Exam 11: Governing the Corporation Around the World

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

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.

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 c. The focus on governance has been replaced by a focus on shareholder value.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."

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.

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.

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.

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

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.

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

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.

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.

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

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.

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

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.

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.

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.

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.

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.

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