Strategic Management Chapter 12
A fiduciary responsibility is a) a legal duty to act in another party's interests. b) a set of incentives designed to improve employee performance. c) a mandate to act in one's own self interest. d) an at-will employment contract
a) a legal duty to act in another party's interests.
Financial statements by public companies must (may choose multiple) divulge insider information. be audited by certified public accountants. adhere to GAAP meet shareholder expectations
be audited by certified public accountants. adhere to GAAP
The interests of inside directors typically align with those of senior management low-level employees society as a whole shareholders
senior management
Corporate governance is a system of legal and ethical issues. inputs and outputs. checks and balances. related and unrelated diversification.
Checks and balances
If a company is poorly managed, its stock price may fall low enough for the firm to become a target for a ________ takeover.
hostile
Which of the following have been found to be ethical norms in business? (may choose multiple) Self Interest Reciprocity Honesty Fairness Deception
Reciprocity, Honesty, Fairness
The shared value creation framework is a tool intended to help businesses secure capital investments. benefit all stakeholders, not just shareholders. identify probable opportunities. increase shareholder profits.
benefit all stakeholders, not just shareholders.
Narrowly defining public stock companies in terms of financial performance can lead to more accurate accounting. black swan events. more efficient production. improved public relations.
black swan events
The code of professional conduct based on societal norms and expectations is known as societal reconciliation corporate social responsibility stakeholder impact analysis business ethics
business ethics
The mechanism used to guide a company toward meeting its strategic goals within the bounds of the law is known as stakeholder impact analysis corporate governance corporate social responsibility strategic intent
corporate governance
Following the rise of institutional investors, the use of poison pills to avoid hostile takeover has grown steadily. become rare. become mandatory. been eliminated entirely.
become rare.
Additional functions of a board of directors beyond general strategic oversight include conducting background checks on all potential employees. ensuring that the firm's accounting practices and reports are accurate. day-to-day operational management. selecting, evaluating, and compensating the CEO. assessing and mitigating risk.
ensuring that the firm's accounting practices and reports are accurate. selecting, evaluating, and compensating the CEO. assessing and mitigating risk.
The relationship between CEO pay and job performance has been shown to be very strong moderare somewhat strong weak
weak
When facing an ethical dilemma, a manager can a) determine whether he or she could comfortably defend the action to the public. b) keep his or her actions hidden under the cover of inside information. c) consult local laws and municipal codes. d) consider whether the action in question conforms to the firm's code of conduct and industry practices.
a) determine whether he or she could comfortably defend the action to the public. d) consider whether the action in question conforms to the firm's code of conduct and industry practices.
In order to reconcile economic and social needs, managers should focus on a) making products affordable for the poorest socioeconomic groups in order to improve standards of living b) creating new regional clusters and business centers. c) re-establishing the firm as a non-profit with a focus on social equity. d) expanding value chains to include NGOs and other organizations committed to social goals. e) understanding the supplier-buyer relationship
a) making products affordable for the poorest socioeconomic groups in order to improve standards of living b) creating new regional clusters and business centers. d) expanding value chains to include NGOs and other organizations committed to social goals.
Which of the following statements is correct in regarding the interests of principals and agents? (may choose multiple) a) Principals want to maximize corporate social responsibility initiates. b) Principals want to maximize agents' total compensation including benefits, status, and power. c) Agents want to maximize oversight in federal regulations. d) Agents may be more interested in personal goals, such as maximizing their compensation or gaining power. e) Principals want to maximize shareholder returns.
d) Agents may be more interested in personal goals, such as maximizing their compensation or gaining power. e) Principals want to maximize shareholder returns.
In general, women and minorities a) hold many top level management positions in Fortune 500 companies. b) make up about 45% of directors on corporate boards. c) are forbidden from serving on corporate boards in the United States. d) are underrepresented on corporate boards.
d) are underrepresented on corporate boards.
A job seeker claiming to have extensive computer programming experience when their knowledge of the subject is minimal would be an example of intuitive recruitment moral hazard native digitalization adverse selection
adverse selection
The idea that a corporation is simply a collection of legal contracts is known as the principal-agent problem. agency theory. information asymmetry. the matrix principal.
agency theory.
The idea of corporate social responsibility (CSR) suggest that a firm's obligations should always be focused on increasing the price of the firm's shares by selling higher volume. exceed the traditional imperative to increase profits. never include any other performance indicator other than increasing profits. not to extend ethical and philanthropic expectations.
exceed the traditional imperative to increase profits.
Social consequences of business activities, including pollution, energy loss, and dangerous accidents, are known as internal costs. externalities. output incidences. overruns.
externalities
In 2014, 25% of GE's Board were women. Compared to other Fortune 500 companies, the Board of Directors at GE is ____________ in gender. very small. fairly diverse. boring. too homogeneous.
fairly diverse
Economist Michael Porter and many others argue that the value of public stock companies is too narrowly defined in terms of _________, leading to scandals and economic crises. environmental protection social initiatives sales volume financial performance
financial performance
The primary purpose of the board of directors is to ensure that individual work tasks are completed time. managerial diversification to offset information asymmetry general strategic oversight and guidance
general strategic oversight and guidance
Under agency theory, a manager should seek to align ________ between principals and agents to minimize opportunism. disciplinary actions work schedules incentives decision-making power
incentives
According to agency theory, which of the following managerial functions can be used to avoid adverse selection and moral hazard? (can choose multiple) organization control leadership discipline
organization , control
Corporate governance addresses the __________ problem, which underscores the risk of delegating responsibility and control to individuals who may not have the firm's best interest in mind. SEC financial corporate social responsibility related diversification principal-agent
principal-agent
The right to buy a company's stock at a predetermined price sometime in the future is know as a(n) stock option lateral compensation outside stock opportunity executive negotiated price
stock option
An executive can legally earn a significant profit from stock options if he or she commits to purchasing the maximum amount of shares allowed he or she engages in insider trading the firm falls victim to a hostile takeover the firm performs well and the actual price per share exceeds the negotiated strike price
the firm performs well and the actual price per share exceeds the negotiated strike price
Adverse selection is particularly a problem in privately-owned businesses. situations where one employee is responsible for an entire project. independent contracting roles team-based environments
team-based environments
The ideas of corporate social responsibility and stakeholder strategy are particularly prevalent in Europe. South America. Asia. Africa.
