Ch9 Corporate Governance

Question 1

Traditional approach to Strategic control

Answer 1

1) strategies are formulated and top management sets goals
2) strategies are implemented ‘
3) performance is measured against predetermined goal set

Question 2

informational control

Answer 2

whether or not the organization is “doing the right things”

Question 3

behavioral control

Answer 3

if the organization is “doing things right”

Question 4

organizational culture

Answer 4

is a system of shared values that shape a company’s people, structures, and control systems to produce behavioral norms

Question 5

reward system

Answer 5

policies that specify who gets rewarded and why

Question 6

boundaries and constraints

Answer 6

rules that specify behaviors that are acceptable and unacceptable

Question 7

corporate goverance

Answer 7

relationships among various participants in determining the direction and performance of corporations
Primary participants are: stakeholders, management, and board of directors

Question 8

corporation

Answer 8

a mechanism created to allow different parties to contribute capital, expertise, and labor, for the maximum benefit of each party.

Question 9

agency theory

Answer 9

resolves two problems

1) when goals pf the principals and agents conflict
2) when it is difficult or expensive to for the principal to verify what the agent is actually doing

Question 10

board of directors

Answer 10

acts as a fulcrum between owners and controllers of a corporation. Also provide a balance between a small group of key managers and stakeholders

Question 11

shareholder activism

Answer 11

actions by shareholders to protect their interests when they feel that managerial actions of a corporation diverge from shareholder value maximization

Question 12

external governance control mechanisms

Answer 12

methods that ensure that managerial actions lead to shareholder value and do not harm other stakeholder groups

Question 13

market for corporate control

Answer 13

external control mechanism in which shareholders dissatisfied with a firms management sell their shares

Question 14

takeover constraint

Answer 14

the risk to management of the firm being acquired by a hostile raider

Question 15

principal - principal conflicts

Answer 15

conflicts between two classes of principals- controlling shareholders and minority shareholders - within the context of a corporate governance system

Question 16

expropriation of minority shareholders

Answer 16

activities that ensure the controlling shareholders at the expense of the minority shareholders

Question 17

business groups

Answer 17

a set of firms that, though legally independent, are bound together by a constellation of formal and informal ties and are accustomed to taking coordinated action