Exam 3 460 WVU
Sorenson LLC, a publicly traded company, has ten members on its board. Of the ten members, six members are employees of the companyâ including the CEO, who also chairs the board. The board has been failing in its responsibilities toward the shareholders, who now want a new board. Assuming that the total number of board members remains constant, how many outside directors should the shareholders appoint to Sorenson's board to achieve board independence?
7
Which of the following descriptions best exemplifies adverse selection?
A manager cannot ascertain the contributions of individual team members in team production
Avalanche operates as a strategic business unit (SBU) under Snowfall Inc., a home-furnishings manufacturer. From this information, it may be reasonable to infer that
Avalanche is led by its own CEO (or equivalent general manager).
Which of the following real-world scenarios best exemplifies information asymmetry in a public stock company?
Based on a tip-off by a Goldman Sachs employee, the Galleon Group sold its holdings in Goldman Sachs' stocks prior to the announcement of missed earnings estimates.
Eyenima Inc. is a public stock company. Which of the following best exemplifies the legal personality of the company?
Bjorn Eyenima, the company's founder, died a few years ago, yet the company is doing well.
Two leading home appliance companies, Redwood Inc. and Boxer Technologies, are in competition for market share. In their quest for exciting new products, Redwood employs an open innovation model, while Boxer pursues a closed innovation model. Which of the following statements is most likely true?
Boxer will protect its intellectual property with patents and trade secrets.
Arnold is a firm believer in Milton Friedman's view of a firm's social obligations. With which of the following statements is Arnold most likely to agree?
Businesses can use their resources to create profit as long as they do so within the rules of the game.
Stella accepts a job as vice president for human resources at a technology startup. She discovers that the startup believes that teamwork is so important that it plans to award all raises and bonuses by splitting them equally within a team rather than presenting them to individual employees. What action should Stella take regarding this plan?
Cancel the plan because under it, opportunistic employees will do little or no work.
______ refers to the degree to which decision making is concentrated at the top of the organization.
Centralization
Why does Michael Porter recommend expanding the customer base of an organization in terms of the shared value creation framework? Selected Answer:
Doing so could yield significant business opportunities that could improve the standard of living of the poor.
Which of the following is an implication for the strategist in the context of corporate governance and a company's success?
Effective corporate governance and solid business ethics are critical to gaining and sustaining competitive advantage.
Burnley and Co., a graphic design firm, has offices in New York, Texas, California, New Mexico, and New Jersey. Each of these offices is headed by a president who reports directly to Emma Burnley, the CEO. The heads of the centralized HR, Finance, and Marketing teams report to Emma Burnley as well. Managers in the various offices also report to the CEO directly. Based on this information, which of the following statements is most likely to be true?
Emma Burnley has a wide span of control.
Which of the following perspectives best supports the shared value creation framework?
Externalities such as pollution, wasted energy, and costly accidents actually create internal costs.
Which of the following organizational structures matches best with an international strategy?
Functional
Galaxy Toys Inc., a toy manufacturing company, encourages its employees to enjoy their work by taking on additional responsibilities or switching jobs with each other. It allows its employees immense flexibility in charting their own career path within the organization. Chris has worked at Galaxy Toys for eight years, but has never had a boss or supervised an employee. Which of the following is most likely true in this scenario?
Galaxy Toys Inc. has a flat organizational structure.
Gino is the CEO of a financial services firm. What action should Gino take to be sure the firm avoids moral hazards?
Gino should define undue risk-taking, institute strict auditing of loans, and make it clear that the company will fire employees who lend recklessly.
Andrew is the president of a technology firm that has recently gone public. What action, if any, should Andrew take to build the confidence of his new shareholders?
He should find out whether the majority of his shareholders want long-term steady growth or short-term spikes in the stock price.
Elvira is the CEO of a firm. She has an opportunity to increase the competitive advantage of her company but is not sure if accepting the opportunity is ethical. Which of the following questions would help her decide if accepting the opportunity is ethical?
