Chapter 09 Strategic Control and Corporate Governance

Chapter 09 - Strategic Control and Corporate Governance

Chapter 09

Strategic Control and Corporate Governance

True / False Questions

1.The "traditional" approach to strategic control is interactive; the "contemporary" approach to strategic control is sequential.TrueFalse

2.The traditional approach to strategic control relies on feedback from performance measurement to strategy formulation.TrueFalse

3.For firms competing in highly unstable and turbulent industries, "traditional" strategic controls are most appropriate.TrueFalse

4.Sales quotas, operating budgets, and production schedules are examples of "traditional" controls.TrueFalse

5.In "single loop" learning, the organization's assumptions, premises, goals, and strategies are continuously monitored, tested, and reviewed.TrueFalse

6."Contemporary" strategic controls involve comparing actual performance to predetermined goals.TrueFalse

7.Informational control is primarily concerned with whether or not the organization is "doing the right things."TrueFalse

8.Continuous monitoring enhances an organization's ability to respond with speed and flexibility.TrueFalse

9.As firms downsize, a control system based on rewards and culture becomes dysfunctional.TrueFalse

10.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.TrueFalse

11.Once a strong and healthy organizational culture has been established, it becomes self-sustaining.TrueFalse

12.The collective sum of individual behaviors of an organization's employees generally results in what is best for the organization; thus, individual rationality assures organizational rationality.TrueFalse

13.An organization's reward system is typically a weak method of motivating employees.TrueFalse

14.Different functional areas within an organization often have different reward systems.TrueFalse

15.Rewards systems that reinforce an organization's core values and contribute to organizational cohesiveness are the least effective type.TrueFalse

16.For a reward system to be effective, it must be perceived as fair and equitable.TrueFalse

17.Boundaries and constraints are just used to maintain order in an organization and have little effect on the organization's strategic priorities.TrueFalse

18.Short-term objectives and action plans are types of boundaries that channel the efforts of employees toward goal accomplishment.TrueFalse

19.Unexpected events (such as wildcat strikes or new government regulations) have little effect on short-term objectives that need to remain fixed to be effective.TrueFalse

20.Action plans permit a degree of autonomy for managers who sometimes must modify activities to achieve the desired outcome.TrueFalse

21.Boundaries and constraints, when used properly, can minimize improper and unethical conduct.TrueFalse

22.Rule-based controls are appropriate in organizations where most of the employees are unskilled.TrueFalse

23.The primary participants in corporate governance, according to Monks and Minow, are (1) the shareholders, (2) board of directors, and (3) employees.TrueFalse

24.Central to agency theory is the relationship between two primary playersthe principals (stockholders) and agents (management).TrueFalse

25.Research has shown that executives who have large holdings of stock in their firm were more likely to have diversification strategies more consistent with shareholder interestsincreasing long-term returns.TrueFalse

26.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.TrueFalse

27.The risk of being acquired by hostile raiders is often referred to as the takeover constraint.TrueFalse

28.Auditors are appointed by the Securities and Exchange Commission to audit a company's financial statements.TrueFalse

29.Stock analysts generally issue more "sell" recommendations than "buy" recommendations.TrueFalse

30.Public companies are required by law to disclose information regarding executive compensation packages.TrueFalse

31.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.TrueFalse

32.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.TrueFalse

33.In emerging economies and continental Europe, principal-principal conflicts are frequent. These consist of conflicts between controlling shareholders and executives.TrueFalse

34.Principal-principal (PP) conflicts frequently result in expropriation, which is defined as activities to enrich minority shareholders to assure their support.TrueFalse

Multiple Choice Questions

35.The "traditional" approach to strategic control is sequential. Which of the following is not one of the steps in the sequence?A.Action plans are submitted by lower level managers.B.Performance is measured against the predetermined goal.C.Strategies are implemented.D.Strategies are formulated and top management sets goals.

36.The primary drawback of "traditional" strategic control systems isA.they are only appropriate when the environment is stable and simple.B.goals and objectives cannot be measured with a high level of certainty.C.they lead to complacency.D.they lack the flexibility needed to adjust to changes in the environment.

37.For businesses facing complex and turbulent business environmentsA.goals and objectives that are uncertain prevent opportunism.B.traditional strategic controls are usually inappropriate.C.complacency about predetermined milestones can prevent adaptability.D.detailed plans are needed to maintain order.

38.Contemporary approaches to strategic control rely primarily onA.feedback controls.B.single-loop learning.C.double-loop learning.D.comparative learning.

39.Informational control systems askA.is the organization "doing things right"?B.is the organization "doing the right things"?C.are rules and regulations being followed as information is processed?D.is the organization's environment a necessary and sufficient condition for success?

40.The benefits of continuous monitoring includeA.enhancing the organization's ability to respond with speed and flexibility.B.replacing the time-consuming process of organizational learning.C.dramatically altering the organization's response to its competitive environment.D.all of the above.

41.Which of the following is not one of the characteristics of a contemporary control system?A.It is a key catalyst for an ongoing debate about underlying data, assumptions, and action plans.B.It must focus on constantly changing information that is strategically important.C.It circumvents the need for face-to-face meetings among superiors, subordinates, and peers.D.It generates information that is important enough to demand regular and frequent attention.

42.Top managers at ABC Company meet every Friday to review daily operational reports and year-to-date data. This is an example ofA.behavioral control.B.informational control.C.strategy formulation.D.strategy implementation.

43.Complete the following sentence: "As firms simultaneously downsize and face the need for increased coordination across organization boundaries, a control system based primarily on __________ is dysfunctional."A.boundaries and constraintsB.culture and rewardsC.organizational loyaltyD.innovation and risk taking

44.All of the following are examples of how organizational culture exerts behavioral control exceptA.culture helps maintain control by creating behavioral norms.B.culture generates unwritten standards of acceptable behavior.C.culture encourages individual identification with the organization and its objectives.D.culture sets explicit boundaries.

45.The late Sam Walton, founder of Wal-Mart, used to give pep rallies at local Wal-Mart stores. What purpose did this serve?A.It was used to remind employees of Wal-Mart's rules and regulations.B.It helped reinforce and sustain Wal-Mart's culture.C.It demonstrated to employees the importance of articulating explicit goals and objectives.D.It made Wal-Mart's reward system very explicit.

46.Which of the following is not one of the functions of reward and incentive systems?A.They represent a poor means of influencing an organization's culture.B.They focus efforts on high-priority tasks.C.They motivate high levels of individual and collective task performance.D.They represent an effective control mechanism.

47.Complete the following sentence: "Individual rationality __________ organizational rationality."A.is a good indicator ofB.will ensureC.is often the opposite ofD.does not always guarantee

48.When countercultures emerge that have shared values opposite from the dominant culture of an organizationA.organizational cohesiveness increases.B.information is shared rather than hoarded.C.individuals begin working at cross purposes.D.individuals gain insights into overarching goals and objectives.

49.All of the following are characteristics of effective reward and incentive systems exceptA.performance measures are clear and highly visible.B.the structure is fixed to assure employees of consistency.C.the compensation system is perceived as fair and equitable.D.objectives are well understood, and broadly accepted.

50.The causes of counterproductive behavior in organizations includeA.lack of a clear understanding of organizational goals and objectives.B.motivated self-interest.C.outright malfeasance.D.all of the above.

51.Effective boundaries and constraintsA.tend to inhibit efficiency and effectiveness.B.distract employees who are trying to focus on organizational priorities.C.minimize improper and unethical conduct.D.tend to limit organizational growth.

52.Effective short-term objectives have all of the following priorities exceptA.an emphasis on "do your best" goals.B.being achievable yet challenging.C.providing a specific time horizon for their attainment.D.being specific and measurable.

53.Which of the following statements about action plans is true?A.Action plans, though specific, should permit a degree of autonomy to managers and not be constrained by budgets.B.Action plans must be specific so that managers will have a clear understanding of the resource requirements necessary to implement the plan.C.Action plans should not be constrained by a time frame in order to allow for modification.D.Although managers must be held accountable for implementing action plans, this accountability often erodes the managers' motivation to implement the plan on a timely basis.

54.Rules and regulations are examples ofA.implicit controls.B.informational controls.C.cultural norms.D.boundaries and constraints.

55.Cadbury Schweppes has a policy that all payments, no matter how unusual, are recorded in the company's books. This rule isA.overly cumbersome.B.aimed at encouraging managers to make better budgetary decisions.C.directed at protecting client confidentiality.D.designed to minimize improper and unethical conduct.

56.Which of the following approaches to behavioral strategic control should be utilized least in an organization in which there is a great need for innovation and a high degree of autonomy?A.cultureB.rewardsC.boundariesD.All of the above are equally important.

57.Most successful organizations minimize the need for explicit rules, regulations, and other boundaries byA.posting written statements of the organization's goals and objectives.B.discouraging the formation of subcultures that isolate work groups.C.designing effective reward systems.D.encouraging employees to see themselves as free agents.

58.Rule-based controls are most appropriate in organizations with all of the following characteristics exceptA.environments are stable and predictable.B.employees are highly skilled and independent.C.consistency in product or service.D.the risk of malfeasance is extremely high.

59.Rules and regulations, rather than culture or rewards, would be used for strategic control at which type of company?A.software developerB.stock brokerage firmC.manufacturer of mass produced productsD.high tech research facility

60.Most organizations with strong cultures and a sound system of rewards and incentives can eventually internalize boundaries rather than use explicit rules and regulations. Which of the following is not a technique for moving in that direction?A.Hire people that identify with the organization's dominant values.B.Develop managerial role models.C.Minimize training and indoctrination.D.Align reward systems with organizational goals and objectives.

61.The primary participants in corporate governance are all of the following exceptA.the shareholders.B.key stakeholders such as financial institutions.C.management (led by the chief executive officer).D.the board of directors.

62.Intel's exemplary corporate governance practices include all of the following exceptA.a mix of inside and outside directors.B.all outside directors to assure objectivity in decision-making.C.board presentations and access to employees.D.formal evaluation of officers.

63.External control mechanisms include all of the following exceptA.auditors.B.analysts.C.competitors.D.the market for corporate control.

64.Managerial opportunism can take all of the following forms exceptA.shirking.B.job-hopping.C.on the job consumption.D.excessive product diversification.

65.If the market value of a firm becomes less than its book value,A.it becomes an attractive takeover target.B.the firm will be delisted by the stock exchange.C.the Securities and Exchange Commission will not allow it to declare dividends until the market value once again exceeds the book value.D.the firm will be unable to service its debt.

66.By takeover constraint, we meanA.constraints placed by the firm on raiders who want to takeover the firm.B.legal constraints that limit the ability of the raiders to acquire a firm.C.provisions in the charter of a company that prevents it from attempting a takeover of other companies.D.the risk of being acquired by a hostile raider.

67.It is generally argued that the takeover constraintA.deters management from engaging in opportunistic behavior.B.deters management from considering acquiring other companies.C.deters management from declaring dividends.D.deters management from increasing a firm's level of borrowing.

68.The failure of many auditing firms to raise red flags about accounting irregularities in companies such as Enron and WorldCom is generally attributed to all of the following factors exceptA.the desire to get future auditing contracts from the company.B.the desire to get consulting work from the company because most audit firms also do consulting work.C.the fact that auditors are appointed by the firm.D.the failure of U.S. audit firms to hire technically qualified professionals.

69.The reasons analyst recommendations are often more optimistic than warranted by an objective analysis of a firm's prospects include all of the following exceptA.many analysts fail to grasp the gravity of the problems facing a company.B."sell" recommendations generate lower commissions than buy recommendations.C.the firms for which analysts work may have lucrative investment banking relationships with the firm.D.analysts are often pressured by their superiors to overlook negative information or tone down their criticisms of the firms they analyze.

70.All of the following are types of information that a firm is required to disclose exceptA.quarterly and annual filings of financial information.B.stock trading by insiders.C.details of new products under development.D.details of executive compensation packages.

71.In emerging economics and continental Europe, firms often can be characterized by all of the following exceptA.concentrated ownership.B.low family ownership and control.C.business group structures.D.weak legal protection for minority shareholders.

72.In principal-principal conflicts (conflicts between controlling shareholders and minority shareholders), the ownership (of equity) isA.widely dispersed (5-20% is considered "concentrated ownership").B.controlled almost completely by management.C.concentratedoften greater than 50% of equity is controlled by controlling shareholders.D.often held by employee stock ownership programs.

73.Conditions for principal-principal (PP) conflicts (conflicts between controlling shareholders and minority shareholders) to occur include all of the following exceptA.a dominant owner or group of owners who have interests that are distinct from minority shareholders.B.legislation that protects the interests of minority shareholders.C.a motivation for the controlling shareholders to exercise their dominant position to their advantage.D.few formal (such as legislation or regulatory bodies) or informal constraints that discourage or prevent the controlling shareholders from exploiting their advantageous positions.

74.Expropriation of minority shareholders means thatA.minority shareholders must sell their shares upon demand.B.minority shareholders cannot own shares in foreign firms.C.minority shareholders do not receive dividends.D.minority shareholders are adversely affected by the actions of controlling shareholders.

Essay Questions

75.What are the advantages and disadvantages associated with using "traditional" approaches to strategic control?

76.What are the advantages and disadvantages associated with using "contemporary" approaches to strategic control?

77.What are the four characteristics of effective contemporary control systems? Give examples of how firms apply these practices.

78.Why is it important to have a balance among the three behavioral controls - culture, rewards, and boundaries? Is there a danger associated with emphasizing one behavioral approach more than another?

79.Discuss the benefits and risks of using reward and incentive systems as a means of strategic control.

80.What are the characteristics of short-term objectives? Provide examples of practical applications of these characteristics by organizations.

81.What are the three key means to align the interests of owners (shareholders) and managers in a corporation?

82.What is meant by the term "market for corporate control?" How does the market for corporate control act as an external control mechanism?

83.Identify at least three external control mechanisms. Discuss the role played by each of these.

84.What is meant by principal-principal (PP) conflict? What are the implications for sound corporate governance?

Chapter 09 Strategic Control and Corporate Governance Answer Key

True / False Questions

1.(p.313 - 315)The "traditional" approach to strategic control is interactive; the "contemporary" approach to strategic control is sequential.FALSE

AACSB: AnalyticBloom's: KnowledgeDifficulty: EasyLearning Objective: 09-22.(p.313)The traditional approach to strategic control relies on feedback from performance measurement to strategy formulation.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-23.(p.313)For firms competing in highly unstable and turbulent industries, "traditional" strategic controls are most appropriate.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-24.(p.313)Sales quotas, operating budgets, and production schedules are examples of "traditional" controls.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-25.(p.313)In "single loop" learning, the organization's assumptions, premises, goals, and strategies are continuously monitored, tested, and reviewed.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-26.(p.314 - 315)"Contemporary" strategic controls involve comparing actual performance to predetermined goals.FALSE

AACSB: AnalyticBloom's: KnowledgeDifficulty: EasyLearning Objective: 09-37.(p.315)Informational control is primarily concerned with whether or not the organization is "doing the right things."TRUE

