Chapter 11 – Financial Management and Group Process
Chapter Eleven
Financial Management and Group Process
OVERVIEW
Real financial management features the integration of corporate finance and
management, focusing on the manner in which human beings work together in groups to
make financial decisions within organizations. Chapter 11 has no obvious counterpart in
traditional textbooks. However, the content in chapter 11 follows naturally from the
discussion in Chapter 9 on corporate governance. Boards of directors work in groups.
The subject of Chapter 11 involves the errors committed by people when they work in
groups. Many of the applications in the chapter pertain to boards of director.
Chapter 11 – Financial Management and Group Process
LEARNING OBJECTIVES
The main objective of this chapter is for students to demonstrate that they can identify the
manner in which biases and framing adversely impact the behavior of managers when
they work together in groups. After completing this chapter students will be able to:
2. Assess the contribution of poor group process in the governance of firms that
experienced major financial crises, especially during the global financial crisis.
4. Identify corporate nudges that groups can take to improve group process.
5. Explain what corporate culture means, and apply the concept to examples,
including those related to the global financial crisis.
CHAPTER OUTLINE
Traditional Approach to Group Process
The traditional approach to group process is to bring people with different
Chapter 11 – Financial Management and Group Process
Process Loss
In practice, groups do not typically exploit potential synergies fully. Indeed, for
General Reasons for Group Errors
Three of the most important reasons for group errors are groupthink, poor
information sharing, and inadequate motivation. Groupthink is a collective form of
Groupthink and Poor Information Sharing: Illustrative Examples
Groupthink and poor information sharing at the board level contributed to the
difficulties experienced at several financial firms involved in the financial crisis.
Polarization and the Reluctance to Terminate Losing Projects
Aversion to a sure loss underlies managers’ reluctance to terminate losing
Chapter 11 – Financial Management and Group Process
Corporate Nudges: Illustrative Example
Group processes can be structured to be proactive in combatting vulnerability to
groupthink. The discussion in the Corporate Nudges box on page 261 provides
TEACHING TIPS FOR POWERPOINT SLIDES
Before showing the first PowerPoint slide, instructors might indicate to students
that in theory groups bring together people with complementary perspectives and skills to
Slide 7
Slide 7 makes three points about process loss, the failure of groups to exploit the
synergy potential offered in theory. First, groups tend to better at intellectual tasks than
Chapter 11 – Financial Management and Group Process
Slide 8
Slide 8 lists three of the main reasons groups commit errors: groupthink, poor
Additional Resources for Chapter 11 Available on the Web