Question 1

Which of the following best explains why a board of directors may grant stock options as part of a compensation package?

Accepted Answer

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 
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

Question 2

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?

Accepted Answer

A)  What are the chances that her decision to accept the opportunity will be made public? 
B)  How much profit would be made if she decided to accept the opportunity? 
C)  How would the media report her decision to accept the opportunity if it were to become public? 
D)  How long lasting would the competitive advantage be if she decided to accept the opportunity? 
A)  What are the chances that her decision to accept the opportunity will be made public? 
B)  How much profit would be made if she decided to accept the opportunity? 
C)  How would the media report her decision to accept the opportunity if it were to become public? 
D)  How long lasting would the competitive advantage be if she decided to accept the opportunity?

Question 3

How do principal-agent problems cascade down the hierarchy in an organization? Describe an example of principal-agent problems. The example can be from your reading in this class, your reading outside of class, or your own experience.

Accepted Answer

Student examples will vary. A sample ans

Question 4

According to the perspective of shareholder capitalism, shareholders in public stock companies

Accepted Answer

A)  are restricted from buying shares of two competing companies. 
B)  have the most legitimate claim on profits. 
C)  have significant decision-making power. 
D)  have unlimited financial liability. 
A)  are restricted from buying shares of two competing companies. 
B)  have the most legitimate claim on profits. 
C)  have significant decision-making power. 
D)  have unlimited financial liability.

Question 5

Which of the following statements best supports the view that GE's Ecomagination strategy is in line with the shared value creation framework?

Accepted Answer

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. 
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.

Question 6

In public stock companies, which of the following expectations of principals is most likely to lead to principal-agent problems?

Accepted Answer

A)  the expectation that the agent will follow the country's laws and regulations 
B)  the expectation that the agent will go above and beyond the call of duty 
C)  the expectation that the agent will reconnect economic and social needs 
D)  the expectation that the agent will act in the principal's best interest 
A)  the expectation that the agent will follow the country's laws and regulations 
B)  the expectation that the agent will go above and beyond the call of duty 
C)  the expectation that the agent will reconnect economic and social needs 
D)  the expectation that the agent will act in the principal's best interest

Question 7

Corporate codes of conduct go beyond what the law requires, imposing higher standards of honesty and fairness.

Accepted Answer

A) True 
 B)False

Question 8

Delores recently became a board member of a firm that has a history of reckless actions by senior employees. Which task would be appropriate for Delores to undertake to help safeguard the company's financial health?

Accepted Answer

A)  Request and review a copy of the firm's risk assessment plan, if such a plan exists. 
B)  Take part in the annual reviews of employees in the financial department. 
C)  Draft and circulate a statement that the firm's board members serve at the pleasure of the CEO. 
D)  Determine how to postpone or evade the firm's compliance with local, regional, and national regulations. 
A)  Request and review a copy of the firm's risk assessment plan, if such a plan exists. 
B)  Take part in the annual reviews of employees in the financial department. 
C)  Draft and circulate a statement that the firm's board members serve at the pleasure of the CEO. 
D)  Determine how to postpone or evade the firm's compliance with local, regional, and national regulations.

Question 9

Discuss the agency problem of adverse selection.

Accepted Answer

Adverse selection occurs when informatio

Question 10

Which of the following is an implication for the strategist in the context of corporate governance and a company's success?

Accepted Answer

A)  Very few 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 lesser effect on employee behavior than words do. 
D)  A firm that restricts its responsiveness to stockholders (and no other stakeholders) and keeps them committed to its vision will be successful. 
A)  Very few 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 lesser effect on employee behavior than words do. 
D)  A firm that restricts its responsiveness to stockholders (and no other stakeholders) and keeps them committed to its vision will be successful.

Question 11

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)

Accepted Answer

A)  inside director. 
B)  outside director. 
C)  corporate raider. 
D)  corporate consultant. 
A)  inside director. 
B)  outside director. 
C)  corporate raider. 
D)  corporate consultant.

Question 12

Describe moral hazard with an example.

Accepted Answer

Student examples will vary. A sample ans

Question 13

A company scientist at a biotechnology company decides to work on his own research project, hoping to eventually start his own firm, rather than on the project he was assigned. However, the company's stockholders are unaware of this situation. This is an example of a(n) ________ in the context of a principal-agent problem.

Accepted Answer

A)  adverse selection 
B)  stakeholder strategy 
C)  moral hazard 
D)  shared value creation 
A)  adverse selection 
B)  stakeholder strategy 
C)  moral hazard 
D)  shared value creation

Question 14

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

Accepted Answer

A)  should not ask the CEO to step down because doing so would cause a profit dip that would affect its shareholders. 
B)  should ask the CEO to step down because it has a greater obligation toward society. 
C)  should not ask the CEO to step down because he was responsible for an almost 90 percent appreciation of the company's stock. 
D)  should ask the CEO to step down because agents, unlike principals, are disposable. 
A)  should not ask the CEO to step down because doing so would cause a profit dip that would affect its shareholders. 
B)  should ask the CEO to step down because it has a greater obligation toward society. 
C)  should not ask the CEO to step down because he was responsible for an almost 90 percent appreciation of the company's stock. 
D)  should ask the CEO to step down because agents, unlike principals, are disposable.

Question 15

Shareholders of public companies need to appoint a board of directors to represent their interests because

Accepted Answer

A)  of the separation of ownership and control. 
B)  employees of a company cannot be shareholders. 
C)  the board of directors itself is made up of shareholders. 
D)  the shareholders want tighter control over day-to-day operations of a company. 
A)  of the separation of ownership and control. 
B)  employees of a company cannot be shareholders. 
C)  the board of directors itself is made up of shareholders. 
D)  the shareholders want tighter control over day-to-day operations of a company.