How would the media report her decision to accept the opportunity if it were to become public?
Spiderweb Inc. is an apparel manufacturer. The management at Spiderweb prefers moderate control over the operations of the different departments such as R&D, design, marketing, and sales. It allocates a budget to each function at the beginning of each quarter. This is an example of implementing control through
Input Controls
Which of the following is an advantage of using a functional structure when pursuing a cost-leadership strategy?
It allows a cost-leader to upgrade core competencies in manufacturing and logistics.
Why should managers using the M-form organizational structure to support a related-diversification strategy ideally concentrate decision making at the top of the organization?
It allows a high level of integration.
Which of the following is an advantage offered by a functional structure?
It allows for a higher degree of specialization and deeper domain expertise.
Why does a functional structure rely on a flat organizational structure?
It allows for efficient bottom-up and top-down communication.
Which of the following is a disadvantage of a functional strategy?
It cannot effectively address a higher level of diversification.
One of Waterfall Apparel's core values is to provide unbeatable customer service, a commitment introduced to the company by its founder more than 10 years ago. This value is expressed in the company's "True to You" campaign, which promises a no-questions-asked returns policy and an offer to stitch the customer's initials onto any item for free using a patented sewing technique, two features that are not offered by any of Waterfall's competitors. Although the campaign has resulted in a 10 percent decline in profits, Waterfall has decided to continue to pursue its founder's vision to reward customers and maintain employees' sense of purpose. Why does Waterfall's culture, exemplified by the "True to You" campaign, fail to support a competitive advantage?
It does not increase economic value creation for the firm.
Which of the following statements best describes groupthink?
It is a situation in which opinions coalesce around a leader without individuals critically challenging and evaluating that leader's opinions and assumptions.
Which of the following statements is true of organizational culture?
It is better for founder CEOs to create a relevant culture, structure, and strategy in the early stages.
Which of the following best supports the fact that Goldman Sachs was unethical in the Abacus deal?
It knew that Paulson & Co. had bundled high-risk mortgages into the collateralized debt obligation.
What most likely happens when a firm optimizes its organizational structure to its current situation?
It plants the seed of subsequent failure: the tightly coupled system can break apart when internal or external pressures occur.
Why is the optimal organizational structure a multidivisional structure?
Its focus is on driving down costs
Island Home Goods pursues a related diversification strategy, deriving less than 70 percent of revenues from its original business unit, Island Furniture, and maintaining several related units including Island Lighting and Island Hardware. Which of the following structures is most likely to support this strategy?
M-Form with centralized decision-making power (cooperative multidivisional)
An organization that is organized according to strategic business units (SBUs) and also along organizational structures is most likely using a ________ structure.
Matrix
Which of the following best exemplifies the use of input controls?
McDonald's use of standard operating procedures
Which of the following real-world scenarios best exemplifies formalization?
McDonald's use of standard operating procedures across the world
Rajat Gupta's role in providing inside information to Galleon Group for the benefit of Galleon Group's stockholders and himself is an example of
Moral Hazard
Sanjaya was recently hired at an up-and-coming firm that has a history of ethics violations. Which action is best for him to take if he wants to determine whether the firm is now acting ethically?
Observe executives at the company, and see whether they model ethical behavior and demand it of others.
Ruby, a recent fashion design school graduate, has received praise for her clothing designs from her peers and friends on social networking sites; this has inspired her to set up a store where she can design and sell apparel. After experiencing some success with sales, she recruits two employees to handle customers at the store. However, she handles other day-to-day affairs herself, while continuing to design clothes. Which of the following is likely to be a pitfall of this organizational structure established by Ruby?
Once the firm starts growing and attracting more customers she is likely to feel overloaded.
________ describes the collectively shared values and norms of an organization's members.
Organizational culture
________ refers to a firm's resistance to change the status quo that can set the stage for the firm's subsequent failure.
