Chapter 12 Business Policy Final
Terms in this set (90)
Which of the following occurrences was NOT an event that facilitated HP's sordid "soap opera"?
A. Patricia Dunn, then chairman of the board, launched a covert investigation where she conducted surveillance on HP's board members, selected employees, and some journalists.
B. Mark Hurd, newly appointed CEO, oversaw large-scale layoffs and a pay cut for all remaining employees as he reorganized the company.
C. Jodie Fisher, an independent contractor, worked as a hostess at HP-sponsored events and personally ensured that Mr. Hurd spent time with the most important clients.
D. Leo Apotheker, who came to HP after being let go from SAP, proposed a new corporate strategy for HP.
Mark Hurd, newly appointed CEO, oversaw large-scale layoffs and a pay cut for all remaining employees as he reorganized the company.
What was Leo Apotheker's role in the downfall of HP's market value?
Mr. Apotheker was instrumental in acquiring the overvalued British software company Autonomy
Which of the following statements is true of shareholders in a public stock company?
Shareholders who provide the risk capital are liable only to the capital specifically invested
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?
Shareholders of Jamiro are responsible to the company only for the capital they have invested.
Which of the following is a characteristic of a public stock company?
Legal personality allows a firm's continuation beyond the founder of the founder's family
Roman owns shares in a company called Copnay Telecom Inc. The company's financial performance has been declining over the past few months, and the value of its stock has been decreasing. Roman wants to proactively cut his losses and therefore sells his shares. Jeremy, a trading enthusiast, buys shares in Copnay Telecom because he 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
Hoptin Inc. is a public stock company. Which of the following best exemplifies the legal personality of the company?
Jessi Hoptin, the company's founder, died a few years ago, yet the company is doing well.
What best describes transferabilitiy of investor ownership in a public stock company?
investors are allowed to trade shares of stock
Mario founded Tapoz Communications Inc. in 1993. Ten years later, the company went public. Despite Mario'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?
Which of the following statements best supports the seperation of ownership and control in publicly traded companies?
Shareholders own stocks but do not run the company
According to Michael Porter, which of the following is a problem with many publicly traded companies?
Many publicly traded companies have defined value creation too narrowly in terms of financial performance
What is the result of managers' pursuit of strategies that define value creation too narrowly in public stock companies
It reduces the trust of shareholders in the organization as a vehicle for value creation.
Rehman is a firm believer in Milton Friedman's view of a firm's social obligations. With which of the following statements is Rehman most likely to agree?
Businesses can use their resources to create profit as long as they do so within the rules of the game
According to the perspective of shareholder capitalism, _____
Shareholders in public stock companies have the most legitimate claim on profits
Leila is a graduate student pursuing a course in international business. Presented with the case of HP's "soap opera," Leila wonders whether it was the right decision to ask the CEO of HP, Mark Hurd, to step down after he was accused of sexual harassment. Having a strong inclination toward Michael Porter's idea of value creation, Leila is most likely to conclude that:
HP was right in asking Mark to step down because it has a greater obligation toward society.
HP was right in asking Mark to step down because it has a greater obligation toward society.
Which of the following real-world events would act as the most likely deterrent against adopting a purely stakeholder strategy approach to business?
The nonsustainable debt levels incurred by sovereign governments to fund social programs
Creating economic value for shareholders while also creating social value is known as creating _____.
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 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
If the board of directors at GE decides to pursue a stakeholder strategy, should they change the ecomagination strategy?
No, they should not change the strategy because the strategy already helps them save costs while generating huge revenues.
Why does Michael Porter recommend expanding the customer base of an organization in terms of the Shared Value creation framework?
Doing so could yield significant business opportunities that could improve the standard of living of the poor.
Grameen Bank in Bangladesh was founded to provide microcredit to impoverished farmers who wanted to start their own entrepreneurial ventures that would help themselves climb out of poverty. This best exemplifies Michael Porter's suggestion that:
The largest but poorest socioeconomic group can yield significant business opportunities
_____ is a mechanism to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally.
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
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 is the source of the principal-agent problem in publicly traded companies?
The separation of ownership and control
Clare, the CEO of Femica Inc., reports to the board of directors appointed by the shareholders of Femica. Based on shareholder suggestions, the board ties Clare's compensation to the performance of Femica. Due to this pressure, Clare begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation. This conflict between Clare's interests and the board's interests best illustrates a(n) _____.
The conflict in a principal-agent relationship arises when:
The goals of the principals and agents are not aligned with each other
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
Saul is a manager at Holden Apparels Inc. and is friends with the company's CEO. This privilege gives Saul the information that Holden Apparels is in the midst of talks to take over a leading rival. Saul buys stocks of Holden with the expectation that its stocks will appreciate. But the deal falls through and the stocks of Holden depreciate in the following months. Are Saul's actions unethical? Why?
Yes, because it is unethical to trade stocks based on insider information irrespective of the final outcome.
the risk of employee opprtunism on behalf of agents in a public stock company is exacerbated by ________
In publicly-traded companies, individuals who are delegated to perform duties on behalf of company owners are known as _____
An individual who is part owner of a company and hires another individual to act on his or her behalf is referred to as a(n) ______
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.
Corporate governance seeks to create a separation between ownership and control.
Which of the following real-world scenarios best exemplifies information asymmetry in a public stock company?
Based on a tipoff by a Goldman Sachs employee, the Galleon Group was able to sell its holdings in Goldman Sachs' stocks prior to the announcement.
Which of the following acts in the Goldman Sachs-Galleon Group insider trading scandal is an egregious exploitation of information asymmetry?
Rajat Gupta providing information regarding Warren Buffet's impending multibillion-dollar injection into Goldman Sachs
Travis, the CEO of Riplon Corp., used company funds to buy a car worth $1 million and a house for $6 million in Santa Fe. This is an example of _____.
According to the agency theory, _____
conflicts that arise in corporations should be addressed in the legal realm
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
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.
Neville and Andre are customer care employees at JPN Care. In between calls, Neville and Andre 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.
Johan 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 startup recruits Johan based on his stated credentials without verifying them. Two days into the job, Johan's team lead realizes that Johan does not know much of what he claimed to know during the interview. This scenario best exemplifies _____.
At Opnic Corp., a cross-functional team is formed to work on a project for a new client. The team consists of Darius and four other members. At most of the team's presentations to senior management, Darius takes the lead and discusses project specifics with the management, while others chip in with additional information. At the completion of the project, Darius is recommended for promotion, while the other team members receive little recognition for their hard work. The reality is that Darius did very little actual work but spent some time compiling the project report based on different documents submitted by the others. This scenario at Opnic Corp. is a typical consequence of _____.
Adverse selection in a public stock company occurs when:
information asymmetry increases the likelihood of selecting inferior alternatives
_____ is illustrated by a situation in which the principal cannot determine the value created by individual members of a team.
In principal-agent relationships, _____ describes the difficulty of principals to ascertain whether agents have really put forth their best efforts.
Rajat Gupta's role in providing inside information to Galleon Group for the benefit of Galleon Group's stockholders and Rajat Gupta himself is an example of _____.
Who appoints the board of directors in a public stock company?
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.
Why do shareholders of public companies need to appoint a board of directors to represent their interests?
Because of the separation of ownership and control
The day-to-day operations of a publicly traded company are conducted by:
its managers and lower-level employees
the _____ is the centerpiece of corporate governance and is composed of inside and outside members.
board of directors
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
Which of the following is NOT true about the members of the board of directors in a public stock company?
They are not responsible to shareholders.
_____ are 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.
_____ are board members who are not employees of the firm but frequently are senior executives from other firms or full-time professionals.
Hashim is a board member at Kluster Motors Inc. He is also a senior executive of the firm. On the other hand, the board is chaired by Compton Smith, the CEO of Jensen Electronics. According to this scenario, Hashim _____.
is an inside director of Kluster Motors
Serena is the CEO of Pedalo Inc., a publicly traded company. The shareholders want Serena on the board of directors despite her recent appointment as the CEO. This decision of the shareholders is most likely because Serena:
is likely to provide the board with valuable inside information.
Frank is a board member at Lofloy Greens Inc., a publicly traded company. In addition to his duties on the board, Frank is also a full-time employee as a senior manager at Spinson Locomotives Inc. Which of the following is most likely to be true of Frank?
Frank is an outside director on Lofloy's board of directors.
Outside directors are more likely to watch out for the interests of shareholders of their firm because
they have more independence than inside directors.
Which of the following functions did HP's board of directors fail at following the unexpected departure of Mark Hurd?
Overseeing the company's CEO succession plan
Postrupe 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 Postrupe's board to achieve board independence?
which of the following proves that GE's board of directors in significantly independent?
16 of the 17 board directors are from outside the organization
Which of the following best defines duality in a board of directors?
A person holds both the role of CEO and chairperson of the board
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?
The CEO possesses invaluable inside information that can help chair the board effectively.
Which of the following facts proves that GE's board is fairly diverse compared to other Fortune 500 companies?
GE's board is composed of 28 percent women, compared to less than 16 percent for the others.
Which of the following best explains why a board of directors may grant stock options as part of a compensation package?
To align incentives between shareholders and management
A compensatory governance mechanism that allows executives to buy a company's stock at a predetermined price sometime in the future is called a(n) _____.
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
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 _____.
the strong relationship between executive compensation and company performance
Which of the following is an important external corporate-governance mechanism?
Market for corporate control
Which of the following is an important internal corporate-governance mechanism?
board of directors
Which of the following scenarios best exemplifies a leveraged buyout of a telecommunications firm, Telbok inc,
The owner of another company buys all of the outstanding shars of Telbok
Ramadin is the CEO of Brownback Consulting Inc. Ramadin'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 Brownback Consulting. What does this scenario best exemplify?
What are poison pills?
They are defensive provisions that kick in should a buyer reach a certain level of share ownership.
Poison pills have become rare because
they retard an effective function of equity markets.
Which of the following do NOT serve as additional external-governance mechanisms?
B. Government regulators
C. Board of directors
D. Industry analysts
Board of directors
All public companies listed on the U.S. stock exchanges must file a number of financial statements with the _____.
Securities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) makes all financial reports filed by public companies available electronically via the _____ database.
Which of the following is regarded as the most internal of control mechanisms?
Which of the following is true of business ethics?
Certain notions such as fairness, honesty, and reciprocity are universal norms.
What helps notions such as fairness, honesty, and reciprocity to be codified into law?
The notions are universal norms.
Not synonymous with law
A bank, YPC, 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
Which of the following is true of the codes of conduct of an organization?
They detail how the organization expects an employee to behave and to represent the company in business dealings
Which of the following best supports the fact that Goldman Sachs was unethical in the Abacus deal?
It knew that Paulson had bundled high-risk mortgages into the collateralized debt obligation
What was Goldman Sachs' rebuttal to SEC's claim that it defrauded investors?
It is up to the clients to assess the risks involved in any investments.
One of the ways to foster ethical behavior in employees is to:
create a control system that encourages desired values
The MBA oath first developed at Harvard and now signed by students at over 300 business schools is modeled after _____.
the Hippocratic oath in medicine
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.