intangible core competencies.

D

FrameCo, a maker of commercial greenhouses, has just extricated itself from a failing cooperative alliance with another firm. The expected synergies never were achieved, and FrameCo lost most of its investment. The top management of FrameCo should a. avoid future cooperative alliances because they lack the skills needed to manage them successfully. b. should enter into future cooperative alliances only if the alliance is closely monitored by a third party to prevent opportunistic behavior by the alliance partner. c. realize that most cooperative alliances fail and that it should ally itself only with an experi-enced alliance partner in the future. d. internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the experience.

D

Franchising is a particularly attractive strategy ____. a. to compete more effectively within traditional slow-cycle markets b. in emerging economies c. for large firms with dominant market share d. in fragmented industries

D

Fujitsu has had alliances with numerous firms over the years including Siemens, Dell, EDS, Intel, and Microsoft. According to the information in the textbook's scenario, each of these alliances focuses on a different product or service. This is an example of a. alliance versus alliance competition. b. a stable alliance. c. serial alliances. d. alliances in a fast-cycle industry.

D

Greentech, Inc., is a bioengineering firm specializing in food crops. It is considering a cooperative alliance with an Asian agribusiness firm, AsiaFoods, to jointly produce improved crops for the Asian market. The risks that Greentech should consider before entering this alliance include all of the following EXCEPT a. Has AsiaFoods accurately represented its competencies? b. Will AsiaFoods make alliance-specific investments? c. Can Greentech expect opportunistic behavior from AsiaFoods? d. Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance?

D

In Japan, the principal source of the active monitoring of large companies comes from a. boards of directors. b. stock brokerage companies. c. the government. d. banks.

D

In general, strategic alliances are primarily formed to respond to ____ rather than ____ actions. a. relational, competitive b. well-planned, spontaneous c. business-level, corporate-level d. strategic, tactical

D

In practice, the cost minimization strategy can be more expensive than the opportunity maximization strategy. Which of the following is a way in which the cost minimization strategy is less expensive than the opportunity minimization strategy? a. the loss of unexpected opportunities b. the cost of extensive monitoring mechanisms c. the costs of writing detailed contracts d. the prevention of opportunistic behavior by the partner(s)

D

In some countries, the only legal way for foreign firms to invest in the country is through a. silent partner agreements. b. franchising. c. wholly-owned subsidiaries. d. partnership with a local firm.

D

In some countries, the only legal way for foreign firms to invest in the country is through: a. silent partner agreements. b. franchising. c. wholly-owned subsidiaries. d. partnership with a local firm.

D

Japanese keiretsu are a. management structures related to total quality management systems. b. company unions, which are a type of governance system. c. the banks owing the largest shares of stock in the firm. d. a system of cross-shareholding among firms.

D

McDonald's, Hilton International, and Krispy Kreme all heavily rely on the ____ strategy. a. transnational b. network cooperative c. cross-border alliances d. franchising cooperative

D

Monitoring by shareholders is usually accomplished through a. management consultants. b. government auditors. c. the firm's top managers. d. the board of directors.

D

Partners in a horizontal alliance can expect a. benefits proportional to their investments. b. similar opportunities as a result of the alliance. c. common management issues. d. different outcomes.

D

Product diversification provides two benefits to managers that do not accrue to shareholders: ___________ and ___________. a. greater experience in a wider range of industries; lessening of managerial employment risk b. the manager frequently invests in the acquired firm, which allows him or her extensive profits; the manager can frequently buy excess assets divested by the acquired firm c. the manager's supervisory needs are lowered; the manager is allowed greater time to oversee a wider range of activities d. the opportunity for higher compensation through firm growth; a reduction in managerial employment risk

D

Research suggests that boards of directors perform better if a. the CEO is also the chairperson of the board of directors. b. the board includes employees as voting members. c. the board is homogenous in composition. d. outside directors own significant equity in the organization.

D

The governance mechanism most closely connected with deterring unethical behaviors by holding top management accountable for the corporate culture is a. ownership concentration. b. the market for corporate control. c. executive compensation systems. d. the board of directors.

D

When using business-level and corporate-level cooperative strategies, a firm's primary intent is to develop strategic alliances that a. enhance the firm's reputation in the market-place. b. are long-lived. c. will reduce the firm's political risk. d. create a competitive advantage.

D

The CEO and Chairman of the board of directors Alta Corp. is dismayed by a lack of effort and insights his directors provide during board meetings. The directors are all outsiders, experienced, and run their own successful firms. The CEO/chair genuinely seeks their greater involvement. What would you recommend? a. Requiring that the directors own stock in the company. b. Establishing a formal process to evaluate the board's performance. c. Electing an lead director. d. All of these options are correct.

D

The code-sharing arrangement between Northwest Airlines and KLM was a cooperative alliance between airlines that involved no investment in a separate entity. This is an example of a(an) a. equity-based vertical complementary alliance. b. equity-based horizontal complementary alliance c. nonequity-based vertical complementary alliance. d. nonequity-based horizontal complementary alliance.

D

The global airline industry is one in which a. national political interests prevent airlines from making international alliances. b. the fast-cycle nature of the industry mandates heavy use of alliances. c. most alliances tend to be vertical complemen-tary. d. alliance versus alliance competition domi-nates firm versus firm competition.

D

The interests of multinational corporations' shareholders may be best served when there is a. a uniform compensation plan for all corporate executives, United States and foreign alike. b. executive compensation that is primarily based on long-term performance. c. elevation of foreign executive compensation to U.S. levels. d. a variety of compensation plans for executives of foreign subsidiaries.

D

The new trend of building alliances with competitors is referred to as ____. a. competitive cooperatives b. keiretse c. consortia d. co-opetition

D

The opportunity maximization approach is more difficult to establish in international relationships than in domestic relationships because of differences in all EXCEPT a. laws. b. culture. c. trade policies. d. technology.

D

The ownership of major blocks of stock by institutional investors have resulted in all of the following EXCEPT a. making CEOs more accountable for their performance. b. challenges to the decisions of boards. c. focusing attention on ineffective boards of directors. d. a direct effect on firm performance.

D

The use of alliances a. is unlikely to yield success if partnering firms are headquartered in the same country. b. may be too restrictive to facilitate entry into new markets. c. usually increases the investment necessary to introduce new products. d. is increasing, especially among large global firms.

D

The use of alliances: a. is unlikely to yield success if partnering firms are headquartered in the same country. b. may be too restrictive to facilitate entry into new markets. c. usually increases the investment necessary to introduce new products. d. is increasing, especially among large global firms.

D

When partnerships are designed to take advantage of market opportunities by combining firm assets to create new value, firms are engaging in: a. competition-reducing cooperative strategies. b. competitive response alliances. c. uncertainty-reducing strategies. d. complementary strategic alliances.

D

Which of the following is NOT a reason for a firm to engage in diversifying alliances? a. To expand into new market areas b. To enter new product areas c. To achieve growth without merging with another firm d. To overcome organizational weaknesses

D

Which of the following is NOT a reason for firms to participate in strategic alliances? a. To enter markets more quickly b. To allow firms to combine their resources and capabilities c. To allow firms to create values they could not develop acting independently d. To develop oligopolies in a market and eliminate competition

D

Which of the following is NOT a true statement about franchising as a corporate strategy? a. Franchising is especially efficient if franchisees are allowed to own multiple outlets. b. Franchising provides corporate growth with less risk than diversification. c. Successful franchising requires close cooperation between franchisee and franchisor. d. Franchising agreements are prohibited by law in many industries.

D

Which of the following is NOT an internal governance mechanism? a. the board of directors b. ownership concentration c. executive compensation d. the market for corporate control

D

Which of the following is a FALSE statement about corporate governance? a. Governance is used to establish order between parties whose interests may be in conflict. b. Corporate governance mechanisms sometimes fail to monitor and control top managers' decisions. c. Corporate governance mechanisms can be in conflict with one another. d. Corporate governance is best achieved with a board of directors with strong ties to management.

D

Which of the following reasons would NOT explain the difficulty of determining appropriate executive compensation? a. The decisions made by top-level managers are typically complex and nonroutine. b. An executive's decisions often affect firm performance only over the long run. c. A number of factors intervene between top-level management decisions and firm performance (e.g., unpredictable economic, social, or legal changes). d. The compensation committee may not have comprehensive firm performance data.

D

Which of the following statement is FALSE? a. Franchising is most appropriate in fragmented industries. b. Franchising provides corporate growth with less risk than do mergers and acquisitions. c. Successful franchising allows transfer of knowledge and skills from the franchisor to the franchisee. d. Franchising agreements require more trust between firms than do other cooperative strategies.

D

Why are alliances in the airline industry unstable? a. Unstable industries make for unstable alliances. b. The potential for firms to take opportunistic actions is too widespread. c. The industry is declining and profits are not sufficient to divide among alliance partners. d. There is high rivalry among firms.

D

____ are LEAST likely to involve potential or current competitors. a. Mutual forbearance strategies b. Tacit collusion strategies c. Horizontal complementary strategic alliances d. Vertical complementary strategic alliances

D

Horizontal business-level strategic alliances have greater probability of creating sustainable competitive advantage than do vertical business-level strategic alliances.

F

In the cost minimization approach to managing competitive strategies, the relationship between the firms is based on trust of the other partner.

F

The primary responsibility of the franchisor is to transfer capital to the franchisee

F

SBU form for Related Linked Srtategy

Firms that share fewer resources and assets among their businesses, concentrating on the transfer of knowledge and competencies among the businesses (related linked strategy) ● Organization structure with three levels to support the implementation diversification strategy: 1. Corporate headquarters 2. Strategic business units (SBUs) 3. Divisions under each SBU

Explain the rationales for a cooperative strategy under each of the three types of basic market situations (i.e., slow, standard, and fast cycles).

In slow-cycle markets (markets that are near-monopolies), firms cooperate with others to gain entry into restricted markets or to establish franchises in new markets. Slow-cycle markets are rare and diminishing. Cooperative strategies can help firms in (presently) slow-cycle markets make the transition from this relatively sheltered existence to a more competitive environment. In standard-cycle markets (which are often large and oriented toward economies of scale), firms try to gain access to partners with complementary resources and capabilities. Through the alliance, the firms try to increase economies of scale and market power. In fast-cycle markets (character-ized by instability, unpredictability, and complexity) sustained competitive advantages are rare, so firms must constantly seek new sources of competitive advantage. In fast-cycle markets alliances between firms with excess resources and capabilities and firms with promising capabilities who lack resources help both firms to rapidly enter new markets.

Global Strategy

International strategy with standardized products across country markets, and the competitive strategy dictated by the home office

High levels of trust allows less formal contracts to govern the relationship between alliance partners.

T

If a large Asian cosmetics firm was to engage in a 50-50 partnership with a large American chemical company to form a new company focused on creating advanced skin care products, this would be considered a joint venture.

T

Identify and define the different types of strategic alliances.

