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Oxford University Press | Online Resource Centre | Chapter 12

Henry: Understanding Strategic Management 2e

Chapter 12

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Question 1
According to Cadbury (2002), corporate governance is an issue of power and:
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b) Accountability
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Corporate governance is required to ensure that the managers of an organization do not act in their own self-interest.
Page reference: 392

Question 2
The OECD argues that corporate governance problems arise because:
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a) Ownership and control is separated
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This is known as the 'principle-agent problem'.
Page reference: 393

Question 3
The Institute of Chartered Accountants in England and Wales considers argue that one particular stakeholder group should have primacy over all
other groups. Which stakeholder group are they referring to?
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Correct answer:
c) Shareholders
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This is because it is shareholders' money at stake.
Page reference: 394

Question 4
An organization that is owned by shareholders but managed by agents on their behalf is conventionally known as the modern:

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Oxford University Press | Online Resource Centre | Chapter 12

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b) Corporation
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The modern corporation has a number of attributes that have led to its spread and acceptance.
Page reference: 395

Question 5
The modern corporation has four characteristics. These are limited liability, legal personality, centralized management and:
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d) Transferability
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It is a feature of the modern corporation that shareholders can sell their shareholding when they wish. This makes the level of risk associated
with investing in a corporation more acceptable.
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Question 6
What makes a corporation distinct from a partnership?
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a) If the members of a corporation die, the corporation remains in existence providing it has capital
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This is known as 'legal personality'. In contrast, a partnership does not have a legal personality.
Page reference: 396

Question 7
The term 'asymmetry of information' means information in a corporation is:
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c) Not equally transparent to all stakeholders
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Asymmetry of information occurs when the managers have access to more information than some of the owners who may be widely
dispersed.
Page reference: 398

Question 8
The view that sees profit maximization as the main objective is known as:
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Oxford University Press | Online Resource Centre | Chapter 12

a) Shareholder theory
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The opposing view is stakeholder theory which has the view that corporations' role in society goes beyond just making a profit.
Page reference: 398

Question 9
Who is the most famous exponent of shareholder theory?
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c) Milton Friedman
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Milton Friedman argues that managers who run a corporation for social good are being irresponsible with shareholders' money.
Page reference: 398

Question 10
The key protagonist of stakeholder theory is:
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b) R. E Freeman
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Stakeholder theory does not give primacy to shareholders.
Page reference: 405

Question 11
Where an organization takes into account the effect its strategic decisions have on society, this is known as:
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d) Corporate social responsibility
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CSR is an umbrella term for the ethical behaviour of an organization with respect to all of its stakeholders. More and more organizations are
becoming aware of the need to act in a manner that goes beyond the legal minimum obligation.
Page reference: 406

Question 12
Which intervention resulted from the Enron scandal?
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b) The Sarbannes-Oxley Act
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Oxford University Press | Online Resource Centre | Chapter 12

The Sarbannes-Oxley Act went further than codes of conduct. Some companies are having difficulty adhering to the stipulations of the Act.
Page reference: 415

Question 13
Executive pay in the UK was reviewed by:
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a) The Greenbury Committee
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The Greenbury report was in response to concerns over excessively high levels of executive pay. These executives were popularly referred to
as 'fat cats'.
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Question 14
Kakabadse and Kakabadse (2001) argue that existing corporate governance models in general are:
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b) Increasing social inequalities
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These authors represent the stakeholder view. They argue that corporate governance issues need to be debated at the level of society, rather
than at the level of the corporation.
Page reference: 423

Question 15
In Japan, some corporations operate within the philosophy of 'kyosei'. The term 'kyosei' means:
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Correct answer:
c) Living and working for the common good
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The kyosei way of running a corporation reflects stakeholder theory rather than shareholder theory. It sees business as being part of society.
Page reference: 405

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