Podcast
Questions and Answers
Which of the following sequences accurately represents the strategic management process?
Which of the following sequences accurately represents the strategic management process?
- Mission → Objectives → Internal Analysis → Strategy Implementation → Strategic Choice
- Mission → Objectives → External Analysis → Strategic Choice → Competitive Advantage (correct)
- Objectives → Mission → External Analysis → Strategic Choice → Strategy Implementation
- External Analysis → Internal Analysis → Mission → Objectives → Strategy Implementation
What is the primary function of the 'M-Form Structure' within a modern corporation with dispersed ownership?
What is the primary function of the 'M-Form Structure' within a modern corporation with dispersed ownership?
- To directly involve owners in the day-to-day management of the company.
- To centralize all information processing into a single unit.
- To divide information processing requirements into manageable blocks. (correct)
- To ensure complete alignment of interests between owners and managers.
In the context of corporate governance, managers acting as agents for shareholding investors can lead to what potential conflict?
In the context of corporate governance, managers acting as agents for shareholding investors can lead to what potential conflict?
- Complete agreement between investor preferences and managerial goals.
- Managers solely focusing on long-term shareholder value maximization.
- Shareholders having a complete understanding of day-to-day management decisions.
- Investor preferences and CEO goals often being at odds with each other. (correct)
Which entity is primarily responsible for ensuring that a company is managed in accordance with the long-term interests of its shareholders?
Which entity is primarily responsible for ensuring that a company is managed in accordance with the long-term interests of its shareholders?
A company decides to implement a bonus system based on cost reduction achieved within each department. What type of organizational control is being utilized?
A company decides to implement a bonus system based on cost reduction achieved within each department. What type of organizational control is being utilized?
Which compensation type is MOST likely to encourage a longer time horizon in managerial decision-making?
Which compensation type is MOST likely to encourage a longer time horizon in managerial decision-making?
Which of the following is an external control mechanism that can ensure managerial actions lead to shareholder value maximization?
Which of the following is an external control mechanism that can ensure managerial actions lead to shareholder value maximization?
What does 'shareholder activism' refer to in the context of corporate governance?
What does 'shareholder activism' refer to in the context of corporate governance?
Which of the following is an anti-takeover provision that companies sometimes use to defend against hostile takeovers?
Which of the following is an anti-takeover provision that companies sometimes use to defend against hostile takeovers?
Which of the following is considered a formal management control?
Which of the following is considered a formal management control?
What is the prerequisite for implementing effective policies for employees and aligning incentives?
What is the prerequisite for implementing effective policies for employees and aligning incentives?
What is the primary purpose of Organizational Controls?
What is the primary purpose of Organizational Controls?
What is the primary effect of dispersed ownership in modern corporations regarding information flow and control?
What is the primary effect of dispersed ownership in modern corporations regarding information flow and control?
If a CEO's personal objectives conflict with the preferences of the shareholding investors, what type of problem does this represent?
If a CEO's personal objectives conflict with the preferences of the shareholding investors, what type of problem does this represent?
Beyond stock options and bonuses, what is another form of non-monetary award that can be part of a company's compensation policy?
Beyond stock options and bonuses, what is another form of non-monetary award that can be part of a company's compensation policy?
If a company's compensation policy ties salary to short-term performance, what is a likely outcome?
If a company's compensation policy ties salary to short-term performance, what is a likely outcome?
What role do auditors play as an external control mechanism?
What role do auditors play as an external control mechanism?
When shareholders feel that managerial actions diverge from shareholder value maximization, what action might they take?
When shareholders feel that managerial actions diverge from shareholder value maximization, what action might they take?
What is the typical outcome when a company adopts 'golden parachutes' as an anti-takeover provision?
What is the typical outcome when a company adopts 'golden parachutes' as an anti-takeover provision?
Which of the following is an example of an informal management control?
Which of the following is an example of an informal management control?
Flashcards
Strategy Implementation
Strategy Implementation
The process of turning strategic plans into actions to achieve goals.
M-Form Structure
M-Form Structure
A structure that divides information processing requirements into manageable blocks, also dividing owners from managers.
Agency Relationship
Agency Relationship
Managers acting on behalf of shareholding investors.
Board of Directors
Board of Directors
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External Control Mechanisms
External Control Mechanisms
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Shareholder Activism
Shareholder Activism
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Organizational Controls
Organizational Controls
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Golden Parachutes
Golden Parachutes
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Informal Management Controls
Informal Management Controls
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Formal Management Controls
Formal Management Controls
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Study Notes
The Strategic Management Process
- Strategic management involves a sequence of steps:
- Mission
- Objectives
- External Analysis
- Internal Analysis
- Strategic Choice
- Strategy Implementation
- Competitive Advantage
- Strategy implementation involves implementing business and corporate level strategies.
Modern Corporations and Dispersed Ownership
- Modern corporations feature dispersed ownership
- This creates a trade-off where an M-Form structure divides information processing requirements into manageable blocks
- The M-Form divides owners from managers
- The interests of owners and managers may diverge
The Agency Relationship
- Managers act as agents for shareholding investors
- Investor preferences and CEO goals often conflict
Managing the Agency Relationship
- Principals:
- Individual shareholders
- Institutional shareholders
- Monitors:
- Board of Directors
- Dual Role
- Agents:
- Senior Executives
- Division General Managers
- Corporate Staff
- Shared Activity Managers
The Board of Directors
- The Board of Directors has a fiduciary duty
- They ensure the company is run consistently, and in the long-term interests of the shareholders
Organizational Controls: Compensation Policies
- Stock options are a form of compensation
- Bonuses are based on:
- Cost reduction
- Financial performance
- Non-monetary awards are also compensation:
- Vacations
- Parking places
- Office decor
- Compensation policies should reinforce formal and informal management controls
Compensation Policies for Management: Aligning Incentives
- Tied to Performance:
- Stock Options (Long Time Horizon)
- Stock Grants
- Cash Bonus (Short Time Horizon)
- Not Tied to Performance:
- Salary
External Control Mechanisms
- These mechanisms ensure managerial actions maximize shareholder value.
- They also ensure that they don't harm other stakeholder groups.
- External control mechanisms include:
- Market for corporate control
- Auditors
- Banks and analysts
- Regulatory bodies
- Media and public activists
Shareholder Activism
- Shareholder activism includes actions by large shareholders
- Both institutions and individuals protect their interests when managerial actions diverge from shareholder value maximization
Managers Fight Back! Anti-takeover Provisions
- Managers use anti-takeover provisions to defend against shareholder activism including:
- Greenmail
- Poison Pills
- Shark repellents
- Pac Man defense
- Golden parachutes
Organizational Controls: Management Controls
- Policies are intended to influence behaviour by aligning the interests of the individual with the interests of the organization
- Formal controls:
- Budgeting policies
- Credit policies
- Spending policies
- Travel policies
- Purchasing policies
- Informal controls:
- Culture
- Attitudes
- Leadership styles
Policies for Employees: Aligning Incentives
- Policies align employee incentives.
- Policies need to motivate employees
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