115. The market for corporate control serves as a means of governance when
a. the firm is overpriced in the market.
b. internal controls have failed.
c. the corporation has greatly exceeded performance expectations.
d. the top management team’s interests and the owners’ interests are aligned.
116. Agricultural Chemicals, Inc., was the target of a hostile takeover 6 months ago. The CEO and the top executives
successfully fended off the takeover and are concentrating on strategies to improve the performance of the firm.
Which of the following is most likely to be TRUE?
a. Hostile takeover attempts are so common that they do not reflect negatively on the firm’s performance. They
are more a function of general market conditions.
b. The fact that a hostile takeover has occurred is proof that the firm was under-performing.
c. Research shows that once a hostile takeover has been defeated, the firm is safe from other hostile takeover
attempts for many years.
d. The CEO and top executives should not consider their jobs secure.
117. The market for corporate control may not be as efficient as previously thought as recent findings suggest that those
firms targeted for takeover by active corporate raiders are
a. usually on the verge of bankruptcy.
b. typically under-performing their industry.
c. often performing above their industry averages.
d. always outperforming their industry.
118. If the market for corporate control were efficient as a governance device, then only
takeovers.
a. firms with unethical top executives
b. firms earning above-average returns
c. poorly performing firms
d. over-valued firms
would be targets for
119. All of the following statements are TRUE about the use of defense tactics by the target firm during a hostile
takeover EXCEPT
a. defense tactics are usually beneficial for the executives of the target firm.
b. defense tactics are opposed by institutional investors.
c. defense tactics vary in their effectiveness as a defense to takeovers.
d. defense tactics make the costs of a takeover lower.
120. Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum amounting to 3 years’ salary because
DictionAry has been bought in a hostile takeover by its main competitor. Ambrose received
a. a golden parachute.
b. a poison pill.
c. greenmail.
d. a silver handshake.
121. The repurchase at a premium of the target firm’s shares that were acquired by the aggressor firm in a hostile
takeover in exchange for an agreement that the aggressor will no longer target the company for takeover is called
a. greenmail.
b. a standstill agreement.
c. crossing the palm with silver.
d. a poison pill.
122. A hostile takeover defense wherein the target firm makes its stock less attractive to a potential acquirer is called
a. greenmail.
b. a standstill agreement.
c. crossing the palm with silver.
d. a poison pill.
123. Historically, have been at the center of German corporate governance structure.
a. banks
b. institutional shareholders
c. public pension funds
d. government agencies
124. James Abercrombie has a thriving consulting firm specializing in training boards of directors in decision-making
skills. Mr. Abercrombie has had striking success in reducing conflict and hostility among directors and allowing
boards to develop more cohesiveness. Mr. Abercrombie is considering expanding his consulting practice overseas.
Which of the following statements is most likely to be TRUE?
a. Mr. Abercrombie will have a large market in Japan because the culture highly values consensus decision
making.
b. Japanese firms will have little interest in Mr. Abercrombie’s specialty because these skills are already
practiced at a high level.
c. German firms will not be interested in Mr. Abercrombie’s services because the German system of decision
making is based on authority and few conflicts emerge.
d. Mr. Abercrombie should find significant need for his services in companies in transitional economies.
125. German executives are not dedicated to the maximization of shareholder value to the degree that is the case for
executives in the UK and United States largely because
a. the roles of CEO and chairperson of the board of directors are usually combined.
b. large institutional investors control large blocks of stock.
c. private shareholders and large institutional investors rarely have large ownership positions in firms.
d. of the focus on stewardship-management in German firms rather than the financial performance focus of
U.S. firms.
126. Which of the following statements is about corporate governance in Germany is FALSE?
a. The Vorstand (management board) of a German corporation makes decisions about strategy and
management.
b. The Vorstand is elected by the firm‘s employees.
c. Employees, union members, and shareholders appoint members to the Aufsichsrat (the supervisory tier of the
board).
d. Large institutional investors such as pension funds, and insurance companies are relatively insignificant
owners of corporate stock.
127. Japanese keiretsu are
a. management structures related to total quality management systems.
b. company unions, which are a type of governance system.
c. the banks owing the largest shares of stock in the firm.
d. a system of cross-shareholding among firms.
128. In Japan, the principal source of the active monitoring of large companies comes from
a. boards of directors.
b. stock brokerage companies.
c. the government.
d. banks.
129. is an important influence in Japanese corporate governance structures.
a. Innovation
b. Consensus c.
Competition d.
Individualism
130. Which of the following is TRUE of trends in Japan‘s corporate governance structure?
a. Compensation of CEOs in both private and public companies is being tied more closely to observable
performance goals.
b. Increased regulation in the financial sector has increased the cost of mounting hostile takeovers.
c. Banks’ influence over corporations is increasing.
d. The gap in compensation between CEOs in public and private companies is increasing.
