Strategic Management and Business Policy, 16e, Global Edition (Wheelen) Chapter 1 Basic Concepts of Strategic Management 1) What was strategic management originally called? A) Business policy B) Planning C) Marketing strategy D) Short-term planning E) Operational planning Answer: A Difficulty: Easy Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 2) Research suggests that strategic management evolves through four sequential phases in corporations. The first phase is A) externally oriented planning. B)b asic financial planning. C)i nternally oriented planning. D) forecast-based planning. E) strategic management. Answer: B Difficulty: Easy Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 3) The time horizon involved with regard to forecast-based planning is usually A) one year. B)o ne quarter. C)t hree to five years. D) less than one month. E) five to ten years. Answer: C Difficulty: Easy Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 4) A difference between basic financial planning and forecast-based planning is A) the time horizon is shorter in forecast-based planning. B)f orecast-based planning incorporates environmental data and extrapolates current trends. C)b asic financial planning utilizes consultants with sophisticated techniques. D) basic financial planning utilizes scenarios and contingency strategies. E) basic financial planning relies heavily on input from lower levels in the organization. Answer: B Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Analytical thinking 1 .
5) Top-down planning that emphasizes formal strategy formulation and leaves the implementation issues to lower management levels is known as A) forecast-based planning. B) externally oriented planning. C) strategic management. D) basic financial planning. E) none of the above. Answer: B Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 6) In the final phase of strategic management, strategic information is available to A) people throughout the organization. B) the top management responsible for decision-making. C) middle management. D) operational personnel. E) only those responsible for implementing the strategy. Answer: A Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 7) In a survey of 50 corporations, which of the following was rated as one of the three top benefits of strategic management? A) Clearer sense of strategic direction for the firm B) Higher levels of employee motivation C) Higher levels of job satisfaction D) Improved productivity E) Lower employee turnover Answer: A Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 8) When an organization is involved in formal strategic planning, which is not one of the strategic questions that an organization generally may ask itself? A) Where is the organization now? B) Are we on target to hit our financial objectives next year? C) If no changes are made, where will the organization be in one year? D) If the evaluation is negative, what specific actions should management take? E) If no changes are made, where will the organization be in 10 years? Answer: B Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Analytical thinking 2 .
9) In the Bain & Company survey of executives from more than 70 countries, which of the following was the number one tool used by decision makers? A) Customer relationship management B)S trategic planning C) Marketing planning D) Financial management E) Budgeting Answer: B Difficulty: Challenging Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 10) Strategic planning within a small organization A) may be informal and irregular. B) must be elaborate to allow for future growth. C) should always be formalized and explicitly stated. D) should be done by the president only. E) is unnecessary and a waste of time. Answer: A Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 11) Strategic planning in a large firm A) should be informal to allow complete understanding by the many participants. B) should be instigated only from the main corporate office. C) should be accomplished quickly to decrease the likelihood of it becoming outdated. D) should encourage a clear delineation between top management and lower-level managers. E) should be a formalized and sophisticated system. Answer: E Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 12) Strategic management is the set of managerial decisions that help determine the long-term performance of a corporation. Answer: TRUE Difficulty: Easy Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 13) As annual budgets become less useful at stimulating long-term success, managers attempt to propose five-year plans. Answer: TRUE Difficulty: Easy Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 3 .
14) One of the benefits of strategic management is a clearer sense of strategic direction for the firm. Answer: TRUE Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Analytical thinking 15) To be effective, strategic management must be a formal process. Answer: FALSE Difficulty: Challenging Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Analytical thinking 16) How does basic financial planning differ from forecast-based planning? Answer: The two differ in terms of the time horizons involved. While the time horizon for basic financial planning is usually a year, it is typically three to five years for forecast-based planning. In addition, basic financial planning relies almost entirely on information generated internally, while forecast-based planning uses both internal and external information. Difficulty: Moderate Learning Obj.: 1.1: Discuss the benefits of strategic management AACSB: Application of knowledge 17) The integrated internationalization of markets and corporations is called A) normalization. B) economic integration. C) globalization. D) nationalization. E) regionalization. Answer: C Difficulty: Easy Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 18) The term used to describe new products, services, methods, and organizational approaches that allow businesses to achieve extraordinary returns is A) ROI. B) innovation. C) competitive advantage. D) sustainability. E) profit maximization. Answer: B Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 4 .
