MGT Random MC (Ch 12)
John Hammergren, the CEO of McKesson, received an annual compensation of $50 million. The compensation was closely tied to the performance of McKesson's stock, which appreciated considerably during his tenure. This situation best exemplifies A. the strong relationship between executive compensation and company performance. B. the public's perception of a company's stock value based on executive compensation figures. C. the avoidance of control mechanisms to guide performance. D. the inversely proportional relationship between CEO compensation and the pay of the average employee.
A
Why does Michael Porter recommend expanding the customer base of an organization in terms of the shared value creation framework? A. Doing so could yield significant business opportunities that could improve the standard of living of the poor. B. Doing so is the best way to ensure that shareholders have the most legitimate claim on profits made by the organization. C. Doing so could be the only way to meet stockholder expectations in a highly competitive market. D. Doing so will help to prevent the inclusion of more nontraditional partners into internal firm value chains.
A
How did Uber conflict with Carnegie Mellon University's National Robotics Engineering Center (NREC)? A. Uber promised a large donation to NREC but then reneged on the offer when NREC would not provide Uber with researchers. B. Uber poached entire NREC research teams with signing bonuses, twice the salaries, and stock options, thereby threatening the future of NREC. C. Uber allegedly stole ideas from the NREC research team and then claimed that these ideas were generated by their own researchers. D. Uber bribed NREC officials to give permission for building an extension to the NREC facility that focuses solely on Uber research.
B
Leila is a graduate student pursuing a course in business. Presented with the case of Uber's unethical behavior, Leila wonders if Uber's board of directors should ask the CEO of Uber, Travis Kalanick, to step down. Having a strong belief in Michael Porter's idea of value creation, Leila is most likely to conclude that A. Uber's board of directors should not ask Kalanick to step down because doing so would cause a profit dip that would affect its shareholders. B. Uber's board of directors should ask Kalanick to step down because it has a greater obligation toward society. C. Uber's board of directors should not ask Kalanick to step down because he was responsible for an almost 90 percent appreciation of the company's stock. D. Uber's board of directors should ask Kalanick to step down because agents, unlike principals, are disposable.
B
Which of the following is an implication for the strategist in the context of corporate governance and a company's success? A. Very few and specific corporate-governance mechanisms can be effective in addressing the principal-agent problem. B. Effective corporate governance and solid business ethics are critical to gaining and sustaining competitive advantage. C. Leading by ethical example often has a less strong effect on employee behavior than words. D. A firm that restricts its responsiveness to stockholders (and no other stakeholders) and keeps them committed to its vision will be successful.
B
Which of the following is the source of the principal-agent problem in publicly traded companies? A. the law of legal personality B. the separation of ownership and control C. limited liability for investors D. transferability of investor ownership
B
Which of the following statements is true of shareholders in a public stock company? A. They directly supervise and coordinate the manufacture of products and delivery of services. B. They are granted a charter of incorporation by the state and legally own company stock. C. They are the centerpiece of corporate governance. D. They are appointed by a board of directors to oversee the company's management.
B
_____ is illustrated by a situation in which the principal cannot determine the value created by individual members of a team. A. Moral hazard B. Adverse selection C. Information asymmetry D. Shareholder capitalism
B
GE's board has only one inside director, Jeffrey Immelt, GE's CEO, who also acts as chairman of the board. This is known as duality. Which of the following statements represents the best argument for this duality in GE? A. The CEO is likely to be more responsible because he is setting his own performance targets. B. The CEO might be able to influence the board through setting the meeting agendas. C. The CEO possesses invaluable inside information that can help chair the board effectively. D. The CEO will suggest board appointees who are friendly toward him or her.
C
Jamiro Inc. is a public stock company. Which of the following statements about the company best illustrates the fact that its investors have limited liability? A. Employees of Jamiro are legally permitted to invest their capital in the company's stock. B. Employees of Jamiro are also the owners of the company. C. Shareholders of Jamiro are responsible to the company only for the capital they have invested. D. Shareholders of Jamiro are not permitted to trade their company stock at the New York Stock Exchange (NYSE).