Strategic alliances are cooperative strategies between firms whereby resources and capabilities are combined to create a competitive advantage. All strategic alliances require firms to exchange and share resources and capabilities to co-develop or distribute goods or services. The three basic types of strategic alliances are: (1) joint ventures, where a legally independent company is created by at least two other firms, with each firm usually owning an equal percentage of the new company; 2) equity strategic alliances, whereby partners own different percentages of equity in the new company they have formed; and (3) nonequity strategic alliances, which are contractual relationships between firms to share some of their resources and capabilities. The firms do not establish a separate organization, nor do they take an equity position. Because of this, nonequity strategic alliances are less formal and demand fewer partner commitments than joint ventures and equity strategic alliances. Typical forms are licensing agreements, distribution agreements and supply contracts.

International Cooperative Strategies

Strategic networks formed to implement cooperative strategies resulting in firms competing in several different countries Distributed strategic networks: organizational structure used to manage international cooperative strategies Several regional strategic center firms are included in the distributed network to manage partner firms' multiple cooperative arrangements

Strategy -> Structure

Strategy typically has a much more important influence on structure than structure on strategy

Increasingly, cooperative strategies have been formed by firms who are competitors.

T

A firm creates a competitive advantage when it develops and manages corporate-level cooperative strategies in a way that is valuable, rare, imperfectly imitable and nonsubstitutable.

T

An alliance can be used to test whether the partners would benefit from a future merger.

T

Collusion is a form of cooperative strategy.

T

Firms consider entering international alliances because multinational firms outperform firms operating only in their home markets.

T

Firms in slow-cycle markets can use cooperative strategies in the transition to more competitive markets.

T

Network cooperative strategies among Silicon Valley firms have been successful, in part, because they are geographically close together.

T

Only about 30% of cooperative strategies succeed.

T

Strategic alliances are cooperative strategies between firms that combine their resources and capabilities to create a competitive advantage

T

Synergistic strategic alliances focus on economies of scope rather than economies of scale.

T

Tacit collusion is not explicitly illegal in the United States even though it results in higher prices for consumers.

T

The probability of alliance success is increased when partnering firms internalize successful alliance experiences.

T

Describe the strategic management approaches to managing alliances.

The ability to effectively manage competitive strategies can be one of a firm's core competencies. There are two basic approaches to managing competitive alliances. Cost minimization leads firms to develop protective formal contracts and effective monitoring systems to manage alliances. Its focus is to prevent opportunistic behavior by the partner(s). Opportunity maximization is intended to maximize value creation opportunities. It is less formal and places fewer constraints on partner behaviors. But, identifying trustworthy partners is the key to this second approach. If (well-founded) trust is present, monitoring costs are lowered and opportunities will be maximized. Trust is more difficult to establish between international partners. Ironically, the cost minimiza-tion approach is more expensive to implement and to use than the opportunity maximization approach.

Identify the four types of business-level cooperative strategies and the advantages and disadvantages of each.

Through vertical and horizontal complementary alliances, companies combine their resources and capabilities in ways that create value. Vertical complementary strategic alliances result when firms creating value in different parts of the value chain combine their assets to create a competi-tive advantage. Vertical complementary strategies have the greatest probability of being successful compared with other types of cooperative strategies. But firms using this type of alliance need to be wise in how much technology they share with their partners. Vertical complementary alliances rely heavily on trust between partners to succeed. Horizontal comple-mentary strategic alliances are developed when firms in the same stage of the value chain combine their assets to create additional value. Usually they are formed to improve long-term product development and distribution opportunities. Horizontal complementary strategies can be unstable because they often join highly rivalrous competitors. In addition, even though partners may make similar investments, they rarely benefit equally from the alliance. The competition response strategy involves alliances formed to react to competitors' actions. Usually they respond to strategic, rather than tactical, actions because the alliances are difficult to reverse and expensive to operate. The uncertainty-reducing strategy is used to hedge against risk and uncertainty, such as when entering new product markets or in emerging economies. Both of these strategies are less effective in the long-run than the complementary alliances which are focused on creating value. Competition reducing (collusive) strategies are often illegal. There are two types of collusive competition reducing strategies: explicit collusion and tacit collusion. Explicit collusion exists when firms directly negotiate production output and pricing agreements to reduce competition. These are illegal in the U.S. and in most developed economies. Tacit collusion exists when several firms in an industry indirectly coordinate their production and pricing decisions by observing each other's competitive actions and responses. Both types of collusion result in lower production levels and higher prices for consumers.

82. The top management team at Sierra Infusion is concerned about the declining performance of firms in their industry. The team members are becoming concerned about the security of their jobs at Sierra Infusion. At a meeting over dinner, the top management team agrees to go to the board of directors with a proposal for a. increased diversification of Sierra Infusion. b. the addition of outside directors to the board. c. increased shareholder participation in decision making. d. greater concentration on Sierra's core industry.

a

Corporate Level Cooperative Strategies

Used to facilitate product and market diversification - EXAMPLE - Franchising: contractual relationship to describe and control the sharing of its resources and capabilities with partners - Allows firms to use its competencies to extend or diversify product or market reach, without completing a merger or acquisition - Knowledge embedded in corporate-level cooperative strategies facilitates synergy

Business-Level complementary alliances

Vertical: partnering firms share their resources and capabilities from different stages of the value chain to create a competitive advantage Horizontal: partnering firms share resources and capabilities from the same stage of the value chain to create a competitive advantage; commonly used for long-term product development and distribution opportunities

NO CASE STUIDIES!

YEY.

114. The board of directors of CyberScope, Inc., is designing a stock option plan for its CEO that will motivate the CEO to increase the market value of the firm. Consequently, the board is a. setting the option strike price substantially higher than the current stock price. b. insuring that the strike price value of the options can be lowered if the organizational environment becomes more risky. c. having the stock option plan designed by insiders on the board of directors who are familiar with day-to-day operations of the firm. d. consulting accounting advisors to make sure that the plan transfers wealth to the CEO without immediately appearing on the balance sheet of CyberScope.

a

120. Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum amounting to 3 years' salary because DictionAry has been bought in a hostile takeover by its main competitor. Ambrose received a. a golden parachute. b. a poison pill. c. greenmail. d. a silver handshake.

a

121. The repurchase at a premium of the target firm's shares that were acquired by the aggressor firm in a hostile takeover in exchange for an agreement that the aggressor will no longer target the company for takeover is called a. greenmail. b. a standstill agreement. c. crossing the palm with silver. d. a poison pill.

a

123. Historically, have been at the center of German corporate governance structure. a. banks b. institutional shareholders c. public pension funds d. government agencies

a

130. Which of the following is TRUE of trends in Japan's corporate governance structure? a. Compensation of CEOs in both private and public companies is being tied more closely to observable performance goals. b. Increased regulation in the financial sector has increased the cost of mounting hostile takeovers. c. Banks' influence over corporations is increasing. d. The gap in compensation between CEOs in public and private companies is increasing.

a

78. An agency relationship exists when one party delegates a. decision-making responsibility to a second party. b. financial responsibility to employees. c. strategy implementation actions to functional managers. d. ownership of a company to a second party.

a

89. Broadly, the Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to a. align financial institutions' actions with society's interests. b. increase the number of foreign firms listing on U.S. stock exchanges. c. require CEOs to attest to the accuracy of their companies' financial reports. d. increase consumer protection in pharmaceutical products.

a

90. Usually, large-block shareholders are considered to be those shareholders with at least ___ percent of the firm's stock. a. 5 b. 25 c. 50 d. 75

a

A firm's ____ specifies the work to be done and how to do it given the firm's strategy or strategies. a. structure b. controls c. culture d. strategy

a

A powerful CEO would oppose the appointment of a lead director on the board of directors. a. True b. False

a

A virtually exclusive reliance on financial controls may occur when outsider-dominated boards exist. This may lead to all of the following EXCEPT a. high executive turnover. b. increased diversification of the firm. c. excessive management compensation. d. reduction in R&D expenditure

a

After years of negotiating short-term contracts with its suppliers, Icon Images has decided to agree to longer-term contracts. In doing this, Icon Images is hoping to a. reduce transaction costs. b. increase negotiating leverage with suppliers. c. become less dependent on its suppliers. d. move toward horizontal alliances with its suppliers.

a

Agency costs include incentives for executives, monitoring, enforcement costs, and any individual financial losses incurred by principals. a. True b. False

a

Airlines have forged a number of complementary strategic alliances, in part because many airlines are not profitable. Some airlines participate in several alliances simultaneously. This tends to a. make the partners' true loyalties and intentions unclear. b. make the role of the strategic center firms more critical to alliance success. c. distribute the alliances along several segments of the airline industry value chain. d. be most effective when the alliances are with airlines headquartered in different nations.

a

Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum amounting to 3 years' salary because DictionAry has been bought in a hostile takeover by its main competitor. Ambrose received a. a golden parachute. b. a poison pill. c. greenmail. d. a silver handshake

a

An advantage of severance packages is that they may encourage top-level managers to accept takeover bids that are attractive to shareholders. a. True b. False

a

An agency relationship exists when one or more persons (the principal or principals) hire another person or persons (the agent or agents) as decision-making specialists to perform a service. a. True b. False

a

An agency relationship exists when one party delegates a. decision-making responsibility to a second party. b. financial responsibility to employees. c. strategy implementation actions to functional managers. d. ownership of a company to a second party

a

Andermeyer Jewelers has been in existence since the 1870s. It specializes in high-end jewelry using both colored precious stones and diamonds. Generations of wealthy families have patronized Andermeyer. Andermeyer has been owned and managed by the Andermeyer family since its founding, and has never had more than 20 designers and jewelers in its shop. Andermeyer Jewelers should use the ____ structure. a. simple b. functional c. matrix d. network

a

As globalization grows, adequate corporate governance is becoming an important requirement for doing business with a foreign firms and in foreign countries. a. True b. False

a

Attitudes toward corporate governance in Japan are affected by the concepts of obligation, family, and consensus. a. True b. False

a

Awareness by top managers of the existence of external investors in the form of individuals (e.g., Carl Icahn) and groups (e.g., hedge funds) often positively influences them to align their interests with shareholders. a. True b. False

a

Because of recent ineffective performance, boards of directors are experiencing increasing pressure from shareholders, lawmakers, and regulators to be more effective in preventing managers from acting in their own interest. a. True b. False

a

Boards of directors are now becoming more involved in a. the strategic decision-making process. b. selecting new CEOs. c. the firm's tax issues. d. governmental relations

a

Boards with many members from the firm's top management team tend to have weak monitoring and control systems for managerial decisions. a. True b. False

a

Broadly, the Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to a. align financial institutions' actions with society's interests. b. increase the number of foreign firms listing on U.S. stock exchanges. c. require CEOs to attest to the accuracy of their companies' financial reports. d. increase consumer protection in pharmaceutical products

a

Corporate governance involves oversight in areas where owners, managers, and members of boards of directors may have conflicts of interest. a. True b. False

a

Corporate governance is a means to establish harmony between parties (the firm's owners and its top-level managers) whose interests may conflict. a. True b. False

a

Corporate governance is the set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of an organization. a. True b. False

a

Corporate governance mechanisms are designed to ensure that top managers make strategic decisions that best serve the interests of the entire group of stakeholders. a. True b. False

a

Critics advocate reforms to ensure that independent outside directors represent a significant majority of the total membership of the board. But outsider-dominated boards may emphasize the use of financial as opposed to strategic controls. The risk of reliance on financial controls is that they may encourage managers to make decisions to maximize their interests and reduce their employment risk. a. True b. False

a

Ethically responsible companies design and use governance mechanisms that will at least minimally satisfy stakeholders' interests. a. True b. False

a

Executive compensation is a governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long-term incentive compensation such as stock awards and options. a. True b. False

a

Failures of corporate internal controls and inadequate internal control systems allowed unethical executives at such companies as Enron and WorldCom to act in their own self-interest. a. True b. False

a

Hedge funds, as part of the market for corporate control, identifies a firm that is underperforming and then invests in it with the goal of improving that firm's performance. a. True b. False

a

Historically, ________ have been at the center of German corporate governance structure. a. banks b. institutional shareholders c. public pension funds d. government agencies

a

IKEA is a global furniture retailer with more than 300 outlets in 39 countries and regions. IKEA focuses on lowering its costs as well as understanding customer needs, especially younger ones. IKEA's international strategy is best described as __________ and the appropriate organizational structure to implement this strategy is the __________ structure. a. transnational; combination b. global; worldwide product divisional c. multidomestic; worldwide geographic area d. competitive; strategic business unit multidivisional

a

If a stakeholder is dissatisfied with a firm, it will withdraw its support and give it to another firm. a. True b. False

a

Implementing the multidomestic strategy requires decentralization a. to facilitate the tailoring of products to the demand in local markets. b. to develop economies of scale. c. in order to achieve economies of scope. d. to reduce bureaucracy and speed up decision-making.