131. Which of the following is FALSE about corporate governance in China?
a. The Chinese governance system may be tilting toward the Western model.
b. With increasing frequency, the compensation of top executives of Chinese companies is closely related to
prior and current financial performance of the firm.
c. The state still uses direct and/or indirect controls to influence the strategies employed by most firms.
d. Firms with higher state ownership tend to have lower market value and more volatility in those values over
time.
132. The CEO of Skyco, a publicly-traded company that has been earning below-average returns, has been publicly
criticized by shareholders for persuading the board of directors to give her interest-free loans, for having the
company purchase and furnish a lavish apartment in Paris for her personal use on her twice-yearly trips there, and
for excessive stock options. The CEO’s behavior may be indication of
a. reasonably compensating a CEO.
b. a weak board of directors.
c. the laxity of institutional investors.
d. the difference in risk propensity between owners and managers.
133. The governance mechanism most closely connected with deterring unethical behaviors by holding top management
accountable for the corporate culture is
a. ownership concentration.
b. the market for corporate control.
c. executive compensation systems.
d. the board of directors.
134. International Food Services (IFS) has a contract with the Marines to supply meals for its troops in Afghanistan and
other foreign assignments. As a means of increasing profits, IFS has used substandard ingredients in these meals
and has consistently lied about this practice during quality investigations by the Marines. Who is ultimately
responsible for the corporate climate that resulted in this wrongdoing?
a. the director of food service for IFS
b. the board of directors of IFS
c. the employees directly involved in the wrongdoing
d. the head of contract services for the Marines
135. What is corporate governance and how is it used to monitor and control managers’ decisions?
136. Discuss the effect of the separation of ownership and control in the modern corporation.
137. Define the agency relationship and managerial opportunism and discuss their strategic implications.
138. Define the three internal corporate governance mechanisms and how they may be used to control and monitor
managerial decisions.
139. Discuss the difficulties in establishing performance-based compensation plans for executives.
140. Describe the market for corporate control and its implications for organizations.
141. Briefly compare and contrast corporate governance in the United States, Germany, and Japan, and China.
142. How does corporate governance foster ethical strategic decisions and how important is this to top-level executives?
143. (Refer to Case Scenario 1). What are the advantages and disadvantages of paying the new manager primarily cash
pay?
144. (Refer to Case Scenario 1). What are the advantages and disadvantages of paying the new manager primarily on
new store sales growth?
145. (Refer to Case Scenario 1). What compensation structure would you recommend?
146. (Refer to Case Scenario 1). The discussion of agency theory and executive compensation in the chapter suggest
that the compensation system for Jill Diamond should be based on her ability to maximize shareholder wealth over
the long term.
Case Scenario 2: Raptec.
Raptec operates in three principal business segments: Direct Attached Storage (“DAS”), Storage Networking
Solutions (“SNS“), and Software. These hardware and software products are found in high-performance networks,
servers, workstations, and desktops from the world‘s leading OEMs, and are sold through distribution channels to
Internet service providers, enterprises, and medium and small businesses and consumers. Since the time it went
public, Raptec has experienced rapid growth and consistently profitable operations. In early 2002, Raptec
announced its plan to spin–off the software segment, subsequently incorporated as Axio, Inc., in the form of a fully
independent and separate company. Software was Raptec‘s most profitable and fastest growing segment. By mid-
2002 Raptec had completed the initial public offering of approximately 15 percent of Axio’s stock, and then
distributed the remaining Axio stock to Raptec‘s stockholders in a tax-free distribution. Axio‘s family of products
includes category leaders in CD/DVD burning, digital photography, and digital video. Axio’s new management team
is composed of Lex Luthor, CEO, and previously the President of New Business Development for Universal
Studios Recreation Group; Karal Kool, COO, and previously General Manager of Raptec’s OEM Solutions Group;
and R. Elliot Maxter, CFO, and previously corporate controller for Raptec. The interim four-member board of
directors is currently comprised of Raptec senior officers, but the terms of the public offering require them to step
down in 2 months. Thus, Axio will need to construct a new board, which in turn will be responsible for overseeing
Axio‘s management and their compensation.
147. (Refer to Case Scenario 2). What characteristics will you look for in appointing new board members?
148. (Refer to Case Scenario 2). Develop arguments as to why and why not Lex Luthor should be appointed as
chairperson of the new board.
149. (Refer to Case Scenario 2). How should the board design the executive compensation scheme for Luthor, Kool,
and Maxter?
150. (Refer to Case Scenario 2). Raptec would enhance the effectiveness of its board if it appointed a “lead director”
who would be responsible for the board agenda and oversight of nonmanagement board activities.