C
Which of the following best explains why a board of directors may grant stock options as part of a compensation package? A. to reduce the transferability of stocks between stockholders B. to bring about a separation of CEO/chair duality C. to align incentives between shareholders and management D. to change the liability of shareholders from limited to unlimited
C
Which of the following is not true of corporate governance in public stock companies? A. Corporate governance seeks to benefit multiple stakeholders, not just shareholders. B. Corporate governance provides rules for making decisions on corporate affairs. C. Corporate governance attempts to address the principal-agent problem. D. Corporate governance seeks to create a separation between ownership and control
D
Which of the following statements best supports the view that GE's ecomagination strategy is in line with the shared value creation framework? A. The ecomagination strategy is the brainchild of the founder of the company. B. The ecomagination strategy helps GE spend more on research and development than other similar companies. C. The ecomagination strategy generated $3 billion in revenues for GE during 2012. D. The ecomagination strategy allows GE to produce "green" products while increasing revenue and competitive advantage.
D
What was Goldman Sachs' rebuttal to SEC's claim that it defrauded investors? A. It is up to the clients to assess the risks involved in any investments. B. Fabrice Tourre was responsible for putting the deal together, and it was the lapse of an individual, not the entire firm. C. John Paulson did not reveal his intentions behind creating Abacus. D. Goldman Sachs' itself lost $100 million in the deal.
A
Which of the following best defines duality in a board of directors? A. A person holds both the role of CEO and chairperson of the board. B. A person holds both the role of inside director and outside director of the board. C. A person holds both the role of director and shareholder of the company. D. A person holds the role of CEO on the boards of two companies.
A
Which of the following real-world scenarios best exemplifies information asymmetry in a public stock company? A. Based on a tip-off by a Goldman Sachs employee, the Galleon Group was able to sell its holdings in Goldman Sachs' stocks prior to the announcement. B. GE knew that it could create a profitable venture out of producing green products, so it rolled out the ecomagination strategy. C. Mark Hurd, CEO of HP, was unaware of the sexual harassment allegations, and the board's demand for him to resign caught him by surprise. D. Goldman Sachs was party to the Abacus deal despite knowing its shortcomings.
A
According to Michael Porter, which of the following is a problem with many publicly traded companies? A. Shareholders of publicly traded companies do not have a legitimate claim on profits. B. Many publicly traded companies have defined value creation too narrowly in terms of financial performance. C. There is no transferability of stock ownership in publicly traded companies. D. The legal owners of publicly traded companies also make management decisions for the company.
B
If the board of directors at GE decides to pursue a stakeholder strategy, should they change the ecomagination strategy? A. Yes, they should change the strategy because it provides benefits to the society. B. No, they should not change the strategy because the strategy already helps them save costs while generating huge revenues. C. No, they should not change the strategy because the change would necessitate making tough ethical decisions. D. Yes, they should change the strategy because creating value for society is against the principles of stakeholder strategy.
B
One of the ways to foster ethical behavior in employees is to A. avoid codifying organizational culture. B. create a control system that encourages desired values. C. view clients as counter parties to transactions. D. align the vision statement of the organization with its informal culture.
B
What does "limited liability for investors" imply in a public stock company? A. Shareholders are liable for their invested capital and personal wealth and not for any other investments made. B. Shareholders who provide the risk capital are liable only to the capital specifically invested. C. Shareholders are liable for all the decisions made by the board of directors of the company. D. Shareholders have financial but not legal responsibilities toward the public stock company.
B
What is the result of managers' pursuit of strategies that define value creation too narrowly in public stock companies? A. It gives the managers greater control of the performance of the organization in the long term. B. It reduces the trust of shareholders in the organization as a vehicle for value creation. C. It helps companies increase firm profits by creating shared value. D. It enables companies to create social value by addressing society's needs but prevents them from creating economic value for shareholders.
B
Fakhir is a board member at Garfield Motors Inc. He is also a senior executive of the firm. The board is chaired by Ernest Jones, the CEO of Blixt Electronics. According to this scenario, Fakhir A. cannot serve on the board of any other organization. B. is more likely than Ernest to take care of stockholder interests. C. is an inside director of Garfield Motors. D. can use information from board meetings to trade stocks of Garfield Motors.