a

In a large number of family owned firms, ownership and managerial control are not separated. a. True b. False

a

In modern corporations—especially those in the United States and United Kingdom—a primary objective of corporate governance is to ensure that the interests of top-level managers are aligned with the interests of shareholders. a. True b. False

a

In most cases, the focus strategy is best managed using a ____ structure. a. simple b. functional c. multidivisional d. vertical

a

In recent years, the number of individuals who are large-block shareholders have declined and been replaced by institutional owners such as mutual funds and pension funds. a. True b. False

a

In the United States, the primary goal of a firm is to maximize profits to provide a financial gain to shareholders. a. True b. False

a

In the competitive form of the multidivisional structure, the focus of headquarters is on all the following EXCEPT a. integration. b. performance appraisal. c. resource allocation. d. long range planning.

a

In the modern U.S. corporation, the ownership and managerial control of the firm are separated. a. True b. False

a

Jumbo Industrial Supply has grown from a one-location firm with a restricted product line to a multi-state organization with numerous product lines and a large sales staff. Sales have doubled every year for the last three years. It currently has a simple structure with Jared Smith, the owner-manager, making all major decisions. Jumbo is probably now experiencing or will soon experience a. coordination and control problems. b. bureaucratic inefficiencies. c. excessive competition among division managers. d. limited communication among functional specialists.

a

Large German firms must include employees, union members, and shareholders in the formal governance structure. a. True b. False

a

Large-block shareholders typically own at least 5 percent of a corporation's issued shares. a. True b. False

a

Long-term incentives facilitates the firm's efforts through the board of directors' pay-related decisions to avoid potential agency problems by linking managerial compensation to the wealth of common shareholders. a. True b. False

a

One of the changes to enhance the effectiveness of the board of directors is the creation of a "lead director" role that has strong powers with regard to the board agenda and oversight of nonmanagement board member activities. a. True b. False

a

Organizational structure a. specifies the firm's formal reporting relationships, procedures, controls, and authority and decision-making processes. b. specifies the firm's informal reporting relationships, procedures, controls, and authority and decision-making processes. c. specifies the firm's formal value proposition, the markets it will serve, and how the firm will provide value in those markets. d. specifies the firm's control mechanisms, grievance procedures, reporting relationships, procedures, and authority over decision-making processes.

a

Ownership of many modern corporations is now concentrated in the hands of institutional investors rather than individual stockholders. a. True b. False

a

The most effective defense against a hostile takeover is the poison pill strategy. a. True b. False

a

Scandals at Enron, WorldCom, and HealthSouth illustrate the negative effects of poor ethical behavior on a firm's efforts to satisfy stakeholders. a. True b. False

a

Selecting the organizational structure and controls that effectively implement the chosen strategy is a challenge for managers because a. firms must be flexible while retaining a degree of stability. b. managers are never able to obtain all the information necessary to make the best selection. c. the structure of a firm should not duplicate the structures of its competitors. d. the environment changes too rapidly for corporations to maintain a consistent corporate structure.

a

Stock option repricing where the strike price value of the option has been lowered from its original position sometimes happens when firm performance is poor. a. True b. False

a

The Amos Ball Printing Company was established in 1866. Currently, Amos Ball V is the CEO and chairman of the board. The company has traditionally used a functional structure. Five years ago, the company branched into online publishing and small-batch printing in addition to its regular large-batch operations. Both new businesses are significantly different in technology and marketing from each other and from Ball's traditional business. Despite the hiring of experienced professionals in these new endeavors, performance continues to be poor and is affecting Ball's overall performance. Which of the following statements is TRUE? a. Amos should consider adopting the multidivisional structure. b. Mr. Ball has insufficient power to change the structure of the organization. c. Restructuring must only be done from a position of strength, so it is necessary to wait until the company's overall performance improves before making radical changes. d. These businesses are too disparate to coordinate within one corporate structure.

a

The CEO of Transector, Inc., set a 6.5 percent rate-of-return target for all divisions for the past year. Now, at the end of the year, three of Transector's seven divisions have not met this rate-of-return goal. The division managers of these three under-performing divisions have all secretly contacted executive placement firms to investigate openings at other firms, because they know their future at Transector is in jeopardy as financial performance is all-important at Transector. Transector probably uses the ____ structure. a. competitive form of the multidivisional b. SBU form of the multidivisional c. worldwide geographic area d. distributed strategic network

a

The Dodd-Frank Wall Street Reform and Consumer Protection Act is the most sweeping set of financial and regulatory reforms in the United States since the Great Depression. a. True b. False

a

The board of directors of CyberScope, Inc., is designing a stock option plan for its CEO that will motivate the CEO to increase the market value of the firm. Consequently, the board is a. setting the option strike price substantially higher than the current stock price. b. insuring that the strike price value of the options can be lowered if the organizational environment becomes more risky. c. having the stock option plan designed by insiders on the board of directors who are familiar with day-to-day operations of the firm. d. consulting accounting advisors to make sure that the plan transfers wealth to the CEO without immediately appearing on the balance sheet of CyberScope.

a

The heavy use of integrative mechanisms in the ____ multidivisional organizational structure is intended to achieve ____. a. cooperative; economies of scope b. competitive; cost efficiencies c. functional; sensitivity to cultural diversity d. SBU; quick response to local customer needs

a

The integrated cost leadership/differentiation strategy is difficult to implement mostly because a. different primary and support activities are emphasized when using cost leadership and differentiation strategies. b. this strategic approach demands more flexibility than most firms can manage. c. the dual reporting relationships required for this strategy slow organizational decision-making. d. the cost leadership strategy requires less structured job roles than does the differentiation strategy.

a

The market for corporate control is composed of individuals and firms that buy ownership positions or take over potentially undervalued corporations and make changes to those corporations, including the replacement of the top managers. a. True b. False

a

The market for corporate control may not be as efficient as a governance device as theory suggests because takeover targets are not always low performers with weak governance. a. True b. False

a

The multidivisional structure was initially designed to produce three major benefits over the functional form. Which of the following is NOT one of the three benefits? a. aligning the corporate structure with the demands of global expansion b. more accurate monitoring of the performance of each business c. facilitation of comparison between divisions d. stimulating managers of poorly performing divisions to look for ways of improving performance

a

The performance of individual board members and entire boards are being evaluated more formally and with greater intensity than in years past. a. True b. False

a

The primary role of the board of directors is to monitor and control top-level executives to protect owners' interests. a. True b. False

a

The repurchase at a premium of the target firm's shares that were acquired by the aggressor firm in a hostile takeover in exchange for an agreement that the aggressor will no longer target the company for takeover is called a. greenmail. b. a standstill agreement. c. crossing the palm with silver. d. a poison pill

a

The separation of the positions of CEO and chairperson of the board of directors reduces the power of the CEO over firm governance practices. a. True b. False

a

The top management of RavenCrest, Inc. have significant stock options in RavenCrest. They are therefore more likely to gain in making an agreement to be acquired, especially if they have golden parachutes. a. True b. False

a

The top management team at Sierra Infusion is concerned about the declining performance of firms in their industry. The team members are becoming concerned about the security of their jobs at Sierra Infusion. At a meeting over dinner, the top management team agrees to go to the board of directors with a proposal for a. increased diversification of Sierra Infusion. b. the addition of outside directors to the board. c. increased shareholder participation in decision making. d. greater concentration on Sierra's core industry

a

The use of executive compensation as a governance mechanism is more challenging to firms implementing international strategies than those strictly operating domestically. a. True b. False

a

Toyota heavily uses a strategic network of vertical relationships. Toyota enables engineers in supplier firms to communicate easily with companies with whom Toyota has contracts for services. This results in the suppliers and the Toyota (the strategic center firm) being more a. interdependent. b. rivalrous. c. creative. d. complementary.

a

Usually, large-block shareholders are considered to be those shareholders with at least _______ percent of the firm's stock. a. 5 b. 25 c. 50 d. 75

a

Walmart's effective strategy/structure configuration is a. cost leadership/functional. b. differentiation/functional. c. related-constrained/multidivisional. d. related-linked/multidivisional.

a

When a corporation pursues a related-constrained diversification strategy, financial controls may not add value to strategy implementation efforts since it is difficult to a. use them without reducing cooperation among divisional managers. b. transfer capital between units. c. maintain an arms-length relationship between headquarters and the divisions. d. identify which objective criteria to monitor.

a

Which of the following is TRUE of trends in Japan's corporate governance structure? a. Compensation of CEOs in both private and public companies is being tied more closely to observable performance goals. b. Increased regulation in the financial sector has increased the cost of mounting hostile takeovers. c. Banks' influence over corporations is increasing. d. The gap in compensation between CEOs in public and private companies is increasing

a

While the implementation of the Sarbanes-Oxley Act in 2002 has been controversial to some, most believe that it has had positive results in terms of protecting stakeholders and certain stockholder interests. a. True b. False

a

____ is the degree to which rules and procedures govern work. a. Formalization b. Centralization c. Specialization d. Unification

a

101. Simon Leagreet, the Chairperson and CEO of L-EVA Industries, Inc., has long been the major power at L-EVA. A majority of the directors are concerned that while Mr. Leagreet has been responsible for the firm's earning above-average returns, he has been displaying a tendency toward personal extravagance at the firm's expense. In order to limit Mr. Leagreet's power, the board of directors plans to a. elect an insider as the lead director. b. appoint another individual as chairperson of the board of directors. c. require Mr. Leagreet to personally certify the firm's financial reports. d. reduce the size of the stock option package provided to Mr. Leagreet.