Organizational inertia
Which of the following statements is true of strategy in an organization?
Organizational structure must follow strategy in order for firms to achieve superior performance
Barrett is the ethics officer at Exton Corp., a publicly traded company. She wants to make sure that on-the-job consumption at Exton stays within legal and ethical bounds. Which action should she and the Exton board of directors take?
Set strict limits on what executives can spend on office redecoration or work-related celebrations.
Ignacio Inc. is a public stock company. Which of the following statements about the company best illustrates the fact that its investors have limited liability?
Shareholders of Ignacio are responsible to the company only to the capital they have invested.
Angie owns and runs Archana, a private start-up company with a current value of $1.3 billion. Archana is interested in going public to fund future growth. Which action should Angie take before Archana's initial public offering?
She should investigate Archana's existing or potential problems with ethics or the law, if such problems exist.
Which of the following real-world scenarios best exemplifies the use of organizational culture to build competitive advantage?
Southwest Airlines pilots sometimes help load baggage, which results in quick turnaround time.
Jen works as a front-line employee for a nationwide retail store. She reports to a floor manager, who reports to a departmental manager, who reports to a regional supervisor, who reports to a vice president, who reports to the CEO. Which of the following best describes this retail store?
Tall structure
Which of the following statements best supports the view that GE's Ecomagination strategy is in line with the shared value creation framework?
The Ecomagination strategy allows GE to produce "green" products while increasing revenue and competitive advantage
A bank, CQC, offers a customer a personal loan. In which of the following circumstances will this decision most likely be considered unethical?
The bank knows that the customer will be unable to pay the loan if the interest rate rises.
What is most likely to happen if a firm relies too long on a competency without honing, refining, and upgrading as the firm and the environment change?
The firm's culture can turn from a core competency into a core rigidity.
Uptown Office Systems recently underwent a reorganization. Based on customer feedback, the company eliminated many of its middle management positions and implemented a flatter structure. Which of the following is a possible drawback of this decision?
The increased span of control for remaining managers may lead to higher levels of stress and possible burnout.
Which of the following is a common result of a hostile takeover of a company?
The new owner sells the company in pieces.
What helps notions such as fairness, honesty, and reciprocity to be codified into law?
The notions are universal norms.
Why is it difficult to imitate the organizational culture of firms like Southwest Airlines and Zappos?
Their culture reflects complex relationships with their employees, customers, and suppliers.
Why are controls like budgets and operating procedures that McDonald's implements known as input controls?
They are considered before employees make any decisions
What are poison pills?
They are defensive provisions that kick in should a buyer reach a certain level of share ownership.
Which of the following statements is true of shareholders in a public stock company?
They are granted a charter of incorporation by the state and legally own company stock.
According to Michael Porter, which of the following is a problem with many publicly traded companies?
They have defined value creation too narrowly in terms of financial performance.
Three months ago, Darren became a board member at Runswell, a publicly traded company. Two weeks ago, the board members discovered that Runswell's CEO is facing a lawsuit from a family member who accuses the CEO of theft. Based on what you have read, to what ethical standard should Darren and the other board members hold the CEO?
They must hold her to the highest ethical standards because the leaders of publicly traded companies must withstand intense public scrutiny.
Which of the following is true of the process of organizing for competitive advantage?
To maintain competitive advantage, companies need to restructure as they grow and the competitive environment changes.
Tony's Tacos is a nationwide fast-food chain. Decision power resides at the top of the organization. Each job is documented in minute detail. The firm has many levels of supervision, including vice presidents and regional managers. Tony's headquarters provides detailed instructions to each of its franchisees so that they provide comparable quality and service across the board. Based on this scenario, which of the following is an accurate statement about Tony's?
Tony's has a high degree of specialization, formalization, and centralization and relies on a tall hierarchy.
How did Uber conflict with Carnegie Mellon University's National Robotics Engineering Center (NREC)?