AACSB: AnalyticBloom's: KnowledgeDifficulty: EasyLearning Objective: 09-38.(p.315)Continuous monitoring enhances an organization's ability to respond with speed and flexibility.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-39.(p.316 - 317)As firms downsize, a control system based on rewards and culture becomes dysfunctional.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-410.(p.317)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.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-411.(p.318)Once a strong and healthy organizational culture has been established, it becomes self-sustaining.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-412.(p.319)The collective sum of individual behaviors of an organization's employees generally results in what is best for the organization; thus, individual rationality assures organizational rationality.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-413.(p.319)An organization's reward system is typically a weak method of motivating employees.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-414.(p.319)Different functional areas within an organization often have different reward systems.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-415.(p.319)Rewards systems that reinforce an organization's core values and contribute to organizational cohesiveness are the least effective type.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-416.(p.319)For a reward system to be effective, it must be perceived as fair and equitable.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-417.(p.320)Boundaries and constraints are just used to maintain order in an organization and have little effect on the organization's strategic priorities.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-418.(p.320 - 321)Short-term objectives and action plans are types of boundaries that channel the efforts of employees toward goal accomplishment.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-419.(p.320 - 321)Unexpected events (such as wildcat strikes or new government regulations) have little effect on short-term objectives that need to remain fixed to be effective.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-420.(p.320 - 321)Action plans permit a degree of autonomy for managers who sometimes must modify activities to achieve the desired outcome.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-421.(p.321 - 322)Boundaries and constraints, when used properly, can minimize improper and unethical conduct.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-422.(p.324)Rule-based controls are appropriate in organizations where most of the employees are unskilled.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-423.(p.324)The primary participants in corporate governance, according to Monks and Minow, are (1) the shareholders, (2) board of directors, and (3) employees.FALSE

AACSB: AnalyticBloom's: KnowledgeDifficulty: EasyLearning Objective: 09-524.(p.326 - 327)Central to agency theory is the relationship between two primary playersthe principals (stockholders) and agents (management).TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-525.(p.327)Research has shown that executives who have large holdings of stock in their firm were more likely to have diversification strategies more consistent with shareholder interestsincreasing long-term returns.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-526.(p.327 - 328)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.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-627.(p.333)The risk of being acquired by hostile raiders is often referred to as the takeover constraint.TRUE

AACSB: AnalyticBloom's: KnowledgeDifficulty: EasyLearning Objective: 09-628.(p.334)Auditors are appointed by the Securities and Exchange Commission to audit a company's financial statements.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-629.(p.334)Stock analysts generally issue more "sell" recommendations than "buy" recommendations.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-630.(p.335)Public companies are required by law to disclose information regarding executive compensation packages.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-631.(p.335)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.TRUE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-632.(p.335)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.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-633.(p.336 - 337)In emerging economies and continental Europe, principal-principal conflicts are frequent. These consist of conflicts between controlling shareholders and executives.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-634.(p.338)Principal-principal (PP) conflicts frequently result in expropriation, which is defined as activities to enrich minority shareholders to assure their support.FALSE

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-6

Multiple Choice Questions

35.(p.313)The "traditional" approach to strategic control is sequential. Which of the following is not one of the steps in the sequence?A.Action plans are submitted by lower level managers.B.Performance is measured against the predetermined goal.C.Strategies are implemented.D.Strategies are formulated and top management sets goals.

AACSB: AnalyticBloom's: KnowledgeDifficulty: EasyLearning Objective: 09-236.(p.313)The primary drawback of "traditional" strategic control systems isA.they are only appropriate when the environment is stable and simple.B.goals and objectives cannot be measured with a high level of certainty.C.they lead to complacency.D.they lack the flexibility needed to adjust to changes in the environment.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-237.(p.313)For businesses facing complex and turbulent business environmentsA.goals and objectives that are uncertain prevent opportunism.B.traditional strategic controls are usually inappropriate.C.complacency about predetermined milestones can prevent adaptability.D.detailed plans are needed to maintain order.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-238.(p.315)Contemporary approaches to strategic control rely primarily onA.feedback controls.B.single-loop learning.C.double-loop learning.D.comparative learning.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-339.(p.315)Informational control systems askA.is the organization "doing things right"?B.is the organization "doing the right things"?C.are rules and regulations being followed as information is processed?D.is the organization's environment a necessary and sufficient condition for success?

AACSB: AnalyticBloom's: KnowledgeDifficulty: EasyLearning Objective: 09-340.(p.315)The benefits of continuous monitoring includeA.enhancing the organization's ability to respond with speed and flexibility.B.replacing the time-consuming process of organizational learning.C.dramatically altering the organization's response to its competitive environment.D.all of the above.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-341.(p.315)Which of the following is not one of the characteristics of a contemporary control system?A.It is a key catalyst for an ongoing debate about underlying data, assumptions, and action plans.B.It must focus on constantly changing information that is strategically important.C.It circumvents the need for face-to-face meetings among superiors, subordinates, and peers.D.It generates information that is important enough to demand regular and frequent attention.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-342.(p.315)Top managers at ABC Company meet every Friday to review daily operational reports and year-to-date data. This is an example ofA.behavioral control.B.informational control.C.strategy formulation.D.strategy implementation.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-343.(p.316 - 317)Complete the following sentence: "As firms simultaneously downsize and face the need for increased coordination across organization boundaries, a control system based primarily on __________ is dysfunctional."A.boundaries and constraintsB.culture and rewardsC.organizational loyaltyD.innovation and risk taking

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-444.(p.317 - 318)All of the following are examples of how organizational culture exerts behavioral control exceptA.culture helps maintain control by creating behavioral norms.B.culture generates unwritten standards of acceptable behavior.C.culture encourages individual identification with the organization and its objectives.D.culture sets explicit boundaries.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-445.(p.318)The late Sam Walton, founder of Wal-Mart, used to give pep rallies at local Wal-Mart stores. What purpose did this serve?A.It was used to remind employees of Wal-Mart's rules and regulations.B.It helped reinforce and sustain Wal-Mart's culture.C.It demonstrated to employees the importance of articulating explicit goals and objectives.D.It made Wal-Mart's reward system very explicit.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-446.(p.318 - 319)Which of the following is not one of the functions of reward and incentive systems?A.They represent a poor means of influencing an organization's culture.B.They focus efforts on high-priority tasks.C.They motivate high levels of individual and collective task performance.D.They represent an effective control mechanism.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-447.(p.319)Complete the following sentence: "Individual rationality __________ organizational rationality."A.is a good indicator ofB.will ensureC.is often the opposite ofD.does not always guarantee