b

110. Managers in the United States receive compensation than managers in the rest of the world. a. equivalent b. higher c. lower d. more variable

b

111. The longer the focus of managerial incentive compensation, the greater the top-level managers. a. earnings potential for b. risks borne by c. incentives for d. potential tax burden for

b

113. The board of directors of CamCell, Inc., wishes to design a CEO compensation plan that will align the personal interests of the CEO with the interests of the shareholders in long-term firm performance. The board wishes the CEO to take more short-term risks in order to achieve potentially higher long-term returns. Consequently, the board has decided on an incentive plan that involves payout based on the firm's performance five years in the future. CamCell is presently searching for a new CEO. Which of the following statements is true? a. This plan will be very attractive in luring candidates for the CEO position. b. CamCell may have to over-compensate its CEO in order to offset the personal risk a CEO would undertake under this plan. c. Institutional investors disapprove of long-term executive incentive plans and they may sell their blocks of stock in CamCell. d. This type of plan is likely to cause the CEO to underinvest in R&D in order to boost CamCell's long-term profitability.

b

115. The market for corporate control serves as a means of governance when a. the firm is overpriced in the market. b. internal controls have failed. c. the corporation has greatly exceeded performance expectations. d. the top management team's interests and the owners' interests are aligned.

b

A multidomestic strategy would be associated with a. high levels of coordination. b. informal coordination among units. c. many integrative mechanisms. d. interdependent divisions.

b

A private university is made up of various "schools," such as the School of Journalism, the School of Business, the School of Law, the School of Arts and Sciences, and so forth. The university is experiencing some financial problems and the top administration has decided to have each school of the university become a profit center. This scheme is somewhat parallel to the organizational ____ structure. a. network b. strategic business unit multidivisional c. functional d. matrix

b

124. James Abercrombie has a thriving consulting firm specializing in training boards of directors in decision-making skills. Mr. Abercrombie has had striking success in reducing conflict and hostility among directors and allowing boards to develop more cohesiveness. Mr. Abercrombie is considering expanding his consulting practice overseas. Which of the following statements is most likely to be TRUE? a. Mr. Abercrombie will have a large market in Japan because the culture highly values consensus decision making. b. Japanese firms will have little interest in Mr. Abercrombie's specialty because these skills are already practiced at a high level. c. German firms will not be interested in Mr. Abercrombie's services because the German system of decision making is based on authority and few conflicts emerge. d. Mr. Abercrombie should find significant need for his services in companies in transitional economies.

b

126. Which of the following statements is about corporate governance in Germany is FALSE? a. The Vorstand (management board) of a German corporation makes decisions about strategy and management. b. The Vorstand is elected by the firm's employees. c. Employees, union members, and shareholders appoint members to the Aufsichsrat (the supervisory tier of the board). d. Large institutional investors such as pension funds, and insurance companies are relatively insignificant owners of corporate stock.

b

129. is an important influence in Japanese corporate governance structures. a. Innovation b. Consensus c. Competition d. Individualism

b

132. The CEO of Skyco, a publicly-traded company that has been earning below-average returns, has been publicly criticized by shareholders for persuading the board of directors to give her interest-free loans, for having the company purchase and furnish a lavish apartment in Paris for her personal use on her twice-yearly trips there, and for excessive stock options. The CEO's behavior may be indication of a. reasonably compensating a CEO. b. a weak board of directors. c. the laxity of institutional investors. d. the difference in risk propensity between owners and managers.

b

134. International Food Services (IFS) has a contract with the Marines to supply meals for its troops in Afghanistan and other foreign assignments. As a means of increasing profits, IFS has used substandard ingredients in these meals and has consistently lied about this practice during quality investigations by the Marines. Who is ultimately responsible for the corporate climate that resulted in this wrongdoing? a. the director of food service for IFS b. the board of directors of IFS c. the employees directly involved in the wrongdoing d. the head of contract services for the Marines

b

70. In the United States, the fundamental goal of business is to a. ensure customer satisfaction. b. maximize shareholder wealth. c. provide job security. d. generate profits.

b

73. Corporate governance revolves around the relationship between which two parties? a. shareholders and the board of directors b. shareholders and managers c. the board of directors and managers d. None of the these options are correct.

b

74. Corporate governance is important to nations because a. shareholders want large stock returns. b. firms seek to invest in nations with national governance standards that are acceptable to them. c. company boards have lobbied for strong governance. d. the United States requires that other nations adopt its governance practices.

b

75. Amos Ball, Inc., is a printing company in Iowa that has been family owned and managed for three generations. Which of the following statements is most likely to be TRUE? a. Agency costs at Amos Ball are high. b. If research findings are valid, Amos Ball, Inc., will perform better if a family member is CEO than if an outsider is CEO. c. At Amos Ball, the opportunity for managerial opportunism is high. d. The functions of risk-bearing and decision making are separate at Amos Ball.

b

80. Managers may decide to invest in products that are not associated with the firm's current lines of business to increase the firm's level of diversification and decrease their employment risk. a. unsubstantial profits b. free cash flows c. marginal profits d. frozen assets

b

83. In contrast to managers' desires, shareholders usually prefer that free cash flows be a. used to diversify the firm. b. returned to them as dividends. c. used to reduce corporate debt. d. re-invested in additional corporate assets.

b

85. Compared to managers, shareholders prefer a. safer strategies with greater diversification for the firm. b. riskier strategies with more focused diversification for the firm. c. safer strategies with more focused diversification for the firm. d. riskier strategies with greater diversification for the firm.

b

91. Ownership concentration is determined by both a. the number of stockholders and the parties they represent. b. the number of stockholders and total percentage of shares they own. c. the number of outside directors and the parties they represent. d. the number of outside directors and total percentage of shares they own.

b

92. As ownership of the corporation is diffused, shareholders' ability to monitor managerial decisions a. increases. b. decreases. c. remains constant. d. is eliminated.

b

95. Research suggests that the activism of institutional investors such as TIAA-CREF and CalPERS a. increases shareholder value significantly. b. may not have a direct effect on firm performance. c. is so aggressive that boards of directors have become overly cautious. d. has weakened the effect of other governance mechanisms.

b

98. Generally, a board member who is a source of information about a firm's day-to-day activities is classified as a(n) director. a. lead independent b. inside c. related d. encumbered

b

99. The New York Stock Exchange requires that the audit committee be a. available to comment to external analysts. b. headed by outside directors. c. liable for any illegal actions by the top management team. d. made up of CPAs with auditing experience.

b

A board composed primarily of outside directors will have better insights as to the firms intended strategic initiatives, the reasons for the initiatives, and the outcomes expected from them than will inside directors. a. True b. False

b

Amelia Smith is the sole owner of the successful restaurant chain, Amelia's Café. Ms. Smith has taken a no- interest loan from the company in order to build a luxurious seaside house for herself in Carmel, California. This constitutes a classic agency problem. a. True b. False

b

Amos Ball, Inc., is a printing company in Iowa that has been family owned and managed for three generations. Which of the following statements is most likely to be TRUE? a. Agency costs at Amos Ball are high. b. If research findings are valid, Amos Ball, Inc., will perform better if a family member is CEO than if an outsider is CEO. c. At Amos Ball, the opportunity for managerial opportunism is high. d. The functions of risk-bearing and decision making are separate at Amos Ball

b

As a rule, shareholders prefer more product diversification than do managers because shareholders wish to reduce risk and maximize wealth. a. True b. False

b

As ownership of the corporation is diffused, shareholders' ability to monitor managerial decisions a. increases. b. decreases. c. remains constant. d. is eliminated

b

Because top management decisions are usually complex and nonroutine, determining the quality of executive performance is beyond the power of boards of directors. a. True b. False

b

Both top executives and owners of the firm wish to diversify the firm to reduce risk. a. True b. False

b

Compared to managers, shareholders prefer a. safer strategies with greater diversification for the firm. b. riskier strategies with more focused diversification for the firm. c. safer strategies with more focused diversification for the firm. d. riskier strategies with greater diversification for the firm

b

Corporate governance is important to nations because a. shareholders want large stock returns. b. firms seek to invest in nations with national governance standards that are acceptable to them. c. company boards have lobbied for strong governance. d. the United States requires that other nations adopt its governance practices

b

Corporate governance revolves around the relationship between which two parties? a. shareholders and the board of directors b. shareholders and managers c. the board of directors and managers d. None of the these options are correct

b

DDD MetalWorks plans to go public in the next 2 years. In order to be listed on the New York Stock Exchange, the firm will need to restructure its present board of directors, which is made up of a majority outside independent directors to a board of directors that is dominated by insiders and related outsiders. a. True b. False

b

Executive compensation is considered an external corporate governance mechanism because it determined in part by market forces. a. True b. False

b

Firms seeking to compete on the basis of cost leadership particularly need support from the ____ and ____ functions. a. finance, accounting b. manufacturing, process R&D c. product R&D, marketing d. management information, finance

b

Firms such as Textron Inc. that frequently acquire and divest other firms are most likely to use the ____ structure. a. matrix b. competitive multidivisional c. hybrid combination d. horizontal complementary strategic alliance

b

Companies and business units of large diversified firms using the cost leadership strategy should use strategic controls.

f

For top-level managers, board acceptance of the acquiring firm's offer usually leads to job loss as the acquiring firms wants new leadership. If the offer is refused, however, the job loss risk is minimal. a. True b. False

b

Foreign investors are playing a relatively minor role in the governance of firms in many countries. a. True b. False

b

Galatea Foods was founded in Greece by Galatea Chronos in 1978, and the company spread rapidly through Western Europe. Ms. Chronos retains the office of CEO. The Spanish division is headed by her oldest son. The North European division is headed by her only daughter, and the French-Italian division is headed by Ms. Chronos' brother. This company probably uses the ____ strategy. a. network b. multidomestic c. global d. transnational

b

Generally, a board member who is a source of information about a firm's day-to-day activities is classified as a(n) ________ director. a. lead independent b. inside c. related d. encumbered

b

Generally, the board of directors can be classified as insiders, unrelated insiders, outsiders, and unrelated outsiders. a. True b. False

b

In an SBU structure, ____ is/are evaluated using strategic controls, whereas ____ is/are evaluated using financial controls. a. each SBU, divisions within the SBUs b. divisions within the SBUs, each SBU c. managers of the SBUs, headquarters staff d. headquarters staff, managers of the SBUs

b

In contrast to managers' desires, shareholders usually prefer that free cash flows be a. used to diversify the firm. b. returned to them as dividends. c. used to reduce corporate debt. d. re-invested in additional corporate assets

b

In general, when governance mechanisms are strong, managers have free rein in their decisions. a. True b. False

b

In the United States, the fundamental goal of business is to a. ensure customer satisfaction. b. maximize shareholder wealth. c. provide job security. d. generate profits.

b

In the United States, the members of the board of directors are a firm's key stakeholders and a company's legal owners. a. True b. False

b

Individual shareholders with small ownership percentages are less dependent on the board of directors to represent their interests than are large block shareholders. a. True b. False

b

Institutional owners, despite their size, are usually unable to discipline ineffective top managers and cannot influence a firm's choice of strategies and overall strategic direction. a. True b. False

b

International Food Services (IFS) has a contract with the Marines to supply meals for its troops in Afghanistan and other foreign assignments. As a means of increasing profits, IFS has used substandard ingredients in these meals and has consistently lied about this practice during quality investigations by the Marines. Who is ultimately responsible for the corporate climate that resulted in this wrongdoing? a. the director of food service for IFS b. the board of directors of IFS c. the employees directly involved in the wrongdoing d. the head of contract services for the Marines

b

It is easiest to identify the company that functions as the strategic center firm in a. horizontal complementary strategic alliances. b. vertical complementary strategic alliances. c. corporate-level cooperative partnerships. d. international cooperative partnerships.

