MGNT 428 Chapter 12

The mechanism used to guide a company toward meeting its strategic goals within the bounds of the law is known as ______.

corporate governance

Which of the following statements are correct regarding the interests of principals and agents?

Agents may be more interested in personal goals, such as maximizing their compensation or gaining power. Principals want to maximize shareholder returns.

Which of the following is a major drawback of public stock companies, according to Michael Porter and others?

They prioritize financial performance over all else.

In team-based environments, the principal may have difficulty determining individual contributions by members. This can create a situation in which an opportunistic employee does little work but takes credit. This is known as ______.

adverse selection

The shared value creation framework is a tool intended to help businesses ______.

benefit all stakeholders, not just shareholders

Narrowly defining public stock companies in terms of financial performance can lead to ______.

black swan events

One of the key characteristics of a leveraged buyout (LBO) is that it _______.

changes the ownership structure of a company from public to private

Corporate governance is a system of ______.

checks and balances

High-profile accounting scandals and the global financial crisis are examples of ______.

companies that did not adhere to business ethics

Which of the following is an example of an application of agency theory?

employment contracts

Social consequences of business activities, including pollution, energy loss, and dangerous accidents, are known as ______.

externalities

What do stakeholders want above all else?

fair treatment

Incentives that are too high-powered, such as an outsized bonus, may cause individuals to ______.

focus too much attention on the incentive and not enough on strategic activities

Under agency theory, a manager should seek to align ______ between principals and agents to minimize opportunism.

incentives

In regard to the public stock company, limited liability means that ______.

investors are not responsible for any debts incurred by the company and are only at risk of losing the invested capital

A fiduciary responsibility is a(n) ______.

legal duty to act in another party's interests

A public stock company is considered by law to be an entity with legal rights and obligations. This is known as ______.

legal personality

The main goal of a poison pill is to ______.

minimize the threat of a hostile takeover

Employees who work in organizations that emphasize ethical behavior are ______.

more likely to act ethically

According to agency theory, which of the following managerial functions can be used to avoid adverse selection and moral hazard?

organization control

The primary difference between outside and inside members of the board of directors is that ______.

outside directors are not employees of the firms, whereas inside directors are

Corporate governance addresses the ______ problem, which underscores the risk of delegating responsibility and control to individuals who may not have the firm's best interests in mind.

principal-agent

A board of directors is elected to represent the interests of ______.

shareholders

The shared value creation framework encourages managers to focus on which of the following needs?

social and economic

The right to buy a company's stock at a predetermined price sometime in the future is known as a(n) ______.

stock option

An executive can legally earn a significant profit from stock options if ______.

the firm performs well and the actual price per share exceeds the negotiated strike price

True or false: The shared value creation framework aims to reconcile the concept of gaining and sustaining a competitive advantage with corporate social responsibility.

true

In ______, a single investor or group of investors buys, with the help of borrowed money, the outstanding shares of a publicly traded company and assumes control of it.

a leveraged buyout

Pavel works for a successful pharmaceutical company. Despite several years of unprecedented growth, the company wants to boost profits even more. It has taken steps to drastically raise the prices of its most widely distributed medications, which are difficult to imitate. Research into employee ethical decision-making capacity indicates that Pavel will ______.

act in a manner that reflects his company's organizational culture

The hiring of a job seeker who claims to have extensive computer programming experience when his knowledge of the subject is minimal would be an example of ______.

adverse selection

The idea that a corporation is simply a collection of legal contracts is known as ______.

agency theory

The idea of corporate social responsibility (CSR) suggests that a firm's obligations should ______.

exceed the traditional imperative to increase profits

Optics Incorporated, a publicly traded eyewear business, places profits ahead of all other performance metrics. This practice ______.

fails to take into account the idea of corporate social responsibility conforms to the traditional notion of shareholder capitalism

Which of the following are critical aspects of maintaining good relationships between a firm and its stakeholders?

fairness and transparency

The interests of inside directors on the board of directors typically align with those of ______.

senior management

Private start-up companies valued at over $1 billion, such as some of those in the tech sector, are called ______.

unicorn