ch 10

What is an agency relationship?

. A situation in which one party delegates decision-making responsibility to a second party for compensation

What is the main reason why bribery is a major issue for governments, especially countries with emerging economies?

. Bribery tends to limit entrepreneurial activity that could help a country's economy grow.

A company is part of a keiretsu in Japan. Its leaders are worried about the company's financial viability and ask for help from other members of the keiretsu. Why would other participants of the keiretsu feel the need to aid the failing company?

. Members of the keiretsu are seen as family, which commands attention and allegiance.

Which of the following is NOT a form of executive compensation?

. Stock performance

Why is it challenging for firms using international strategies to effectively use executive compensation as a mechanism for corporate governance?

. The diversity and complexity of compensation plans across a corporation

Jordan Brady just purchased an additional 2,000 shares of Singleton Inc., which means he now possesses about 6 percent of the firm's issued shares. This makes Jordan a(n):

. large-block shareholder.

Managerial opportunism occurs when managers:

. make decisions to satisfy their own self-interests

Greg is the CEO of a leading company in the consumer packaged goods industry. He is trying to grow his company for personal gain and wealth. However, Greg sees that his company has an opportunity to break into the chemical industry. He has decided to invest free cash flow into acquiring small chemical companies that have the potential for growth if funded properly. Shareholders are not happy because they are concerned about:

. overdiversification.

Shareholder activists are very unhappy with a certain board of directors' recent pattern of decisions. The activists believe they need to be given more decision-making capabilities, have their voices heard, and have the opportunity to nominate another board member. What should the shareholder activists propose?

A proxy vote

Which is an alternate definition for "poison pill"?

A strategy whereby a company decides to increase the number of overall shares, which will both dilute the hostile company's shares and increase the cost of the company overall, making the company less appealing to take over

What is the market for corporate control?

An external governance mechanism that is active when a firm's internal governance mechanisms fail

After a recent round of share releases, many individuals bought up shares and reduced the number of large-block shareholders. The company's managers recently had the luxury of performing without much interference or monitoring by their shareholders. The managers are now engaging in risky strategic tactics that may not be in the best interest of shareholders. What type of ownership does this company have?

Diffuse ownership

Christopher is the CEO of a firm that another company is trying to acquire. The success of Christopher's company has declined dramatically over recent years. Christopher knows that the acquisition could help save the shareholders and other stakeholders from the turmoil that would ensue if the company went bankrupt. However, this is Christopher's only line of income for his family. He decides to defend his company from being taken over to help secure his position. Which defense strategy would you recommend be implemented that would benefit all stakeholders?

Golden parachute

_____ has _____ success as a hostile takeover defense strategy and _____ effects on shareholder wealth.

Greenmail; medium; negative

Do German firms face agency problems to the same degree as U.S. firms?

No, many German firms are managed and owned by the same individual

What are the concepts that affect attitudes toward corporate governance in Japan?

Obligation, family, consensus

Which of the following statements about the German two-tiered board structure is true?

Proponents of the German structure suggest that it helps prevent corporate wrongdoing and rash decisions by "dictatorial CEOs."

Who are seen as the most significant stakeholders in the United States?

Shareholders

The Carter family has been the successful owner of a manufacturing company for more than 50 years. The company has always performed better than expected and was projected to grow for years to come. To help with this growth, the Carters decided to hire a CEO who is not from the family, the first time in its history. After the hire, the performance of the company shifted for the worse, and there is now a separation of ownership and managerial control. What is the best next step?

The Carters should appoint a family member as CEO, as research shows that family-owned firms perform better when a member of the family is the CEO.

What is the definition of ownership concentration?

The number of large-block shareholders and the total percentage of the firm's shares they own

Which of the following statements about the recent global emphasis on corporate governance is NOT true?

The recent global emphasis on corporate governance stems mainly from the need to give shareholders more power in organizations.

Melissa is the CEO of her company and has to make a business decision. She is faced with a scenario in which she can please one group of stakeholders, or all of them minimally. What is Melissa's most likely action?

To please as many stakeholders as possible, because if stakeholders are not minimally satisfied, they will give support to another company

Why are corporate governance mechanisms important to foreign investors?

To protect their investments

Kevin is on the board of directors of a local company and has become concerned with a situation that came to his attention. The board is considering electing the current CEO as chair of the board. Does Kevin have a reason for concern?

Yes, as the CEO will not be able to be forced out if his or her performance becomes unacceptable

Susan is worried that her company's poor performance is reflecting badly on her performance as CEO. She thinks she may lose her position, receive a cut to her salary, or be seen by her peers as incompetent and ineffective. What is another term for Susan's concerns?

a. Managerial employment risk

An institution that holds 15 percent of shares in a company in order to be a powerful governance mechanism is an example of a(n):

b. institutional owner.

Donna is the retired CEO of a large hospital chain. Although her former employer never did business with MediScan, a medical device manufacturing firm, she has been asked to sit on MediScan's board of directors. In this context, Donna is a(n):

outsider.

Over the past three years, Simcom's board of directors has become increasingly concerned about the top-level managers' reliance on external acquisitions, as opposed to internal product innovations. They are discussing the possibility of replacing the CEO. Their decision to exercise corporate governance is primarily motivated by concerns over

strategic direction.

What are the benefits of having strong corporate governance?

t encourages top-level managers to be strategically competitive.

Corporate governance is:

the set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations