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Chapter 11 Flashcards

1
Q

What are stakeholders

A

Individuals or groups with an interest in claims or stakes of the company and how well it performs

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2
Q

Who are included in stakeholders

A
  1. Stockholders
  2. Creditors
  3. Employees
  4. Customers
  5. Communities
  6. General Public
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3
Q

What are the stockholder expectations

A
  1. Stockholders want a return on their investments
  2. Creditors want to be repaid with interest
  3. Employees expect a good income
  4. Customers want a high quality and reliable products
  5. Suppliers seek for revenues and dependable buyers
  6. Government want a good businesss practice and fair competition
  7. Unions want benefits
  8. Communities want companies who are responsible
  9. General public wants quality of life to be improved
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4
Q

What is the stakeholder impact analysis

A

Enables a company to identify the stakeholders most critical to its survival and makes sure that the satisfaction of their needs are paramount

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5
Q

Who are the 3 critical stakeholderrs

A
  1. Customers
  2. Employees
  3. Stockholders
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6
Q

What are internal stakeholders

A

Stock holders and employees

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7
Q

What are external stakeholders

A

Individual groups that have some claim on the company (banks, bondholders, communities)

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8
Q

What are the role of stockholders

A

Legal owners and providers of risk capital

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9
Q

What does it mean to have a positing ROIC

A

Company is able to cover all of its ongoing expenses and have money left over to add to the shareholders equity

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10
Q

How do stockholders receive a return on their investment in a company’s stock

A

Dividends and capital appreciation

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11
Q

What has taken a significant importance in stockholders

A

Maximizing returns to stockholders because employees have become stockholders for their own company

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12
Q

What should management always strive for

A

Profit growth to maximize shareholder value

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13
Q

What are different ways to grow profits

A
  1. Increase margins earned on products and services
  2. Participate in a market that is growing
  3. Take market share from competitors
  4. Develop new markets through innovation, geographic expansion and diversification
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14
Q

What is the flow chart of value creation

A
  1. Willingness to pay - Customers
  2. Price (Interest, dividends, and retained earnings) - Capital Providers
  3. Costs ( Taxes, salaries, cogs) - Government, Employees and Suppliers
  4. Opportunity Cost
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15
Q

What is the agency theory

A

One party makes the decision making authority or control over resources to another

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16
Q

Who is the principal

A

Delegating authority

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17
Q

Who is the agent

A

Person that is being delegated

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18
Q

What is information asymmetry

A
  1. Problem arises if a principal and agent have different goals or if an agent takes action that is not in the best interest of the principal
  2. Agent tends to have more information than the principal
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19
Q

What is the agency problem

A

Misleading principals for personal gain, behave unethically or break laws or engage in behaviors that principles would never condone

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20
Q

What are on the job consumption

A

Behaviour of senior managements use of company funds to acquire perks

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21
Q

What are CEO pay packages

A

Making significantly more than average workers

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22
Q

What are empire building

A

Buying many new businesses to increase the size of the company through diversification to satisfy a desire for power, status, security and income

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23
Q

What are the 4 main types of governance mechanisms for aligning stockholder and management interests

A
  1. Board of Directors
  2. Stock Based Compensation
  3. Financial Statements
  4. Take over Constraint
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24
Q

What are the roles of Board of Directors in the corporate governance system

A
  1. They are the centerpiece of corporate governance system
  2. They are voted from stock holders
  3. Can legally be accountable for the companys action
  4. Monitors corporate strategies to ensure consistency with stockholders interest
  5. Legal authority to hire, fire and compensate corporate employees
  6. Responsible for companys audited financial statements
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25
What are outside directors
Full-time, professional directors who hold positions on the boards of several companies and bring objectivity to monitor and evaluate processes
26
What are the stock based compensations
Giving managers stock options to have the right to purchase company's shares to predetermined price at some point in the future to help motivate managers to adopt strategies that increase share price
27
What are the role of financial statements
To avoid misrepresenting financial information, the government requires all public companies to have their accounts audited
28
What are the takeover constraints
1. Risk of being acquired by another company and limits the extent which managers can pursue strategies and take actions that put their own interest above stockholders
29
What happens when share price falls
Company will fall worthless and may become an attractive acquisition to target target
30
What are stock options
The right to purchase the company's shares at predetermined strike price at some point in the future
31
Why do stockholders have residual power
They can sell their shares
32
What is greenmail
The practice of buying enough shares in a company to threaten a takeover, forcing the company to buy them back at a high price
33
How can the agency problem be reduced
1. Strategic Control Systems 2. Incentive Systems
34
What is takeover constraint
Risk of being acquired by another company
35
What are strategic control systems
Formal, target setting, measurement and feedback systems that allow managers to evaluate whether a company is executing the strategies necessary to maximize its long term profitability
36
What is the purpose of strategic control systems
1. What are establish standards and targets - performance can be measured 2. Create systems to monitor and measure performance on a regular basis 3. Compare actual performance against the established targets 4. Evaluate results and take corrective action if necessary
37
What is the balanced score card
Puts strategy and vision to establish goals and assumes that employees will adopt whatever behaviour and take whatever measures necessary to meet or exceed goals
38
What does the balance scorecard measure
1. Customer perspective 2. Internal perspective 3. Innovation and learning perspective 4. Financial perspective
39
What are positive incentive systems
Systems put in place to motivate employees to work towards goals that are central to maximize long term profits
40
What are ethics
Accepted principles of right or wrong that govern the conduct of a person
41
What are business ethics
Accepted principles of right and wrong governing the conduct of company employees
42
What are the laws govern
1. Product liability 2. Contract and breaches of contract 3. Protection of intellectual property 4. Competitive Behaviour 5. Selling of securities
43
What are the different rights of stakeholders
1. Stockholders: Timely and accurate information about their investment 2. Customers: Be fully informed about the products and services they purchase 3. Employees: Safe working conditions, fair compensations, treatment 4. Competitors: Expect that the firm will abide by the rules of competition and not violate the basic principles of anti trust laws 5. Communicate and the general public: Firm will not violate the basic expectations that society places on enterprises
44
What are ethical dilemmas
Situations where there is no agreement over what the accepted principles of right and wrong are
45
What is unethical behavior
Rises when managers decide to put the attainment other own personal or goals of the company
46
What are the main conflicts faced between the goals of the enterprise
Goals of individual managers vs the fundamental rights of important stakeholders that must be respected
47
What are examples of unethical behaviour
1. Self dealing 2. Information Manipulation 3. Anti Competitive Behaviour 4. Opportunistic exploitation 5. Sustandard Working Conditions 6. Environmental Degradation 7. Corruption
48
What is self dealing
Managers find a way to feather their own nests with corporate monies
49
What is information manipulation
Managers use their control over corporate data to distort or hide information to enhance their financial situation
50
What is anti competitive behaviour
Covers range of actions aimed to harm actual or potential competitors by using monopoly power
51
What are the examples of anti competitive behaviour
1. Predatory Pricing 2. Price Fixing 3. Dumping 4. Dividing Territories 5. Patent Abuse 6. Rigging Bids
52
What are opportunistic exploitation
Unethical behaviour that is used by managers to unilaterally rewrite the terms of a contract with suppliers, buyers or complement providers in a way that favors the firm
53
What are exploitation
Managers seek unilaterally rewrite terms of contracts with buyers, suppliers or complement providers in a way that is favorable to the company often using their power to force a. revision to the contract
54
What are substandard working conditions
Managers underinvesting in safe working conditions or pay employees below market rates
55
What is environmental degradation
Companys action directly or indirectly results in pollution or other forms of environmental harm to violate the right of of local communities and general public
56
What is corruption
Rise when manager pay bribes to gain access to lucrative business contracts
57
What is bribery
Offering, promising, giving, accepting or soliciting an advantage as an inducement for an action which is illegal, unethical or breach of trust
58
What are personal ethics
Generally accepted principles of right and wrong governing the conduct of individuals
59
What are sources of not behaving ethically
1. No personal ethics 2. No incorporate ethical considerations 3. Culture deemphasize business ethics and considers all decisions to be purely economic 4. Pressure from top management 5. Unethical Leadership
60
How do managers behave ethically
1. Hire people with well grounded sense of personal ethics 2. Make sure leaders walk the talk 3. Build a culture that places high value on ethical behaviour 4. Put decision making processes in place that consider ethical dimensions 5. use ethical officers 6. Put strong governance in place 7. Act with moral courage
61
What are the code of ethics
Formal statement of the ethical priorities to which a business adheres
62

Bus 478 (12 decks)

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