Uber poached entire NREC research teams with signing bonuses, twice the salaries, and stock options, thereby threatening the future of NREC
Which of the following is true of the board of directors in a public stock company?
Votes at shareholder meetings determine whose representatives are appointed to the board of directors.
Ben is a manager at Unique Accessories Inc. and is friends with the company's CEO. This privilege gives Ben the information that Unique Accessories is in the midst of talks to take over a leading rival. Ben buys stocks of Unique Accessories with the expectation that its stocks will appreciate. But the deal falls through, and the stocks of Unique Accessories depreciate in the following months. Are Ben's actions unethical? Why or why not?
Yes. It is unethical to trade stocks based on insider information, irrespective of the final outcome.
Which of the following types of groups is most susceptible to groupthink?
a cohesive group
W. L. Gore & Associates is organized in such a way that it has no formal job titles, job descriptions, or chains of command. This implies that it has
a decentralized structure.
Mona sets up a business consulting firm in which the employees are motivated because they find their work interesting and creative. She carefully hires workers who fit well with their assigned tasks. Also, she clearly defines the results expected of each worker, but allows the workers to determine the means to these results. Which of the following best describes Mona's business?
a firm that relies on high output controls to tap into intrinsic motivation
Which of the following accurately describes an organic organization?
a flexible organization that fosters fast decision making and high employee motivation
At Agile Ltd., a cross-functional team is formed to work on a project for a new client. The team consists of Charles and four other members. At most of the team's presentations to senior management, Charles takes the lead and discusses project specifics with the management, while others chip in with additional information. At the completion of the project, Charles is recommended for promotion, while the other team members receive little recognition for their hard work. The reality is that Charles did very little actual work but spent some time compiling the project report based on different documents submitted by the others. This scenario at Agile Ltd. is a typical consequence of
adverse selection.
Nate is a recent graduate who states that he has interned at a major accounting firm so that his value as a candidate for employment increases. A start-up recruits Nate based on his stated credentials without verifying them. Two days into the job, Nate's team lead realizes that Nate does not know much of what he claimed to know during the interview. This scenario best exemplifies
adverse selection.
Keyhole Corporation is the parent company of Inspire.com and Roker Inc. To cut costs, Keyhole integrated InSpire.com's and Roker Inc.'s management functions with Keyhole's management, while keeping other functions such as product development independent. Keystone has encourage the senior teams at both Inspire and Roker to exploit the success of their existing products while exploring new products for the future. This scenario best exemplifies a(n)
ambidextrous organization.
ValueHealth is a successful drug manufacturer. Because the pharmaceutical industry features a high rate of change and the threat of disruption is high, ValueHealth should
be prepared to restructure as the landscape changes.
The name for an agreed-upon code of conduct in business, based on societal norms, is
business ethics.
Sunset Foods relies on a highly centralized functional structure to ensure consistency in the quality and taste of its products and to drive down costs via process innovations. However, as a consequence of its highly compartmentalized structure, the firm has found it difficult to transfer information and ideas from one department to the next. With the launch of its new line of breakfast foods coming up, how can Sunset improve its ability to collaborate without sacrificing the benefits of its current structure?
by establishing cross-functional teams
David and Fred are customer care employees at JPN Care. In between calls, David and Fred spend time on Facebook and YouTube. The relaxed guidelines at JPN allow them to do that. However, sometimes, they knowingly avoid answering calls or keep customers on hold, while they check their social networking accounts. Such behavior
can be stopped by implementing performance incentives and strict control mechanisms.
ABX Inc. is an electronic appliances manufacturer that has many strategic business units (SBUs), among which, television and computers share a close relationship. These SBUs have to fight each other for R&D funding because there is a combined amount set aside for these two units. However, they share technological findings with each other and work together to ensure that their combined output is better that of the other SBUs. Such a relationship between SBUs in a business is referred to as
co-opetition
According to the agency theory,
conflicts that arise in corporations should be addressed in the legal realm.