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-448.(p.319)When countercultures emerge that have shared values opposite from the dominant culture of an organizationA.organizational cohesiveness increases.B.information is shared rather than hoarded.C.individuals begin working at cross purposes.D.individuals gain insights into overarching goals and objectives.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-449.(p.318 - 319)All of the following are characteristics of effective reward and incentive systems exceptA.performance measures are clear and highly visible.B.the structure is fixed to assure employees of consistency.C.the compensation system is perceived as fair and equitable.D.objectives are well understood, and broadly accepted.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-450.(p.319)The causes of counterproductive behavior in organizations includeA.lack of a clear understanding of organizational goals and objectives.B.motivated self-interest.C.outright malfeasance.D.all of the above.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-451.(p.320 - 321)Effective boundaries and constraintsA.tend to inhibit efficiency and effectiveness.B.distract employees who are trying to focus on organizational priorities.C.minimize improper and unethical conduct.D.tend to limit organizational growth.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-452.(p.320 - 321)Effective short-term objectives have all of the following priorities exceptA.an emphasis on "do your best" goals.B.being achievable yet challenging.C.providing a specific time horizon for their attainment.D.being specific and measurable.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-453.(p.320 - 321)Which of the following statements about action plans is true?A.Action plans, though specific, should permit a degree of autonomy to managers and not be constrained by budgets.B.Action plans must be specific so that managers will have a clear understanding of the resource requirements necessary to implement the plan.C.Action plans should not be constrained by a time frame in order to allow for modification.D.Although managers must be held accountable for implementing action plans, this accountability often erodes the managers' motivation to implement the plan on a timely basis.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-454.(p.321)Rules and regulations are examples ofA.implicit controls.B.informational controls.C.cultural norms.D.boundaries and constraints.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-455.(p.321)Cadbury Schweppes has a policy that all payments, no matter how unusual, are recorded in the company's books. This rule isA.overly cumbersome.B.aimed at encouraging managers to make better budgetary decisions.C.directed at protecting client confidentiality.D.designed to minimize improper and unethical conduct.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-456.(p.324)Which of the following approaches to behavioral strategic control should be utilized least in an organization in which there is a great need for innovation and a high degree of autonomy?A.cultureB.rewardsC.boundariesD.All of the above are equally important.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-457.(p.323 - 324)Most successful organizations minimize the need for explicit rules, regulations, and other boundaries byA.posting written statements of the organization's goals and objectives.B.discouraging the formation of subcultures that isolate work groups.C.designing effective reward systems.D.encouraging employees to see themselves as free agents.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-458.(p.324)Rule-based controls are most appropriate in organizations with all of the following characteristics exceptA.environments are stable and predictable.B.employees are highly skilled and independent.C.consistency in product or service.D.the risk of malfeasance is extremely high.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-459.(p.324)Rules and regulations, rather than culture or rewards, would be used for strategic control at which type of company?A.software developerB.stock brokerage firmC.manufacturer of mass produced productsD.high tech research facility

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-460.(p.323 - 324)Most organizations with strong cultures and a sound system of rewards and incentives can eventually internalize boundaries rather than use explicit rules and regulations. Which of the following is not a technique for moving in that direction?A.Hire people that identify with the organization's dominant values.B.Develop managerial role models.C.Minimize training and indoctrination.D.Align reward systems with organizational goals and objectives.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-461.(p.324)The primary participants in corporate governance are all of the following exceptA.the shareholders.B.key stakeholders such as financial institutions.C.management (led by the chief executive officer).D.the board of directors.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-562.(p.329)Intel's exemplary corporate governance practices include all of the following exceptA.a mix of inside and outside directors.B.all outside directors to assure objectivity in decision-making.C.board presentations and access to employees.D.formal evaluation of officers.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-663.(p.332 - 336)External control mechanisms include all of the following exceptA.auditors.B.analysts.C.competitors.D.the market for corporate control.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-664.(p.333)Managerial opportunism can take all of the following forms exceptA.shirking.B.job-hopping.C.on the job consumption.D.excessive product diversification.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-665.(p.333 - 334)If the market value of a firm becomes less than its book value,A.it becomes an attractive takeover target.B.the firm will be delisted by the stock exchange.C.the Securities and Exchange Commission will not allow it to declare dividends until the market value once again exceeds the book value.D.the firm will be unable to service its debt.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-666.(p.333)By takeover constraint, we meanA.constraints placed by the firm on raiders who want to takeover the firm.B.legal constraints that limit the ability of the raiders to acquire a firm.C.provisions in the charter of a company that prevents it from attempting a takeover of other companies.D.the risk of being acquired by a hostile raider.