b

James Abercrombie has a thriving consulting firm specializing in training boards of directors in decision-making skills. Mr. Abercrombie has had striking success in reducing conflict and hostility among directors and allowing boards to develop more cohesiveness. Mr. Abercrombie is considering expanding his consulting practice overseas. Which of the following statements is most likely to be TRUE? a. Mr. Abercrombie will have a large market in Japan because the culture highly values consensus decision making. b. Japanese firms will have little interest in Mr. Abercrombie's specialty because these skills are already practiced at a high level. c. German firms will not be interested in Mr. Abercrombie's services because the German system of decision making is based on authority and few conflicts emerge. d. Mr. Abercrombie should find significant need for his services in companies in transitional economies

b

Leslie is a newly-graduated certified public accountant with a specialty in corporate tax. She wishes to join an organization (not an accounting firm) that will allow her to concentrate on corporate tax and become deeply proficient in this area. Leslie should look for a position in a firm with a ____ structure. a. simple b. functional c. multidivisional d. network

b

Managers in firms that have been subjects of hostile takeovers usually find that their value to the new firm has been enhanced because of their in-depth insider knowledge. a. True b. False

b

Managers in the United States receive ______ compensation than managers in the rest of the world. a. equivalent b. higher c. lower d. more variable

b

Managers may decide to invest ______ in products that are not associated with the firm's current lines of business to increase the firm's level of diversification and decrease their employment risk. a. unsubstantial profits b. free cash flows c. marginal profits d. frozen assets

b

McDonald's operates through a franchising system wherein the head office uses strategic and financial controls to ensure that the franchises are creating the greatest possible value. This is an example of a(an): a. worldwide product divisional structure. b. strategic network. c. SBU multidivisional structure. d. simple structure.

b

Megaline, Inc., follows the competitive form of the multidivisional structure. It has five divisions. One division has not met the rate-of-return goals for the past year. One division has exceeded the rate-of-return goals. The other three divisions met the rate-of-return goals. The headquarters office is making decisions about where to allocate capital in the next year. Which scenario is the MOST likely? a. The poorest performing division will get the highest capital allocation so that it can fix its problems and achieve the rate-of-return goal next year. b. The highest performing division will get the highest capital allocation because it has the best prospects for creating more wealth for the shareholders next year. c. The average performing divisions which met the rate-of-return goals will receive the highest allocation because their performance exactly matched corporate requirements. d. All divisions will receive the same capital allocation for the next year because this organizational structure rewards divisional managers based on achievement of strategic goals.

b

More intense application of governance mechanisms such as mandated by Sarbanes Oxley and Dodd-Frank may cause firms to take on fewer risky projects and thus increase potential shareholder wealth. a. True b. False

b

Ownership concentration is determined by both a. the number of stockholders and the parties they represent. b. the number of stockholders and total percentage of shares they own. c. the number of outside directors and the parties they represent. d. the number of outside directors and total percentage of shares they own

b

Research evidence suggests that ownership concentration is associated with lower levels of firm diversification, which conforms to the interests of stockholders. a. True b. False

b

Research suggests that the activism of institutional investors such as TIAA-CREF and CalPERS a. increases shareholder value significantly. b. may not have a direct effect on firm performance. c. is so aggressive that boards of directors have become overly cautious. d. has weakened the effect of other governance mechanisms

b

Simon Leagreet, the Chairperson and CEO of L-EVA Industries, Inc., has long been the major power at L-EVA A majority of the directors are concerned that while Mr. Leagreet has been responsible for the firm's earning above-average returns, he has been displaying a tendency toward personal extravagance at the firm's expense. In order to limit Mr. Leagreet's power, the board of directors plans to a. elect an insider as the lead director. b. appoint another individual as chairperson of the board of directors. c. require Mr. Leagreet to personally certify the firm's financial reports. d. reduce the size of the stock option package provided to Mr. Leagreet

b

Successful implementation of the differentiation strategy requires a structure that a. has specialized jobs. b. decentralizes decision-making. c. focuses on the finance function. d. is dominated by the operations function.

b

The CEO of Skyco, a publicly-traded company that has been earning below-average returns, has been publicly criticized by shareholders for persuading the board of directors to give her interest-free loans, for having the company purchase and furnish a lavish apartment in Paris for her personal use on her twice-yearly trips there, and for excessive stock options. The CEO's behavior may be indication of a. reasonably compensating a CEO. b. a weak board of directors. c. the laxity of institutional investors. d. the difference in risk propensity between owners and managers

b

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions related to consumer protection, systemic risk oversight, capital requirements for banks, but not for executive compensation. a. True b. False

b

The New York Stock Exchange requires that the audit committee be a. available to comment to external analysts. b. headed by outside directors. c. liable for any illegal actions by the top management team. d. made up of CPAs with auditing experience

b

The ____ structure is the most appropriate structure for implementing the integrated cost leadership /differentiation strategy. a. simple b. functional c. multidivisional d. strategic business unit

b

The board of directors of CamCell, Inc., wishes to design a CEO compensation plan that will align the personal interests of the CEO with the interests of the shareholders in long-term firm performance. The board wishes the CEO to take more short-term risks in order to achieve potentially higher long-term returns. Consequently, the board has decided on an incentive plan that involves payout based on the firm's performance five years in the future. CamCell is presently searching for a new CEO. Which of the following statements is true? a. This plan will be very attractive in luring candidates for the CEO position. b. CamCell may have to over-compensate its CEO in order to offset the personal risk a CEO would undertake under this plan. c. Institutional investors disapprove of long-term executive incentive plans and they may sell their blocks of stock in CamCell. d. This type of plan is likely to cause the CEO to underinvest in R&D in order to boost CamCell's long-term profitability

b

The fewest integrative devices are used in the ____ structure. a. simple b. competitive multidivisional c. SBU d. network

b

The increased use of the market for corporate control has decreased the sophistication and variety of managerial defense tactics that are used in takeovers. a. True b. False

b

The longer the focus of managerial incentive compensation, the greater the ______ top-level managers. a. earnings potential for b. risks borne by c. incentives for d. potential tax burden for

b

The market for corporate control serves as a means of governance when a. the firm is overpriced in the market. b. internal controls have failed. c. the corporation has greatly exceeded performance expectations. d. the top management team's interests and the owners' interests are aligned

b

The need for the organization to combine local responsiveness and efficiency is most critical in a ____ strategy. a. multidomestic b. transnational c. global d. focus

b

The separation of ownership and control is the most effective means used by firms to prevent managerial opportunism. a. True b. False

b

The three internal corporate governance mechanisms are ownership concentration, board of directors, and the market for corporate control. a. True b. False

b

The way that U.S. corporate boards of directors are presently structured, they have little influence on the unethical behavior of top management. a. True b. False

b

To successfully implement a cost leadership strategy, there is a need for a. freedom from constraining rules. b. centralization of authority. c. communication between functional silos. d. sharing of competencies among divisions.

b

Typically, an organization using a simple structure would be a. large. b. small. c. of any size if the firm is privately held. d. a family-owned-and-managed firm of any size.

b

Well-designed stock option-based compensation plans should have the option strike prices substantially lower than the current stock prices. a. True b. False

b

When the option strike prices in an executive stock option-based compensation plan have been lowered it is usually a defense to a hostile takeover. a. True b. False

b

Which of the following is NOT a variation of the multidivisional structure? a. competitive form b. regional form c. cooperative form d. strategic business unit form

b

Which of the following is a TRUE statement about organizational structures for implementing business-level strategies? a. A cost leadership strategy requires a simple structure emphasizing high specialization, centralization, and structured job roles. b. A differentiation strategy requires a functional structure with limited formalization, broad job descriptions, and an emphasis on the product R&D and marketing functions. c. An integrated cost leadership/differentiation strategy requires a multidivisional structure using high formalization, decentralized decision-making, and vertical coordination. d. A focused strategy requires a functional structure featuring high levels of both specialization and formalization.

b

Which of the following statements is about corporate governance in Germany is FALSE? a. The Vorstand (management board) of a German corporation makes decisions about strategy and management. b. The Vorstand is elected by the firm's employees. c. Employees, union members, and shareholders appoint members to the Aufsichsrat (the supervisory tier of the board). d. Large institutional investors such as pension funds, and insurance companies are relatively insignificant owners of corporate stock

b

102. Several members of the board of directors of American Textile Products (ATP) have proposed creating the position of lead director. What circumstances would most likely have initiated this proposal? a. ATP has been the initiator of several hostile takeovers in the last 2 years. b. The board has been successful in reducing the percentage of CEO pay that is composed of stock options. c. The CEO/chairperson of the board has been suspected of opportunistic behavior. d. The firm is traded on the New York Stock Exchange and must change its corporate governance to comply with the NYSE's new rules.

c

103. Given the demands for greater accountability and improved performance, which of the following is NOT a voluntary change many boards of directors have initiated? a. moving toward having directors from different backgrounds b. strengthening the internal management and accounting control systems c. compensating directors with stock options rather than with fixed remuneration d. establishing and using formal processes to evaluate the board's performance

c

106. One means that is considered to improve the effectiveness of outside directors is a. mandating that all outside directors be drawn from government or academia rather than industry. b. requiring that outside directors be former executives of the firm. c. requiring outside directors to own significant equity stakes in the firm. d. requiring that outside directors be truly objective by having no ownership interest in the firm.

c

117. The market for corporate control may not be as efficient as previously thought as recent findings suggest that those firms targeted for takeover by active corporate raiders are a. usually on the verge of bankruptcy. b. typically under-performing their industry. c. often performing above their industry averages. d. always outperforming their industry.

c

118. If the market for corporate control were efficient as a governance device, then only ___ would be targets for takeovers. a. firms with unethical top executives b. firms earning above-average returns c. poorly performing firms d. over-valued firms

c

125. German executives are not dedicated to the maximization of shareholder value to the degree that is the case for executives in the UK and United States largely because a. the roles of CEO and chairperson of the board of directors are usually combined. b. large institutional investors control large blocks of stock. c. private shareholders and large institutional investors rarely have large ownership positions in firms. d. of the focus on stewardship-management in German firms rather than the financial performance focus of U.S. firms.

c

131. Which of the following is FALSE about corporate governance in China? a. The Chinese governance system may be tilting toward the Western model. b. With increasing frequency, the compensation of top executives of Chinese companies is closely related to prior and current financial performance of the firm. c. The state still uses direct and/or indirect controls to influence the strategies employed by most firms. d. Firms with higher state ownership tend to have lower market value and more volatility in those values over time.

c

71. In the United States, a firm's key stakeholder(s) is(are) the a. government. b. executives. c. shareholders. d. customers.

