Deck 11: Governing the Corporation Around the World

Question 1

Formal legal protection encourages founding families and their heirs to dilute their equity.

Answer 1

True

Question 2

The trend around the world is to introduce more inside directors and less outside directors.

Answer 2

False

Question 3

How directors strategically prioritize is about the same around the world.

Answer 3

False

Question 4

The Market for Private Equity involves going private by tapping into private equity.

Question 5

The thirst for global capital requires adherence to listing requirements.

Question 6

Large shareholders in emerging economies usually need to have a significantly lower percentage of shares to ensure control than in the US.

Question 7

Principal-Principal Conflicts: such conflicts are within one class of principals such as a disagreement among certain majority stockholders and other majority stockholders.

Question 8

Board interlocks refers to bonding and teamwork among the members of a board of directors.

Question 9

Inside directors are top executives of the firm.

Question 10

The relationship between shareholders and professional managers is a relationship between principals and agents.

Question 11

Overall, governance practices need to fit with the nature of the industry in which firms are competing. This cautions against prescribing universal "best" practices.

Question 12

CEO duality refers to a situation in which two people share the role of CEO.

Question 13

The Market for Corporate Control is another term for the stock market.

Question 14

Founders usually start up firms and completely own and control these enterprises.

Question 15

The rise of capitalism has not affected governance.

Question 16

FPI investors demand less protection.

Question 17

Convergence advocates argue that a "survival-of the-fittest" process will force firms globally to accept the best practices exemplified by Anglo-American practices.

Question 18

Managerial human capital refers to the skills and abilities of top managers and directors.

Question 19

Recently, stewardship theory suggests that by and large managers can be viewed as stewards of owners' interests.

Question 20

Since the 1980s, state ownership has expanded and privatization has declined.

Question 21

Diffused ownership is the opposite of concentrated ownership, and is more common in:
a. The US and UK.
b. South America.
c. Asia.
d. Africa.
e. The Pacific.

Question 22

Ownership will likely be diffused under which of the following situations?
a. A start up firm.
b. Family owned firm.
c. State ownership.
d. All of the above.
e. None of the above.

Question 23

Most large, publicly traded UK corporations are now characterized by all of the following except:
a. Diffused ownership.
b. Numerous small shareholders.
c. A separation of ownership and control.
d. Control is largely concentrated in the hands of salaried, professional managers.
e. Corporate managers who own a majority of the stock.

Question 24

Which are not among the aspects of globalization?
a. Contact with different governance norms.
b. FPI investors demand more protection.
c. The focus on governance has been replaced by a focus on shareholder value.
d. The thirst for global capital requires adherence to listing requirements.
e. The global diffusion of "best practices."

Question 25

Which of the following is true regarding CEO duality?
a. From an agency theory standpoint, if the board is to supervise agents such as the CEO, it seems imperative that the board be chaired by the same individual.
b. In US firms with CEO duality, the trend now is to appoint a lead independent director, who chairs the sessions held by outside directors that do not involve company executives.
c. A corporation led by two top leaders-a board chairman and a CEO - will at least have unity of command and experience less top-level conflict.
d. East Asia and Latin America where most firms have concentrated family ownership and control, there is less CEO duality.
e. Firms around the world are being pressured to combine the two top jobs.

Question 26

Strategists should:
a. Understand the nature of principal-agent and principal-principal conflicts to create better governance mechanisms.
b. Develop firm-specific capabilities to differentiate on governance dimensions.
c. Understand the rules, anticipate changes, and be aware of differences, especially when doing business abroad.
d. Use an understanding of corporate governance to help answer the four fundamental questions in strategy.
e. All of the above.

Question 27

Institution-based considerations in governance include all of the following except:
a. Formal institutional framework.
b. International experience of senior executives.
c. Formal legal protection and impact on founder's dilution of equity.
d. Lack of legal protection and its impact regarding large shareholders in emerging economies.
e. Impact of informal norms and values.

Question 28

Industry-Based Considerations regarding corporate governance include all of the following except:
a. Having more outside directors on the board is often regarded as having a negative impact on performance because of their lack of understanding as compared to insiders.
b. In industries characterized by rapid innovation requiring significant R&D investments such as information technology), outside directors may have a negative impact on firm performance.
c. Research finds that for firms in low-growth, stable industries, no relationship exists between inside management ownership and firm performance.
d. In relatively high-growth, turbulent industries, there is a relationship between inside management ownership and firm performance.
e. In industries experiencing great turbulence, the presence of a single leader may allow a faster and more unified response to changing events.

Question 29

Issues involved regarding how a board of directors can be established so as to be most effective include:
a. The insider/outsider mix.
b. CEO duality.
c. Board Interlocks.
d. The Role of Boards of Directors.
e. All of the above.