AACSB: AnalyticBloom's: KnowledgeDifficulty: EasyLearning Objective: 09-667.(p.333)It is generally argued that the takeover constraintA.deters management from engaging in opportunistic behavior.B.deters management from considering acquiring other companies.C.deters management from declaring dividends.D.deters management from increasing a firm's level of borrowing.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-668.(p.334)The failure of many auditing firms to raise red flags about accounting irregularities in companies such as Enron and WorldCom is generally attributed to all of the following factors exceptA.the desire to get future auditing contracts from the company.B.the desire to get consulting work from the company because most audit firms also do consulting work.C.the fact that auditors are appointed by the firm.D.the failure of U.S. audit firms to hire technically qualified professionals.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-669.(p.334)The reasons analyst recommendations are often more optimistic than warranted by an objective analysis of a firm's prospects include all of the following exceptA.many analysts fail to grasp the gravity of the problems facing a company.B."sell" recommendations generate lower commissions than buy recommendations.C.the firms for which analysts work may have lucrative investment banking relationships with the firm.D.analysts are often pressured by their superiors to overlook negative information or tone down their criticisms of the firms they analyze.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-670.(p.335)All of the following are types of information that a firm is required to disclose exceptA.quarterly and annual filings of financial information.B.stock trading by insiders.C.details of new products under development.D.details of executive compensation packages.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-671.(p.336)In emerging economics and continental Europe, firms often can be characterized by all of the following exceptA.concentrated ownership.B.low family ownership and control.C.business group structures.D.weak legal protection for minority shareholders.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-672.(p.336)In principal-principal conflicts (conflicts between controlling shareholders and minority shareholders), the ownership (of equity) isA.widely dispersed (5-20% is considered "concentrated ownership").B.controlled almost completely by management.C.concentratedoften greater than 50% of equity is controlled by controlling shareholders.D.often held by employee stock ownership programs.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-673.(p.337)Conditions for principal-principal (PP) conflicts (conflicts between controlling shareholders and minority shareholders) to occur include all of the following exceptA.a dominant owner or group of owners who have interests that are distinct from minority shareholders.B.legislation that protects the interests of minority shareholders.C.a motivation for the controlling shareholders to exercise their dominant position to their advantage.D.few formal (such as legislation or regulatory bodies) or informal constraints that discourage or prevent the controlling shareholders from exploiting their advantageous positions.

AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-674.(p.338)Expropriation of minority shareholders means thatA.minority shareholders must sell their shares upon demand.B.minority shareholders cannot own shares in foreign firms.C.minority shareholders do not receive dividends.D.minority shareholders are adversely affected by the actions of controlling shareholders.

AACSB: AnalyticBloom's: KnowledgeDifficulty: EasyLearning Objective: 09-6

Essay Questions

75.(p.313 - 314)What are the advantages and disadvantages associated with using "traditional" approaches to strategic control?

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AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-276.(p.314 - 315)What are the advantages and disadvantages associated with using "contemporary" approaches to strategic control?

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AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-377.(p.315)What are the four characteristics of effective contemporary control systems? Give examples of how firms apply these practices.

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AACSB: AnalyticBloom's: ApplicationDifficulty: HardLearning Objective: 09-378.(p.316 - 317)Why is it important to have a balance among the three behavioral controls - culture, rewards, and boundaries? Is there a danger associated with emphasizing one behavioral approach more than another?

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AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-479.(p.316 - 317)Discuss the benefits and risks of using reward and incentive systems as a means of strategic control.

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AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-480.(p.320 - 321)What are the characteristics of short-term objectives? Provide examples of practical applications of these characteristics by organizations.

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AACSB: AnalyticBloom's: ApplicationDifficulty: HardLearning Objective: 09-481.(p.327 - 332)What are the three key means to align the interests of owners (shareholders) and managers in a corporation?

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AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-682.(p.333 - 334)What is meant by the term "market for corporate control?" How does the market for corporate control act as an external control mechanism?

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AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-683.(p.332 - 336)Identify at least three external control mechanisms. Discuss the role played by each of these.

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AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-684.(p.336 - 338)What is meant by principal-principal (PP) conflict? What are the implications for sound corporate governance?

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AACSB: AnalyticBloom's: ComprehensionDifficulty: MediumLearning Objective: 09-69-1