19) The agreement between El Salvador, Guatemala, Honduras, Nicaragua, Costa Rica, and the United States is called A) EU. B) ASEAN. C) NAFTA. D) Mercosur. E) CAFTA. Answer: E Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 20) Members of the European Union (EU) include all of the following EXCEPT A) Ireland. B) the United Kingdom. C) Belgium. D) France. E) Slovakia. Answer: B Difficulty: Easy Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 21) Argentina is part of which trade alliance? A) ASEAN B) Mercosur C) EU D) NAFTA E) CAFTA Answer: B Difficulty: Easy Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge
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22) The currency used to integrate the monetary systems of the European Union (EU) is called the A) peso. B) dollar. C) euro. D) franc. E) pound. Answer: C Difficulty: Easy Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 23) The triple bottom line refers to which of the following responsibilities of an organization? A) Responsibilities in the conservation of water, air, and oil B) Responsibilities in impacting footprints, finance, and environment C) Responsibilities with respect to the physical environment, traditional profit/loss, and air D) Traditional profit/loss, social responsibility, and environmental responsibility E) Traditional social responsibility, responsibility to people, and to ethics Answer: D Difficulty: Challenging Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 24) During the worldwide Covid-19 pandemic, supply lines that were tightly managed for minimal stock-on-hand unraveled as the world went into repeated lockdowns and then surges of consumer demand. This is an example of the downside of A) containerization. B)i nternationalization. C) globalization. D) localization. E) regionalization. Answer: C Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 25) Certified B Corporations are businesses that meet certain social and environmental performance measures, along with public transparency aimed at creating a balance of profitability and sustainability. Answer: TRUE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 6 .
26) Jobs, knowledge, and capital are now able to move across borders with far greater speed and far less friction than was possible only a few years ago. Answer: TRUE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Analytical thinking 27) One member of the European Union (EU) is the United Kingdom. Answer: FALSE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 28) The goal of NAFTA is to improve trade among Canada, the United States, and Mexico. Answer: TRUE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 29) The triple bottom line is a term used to describe a business's sustainability. Answer: TRUE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 30) Innovation is the machine that generates business opportunities in the market. Answer: TRUE Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 31) A Gallup study reported that companies that focused on business sustainability had 3.9 times the EPS growth rates as compared to organizations that did not focus on business sustainability. Answer: TRUE Difficulty: Challenging Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge
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32) Briefly describe the concept of the triple bottom line and its role in sustainability. Answer: In 1994, John Elkington came up with the term, "triple bottom line" to describe a business's sustainability. Triple bottom line suggests that businesses prepare and report on three separate bottom lines in their annual report: • The traditional profit and loss that reports on financial performance. • A people account that looks at the social responsibility of the organization. • A planet account that identifies the organization's environmental responsibility. Difficulty: Moderate Learning Obj.: 1.2: Explain how globalization, innovation, and environmental sustainability influence strategic management AACSB: Application of knowledge 33) Which theory proposes that once an organization is successfully established in a particular environmental niche, it is unable to adapt to changing conditions? A) Population ecology B) Institution C) Citizenship D) Strategic choice E) Organizational learning Answer: A Difficulty: Moderate Learning Obj.: 1.3: Discuss the differences between the theories of organizations AACSB: Application of knowledge 34) The theory that proposes organizations can and do adapt to changing conditions by imitating other successful organizations is known as A) population ecology. B) institution theory. C) citizenship theory. D) strategic theory. E) sample theory. Answer: B Difficulty: Moderate Learning Obj.: 1.3: Discuss the differences between the theories of organizations AACSB: Application of knowledge
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35) The theory that proposes that organizations adjust defensively to a changing environment and use knowledge offensively to improve the fit between themselves and their environment is known as A) population ecology theory. B) institution theory. C) the strategic choice perspective. D) organizational learning theory. E) organizational citizenship theory. Answer: D Difficulty: Moderate Learning Obj.: 1.3: Discuss the differences between the theories of organizations AACSB: Application of knowledge 36) Organizational learning theory proposes that organizations can and do adapt to changing conditions by imitating other successful organizations. Answer: FALSE Difficulty: Easy Learning Obj.: 1.3: Discuss the differences between the theories of organizations AACSB: Application of knowledge 37) When Apple cuts into the sales of its own offerings with periodic introduction of new products, it is demonstrating A) strategy implementation. B) chaos formulation. C) contingency management. D) logical incrementalism. E) strategic flexibility. Answer: E Difficulty: Moderate Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 38) An organization skilled at creating, acquiring, and transferring knowledge, aimed at modifying its behavior to reflect new knowledge and insights is a(n) A) learning organization. B) strategically managed corporation. C) innovative organization. D) hypercompetitive competitor. E) entrepreneurial firm. Answer: A Difficulty: Easy Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge
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39) All of the following reflect activities of a learning organization EXCEPT A) experimenting with new approaches. B) learning from its own experiences and past history. C) solving problems systematically. D) alienating competitors in the industry. E) transferring knowledge quickly and efficiently throughout the organization. Answer: D Difficulty: Moderate Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 40) According to Alfred Chandler, what type of industries are defined by "paths of learning" in which organizational strengths derive from learned capabilities? A) Consumer products B) Automotive C) High-technology D) Infrastructure E) Personal services Answer: C Difficulty: Challenging Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 41) Strategic rigidity is the ability to shift from one dominant strategy to another. Answer: FALSE Difficulty: Easy Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 42) A learning organization is skilled at solving problems systematically. Answer: TRUE Difficulty: Moderate Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 43) Explain briefly the concept of strategic flexibility and how it relates to the idea of a learning organization. Answer: To compete successfully in a dynamic, complex environment, an organization must develop strategic flexibility, the ability to shift from one dominant strategy to another. In order to enhance its strategic flexibility, an organization has to make a long-term commitment to the development and nurturing of critical resources and capabilities. In addition, the organization should become adept at creating, acquiring, and transferring knowledge aimed at modifying its behavior to reflect new knowledge and insights — in other words, become a learning organization. Difficulty: Moderate Learning Obj.: 1.4: Discuss the activities where learning organizations excel AACSB: Application of knowledge 10 .
44) Which one of the following is not one of the basic elements of the strategic management process? A) Strategy formulation B) Strategy implementation C) Statistical process control D) Evaluation and re-assessment E) Environmental analysis Answer: C Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 45) SWOT is a part of the ________ component of the strategic management process. A) environmental analysis B) business strategy C) functional strategy D) strategy formulation E) strategy implementation Answer: A Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 46) The S in SWOT stands for A) strategies. B) scanning. C) strengths. D) societal. E) sociocultural. Answer: C Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 47) A firm's task environment is also called its A) internal environment. B) technical environment. C) terminal environment. D) industry. E) customers. Answer: D Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge
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48) The variables structure, culture, and resources pertain to the A) external environment. B) internal environment. C) sociocultural forces. D) task environment. E) societal environment. Answer: B Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 49) The task environment A) includes those elements or groups within an organization's industry. B) encompasses the physical working areas of the organization. C) is an accounting of the many jobs within an organization. D) is an advisory committee to top-management. E) includes general forces that only indirectly affect an organization's activities. Answer: A Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 50) Which one of the following is included in the firm's internal environment? A) Competitors B) Economic forces C) Resources D) Governments E) Special interest groups Answer: C Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 51) Key ________ in the internal environment form a set of core competencies that the organization can use to gain competitive advantage. A) opportunities B) trends C) weaknesses D) strengths E) threats Answer: D Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge
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52) The Strategic Management Model presents the following process for strategy formulation: A) Objectives — Policies — Strategies — Mission. B) Mission — Policies — Strategies — Objectives. C) Policies — Mission — Strategies — Objectives. D) Policies — Strategies — Objectives — Mission. E) Mission — Objectives — Strategies — Policies. Answer: E Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking 53) The process of investigation, analysis, and structured decision making that provides an organization with the criteria for attaining a competitive advantage is known as A) strategy formulation. B) strategy implementation. C) strategy control. D) strategic analysis. E) strategy evaluation. Answer: A Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 54) The corporate mission is best described by which one of the following? A) A description of the activities carried out by the organization B) The purpose or reason for the corporation's existence C) A description of top management's responsibilities D) A statement of corporate objectives E) A statement of what the organization would like to become Answer: B Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 55) Which one of the following is an example of a mission with a narrow scope? A) Transportation (vs. railroads) B) Computers (vs. office equipment) C) Health care (vs. hospitals) D) Real estate (vs. apartments) E) Telecommunications (vs. television) Answer: B Difficulty: Challenging Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking
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56) Mission describes what the organization is now, while ________ describe(s) what the organization would like to become. A) planning B) vision C) budgeting D) decisions E) strategizing Answer: B Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 57) Which of the following is an example of a mission statement? A) Diversify product line to appeal to more people B) Increase sales by ten percent over last year C) Pay highest salaries to keep high quality employees D) Develop and sell quality appliances worldwide E) Divide a sales region into a group of sales districts Answer: D Difficulty: Challenging Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 58) A goal differs from an objective because a goal A) is open-ended. B) is quantified. C) specifies measurable results. D) is clearly specified. E) provides a time horizon. Answer: A Difficulty: Challenging Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking 59) Which of the following is an example of an objective? A) To diversify product line to appeal to more people B) To increase sales by ten percent over last year C) To pay highest salaries to keep high quality employees D) To develop and sell quality appliances worldwide E) To divide a sales region into a group of sales districts Answer: B Difficulty: Challenging Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge
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60) The categories of stability, growth, and retrenchment fit what type of strategy? A) Corporate B) Business C) Functional D) Operational E) Tactical Answer: A Difficulty: Challenging Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 61) The type of strategy, which describes a company's overall direction in terms of its general attitude toward growth and the management of its various businesses is A) functional. B) operational. C) business. D) product. E) corporate. Answer: E Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 62) The type of strategy, which emphasizes the improvement of the competitive position of a corporation's products or services in a particular industry or market segment served by a business unit is A) functional. B) operational. C) business. D) environmental. E) corporate. Answer: C Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 63) The type of strategy, which achieves corporate and business unit objectives and strategies by maximizing resource productivity is A) functional. B) operational. C) business. D) product. E) corporate. Answer: A Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 15 .
64) A large business has three levels in its hierarchy of strategy: A) Corporate — Business — Functional. B) Environmental — Corporate — Functional. C) Environmental — Enterprise — Corporate. D) Business — Divisional — Functional. E) Industry — Corporate — Divisional. Answer: A Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 65) In the hierarchy of strategies, functional strategies support ________ strategies. A) corporate B) tactical C) business D) master E) organizational Answer: C Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking 66) Which of the following is an example of a policy? A) Diversify product line to appeal to more people. B) Increase sales by ten percent over last year. C) Only acquire companies of 75 employees or more; 75 percent must be engineers. D) Develop and sell quality appliances worldwide. E) Diversify from retailing into delivery. Answer: C Difficulty: Challenging Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 67) The process by which strategies and policies are put into action through the development of programs, budgets, and procedures is A) strategy formulation. B) strategy control. C) strategy implementation. D) strategy development. E) strategy evaluation. Answer: C Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge
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68) Which of the following makes a strategy action oriented? A) Mission B) Vision C) Goal D) Program E) Objective Answer: D Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 69) Which of the following is an example of a program? A) Diversify product line to appeal to more people B) Increase sales by ten percent over last year C) Must be "number one" wherever we compete D) Develop and sell quality appliances worldwide E) Reduce final assembly time to three days by having suppliers build plan sections Answer: E Difficulty: Challenging Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 70) A program or tactic is A) a detailed cost statement in terms of dollars. B) a system of sequential steps. C) a statement of the activities needed to support a strategy. D) the process by which strategies and policies are put into action. E) none of the above. Answer: C Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 71) Which is not true of the budgetary function? A) It is used in planning and control. B) It serves as a detailed plan of strategy in action. C) Only one budget is necessary to capture all programs. D) It details the impact on the firm's future financial situation. E) It is used as a means of measuring success based on certain criteria. Answer: C Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking
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72) Home Depot changed the way it restocked shelves and priced products to reduce clogging in aisles. This is an example of a A) program. B) budget. C) procedure. D) policy. E) control. Answer: C Difficulty: Challenging Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking 73) Which of the following is the final major element of strategic management? A) Goal setting B) Strategy formulation C) Internal analysis D) External analysis E) Evaluation and re-assessment Answer: E Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 74) A set of sequential steps or techniques that describe in detail how a particular task or job is to be done is referred to as A) a standard operating procedure. B) a systems operating procedure. C) a standard operating program. D) a standard outside procedure. E) a systems operating plan. Answer: A Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 75) A hierarchy of strategy emphasizes the need for the three levels of strategy to complement and support one another. Answer: TRUE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge
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76) The external environment includes the variables within the organization itself that are within the short-run control of top management. Answer: FALSE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 77) A broad mission statement may limit the scope of a firm's activities in terms of the product or service offered. Answer: FALSE Difficulty: Challenging Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Analytical thinking 78) An example of an objective is "increased profitability," while an example of a goal is "to increase the firm's profitability in 2023 by 15 percent over 2022." Answer: FALSE Difficulty: Challenging Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 79) A strategy maximizes competitive advantage and minimizes competitive disadvantage. Answer: TRUE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 80) Business strategy addresses stability, growth, and retrenchment. Answer: FALSE Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 81) An example of functional strategy is Staples', the U.S. office supply chain, attempts to differentiate its retail stores from its competitors by adding services such as copying and UPS shipping. Answer: FALSE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 82) Strategy implementation is a nesting of one strategy within another so that they complement and support one another. Answer: FALSE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 19 .