c

76. Complete the following: In small firms, managers often own a ______separation between ownership and managerial control. a. small; small b. small; large c. large; small d. large; large

c

77. The separation between firm ownership and management creates a(n) relationship. a. governance b. control c. agency d. dependent

c

79. Managerial employment risk is the a. risk that managers will behave opportunistically. b. risk undertaken by managers to earn stock options. c. managers' risk of job loss, loss of compensation, and/or loss of reputation. d. risk managers will not find a new top management position if they should be dismissed.

c

86. Agency costs reflect all of the following EXCEPT costs. a. monitoring b. enforcement c. opportunity d. incentive

c

87. All of the following are consequences of the Sarbanes-Oxley Act EXCEPT a. a decrease in foreign firms listing on U.S. stock exchanges. b. internal auditing scrutiny has improved and there is greater trust in financial reporting. c. an increased number of IPOs (initial public offerings) are expected. d. Section 404 creates excessive costs for firms.

c

93. Institutional owners are a. shareholders in the large institutional firms listed on the New York Stock Exchange. b. banks and other lending institutions that have provided major financing to the firm. c. financial institutions such as mutual funds and pension funds that control large-block shareholder positions. d. prevented by the Sarbanes-Oxley Act from owning more than 50 percent of the stock of any one firm.

c

A firm pursuing a related-constrained diversification strategy would typically need all of the following EXCEPT a. centralization of some organizational functions for the sake of coordination. b. frequent, direct contact between division managers. c. division managers' rewards based on division financial performance. d. temporary teams or task forces formed around specific projects.

c

A firm pursuing an unrelated diversification strategy will utilize a ____ structure. a. network b. cooperative form multidivisional c. competitive form multidivisional d. functional

c

A worldwide geographic area structure is an organizational form in which a. multiple alliances across the globe link complementary businesses. b. standardized products are offered across country markets. c. national interests dominate and management adapts to local or cultural differences. d. responsiveness to local demand is combined with economies of scale.

c

Agency costs reflect all of the following EXCEPT ______ costs. a. monitoring b. enforcement c. opportunity d. incentive

c

All of the following are consequences of the Sarbanes-Oxley Act EXCEPT a. a decrease in foreign firms listing on U.S. stock exchanges. b. internal auditing scrutiny has improved and there is greater trust in financial reporting. c. an increased number of IPOs (initial public offerings) are expected. d. Section 404 creates excessive costs for firms

c

An important lesson from the Chapter 11 Opening Case about Borders is that a. Borders did a good job of implementing its strategy but its structure was wrong. b. structures rarely evolve in response to strategic change. c. while a firm's structure usually follows the strategy, once in place, structure can have a significant effect on strategy. d. Borders' decentralized structure led to poor decision making.

c

Complete the following: In small firms, managers often own a________ percentage of the firm, which means there is ________ separation between ownership and managerial control. a. small; small b. small; large c. large; small d. large; large

c

Financial controls are most important in the ____ strategy. a. single business b. related constrained c. unrelated diversified d. vertical complementary

c

Firms seeking to differentiate particularly need support from the ____ and ____ functions. a. finance, accounting b. engineering, operations c. product R&D, marketing d. management information, finance

c

Functional structures work best for firms for all of the following strategies EXCEPT a. cost leadership. b. differentiation. c. related constrained diversification strategy. d. single or dominant business corporate strategy.

c

German executives are not dedicated to the maximization of shareholder value to the degree that is the case for executives in the UK and United States largely because a. the roles of CEO and chairperson of the board of directors are usually combined. b. large institutional investors control large blocks of stock. c. private shareholders and large institutional investors rarely have large ownership positions in firms. d. of the focus on stewardship-management in German firms rather than the financial performance focus of U.S. firms

c

Given the demands for greater accountability and improved performance, which of the following is NOT a voluntary change many boards of directors have initiated? a. moving toward having directors from different backgrounds b. strengthening the internal management and accounting control systems c. compensating directors with stock options rather than with fixed remuneration d. establishing and using formal processes to evaluate the board's performance

c

Icarus Aviation, Athena Instrumentation, and Hercules Miniaturization are strategic business units of Olympia Industries. One can expect that Icarus, Athena, and Hercules a. use integrative mechanisms to share core competencies among themselves. b. compete with one another in Olympia's internal capital markets. c. are not necessarily related to one another in terms of products or markets. d. are network member firms while Olympia is the strategic center firms.

c

If the market for corporate control were efficient as a governance device, then only ______ would be targets for takeovers. a. firms with unethical top executives b. firms earning above-average returns c. poorly performing firms d. over-valued firms

c

In the United States, a firm's key stakeholder(s) is(are) the a. government. b. executives. c. shareholders. d. customers

c

In the ____ multidivisional structure there is complete independence among the firm's divisions. a. cooperative b. matrix c. competitive d. SBU

c

In the ____ structure hierarchy, the headquarters relies on strategic controls to set rate-of-return targets and financial controls to monitor divisional performance relative to those targets. a. functional b. cooperative c. competitive d. SBU

c

Institutional owners are a. shareholders in the large institutional firms listed on the New York Stock Exchange. b. banks and other lending institutions that have provided major financing to the firm. c. financial institutions such as mutual funds and pension funds that control large-block shareholder positions. d. prevented by the Sarbanes-Oxley Act from owning more than 50 percent of the stock of any one firm

c

Companies and business units using the differentiation strategy should emphasize financial rather than strategic controls.

f

Managerial employment risk is the a. risk that managers will behave opportunistically. b. risk undertaken by managers to earn stock options. c. managers' risk of job loss, loss of compensation, and/or loss of reputation. d. risk managers will not find a new top management position if they should be dismissed

c

One means that is considered to improve the effectiveness of outside directors is a. mandating that all outside directors be drawn from government or academia rather than industry. b. requiring that outside directors be former executives of the firm. c. requiring outside directors to own significant equity stakes in the firm. d. requiring that outside directors be truly objective by having no ownership interest in the firm

c

One of the primary disadvantages of the global strategy and worldwide product divisional structure is that a. it is difficult to achieve economies of scale. b. the firm must develop centers to offer after-sales service to customers. c. it is difficult to respond effectively to local market needs and preferences. d. achieving economies of scale with this strategy/structure combination is nearly impossible.

c

Ortiz is a manager of BRS Corp. Ortiz's division did not meet financial targets this year. Ramirez, manager of another division, has indicated that Ortiz's division incurred significant costs which resulted in Ramirez's division setting record profits for the year. As a result, performance for BRS as a whole exceeded projections. Which pairing of organizational structures for BRS and bonus for Ortiz is most plausible? a. cooperative structure; no bonus due to failure to meet divisional target. b. competitive structure; no bonus due to failure to meet divisional target. c. cooperative structure; a bonus for increasing organizational performance. d. competitive structure; a bonus for increasing organizational performance.

c

Several members of the board of directors of American Textile Products (ATP) have proposed creating the position of lead director. What circumstances would most likely have initiated this proposal? a. ATP has been the initiator of several hostile takeovers in the last 2 years. b. The board has been successful in reducing the percentage of CEO pay that is composed of stock options. c. The CEO/chairperson of the board has been suspected of opportunistic behavior. d. The firm is traded on the New York Stock Exchange and must change its corporate governance to comply with the NYSE's new rules

c

Some experts consider the ____ structure to be one of the 20th century's most significant organizational innovations because of its value to diversified firms. a. network b. cooperative c. multidivisional d. functional

c

The LG Company (Chapter 11Strategic Focus) has units operating in significantly different industries and uses financial controls to manage its portfolio. LG is most likely using the ___________ structure. a. combination-matrix b. cooperative form multidivisional c. competitive form multidivisional d. strategic business unit multidivisional

c

The market for corporate control may not be as efficient as previously thought as recent findings suggest that those firms targeted for takeover by active corporate raiders are a. usually on the verge of bankruptcy. b. typically under-performing their industry. c. often performing above their industry averages. d. always outperforming their industry

c

The noted business historian Alfred Chandler viewed the multidivisional structure as an innovative response to a. an emerging professional management philosophy. b. the increasing demand by consumers for both quality and low-price. c. coordination and control problems. d. a shift toward the global economy.

c

The separation between firm ownership and management creates a(n) ________ relationship. a. governance b. control c. agency d. dependent

c

Typically, a successful firm pursuing a differentiation strategy will a. have a very hierarchical structure. b. require a structure which is very formal. c. use cross-functional development teams. d. develop free-standing business units.

c

Which of the following does NOT cause a firm to move from a functional structure to a multidivisional structure? a. increasing diversification b. coordination and control issues c. need for knowledge-sharing among specialists d. greater amounts of data and information to process

c

The marketing and R&D functions are emphasized in the differentiation strategy's functional structure.

t

Which of the following is FALSE about corporate governance in China? a. The Chinese governance system may be tilting toward the Western model. b. With increasing frequency, the compensation of top executives of Chinese companies is closely related to prior and current financial performance of the firm. c. The state still uses direct and/or indirect controls to influence the strategies employed by most firms. d. Firms with higher state ownership tend to have lower market value and more volatility in those values over time

c

Which of the following is NOT a preliminary task of the strategic center firm in a strategic network? a. strategic outsourcing b. encouraging friendly rivalry among network members c. allocating internal capital d. supporting development of new core competencies

c

Which of the following multidivisional structures is CORRECTLY paired with the appropriate corporate-level strategy? a. competitive form with related constrained strategy b. cooperative form with unrelated strategy c. SBU form with related linked strategy d. competitive form with related linked strategy

c

Which organizational structure will emphasize financial controls for headquarters' evaluation of operating units while the operating units will emphasize strategic controls within their units' performance? a. Functional structure b. Cooperative M-Form c. SBU Form d. Competitive M-Form

c

____ controls are objective criteria that allow corporate managers to evaluate the returns earned by individual business units. a. Strategic b. Managerial c. Financial d. Environmental

c

107. The CEO and Chairman of the board of directors Alta Corp. is dismayed by a lack of effort and insights his directors provide during board meetings. The directors are all outsiders, experienced, and run their own successful firms. The CEO/chair genuinely seeks their greater involvement. What would you recommend? a. Requiring that the directors own stock in the company. b. Establishing a formal process to evaluate the board's performance. c. Electing an lead director. d. All of these options are correct.

d

108. Executive compensation is a governance mechanism that seeks to align managers' and owners' interests through all of the following EXCEPT a. bonuses. b. long-term incentives such as stock options. c. salary. d. penalties for inadequate firm performance.

d

109. The interests of multinational corporations' shareholders may be best served when there is a. a uniform compensation plan for all corporate executives, United States and foreign alike. b. executive compensation that is primarily based on long-term performance. c. elevation of foreign executive compensation to U.S. levels. d. a variety of compensation plans for executives of foreign subsidiaries.

d

112. Which of the following reasons would NOT explain the difficulty of determining appropriate executive compensation? a. The decisions made by top-level managers are typically complex and nonroutine. b. An executive's decisions often affect firm performance only over the long run. c. A number of factors intervene between top-level management decisions and firm performance (e.g., unpredictable economic, social, or legal changes). d. The compensation committee may not have comprehensive firm performance data.

