Exam 11: Governing the Corporation Around the World

As the closing case points out on the negative side, private equity firms have been accused of all of the following except: a. Being "barbarians." b. Being "asset strippers," and "locusts." c. Internationally, causing shock in countries suddenly facing the full rigor of Anglo-American private equity. d. Placing CSR ahead of all rational economic decisions. e. None of the above.

Recently, stewardship theory suggests that by and large managers can be viewed as stewards of owners' interests.

The Market for Corporate Control is another term for the stock market.

Can interlocking directorates lead to unfair market advantages and investor exploitation? How?

Inside directors are top executives of the firm.

The Market for Private Equity involves going private by tapping into private equity.

Agency theory assumes that managers: a. Have a responsibility to the owners. b. Are agents who are opportunistic and engage in self-serving activities. c. A and B above. d. Can be left to their own devices. e. Are effective steward of the owners' interests.

Formal legal protection encourages founding families and their heirs to dilute their equity.

Founders usually start up firms and completely own and control these enterprises.

Three decades of privatization suggest all of the following except: a. Privatization to insiders helps improve the performance of small firms. b. In large corporations privatization to insiders, without external governance pressures, is hardly conducive for needed restructuring. c. Outside ownership and control, preferably by blockholders, funds, foreigners, and/ or banks, are more likely to facilitate restructuring. d. Such outside ownership and control does not happen frequently because incumbent managers do not necessarily welcome such outside "intrusion." e. When outside investors such as institutional investors do come in, they fail to assert their power.

FPI investors demand less protection.

The trend around the world is to introduce more inside directors and less outside directors.

Since the 1980s, state ownership has expanded and privatization has declined.

The rise of capitalism has not affected governance.

Industry-Based Considerations regarding corporate governance include all of the following except: a. Having more outside directors on the board is often regarded as having a negative impact on performance because of their lack of understanding as compared to insiders. b. In industries characterized by rapid innovation requiring significant R&D investments such as information technology), outside directors may have a negative impact on firm performance. c. Research finds that for firms in low-growth, stable industries, no relationship exists between inside management ownership and firm performance. d. In relatively high-growth, turbulent industries, there is a relationship between inside management ownership and firm performance. e. In industries experiencing great turbulence, the presence of a single leader may allow a faster and more unified response to changing events.

Managerial human capital refers to the skills and abilities of top managers and directors.

You are the founder of a firm that appears to have significant long-term growth potential. Right now you and your family own 100% of the firm's shares and you are trying to figure out to keep things that way. How might you do that? Should you do that?

The thirst for global capital requires adherence to listing requirements.

In regards to family ownership, all of the following are true except: a. Most small firms in the world are owned and controlled by families. b. The vast majority of large corporations throughout continental Europe, Asia, Latin America, and Africa no longer feature concentrated family ownership and control. c. Family ownership and control may provide better incentives for the firm to focus on long-run performance. d. Such ownership may also minimize the conflict between owners and professional managers typically encountered in widely owned firms. e. Family ownership and control may lead to the selection of less qualified managers who happen to be the sons, daughters, and relatives of owners.

Which of the following is true regarding CEO duality? a. From an agency theory standpoint, if the board is to supervise agents such as the CEO, it seems imperative that the board be chaired by the same individual. b. In US firms with CEO duality, the trend now is to appoint a lead independent director, who chairs the sessions held by outside directors that do not involve company executives. c. A corporation led by two top leaders-a board chairman and a CEO - will at least have unity of command and experience less top-level conflict. d. East Asia and Latin America where most firms have concentrated family ownership and control, there is less CEO duality. e. Firms around the world are being pressured to combine the two top jobs.