Question 16

What is the connection between Rajat Gupta and insider trading?

Accepted Answer

Rajat Gupta, a former McKinsey chief exe

Question 17

Discuss the implications for the strategist in the context of corporate governance and sustained competitive advantage.

Accepted Answer

An important implication for the strateg

Question 18

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.

Accepted Answer

A)  CEO; COO 
B)  COO; CEO 
C)  outside director; inside director 
D)  inside director; outside director 
A)  CEO; COO 
B)  COO; CEO 
C)  outside director; inside director 
D)  inside director; outside director

Question 19

Linda owns and runs her own firm. She also serves on the boards of several companies. Although she does not work for these companies, she attends board meetings, analyzes information, and tries to act in the best interests of their shareholders. Linda is an example of an outside director.

Accepted Answer

A) True 
 B)False

Question 20

The board of directors of a public stock company consists of

Accepted Answer

A)  managers appointed by the owners of a company to run its day-to-day operations. 
B)  individuals who formally represent the firm's shareholders and oversee the work of executives. 
C)  the legal owners of a publicly traded company that was purchased in a leveraged buyout. 
D)  employees of a company who belong to the senior management and directly report to the CEO of the firm. 
A)  managers appointed by the owners of a company to run its day-to-day operations. 
B)  individuals who formally represent the firm's shareholders and oversee the work of executives. 
C)  the legal owners of a publicly traded company that was purchased in a leveraged buyout. 
D)  employees of a company who belong to the senior management and directly report to the CEO of the firm.

Which of the following best explains why a board of directors may grant stock options as part of a compensation package?

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 do principal-agent problems cascade down the hierarchy in an organization? Describe an example of principal-agent problems. The example can be from your reading in this class, your reading outside of class, or your own experience.

According to the perspective of shareholder capitalism, shareholders in public stock companies

Which of the following statements best supports the view that GE's Ecomagination strategy is in line with the shared value creation framework?

In public stock companies, which of the following expectations of principals is most likely to lead to principal-agent problems?

Corporate codes of conduct go beyond what the law requires, imposing higher standards of honesty and fairness.

Delores recently became a board member of a firm that has a history of reckless actions by senior employees. Which task would be appropriate for Delores to undertake to help safeguard the company's financial health?

Discuss the agency problem of adverse selection.

Which of the following is an implication for the strategist in the context of corporate governance and a company's success?

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)

Describe moral hazard with an example.

Shareholders of public companies need to appoint a board of directors to represent their interests because

What is the connection between Rajat Gupta and insider trading?

Discuss the implications for the strategist in the context of corporate governance and sustained competitive advantage.

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.

Linda owns and runs her own firm. She also serves on the boards of several companies. Although she does not work for these companies, she attends board meetings, analyzes information, and tries to act in the best interests of their shareholders. Linda is an example of an outside director.

The board of directors of a public stock company consists of

What Is Strategy

Strategic Leadership: Managing the Strategy Process

External Analysis: Industry Structure, Competitive Forces, and Strategic Groups

Internal Analysis: Resources, Capabilities, and Core Competencies

Competitive Advantage, Firm Performance, and Business Models

Business Strategy: Differentiation, Cost Leadership, and Blue Oceans

Business Strategy: Innovation, Entrepreneurship, and Platforms

Corporate Strategy: Vertical Integration and Diversification

Corporate Strategy: Strategic Alliances, Mergers, and Acquisitions

Global Strategy: Competing Around the World

Organizational Design: Structure, Culture, and Control

Filters

Exam 12: Corporate Governance and Business Ethics

Which of the following best explains why a board of directors may grant stock options as part of a compensation package?

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 do principal-agent problems cascade down the hierarchy in an organization? Describe an example of principal-agent problems. The example can be from your reading in this class, your reading outside of class, or your own experience.

According to the perspective of shareholder capitalism, shareholders in public stock companies

Which of the following statements best supports the view that GE's Ecomagination strategy is in line with the shared value creation framework?

In public stock companies, which of the following expectations of principals is most likely to lead to principal-agent problems?

Corporate codes of conduct go beyond what the law requires, imposing higher standards of honesty and fairness.

Delores recently became a board member of a firm that has a history of reckless actions by senior employees. Which task would be appropriate for Delores to undertake to help safeguard the company's financial health?

Discuss the agency problem of adverse selection.

Which of the following is an implication for the strategist in the context of corporate governance and a company's success?

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)

Describe moral hazard with an example.

Shareholders of public companies need to appoint a board of directors to represent their interests because

What is the connection between Rajat Gupta and insider trading?

Discuss the implications for the strategist in the context of corporate governance and sustained competitive advantage.

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.

Linda owns and runs her own firm. She also serves on the boards of several companies. Although she does not work for these companies, she attends board meetings, analyzes information, and tries to act in the best interests of their shareholders. Linda is an example of an outside director.

The board of directors of a public stock company consists of

What Is Strategy

Strategic Leadership: Managing the Strategy Process

External Analysis: Industry Structure, Competitive Forces, and Strategic Groups

Internal Analysis: Resources, Capabilities, and Core Competencies

Competitive Advantage, Firm Performance, and Business Models

Business Strategy: Differentiation, Cost Leadership, and Blue Oceans

Business Strategy: Innovation, Entrepreneurship, and Platforms

Corporate Strategy: Vertical Integration and Diversification

Corporate Strategy: Strategic Alliances, Mergers, and Acquisitions

Global Strategy: Competing Around the World

Organizational Design: Structure, Culture, and Control

Filters

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.