GM's insistence on sticking to a bureaucratic culture combined with its M-form structure and its subsequent failure to adapt to changing customer preferences for more fuel-efficient cars, produce higher quality, and create innovative designs best exemplifies
core rigidity.
Because of poor management, the stock price of Orange Dolphin Inc. falls and many investors sell their shares. Soon Orange Dolphin becomes the target of a hostile takeover, during which Hans buys enough shares to exert control over the firm. In this scenario, Hans performs the role of a(n)
corporate raider.
One way to foster ethical behavior in employees is to
create a control system that encourages desired values
Cheetah, a web development firm, wants to implement an organic structure to foster innovation and attract the most talented creative minds. Which of the following features will make it difficult to do so?
dedication to a cost-leadership business strategy
Which of the following features helps match a cost-leadership strategy to a functional structure?
focus on economies of scale
A firm that uses a structure that is organized along different business functions such as HR, R&D, Sales, and Marketing and also along different geographical areas such as different countries of the world is most likely using a ________ structure.
global matrix
A functional structure is recommended when a firm
has a low level of diversification.
According to the perspective of shareholder capitalism, shareholders in public stock companies
have the most legitimate claim on profits
Which of the following scenarios best exemplifies a leveraged buyout of a microchip manufacturer, Rigoletto Inc.?
he owner of another company buys all the outstanding shares of Rigoletto in order to take it private.
The board of directors of a public stock company consists of
individuals who formally represent the firm's shareholders and oversee the work of executives.
Marika received a tip from a close friend who is an executive manager of a publicly traded company called MicroGreen Inc. The manager received some inside information about how to trade MicroGreen stock to get a huge profit. He shared this information with Marika. This scenario is an example of
information asymmetry
Adverse selection in a public stock company occurs when
information asymmetry increases the likelihood of selecting inferior alternatives.
The root cause of the principal-agent problem between senior executives and lower-level employees can be explained by the
informational advantage of the lower-level employees.
Landon is a senior manager for the firm Anderssen Inc. Because of his experience, he has been appointed to the board of EEC Inc., even though he doesn't work for this firm. He also serves on the boards of several other companies. Landon is a(n) ________ for Anderssen and a(n) ________ for EEC.
inside director; outside director
What do we call the board members who are part of a company's senior management team appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance?
inside directors
The informational advantage that agents possess over principals is often based on the fact that
insiders are the first to learn about important developments before the information is released to the public.
Output controls can sometimes discourage collaboration among different strategic business units. However, more and more work requires creativity and innovation, especially in highly-developed economies. One way firms are grappling with this issue is by
introducing results-only-work-environments to tap intrinsic motivations.
Bernard is a board member at Lopez Electronics Inc. He is also a senior executive of the firm. The board is chaired by Ernest Jones, the CEO of Stanley Motors. According to this scenario, Bernard
is an inside director of Lopez Electronics.
McDonald's operates Hamburger University that trains students to ensure consistent food quality across its outlets throughout the world. This indicates that McDonalds's
is mechanistic in nature.
A mortgage-loan officer persuades unsuspecting consumers to sign up for exotic mortgages, such as "option ARMs." These mortgages offer borrowers the choice to pay less than the required interest, which is then added to the principal while the interest rate can adjust upward. Because of this setup, many borrowers are unable to repay the mortgage once the interest rates go up. Which of the following phrases best describes this scenario?
legal but not ethical
Jaronda founded Diamond Communications Inc. in 1993. Ten years later, the company went public. Despite Jaronda's death in 2005, the company reported a 75 percent increase in revenue in 2006. Which of the following characteristics of a publicly traded company does this scenario best exemplify?
legal personality
Angelica is the CEO of Sandhaven Ltd., a publicly traded company. The shareholders want Angelica on the board of directors despite her recent appointment as the CEO. This decision of the shareholders is most likely because Angelica is
likely to provide the board with valuable inside information.