d

116. Agricultural Chemicals, Inc., was the target of a hostile takeover 6 months ago. The CEO and the top executives successfully fended off the takeover and are concentrating on strategies to improve the performance of the firm. Which of the following is most likely to be TRUE? a. Hostile takeover attempts are so common that they do not reflect negatively on the firm's performance. They are more a function of general market conditions. b. The fact that a hostile takeover has occurred is proof that the firm was under-performing. c. Research shows that once a hostile takeover has been defeated, the firm is safe from other hostile takeover attempts for many years. d. The CEO and top executives should not consider their jobs secure.

d

The matrix organization has a dual structure combining functional specialization and business product or project specialization.

t

119. All of the following statements are TRUE about the use of defense tactics by the target firm during a hostile takeover EXCEPT a. defense tactics are usually beneficial for the executives of the target firm. b. defense tactics are opposed by institutional investors. c. defense tactics vary in their effectiveness as a defense to takeovers. d. defense tactics make the costs of a takeover lower.

d

122. A hostile takeover defense wherein the target firm makes its stock less attractive to a potential acquirer is called a. greenmail. b. a standstill agreement. c. crossing the palm with silver. d. a poison pill.

d

127. Japanese keiretsu are a. management structures related to total quality management systems. b. company unions, which are a type of governance system. c. the banks owing the largest shares of stock in the firm. d. a system of cross-shareholding among firms.

d

128. In Japan, the principal source of the active monitoring of large companies comes from a. boards of directors. b. stock brokerage companies. c. the government. d. banks.

d

133. The governance mechanism most closely connected with deterring unethical behaviors by holding top management accountable for the corporate culture is a. ownership concentration. b. the market for corporate control. c. executive compensation systems. d. the board of directors.

d

69. Corporate governance is all of the following EXCEPT a. mechanisms used to determine and control the strategic direction and performance of organizations. b. a means to establish and maintain harmony between owners and top managers whose interests may conflict. c. ensuring that top managers' interests are aligned with the interests of stockholders. d. resolve conflicts among corporate employees.

d

72. Which of the following is NOT an internal governance mechanism? a. the board of directors b. ownership concentration c. executive compensation d. the market for corporate control

d

81. Product diversification provides two benefits to managers that do not accrue to shareholders: and . a. greater experience in a wider range of industries; lessening of managerial employment risk b. the manager frequently invests in the acquired firm, which allows him or her extensive profits; the manager can frequently buy excess assets divested by the acquired firm c. the manager's supervisory needs are lowered; the manager is allowed greater time to oversee a wider range of activities d. the opportunity for higher compensation through firm growth; a reduction in managerial employment risk

d

84. A major conflict of interest between top executives and owners, is that top executives wish to diversify the firm in order to , whereas owners wish to diversify the firm to . a. generate free cash flows; reduce the risk of total firm failure b. increase the price of the firm's stock; increase the dividends paid out from free cash flows c. reduce the risk of total firm failure; reduce their total portfolio risk d. reduce their employment risk; increase the company's value

d

88. All of the following are areas covered by the Dodd-Frank Wall Street Reform and Consumer Protection Act EXCEPT a. consumer protection. b. CEO compensation. c. regulation of derivatives. d. retirement accounts.

d

94. The ownership of major blocks of stock by institutional investors have resulted in all of the following EXCEPT a. making CEOs more accountable for their performance. b. challenges to the decisions of boards. c. focusing attention on ineffective boards of directors. d. a direct effect on firm performance.

d

96. Monitoring by shareholders is usually accomplished through a. management consultants. b. government auditors. c. the firm's top managers. d. the board of directors.

d

97. Which of the following is a FALSE statement about corporate governance? a. Governance is used to establish order between parties whose interests may be in conflict. b. Corporate governance mechanisms sometimes fail to monitor and control top managers' decisions. c. Corporate governance mechanisms can be in conflict with one another. d. Corporate governance is best achieved with a board of directors with strong ties to management.

d

A hostile takeover defense wherein the target firm makes its stock less attractive to a potential acquirer is called a. greenmail. b. a standstill agreement. c. crossing the palm with silver. d. a poison pill

d

A major conflict of interest between top executives and owners, is that top executives wish to diversify the firm in order to _____, whereas owners wish to diversify the firm to ______. a. generate free cash flows; reduce the risk of total firm failure b. increase the price of the firm's stock; increase the dividends paid out from free cash flows c. reduce the risk of total firm failure; reduce their total portfolio risk d. reduce their employment risk; increase the company's value

d

Agatha Adams founded Insurance Specialists to process medical claims for physicians' practices. She plans to compete on the basis of cost, offering the lowest processing cost per claim in her market area. Ms Adams' company should a. be the strategic center firm in a network structure. b. have a specialized multidivisional structure. c. develop alliances with firms with complementary competencies. d. have a highly centralized, functional structure.

d

Monitoring by shareholders is usually accomplished through a. management consultants. b. government auditors. c. the firm's top managers. d. the board of directors

d

Agricultural Chemicals, Inc., was the target of a hostile takeover 6 months ago. The CEO and the top executives successfully fended off the takeover and are concentrating on strategies to improve the performance of the firm. Which of the following is most likely to be TRUE? a. Hostile takeover attempts are so common that they do not reflect negatively on the firm's performance. They are more a function of general market conditions. b. The fact that a hostile takeover has occurred is proof that the firm was under-performing. c. Research shows that once a hostile takeover has been defeated, the firm is safe from other hostile takeover attempts for many years. d. The CEO and top executives should not consider their jobs secure

d

Alfred Chandler found that firms grow in a predictable pattern, and that the firm's growth patterns determine its structural form. Which form corresponds to the FINAL stage in Chandler's theory? a. functional b. simple c. vertically integrated d. multidivisional

d

All of the following are areas covered by the Dodd-Frank Wall Street Reform and Consumer Protection Act EXCEPT a. consumer protection. b. CEO compensation. c. regulation of derivatives. d. retirement accounts

d

All of the following statements are TRUE about the use of defense tactics by the target firm during a hostile takeover EXCEPT a. defense tactics are usually beneficial for the executives of the target firm. b. defense tactics are opposed by institutional investors. c. defense tactics vary in their effectiveness as a defense to takeovers. d. defense tactics make the costs of a takeover lower

d

Cisco's _________ corporate-level structure was useful in implementing its ___________ business-level strategy (Chapter 11 Strategic Focus). a. SBU form; integrated cost leadership-differentiation b. competitive form; differentiation c. cooperative form; cost leadership d. cooperative form; integrated cost leadership-differentiation

d

Corporate governance is all of the following EXCEPT a. mechanisms used to determine and control the strategic direction and performance of organizations. b. a means to establish and maintain harmony between owners and top managers whose interests may conflict. c. ensuring that top managers' interests are aligned with the interests of stockholders. d. resolve conflicts among corporate employees

d

Executive compensation is a governance mechanism that seeks to align managers' and owners' interests through all of the following EXCEPT a. bonuses. b. long-term incentives such as stock options. c. salary. d. penalties for inadequate firm performance

d

Ichabod Industries has a Latin American Division, a European Division, an Industrial Lubricants Division, and a Food Service Division. Ichabod Industries probably uses the ____ organizational structure. a. horizontal complementary strategic alliance b. competitive multidivisional c. strategic business unit multidivisional d. hybrid combination

d

In Japan, the center firm in a strategic network of vertical relationships might be expected to undertake all of the following EXCEPT a. reducing its transaction costs by promoting longer-term contracts with subcontractors. b. enabling engineers in upstream companies to have better communication with those companies with whom it has contracts for services. c. encouraging subcontractors to modernize their facilities and providing them with technical and financial assistance to do so. d. decreasing communications between network members to reduce communication costs.

d

In Japan, the principal source of the active monitoring of large companies comes from a. boards of directors. b. stock brokerage companies. c. the government. d. banks

d

In the Chapter 11 Strategic Focus, Cisco used the ____________ structure to implement its ___________ strategy. a. functional; cost leadership. b. SBU form of the multidivisional; related linked c. cooperative form of the multidivisional; related linked d. cooperative form of the multidivisional; related constrained

d

Japanese keiretsu are a. management structures related to total quality management systems. b. company unions, which are a type of governance system. c. the banks owing the largest shares of stock in the firm. d. a system of cross-shareholding among firms

d

One disadvantage of the functional structure is that a. career paths and professional development are limited. b. dual reporting relationships blur lines of authority. c. the CEO cannot coordinate and control the efforts of functional level employees. d. communication and coordination are difficult among organizational functions.

d

One reason why a long-tenured top-level manager may hesitate to conclude the firm's structure is a problem is that doing so a. indicates to competitors that the firm is vulnerable to a hostile takeover. b. will only lead to inefficiencies. c. requires the firm undertake multi-year restructuring period that will delay retirement. d. suggests that their previous choices were not the best ones.

d

Product diversification provides two benefits to managers that do not accrue to shareholders: ______m and ______. a. greater experience in a wider range of industries; lessening of managerial employment risk b. the manager frequently invests in the acquired firm, which allows him or her extensive profits; the manager can frequently buy excess assets divested by the acquired firm c. the manager's supervisory needs are lowered; the manager is allowed greater time to oversee a wider range of activities d. the opportunity for higher compensation through firm growth; a reduction in managerial employment risk

d

Research suggests that boards of directors perform better if a. the CEO is also the chairperson of the board of directors. b. the board includes employees as voting members. c. the board is homogenous in composition. d. outside directors own significant equity in the organization

d

Strategic controls allow corporate-level managers to a. evaluate business-level performance on objective criteria. b. concentrate on day-to-day corporate operations. c. assess performance of employees and managers in each business unit. d. examine the fit between what the firm might do and what it can do.

d

Structural stability affects the organization's ability to: a. resist organizational inertia. b. cope with uncertainty about cause-and-effect relationships in the global economy. c. develop new competitive advantages. d. consistently and predictably manage its daily work routines.

d

The BEST multidivisional structure to use a. is the competitive form. b. is the SBU form. c. is the cooperative form. d. depends on the degree of diversification.

d

The CEO and Chairman of the board of directors Alta Corp. is dismayed by a lack of effort and insights his directors provide during board meetings. The directors are all outsiders, experienced, and run their own successful firms. The CEO/chair genuinely seeks their greater involvement. What would you recommend? a. Requiring that the directors own stock in the company. b. Establishing a formal process to evaluate the board's performance. c. Electing an lead director. d. All of these options are correct

d

The ____ structure is an organizational structure that combines both functional specialization and business product or project specialization. a. functional b. worldwide geographic area c. network d. matrix

d

The __________ structure is best for implementing the related constrained diversification strategy. a. functional b. competitive form of the multidivisional c. SBU form of the multidivisional d. cooperative form of the multidivisional

d

The benefits of a simple structure include all of the following EXCEPT a. ease of coordination within the organization. b. no need for sophisticated information systems. c. active involvement by the owner-manager. d. specialists can develop deep expertise.

d

The cooperative multidivisional firm a. establishes profit centers based on products or markets. b. has a flat organizational structure which broadens jobs and empowers workers. c. is a structure organized around both functional specialization and business projects. d. is a structure requiring heavy use of horizontal integrative devices.