Question 30

In regards to family ownership, all of the following are true except:
a. Most small firms in the world are owned and controlled by families.
b. The vast majority of large corporations throughout continental Europe, Asia, Latin America, and Africa no longer feature concentrated family ownership and control.
c. Family ownership and control may provide better incentives for the firm to focus on long-run performance.
d. Such ownership may also minimize the conflict between owners and professional managers typically encountered in widely owned firms.
e. Family ownership and control may lead to the selection of less qualified managers who happen to be the sons, daughters, and relatives of owners.

Question 31

As the closing case points out, the positive side private equity firms excel in all the following ways except:
a. They always send experts to sit on the board and are hands-on in managing.
b. They use a high level of debt that imposes strong financial discipline.
c. Private equity turns managers from agents to principals with substantial equity, thus providing a powerful incentive to them.
d. They pay managers more generously, but also punish failure more heavily.
e. They reduce income inequality between financiers and the rest of us.

Question 32

Which of the following is true in regards to outside directors?
a. The trend around the world is to introduce less outside directors.
b. In the United States, less than a half century ago, most boards were made up entirely or largely of outside directors.
c. Many US firms are now favoring a board that is entirely made of people who are insiders due the need for people who can understand the increasing complexity of MNEs.
d. Japanese boards have not waited until they are in financial difficulty to bring in outside directors from banks.
e. Academic research has failed to empirically establish a link between the outsider/insider ratio and firm performance.

Question 33

As the closing case points out on the negative side, private equity firms have been accused of all of the following except:
a. Being "barbarians."
b. Being "asset strippers," and "locusts."
c. Internationally, causing shock in countries suddenly facing the full rigor of Anglo-American private equity.
d. Placing CSR ahead of all rational economic decisions.
e. None of the above.

Question 34

Which of the following is not true regarding large institutional investors?
a. They include professionally managed mutual funds and pension pools.
b. They now own over 50 percent of the stock in major corporations.
c. They are the controlling stockholders in China.
d. Their ability to dump the stock is limited because selling out depresses the share price and harms the institutions.
e. They are more likely to exercise shareholder rights than smaller investors.

Question 35

Three decades of privatization suggest all of the following except:
a. Privatization to insiders helps improve the performance of small firms.
b. In large corporations privatization to insiders, without external governance pressures, is hardly conducive for needed restructuring.
c. Outside ownership and control, preferably by blockholders, funds, foreigners, and/ or banks, are more likely to facilitate restructuring.
d. Such outside ownership and control does not happen frequently because incumbent managers do not necessarily welcome such outside "intrusion."
e. When outside investors such as institutional investors do come in, they fail to assert their power.

Question 36

Boards of directors perform all of the following except:
a. Control.
b. Service.
c. Resource acquisition functions.
d. A through C above.
e. Day to day operations.

Question 37

Agency theory assumes that managers:
a. Have a responsibility to the owners.
b. Are agents who are opportunistic and engage in self-serving activities.
c. A and B above.
d. Can be left to their own devices.
e. Are effective steward of the owners' interests.

Question 38

In regards to global convergence:
a. Advocates argue that globalization will unleash a "survival-of the-fittest" process.
b. Advocates claim firms will be forced to adopt globally the best practices.
c. Others contend that governance practices will continue to diverge throughout the world.
d. The text indicates that complete divergence in corporate governance is probably unrealistic.
e. All of the above.

Question 39

The defense of private equity includes all of the following points except:
a. While private equity results in job cuts, the same might happen if targets were acquired by public firms.
b. It would not be rational for private buyers to destroy their prize therefore they attempt to avoid doing that.
c. Their record as corporate citizens is no more barbaric than that of public firms.
d. They point to a Texas utility in which owners paid shareholders a 25% premium, gave retail customers a 10% price cut, and dropped plans to build eight dirty coal-fired power plants-hailed by environmentalists as a major victory.
e. The actions of U.S. private equity firms have enhanced the image of the U.S. and capitalism around the world.

Question 40

Which of the following make up a governance package?
a. Internal Mechanisms + External Mechanisms.
b. Carrots to motivate managers such as stock options.
c. Sticks that may result in CEO and top management team turnover.
d. The Market for Corporate Control.
e. The Market for Private Equity.

Question 41

At this present time, what do you see happening in regards to privatization of SOEs?

Question 42

You are the founder of a firm that appears to have significant long-term growth potential. Right now you and your family own 100% of the firm's shares and you are trying to figure out to keep things that way. How might you do that? Should you do that?

Question 43

Can interlocking directorates lead to unfair market advantages and investor exploitation? How?