Question 1

What are the characteristics of short-term objectives? Provide examples of practical applications of these characteristics by organizations.

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Question 2

Why is it important to have a balance among the three behavioral controls (culture,rewards,and boundaries)? Is there a danger associated with emphasizing one behavioral approach more than another?

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Question 3

All of the following are types of information that a firm is required to disclose except _____________.

Accepted Answer

All public corporations are required to disclose a substantial amount of financial information by bodies such as the Securities and Exchange Commission. These include quarterly and annual filings of financial performance, stock trading by insiders, and details of executive compensation packages.

Question 4

What are the three key means to align the interests of owners (shareholders)and managers in a corporation?

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Question 5

What is meant by the term market for corporate control? How does the market for corporate control act as an external control mechanism?

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Question 6

In principal-principal conflicts (conflicts between controlling shareholders and minority shareholders),the ownership (of equity)is _____________.

Accepted Answer

The ownership pattern typical of principal-principal conflicts is concentrated; often greater than 50 percent of equity is controlled by controlling shareholders.

Question 7

Discuss the benefits and risks of using reward and incentive systems as a means of strategic control.

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Question 8

What are the four characteristics of effective contemporary control systems? Give examples of how firms apply these practices.

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Question 9

Expropriation of minority shareholders means that minority shareholders _____________.

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Expropriation of minority shareholders is defined as activities that enrich the controlling shareholders at the expense of minority shareholders.

Question 10

In emerging economies and continental Europe,firms often can be characterized by all of the following except _____________.

Accepted Answer

In emerging economies and continental Europe there is often concentrated ownership, along with extensive family ownership and control, business group structures, and weak legal protection for minority shareholders.

Question 11

Conditions that must be met for principal-principal (PP)conflicts to occur include all of the following except _____________.

Accepted Answer

In general, three conditions must be met for PP conflicts to occur: a dominant owner or group of owners who have distinct interests from minority shareholders; motivation for the controlling shareholders to exercise their dominant positions to their advantage; and few formal (such as legislation or regulatory bodies) or informal constraints to discourage controlling shareholders from exploiting their advantageous positions.

Question 12

Identify at least three external control mechanisms.Discuss the role played by each of these.

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Question 13

What are the advantages and disadvantages associated with using contemporary approaches to strategic control?

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Question 14

What is meant by principal-principal (PP)conflict? What are the implications for sound corporate governance?

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Question 15

The failure of many auditing firms to raise red flags about accounting irregularities in companies such as Enron and WorldCom is generally attributed to all of the following factors except _____________.

Accepted Answer

The failure of auditing leading to the bankruptcy of Enron and WorldCom likely had several causes. First, auditors are appointed by the firm being audited. The desire to continue that business relationship sometimes makes them overlook financial irregularities. Second, most auditing firms also do lucrative consulting work with the firms that they audit. Understandably, some of them tend not to ask too many difficult questions, because they fear jeopardizing the consulting business.

Question 16

What are the advantages and disadvantages associated with using traditional approaches to strategic control?

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Question 17

Is CEO duality good or bad? Summarize the two schools of thought that represent alternate positions on this issue.

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Question 18

What value do effective strategic control systems provide to the implementation of strategy?

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Question 19

It is generally argued that the takeover constraint deters management from _____________.

Accepted Answer

The risk of being acquired by a hostile raider is often referred to as the takeover constraint. The takeover constraint deters management from engaging in opportunistic behavior.

Question 20

The reasons analyst recommendations are often more optimistic than warranted by an objective analysis of the facts include all of the following except that _____________.

Accepted Answer

Analyst recommendations are often more optimistic than warranted by facts. Many analysts failed to grasp the gravity of the problems surrounding Lehman Brothers and Countrywide until the very end. Most analysts work for firms that have investment banking relationships with the companies they follow. Otherwise competent analysts may be pressured to overlook negative information or tone down their criticism.

Quiz 9: Strategic Control and Corporategovernance