Fine Lines Inc. is a notebook manufacturing company based in Ohio. Fine Lines' main market is Ohio. It aims at providing its products at better prices than its competitors. Which of the following structures is Fine Lines Inc. likely to use if it has functional setup?
mechanistic
Harvey's, a large and successful retail chain on the West Coast, decides to expand its operations across the U.S. Which of the following organizational structures should Harvey's use?
multidivisional
Which of the following global strategies best matches with a multidivisional structure?
multidomestic
ethics is
not synonymous with law.
Shareholders of public companies need to appoint a board of directors to represent their interests because
of the separation of ownership and control.
Butterfly Technologies produces touch-enabled wearable devices. Its research and development team recently became aware of a new, open-source technology produced by a firm overseas that would improve the processing speed and battery life of all Butterfly devices. In this scenario, Butterfly would be best served to embrace
open innovation.
To effectively implement a differentiation strategy, managers rely on a functional structure that resembles an organization that is highly
organic
Which of the following could most likely have prevented the accounting scandals of the early 2000s and the global financial crisis?
practicing effective corporate governance
Yelena, the CEO of Andron Inc., reports to the board of directors appointed by the shareholders of Andron. Based on shareholder suggestions, the board ties Yelena's compensation to the performance of Andron. Due to this pressure, Yelena begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation. The reasons why the board ties Yelena's compensation to firm performance is to overcome
principal-agent problem
CPA Inc. is a publicly traded company. The stockholders of this company delegate the authority to make decisions for the company to a CEO named Joaquin. The stockholders expect Joaquin to make decisions that will benefit the company. However, Joaquin begins to find ways to maximize his total compensation, which hinders CPA's performance. This scenario reflects
principal-agent problems.
Which of the following is an unintended side effect of a high degree of specialization in an organization?
reduced employee satisfaction due to repetition of tasks
Megan is a graduate student pursuing a course in business. Presented with the case of a company's unethical behavior, Megan wonders if the company's board of directors should ask the CEO to step down. Having a strong belief in Michael Porter's idea of value creation, Megan is most likely to conclude that company's board of directors
should ask the CEO to step down because it has a greater obligation toward society.
A high degree of formalization in an organization is most likely to
slow down decision making.
Employees learn about an organization's culture through the process of
socialization
Successful ________ requires managers to design and shape structure, culture, and control mechanisms.
strategy implementation
A firm's ________ determines how the work efforts of individuals and teams are orchestrated and how resources are distributed.
structure
The MBA oath first developed at Harvard Business School and now signed by students at over 300 business schools is modeled after
the Hippocratic oath in medicine.
Which of the following is a major issue at the forefront of CEO compensation in recent years?
the absolute size of the CEO pay package compared with the pay of the average employee
In public stock companies, which of the following expectations of principals is most likely to lead to principal-agent problems?
the expectation that the agent will act in the principal's best interest
Which of the following could be used as an example of why a stakeholder strategy approach to business has shortcomings?
the nonsustainable debt levels incurred by sovereign governments to fund social programs
Organizational design is
the process of creating, implementing, and modifying the structure of an organization.
Which of the following is the source of the principal-agent problem in publicly traded companies?
the separation of ownership and control
In a public stock company, senior executives, such as the CEO, face agency problems when
they delegate authority of strategic business units to general managers.
A company that is using extrinsic motivation as an output control mechanism will most likely
threaten to lay off employees if they do not achieve targets.
Gary owns shares in a company called Archibald Industries Inc. The company's financial performance has been declining over the past few months, and the value of its stock has been decreasing. Gary wants to proactively cut his losses and therefore sells his shares. Anneke, a trading enthusiast, buys shares in Archibald Industries because she believes that the share prices cannot go anywhere but up. Which of the following characteristics of a public stock company does this scenario best exemplify?
transferability of investor ownership
The most important yet least visible element of organizational culture is
values.