Europe.
Which of the following are examples of moral hazard (select 3)? a) A company dumping pollution into a local lake that must be cleaned using taxpayer money. b) A processed food manufacturer distributing frozen vegetables tainted with E Coli. c) Banks making very risky loans with knowledge that the government will bail them out if necessary. d) A copywriter secretly working on her novel at work.
a) A company dumping pollution into a local lake that must be cleaned using taxpayer money. c) Banks making very risky loans with knowledge that the government will bail them out if necessary. d) A copywriter secretly working on her novel at work.
Optics Incorporated, a publicly-traded eyewear business, places profits ahead of all other performance metrics. This practice (may choose multiple) a) fails to take into account the idea of corporate social responsibility. b) is a good example of corporate social responsibility. c) benefits all of society, not just shareholders. d) conforms to the traditional notion of shareholder capitalism
a) fails to take into account the idea of corporate social responsibility. d) conforms to the traditional notion of shareholder capitalism
What are the four characteristics of a public stock company that make it an attractive corporate form? a) limited liability for investors b) definition of corporate governance processes c) funded mostly by friends, family, and fools d) transferability of investor interests e) private ownership f) legal personality g) separation of ownership and control
a) limited liability for investors d) transferability of investor interests f) legal personality g) separation of ownership and control
What are the two significant issues regarding the CEO pay debate? a) the relationship between firm performance and CEO pay b) The legal and political ramifications of CEO pay c) The history of CEO pay in the manufacturing industry d) the size of the CEO compensation in relation to average employee pay
a) the relationship between firm performance and CEO pay d) the size of the CEO compensation in relation to average employee pay
In line with stakeholder theory, which of the following strategic actions would NOT, according to Michael Porter, connect economic and societal needs? Offer financial support to local politicians. Focus on creating regional clusters. Include non-traditional partners into the value chain such as NGOs Expand the customer base to bring in non-customers such as those at the bottom of the pyramid
Offer financial support to local politicians.
Employees that work in organizations that emphasize ethical behavior are more likely to engage in moral hazard are less likely to act ethically are no more or less likely to act ethically are more likely to act ethically
are more likely to act ethically
In regard to the public stock company, limited liability means that a) the company does not have any responsibility to earn a profit on invested capital. b) employees are free to pursue any initiative that interests them. c) investors are not responsible for any debts incurred by the company, and are only at risk of losing the invested capital. d) the business cannot be held legally responsible for any damage or injury caused to customers, the environment, or society at large.
c) investors are not responsible for any debts incurred by the company, and are only at risk of losing the invested capital.
The primary difference between outside and inside members of the board of directors is a) outside directors manage employees outside of the US, whereas inside directors handle US-based operations only. b) outside directors are management employees specialized in more than one industry. c) outside directors are not employees of the firms, whereas inside directors are. d) inside directors have a fiduciary duty to act in the interest of shareholders, whereas outside directors are not
c) outside directors are not employees of the firms, whereas inside directors are.
Incentives that are too high-powered, such as an outsized bonus may cause ___________ individuals to use information symmetries to their own benefit. individuals to have lower job stress and higher job performance. individuals to get distracted from strategic activities which may negatively impact job performance. individuals to recognize that law and ethics are not synonymous.
individuals to get distracted from strategic activities which may negatively impact job performance.
When agents are better informed that principals, a phenomenon known as ____________, the principal-agent problem may be exacerbated. unbalanced knowledge the seesaw effect information overload information asymmetry
information asymmetry
According to agency theory, conflict such as the principal-agent problem are considered __________ issues. moral social legal ethical
legal
To achieve board independence, experts in corporate governance recommend that _________ more than 1 third of the board is female. 40% of the board members should be citizens of other countries. members do not talk to each other. less than one third of the board is made up of insiders.
less than one third of the board is made up of insiders.
In a ________________ , a single investor or group of investors buys, with the help of borrowed money, the outstanding shares of a publicly traded company in order to take it private.
leveraged buyout
A situation in which one party has an incentive to shirk their responsibility because the costs will fall to the other party is known as moral hazard. unbalanced burden a debt pendulum adverse selection
moral hazard
In comparison to other countries, the United States ranks _______ in terms of its acceptance of shareholder capitalism. toward the top near the middle toward the bottom dead last
near the middle
The ________ and __________ commission is a federal regulatory agency whose task it is to oversee stock trading and enforce federal securities laws.
securities , exchange
A board of directors is elected to represent the interests of society as a whole company founders low-level employees shareholders
shareholders
By taking a __________ position in Abacus, Mr. Paulson made more than $1 Billion in profits while his clients suffered huge losses. left short right long
short
The shared value creation framework encourages managers to focus on both ___________ and __________ needs. (choose multiple) social spiritual economic emotional
social , economic