Exam 2 Leading an Organizational Strategy

What are the three factors affecting decision making discretion?

• External environmental sources

• Characteristics of the organization

• Characteristics of the manager

What is CEO Duality?

May also hold the position of chairman of the board (CEO duality).

What is an advantage of using external managerial labor market?

Long-tenured insiders may be “stale in the saddle”—outsiders may bring fresh

perspectives.

What is social capital?

Relationships inside and outside the firm that help it accomplish tasks and

create value for customers and shareholders

What does using the balanced scorecard prevent?

Prevents overemphasis of financial controls at the expense of strategic

controls

What does managerial opportunism prevent?

Managerial opportunism prevents the maximization of shareholder

wealth (the primary goal of owner/principals).

Be able to provide a short list of agency costs

The sum of incentive costs, monitoring costs, enforcement costs, and

individual financial losses incurred by principals, because governance

mechanisms cannot guarantee total compliance by the agent.

How can institutional investors influence management strategies?

The increasing influence of institutional owners (stock mutual funds and pension funds)

• Have the size (proxy voting power) and

incentive (demand for returns to funds)

to discipline ineffective top-level

managers.

• Can affect the firm’s choice of

strategies.

What are the three categories of board members?

Insiders: the firm’s CEO and other top-level managers

• Related Outsiders: individuals uninvolved with day-to-day operations, but who have a relationship with the firm

• Outsiders: individuals who are independent of the firm’s day-to-day operations and other relationships

How can boards become more effective?

More diversity in the backgrounds of

board members

• Stronger internal management and

accounting control systems

• More formal processes to evaluate the

board’s performance

• Adopting a “lead director” role.

• Changes in compensation of directors

What is the “market for corporate control”?

• Individuals and firms buy or take

over undervalued firms.

• Ineffective managers are usually

replaced in such takeovers.

• Threat of takeover may lead firm

to operate more efficiently.

• Changes in regulations have made

hostile takeovers difficult.

What are some of the managerial defense tactics available to prevent a hostile takeover?

Defense tactics may require:

• Asset restructuring

• Changes in the financial structure of

the firm

• Shareholder approval

• Market for corporate control

lacks the precision of internal

governance mechanisms.