d

The governance mechanism most closely connected with deterring unethical behaviors by holding top management accountable for the corporate culture is a. ownership concentration. b. the market for corporate control. c. executive compensation systems. d. the board of directors

d

The interests of multinational corporations' shareholders may be best served when there is a. a uniform compensation plan for all corporate executives, United States and foreign alike. b. executive compensation that is primarily based on long-term performance. c. elevation of foreign executive compensation to U.S. levels. d. a variety of compensation plans for executives of foreign subsidiaries

d

According to the Chapter 11 Strategic Focus, Cisco implemented the related constrained strategy using the SBU form of the multidivisional structure.

f

The most centralized and most costly form of the multidivisional structure is the a. integrated. b. competitive. c. SBU. d. cooperative.

d

The ownership of major blocks of stock by institutional investors have resulted in all of the following EXCEPT a. making CEOs more accountable for their performance. b. challenges to the decisions of boards. c. focusing attention on ineffective boards of directors. d. a direct effect on firm performance

d

The primary disadvantage of the multidomestic strategy and worldwide geographic area structure relates to limited a. centralization. b. coordination across divisions. c. ability to meet local market needs. d. potential for global efficiency.

d

The three structural characteristics which differ between organizational structures include all of the following EXCEPT a. centralization. b. formalization. c. specialization. d. intermediation.

d

Toyota and its suppliers have a relationship in which Toyota encourages suppliers to modernize their facilities and provides them with technical and financial assistance to do so. It also promotes longer term contracts with suppliers, and enables engineers in the supplier company to have better communication with Toyota. This is an example of a(an): a. worldwide product divisional structure. b. functional structure. c. SBU multidivisional structure. d. strategic network.

d

Which of the following is NOT an internal governance mechanism? a. the board of directors b. ownership concentration c. executive compensation d. the market for corporate control

d

Which of the following is NOT associated with an organizational structure that supports a cost leadership strategy? a. centralization b. specialization c. formalization d. integration

d

Which of the following is TRUE? a. Organizations tend to change structure too frequently, which erodes their competitive advantage. b. Large organizations can retain a simple structure as long as they have a focus strategy. c. Flexibility in structure is more important than stability. d. Strategy has a more important influence on structure than structure has on strategy.

d

Which of the following is a FALSE statement about corporate governance? a. Governance is used to establish order between parties whose interests may be in conflict. b. Corporate governance mechanisms sometimes fail to monitor and control top managers' decisions. c. Corporate governance mechanisms can be in conflict with one another. d. Corporate governance is best achieved with a board of directors with strong ties to management

d

Which of the following is a TRUE statement about implementing corporate-level strategies and effective organizational structures? a. Firms pursuing a related-linked strategy should implement a competitive structure with a competitive culture and centralized strategic planning activities. b. Firms pursuing an unrelated diversification strategy should use an SBU structure with a small corporate staff, emphasize the R&D function, and integrate divisions to achieve synergies. c. Firms pursuing a related-linked strategy should use an SBU structure, emphasize interdependence among divisions, and manage the strategic planning function from the central office. d. Firms pursuing a related-constrained strategy should implement a cooperative structure, use integrative devices to link divisions, centralize the R&D function, and emphasize sharing.

d

Which of the following reasons would NOT explain the difficulty of determining appropriate executive compensation? a. The decisions made by top-level managers are typically complex and nonroutine. b. An executive's decisions often affect firm performance only over the long run. c. A number of factors intervene between top-level management decisions and firm performance (e.g., unpredictable economic, social, or legal changes). d. The compensation committee may not have comprehensive firm performance data

d

Alliances of organizations in the same position on the value chain are known as vertical alliances.

f

As shown in the Chapter Opening 11 Case, Borders was able to structure its operations in ways that allowed it to manage the different businesses in each country and market effectively.

f

Centralized and formalized procedures allow for greater flexibility, an important factor for firms using a cost leadership strategy.

f

Firms switch from a functional structure to a multidivisional structure because greater levels of environmental complexity and uncertainty make it necessary for the firm to develop cooperative relationships with its stakeholders.

f

Firms using the differentiation strategy need to respond quickly to environmental opportunities and threats. The structural features that are best for these requirements are centralization, specialization, and many rules and procedures.

f

If firms band together in a large number of vertical complementary strategic alliances, there is a danger that the government will suspect them of illegal collusive activities.

f

In the Chapter 11 Strategic Focus on the LG Company, the removal of the CEO after two quarters of losses shows illustrates the characteristic use of strategic controls in the competitive form of multidivisional structure.

f

Organizational inertia often prompts top management to initiate structural change when organizational performance levels drop.

f

Research has consistently shown that there is one best way to structure all organizations, regardless of competitive strategy.

f

Research shows that structure has a more important influence on strategy than the reverse and hence the emphasis of the chapter on the subject of structure.

f

Specialization refers to the extent to which authority for decision-making is retained at higher managerial levels.

f

The functional structure is most appropriate for large firms with very high levels of diversification.

f

The three multidivisional structures that are used to implement a diversification strategy are the competitive form, the strategic business unit form, and the integrated form.

f

With a related diversification corporate-level strategy, financial controls are used by corporate leaders to verify the sharing of appropriate strategic factors such as knowledge, markets, and technologies across businesses.

f

German executives are not dedicated to the maximization of shareholder value to the degree that is the case for executives in the UK and United States largely because

private shareholders and large institutional investors rarely have large ownership positions in firms.

Corporate governance is all of the following EXCEPT

resolve conflicts among corporate employees.

All of the following are areas covered by the Dodd-Frank Wall Street Reform and Consumer Protection Act EXCEPT

retirement accounts.

Compared to managers, shareholders prefer

riskier strategies with more focused diversification for the firm

Organizational structure

specifies the firm's formal reporting relationships, procedures, controls, and authority and decision-making processes pivotal component of effective strategy implementation critical to match organizational structure to the firm's strategy

A simple structure is an organizational form in which the owner-manager makes all major decisions directly and monitors all activities, while the staff merely serves as an extension of the manager's supervisory authority.

t

A strategic network can be characterized as a loose federation of partners revolving around a strategic center firm.

t

According to Michael Dell, an overemphasis on financial controls to produce attractive short-term results contributed to performance difficulties at Dell, Inc. This point emphasizes the importance of properly balancing the use of strategic and financial controls.

t

An SBU structure consists of at least three levels: the top level, the corporate headquarters; the next level, the strategic business units (SBUs); and the final level, SBU divisions.

t

An overriding lesson from the Chapter 10 Opening Case about Borders is that failure to properly structure an organization can contribute to poor strategic decisions and eventually bankruptcy.

t

Arnold Schwartz, CEO and founder of Schwartz Engineering, has repeatedly rebuffed efforts by other firms to draw Schwartz Engineering into strategic alliances. Schwartz Engineering has built its highly-successful business around proprietary processes invented by Mr. Schwartz in the 1980s. Mr. Schwartz is concerned that his firm will be required to share the sources of its competitive advantage with alliance partners. This is a reasonable fear.

t

As a firm grows, it typically shifts from a simple structure to a functional structure.

t

Distributed strategic networks are the organizational structure used to manage international cooperative strategies.

t

Firms implementing the multidomestic strategy often attempt to isolate themselves from global competitive forces by establishing protected market positions or by competing in industry segments that are most affected by differences among local countries.

t

For firms in a vertical complementary alliance (such as between Toyota and its suppliers), it is more difficult to identify the strategic center firm than in a horizontal complementary alliance (e.g., airline alliances).

t

High levels of formalization of rules and procedures which often emanate from the centralized staff are a characteristic of the structure used to implement the cost leadership strategy

t

In the Chapter 10 Opening Case about Borders shows that although strategy has a more important influence on structure, once a particular structure is in place, that structure influences strategy.

t

In the Chapter 11 Strategic Focus, Cisco went too far in trying to achieve cooperation among its various units resulting in managers attending several meetings and an overall slowed decision making process.

t

In the hybrid form of the combination structure, some divisions are oriented toward products while others are oriented toward market areas

t

Internal competition for corporate resources is effective for companies with an unrelated diversification strategy, but dysfunctional for companies with a related-constrained strategy.

t

Organizational controls guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference is unacceptable.

t

Organizational structures must be both stable and flexible.

t

Over time, large and complex organizations must customize their structure to fit their unique strategic needs.

t

Strategic controls are largely subjective criteria intended to verify that the firm is using appropriate strategies for the conditions in the external environment and the company's competitive advantages.

t

The Chapter 11 Strategic Focus illustrates the use of the competitive form of the multidivisional structure to implement an unrelated diversification strategy by the LG Company.

t

The centralized structure used by Borders (Chapter 11 Opening Case) did not provide information from local stores that might have been useful in changing its technology strategy more quickly than it did. This example illustrates the effect of structure on strategy.

t

The competitive form of the M-form structure is characterized by complete independence among the form's divisions. Unlike the divisions included in the cooperative structure, divisions that are part of the competitive structure do not share common strengths.

t

The cooperative form is an M-form structure in which horizontal integration is used to bring about interdivisional cooperation.

t

The divisions within each SBU are related in terms of shared products or markets, but the divisions of one SBU have little in common with the divisions of the other SBUs.

t

The integrated cost-leadership/differentiation strategy needs structural features that are partially centralized and partially decentralized, jobs that are semi-specialized, and rules and procedures that call for some formal and some informal job behavior.

t

The simple structure is used by owner-managed firms which are characterized by informal relationships, few rules, limited task specialization, and unsophisticated information systems

t

The worldwide geographic area structure differs from the worldwide product divisional structure in the level of centralization of decision-making.

t

The worldwide product divisional structure has centralized decision-making authority in the worldwide division headquarters to coordinate and integrate decisions and actions among business units.

t

There are three variations of the multidivisional structure.

t

To implement a related constrained strategy, firms should use the cooperative form of the multidivisional structure.

t

To implement a related-linked strategy, a firm usually needs an SBU structure.

t

Cooperative Form for Related Constrained Strategy

● Structural integration devices create tight links among all divisions ● Corporate office dictates centralized decision-making ● Rewards are subjective and tend to emphasize overall corporate performance in addition to divisional performance ● Culture emphasizes cooperative sharing ● Economies of scope (cost savings resulting from the sharing of competencies developed in one division with another division) are important for the related constrained strategy ● Interdivisional sharing of competencies depends on cooperation- links result from effective integration mechanisms ● Sharing of both tangible and intangible resources ● The cooperative structure uses different characteristics of structure (centralization, standardization, and formalization) as integrating mechanisms to facilitate interdivisional cooperation

TABLE 11.1

● The three major forms of the multidivisional structure should each be paired with a particular corporate-level strategy ● Differences exist in the degree of centralization, the focus of the performance evaluation, the horizontal structures (integrating mechanisms), and the incentive compensation schemes ● Cooperative structure - the most centralized and most costly structural form ● Competitive structure - the least centralized, with the lowest bureaucratic costs ● The SBU structure requires partial centralization, some of the mechanisms necessary to implement the relatedness between divisions, and the divisional incentive compensation awards allocated according to both SBUs and corporate performance

Competitive Form

●Corporate headquarters has a small staff ● Finance and auditing are the most prominent functions in the headquarters office to manage cash flow and assure the accuracy of performance data coming from divisions ● The legal affairs function is important for acquisitions/divestitures