C
Kaito is the CEO of Henson and Fukui Consulting Inc. Kaito's efforts to persuade the board of directors to pursue a new business strategy fail. He borrows money from different sources and purchases all the outstanding shares of Henson and Fukui Consulting. What does this scenario best exemplify? A. buyback B. merger C. leveraged buyout D. initial public offering
C
Which of the following best supports the fact that Goldman Sachs was unethical in the Abacus deal? A. It was given a "triple A" rating for Abacus. B. It made no effort to ascertain the stability of the real estate market. C. It knew that Paulson & Co. had bundled high-risk mortgages into the collateralized debt obligation. D. It lost $100 million in the Abacus fiasco.
C
Which of the following could most likely have prevented the accounting scandals of the early 2000s and the global financial crisis? A. adopting a narrow shareholder perspective B. separating economic interests and social needs C. practicing effective corporate governance D. adopting the principles of shareholder capitalism
C
Which of the following facts proves that GE's board is fairly diverse compared to other Fortune 500 companies? A. GE's board is composed of 94 percent outside directors, compared to less than 70 percent for the others. B. GE's board is chaired by its CEO while other companies have outside directors. C. GE's board is composed of 28 percent women, compared to less than 16 percent for the others. D. GE's board has five committees, each with its own chair, compared with less than three for the others.
C
Which of the following is an important external corporate-governance mechanism? A. shareholder capitalism B. board of directors C. market for corporate control D. executive compensation
C
Which of the following proves that GE's board of directors is significantly independent? A. Twenty-six percent of the board members at GE are female. B. The CEO of GE is also the chairman of the board. C. Sixteen of the 17 board directors are from outside the organization. D. GE's board has five committees, each with its own chair.
C
Which of the following statements best supports the separation of ownership and control in publicly traded companies? A. Shareholders are liable only for the capital they invest and not for their personal wealth. B. Shareholders can freely trade the company stocks. C. Shareholders own stocks but do not run the company. D. Managers control the company but may also have stock ownership.
C
De Bruyne Inc., a publicly traded company, has ten members on its board. Of the ten members, six members are employees of the company and includes 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 De Bruyne's board to achieve board independence? A. 1 B. 3 C. 5 D. 7
D
Hoptin Inc. is a public stock company. Which of the following best exemplifies the legal personality of the company? A. Rosa can legally sell shares of Hoptin in the stock market. B. John is a shareholder of Hoptin but does not have any managerial duties. C. Kevin, an employee at Hoptin, is not responsible for any losses that Hoptin incurs. D. Jessi Hoptin, the company's founder, died a few years ago, yet the company is doing well.
D
In late 2014, Uber senior executive Emil Michael was heard to say that Uber should spend a million dollars to hire private investigators to dig up dirt on journalists who wrote damaging pieces on Uber. When the remarks became public, he apologized. How did Uber's CEO deal with Michael? A. Uber's CEO demoted Michael. B. Uber's CEO fired Michael. C. Uber's CEO promoted Michael. D. Uber's CEO refused to discipline Michael.
D
Outside directors are more likely to watch out for the interests of shareholders of their firm because A. they are more likely to benefit from using inside information to trade stocks. B. they do not have the safety of serving on the boards of other firms. C. they are part-time employees of the firm. D. they have more independence than inside directors.
D
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 A. shareholder capitalism. B. adverse selection. C. shared value creation. D. moral hazard.
D
Which of the following accurately describes GE's ecomagination initiative? A. Ecomagination decreases the perceived value it creates for its customers while raising costs to produce and deliver "green" products and services. B. Ecomagination decreases the perceived value it creates for its customers while lowering costs to produce and deliver "green" products and services. C. Ecomagination increases the perceived value it creates for its customers while raising costs to produce and deliver "green" products and services. D. Ecomagination increases the perceived value it creates for its customers while lowering costs to produce and deliver "green" products and services.
D
Which of the following acts in the Goldman Sachs-Galleon Group insider trading scandal is an egregious exploitation of information asymmetry? A. Galleon Group's decision to trust Rajat Gupta's information as accurate B. Rajaratnam receiving information regarding Warren Buffet's impending multibillion-dollar injection into Goldman Sachs C. Warren Buffet's decision to inject a huge amount of money into Goldman Sachs based on its financial reports D. Rajat Gupta providing information regarding Warren Buffet's impending multibillion-dollar injection into Goldman Sachs
D
