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Chapter 09 Strategic Control and Corporate Governance Answer Key
True / False Questions
1.
Strategic control systems, both informational and behavioral, are used to correct the performance and
ultimate strategy of a firm.
2.
Behavioral controls involve the ability to respond effectively to environmental change.
3.
Informational controls involve the balance and alignment of the culture, rewards, and boundaries of a
firm.
4.
The traditional approach to strategic control is interactive, while the contemporary approach to strategic
control is sequential.
5.
The traditional approach to strategic control relies on feedback from performance measurement to
formulate strategy.
6.
For firms competing in highly unstable and turbulent industries, traditional strategic controls are most
appropriate.
7.
Sales quotas, operating budgets, and production schedules are examples of traditional controls.
8.
In single-loop learning, the assumptions, premises, goals, and strategies of the organization are
continuously monitored, tested, and reviewed.
9.
Contemporary strategic controls involve comparing actual performance to predetermined goals.
10.
Informational control is primarily concerned with whether or not the organization is doing the right
things.
11.
Continuous monitoring enhances the ability of the organization to respond with speed and flexibility.
12.
Double-loop learning in the contemporary approach to strategic control means that the organizational
assumptions, premises, goals and strategies are occasionally monitored, tested, and reviewed.
13.
According to a 2012 article published in The Economist, managerial actions to improve company
control systems do not need to consider employee perceived reception of these actions.
14.
In contemporary control systems, data and information generated are best interpreted and discussed in
online forums, in order to have traceability of the discussion.
15.
Continuous monitoring is associated with many benefits including that changes in the competitive
environment can be identified early, giving the organization better ability to respond accordingly.
16.
Behavioral control is one of two types of strategic control and is concerned with strategy
implementation.
17.
As firms downsize, a control system based on rewards and culture becomes dysfunctional.
18.
For young managers who see themselves as free agents, behavioral controls such as rewards and culture
can be an effective way to enhance organizational loyalty.
19.
Once a strong and healthy organizational culture has been established, it becomes self-sustaining.
20.
The collective sum of individual behaviors of the employees of an organization generally results in what
is best for the organization; thus, individual rationality assures organizational rationality.
21.
The organizational reward system is typically a weak method for motivating employees.
22.
Different functional areas within an organization often have different reward systems.
23.
Rewards systems that reinforce the core values of the organization and contribute to organizational
cohesiveness are the least effective type.
24.
For a reward system to be effective, it must be perceived as fair and equitable.
25.
Boundaries and constraints are just used to maintain order in an organization and have little effect on the
strategic priorities of the organization.
26.
Short-term objectives and action plans are types of boundaries that channel the efforts of employees
toward goal accomplishment.
27.
Unexpected events have little effect on short-term objectives because short-term objectives are not
changeable.
28.
Action plans permit a degree of autonomy for managers who sometimes must modify activities to
achieve the desired outcome.
29.
Boundaries and constraints, when used properly, can minimize improper and unethical conduct.
30.
Rule-based controls are appropriate in organizations, where most of the employees are unskilled.
31.
The need for rules and regulations can be minimized if the organization has a strong culture. There is no
necessity to have a system of rewards and incentives as well.
32.
In building strong reward and incentives, it is vital to have good managerial role models.
33.
Reward systems need to be aligned clearly with the organizational goals and objectives, as demonstrated
by Marks and Spencer and their sustainability efforts.
34.
Culture, a system of unwritten rules that forms and internalized influence over behavior, is often found
in professional organizations.
35.
Hiring is important in organizations, especially hiring the right people who already identify with the
dominant values of the organization and have attributes that are consistent with them.
36.
The three fundamental types of control are culture, rewards and leadership, boundaries and constraints.
37.
All organizations place the same emphasis on each type of control.
38.
Regulations backed up with strong sanctions do not help an organization avoid conducting business in
an unethical manner.
39.
The primary participants in corporate governance, according to Monks and Minow, are the
shareholders, board of directors, and employees.
40.
Central to agency theory is the relationship between two primary players, the principals (stockholders)
and agents (management).
41.
Research has shown that executives who have large holdings of stock in their firm are more likely to
have diversification strategies more consistent with shareholder interests, like increasing long-term
returns.
42.
The corporate governance premium is smaller for firms in countries with sound corporate governance
practices compared to countries with weaker corporate governance standards.
43.
Sound governance practices always leads to superior financial performance.
44.
A corporation is a mechanism created to allow different parties to contribute capital, expertise, and labor
for the maximum benefit of each party. Management is able to participate in the profits of the enterprise
without taking direct responsibility for the operations.
45.
Agency theory is concerned with the problem that arises when the goals of the agents conflict with those
of the surrounding community members.
46.
Agency theory is concerned with the problem that arises when it is difficult or inexpensive for the
principal to verify what the agent is actually doing.
47.
One of the most critical roles of the board of directors is to create incentives that align the interests of
the CEO and top executives with the interests of shareholders.
48.
According to the Business Roundtable, representing the largest U.S. corporations, the most important
quality of a good board of directors is that they do not get involved in critiquing company strategies.
49.
In order to have effective board operations, firms need to cultivate engaged and committed boards.
50.
Changes in board of director configurations since 1987 indicate that board directors were paid more in
2011, were older, were more often female, and were independent from the company (not insiders).
51.
CalPERS, the California Public Employees Retirement System, manages over 240 billion dollars in
assets. As an example of shared activism, they review all short- and long-term performance figures for
each of the firms in which they invest and request changes in the governance structure of those firms,
when they feel the firm is not responsive to their concerns.
52.
When firms like Siebel Systems, Disney, Oracle, and Microsoft separated the roles of CEO and
chairman of the board, they were creating CEO duality.
53.
The risk of being acquired by hostile raiders is often referred to as the takeover constraint.
54.
Auditors are appointed by the Securities and Exchange Commission to audit company financial
statements.
55.
Stock analysts generally issue more sell recommendations than buy recommendations.
56.
Public companies are required by law to disclose information regarding executive compensation
packages.
57.
The Sarbanes-Oxley Act of 2002 requires that CEOs and CFOs of publicly-listed companies must
reveal off-balance-sheet finances and vouch for the accuracy of information provided.
58.
The Sarbanes-Oxley Act of 2002 stipulates that executives of a firm will still be able to sell their shares
in the firm when other employees cannot.
59.
In emerging economies and continental Europe, principal-principal conflicts are frequent. These consist
of conflicts between controlling shareholders and executives.
60.
Principal-principal (PP) conflicts frequently result in expropriation, which is defined as activities to
enrich minority shareholders to assure their support.
61.
According to research on a broad range of companies, boards of directors that have the skills and
knowledge to advise CEOs on potential key strategic initiatives add risk more than value to the firm.
62.
In choosing membership on the board of directors, consideration should be given to the size of the board
as well as the individual member expertise and commitment to participate fully.
63.
According to a 2011 Harvard Business Review study, women and minorities are overrepresented on
boards of firms in the Standard and Poors 500 list.
64.
According to Studzinski, in a 2014 Fortune magazine article, competing activist investor pressures push
company management to decide between bottom line profits or social and environmental benefits. The
company can only choose one or the other.
65.
The business media is a significant external control mechanism.
