Finance Chapter 11 Financial Management And Group Process Financial Management And Group Process

Chapter 11 – Financial Management and Group Process

CHAPTER 11

Financial Management and Group Process

1. The antidote to groupthink is to allow opposing opinions to be presented respectfully.

Walter Hewlett did advance an opposing opinion, but that opinion was not welcomed,

2. Levin’s actions illustrate poor information sharing among group members. What drives the

dynamics underlying poor information sharing? Typically, the answer is group members

3. Ford managers were prone to exhibit aversion to a sure loss, by failing to disclose

unfavorable information in their possession. As a result, Ford’s culture featured a lack of

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• Information sharing: The last point about Citibank is consistent with confirmation

bias. Notably, confirmation bias characterized many of the processes that these firms

shared information. In regard to UBS, the minicase states: “The self-study report

notes that the investment bank’s senior management did not sufficiently challenge

each other in relation to the development of their various businesses; and it criticizes

analysts for a lack of clarity when presenting complex data.” At S&P, the minicase

states: “At S&P, the head of the Residential Mortgage Backed Securities group

expressed his strong concern that adopting the changes would lead to agency conflicts

in which they would lose their independence, by conferring directly with investors,

issuers, and investment bankers. His concerns went unanswered, and those within the

firm who fought the changes were systematically excluded from meetings.” The

easily. As a result, his executives were fearful if they needed to deliver bad news to

him. He rarely asked for input when making a decision; and he did not tolerate being

Chapter 11 – Financial Management and Group Process

challenged once he had made his decision.” As for AIG, the minicase states: “the

5. The discussion in Chapter 7 describes survey evidence that finds overconfidence and firm

leverage being positively correlated. The text in Section 7.7 of Chapter 7 states the following:

“The specific finding is that a one standard deviation shift in overprecision is associated with

an increase of 1.36 percent in book leverage, measured as the ratio of total debt to total

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6. The text in the chapter states the following: “Corporate culture … refers to how clearly a

corporation articulates its values, and the degree to which those values are shared within the

corporation. Key aspects of corporate culture involve the degree to which the workforce

contributes to goal setting, the amount of training in business skills as well as operational

skills, and how its bonus plan and company stock plan strengthen the degree to which values

Chapter 11 – Financial Management and Group Process

Minicase

Case Analysis Questions

1. The minicase states the following: “[A]s demand for Toshiba’s products fell, its CEOs had

subjected subordinates to intense pressure in order to meet sales targets, with the pressure

2. The minicase states that Toshiba had overstated its earnings by $1.2 billion between 2008

and 2014, understating costs on long-term projects and mis-valuing some of its inventory.

3. The minicase states that on paper, Toshiba met or surpassed most of attributes of good

corporate governance, for example by having at least two outside independent directors on its

(16-person) board. However, there was a problem with the foxes guarding the henhouse. As

the minicase states, the audit committee was headed by an inside (interested) director, at a

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