83) A budget is a statement of a corporation's programs in terms of dollars. Answer: TRUE Difficulty: Easy Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 84) Performance results are monitored at the strategy formulation phase of the strategic management process. Answer: FALSE Difficulty: Moderate Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 85) Briefly explain the differences between business and functional strategy. Answer: The goal of business strategy, which occurs at the business unit or product level is to improve the competitive position of an organization's products or services in the specific industry or market segment served by that business unit. In contrast, functional strategies focus on each functional area maximizing resource productivity to achieve corporate and business unit objectives. Functional strategies support business strategies. Difficulty: Challenging Learning Obj.: 1.5: Describe the basic model of strategic management and its components AACSB: Application of knowledge 86) Research done by Henry Mintzberg suggests that strategy formulation A) is typically an irregular and a discontinuous process. B) should be followed unswervingly to ensure success of the plan. C) is a process to which organizations find they must make significant yearly changes. D) should be reviewed after a specific interval of time to make sure it is still applicable. E) is merely a checklist of actions following a logical process. Answer: A Difficulty: Moderate Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Analytical thinking
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87) The phenomenon that describes large organizations as evolving through relatively long periods of stability punctuated by relatively short bursts of fundamental change (revolutionary change) is known as A) revolution. B) equilibrium. C) punctuated equilibrium. D) logical incrementalism. E) discontinuity. Answer: C Difficulty: Moderate Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge 88) Which of the following is not one of the four discontinuities listed in the text that is the stimulus for a change in strategy? A) Intervention by the organization's bank B) Annual strategic planning conference C) Threat of a takeover D) New CEO E) Awareness by management of decreased profitability Answer: B Difficulty: Moderate Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge 89) When outcomes do not meet expectations, such as sales and profits are no longer increasing or may even be falling, it is referred to as a(n) A) strategic inflection point. B) performance gap. C) budgetary failure. D) pricing issue. E) operational failure. Answer: B Difficulty: Moderate Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Analytical thinking
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90) Which of the following statements is not true of a strategic inflection point? A) The term was coined by Andy Grove, past CEO of Intel Corporation. B) This represents what happens to a business when a major change takes place due to the introduction of new technology. C) This represents what happens to a business when a major change takes place due to a change in customers' values or a change in customers' preferences. D) This represents what happens to a business when a major change takes place due to a different regulatory environment. E) A new CEO is an example of a strategic inflection point. Answer: E Difficulty: Challenging Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge 91) Henry Mintzberg discovered that strategic formulation is a regular, continuous process. Answer: FALSE Difficulty: Moderate Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge 92) A performance gap is what happens to a business when a major change takes place due to the introduction of new technologies, a different regulatory environment, a change in customers' values, or a change in customers' preferences. Answer: FALSE Difficulty: Challenging Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge 93) What is a strategic inflection point? List some possible examples. Answer: A strategic inflection point is a triggering event or a discontinuity. It happens to a business when a major change takes place due to the introduction of new technologies, a different regulatory environment, a change in customers' values, or a change in customers' preferences. Difficulty: Challenging Learning Obj.: 1.6: Identify some common triggering events that act as stimuli for strategic change AACSB: Application of knowledge
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94) Which of the following is not a characteristic of strategic decisions as mentioned in the text? A) Directive B) Consequential C) Rare D) Continuous E) Future-oriented Answer: D Difficulty: Easy Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 95) Which characteristic of strategic decisions addresses the fact that such decisions set precedents for lesser decisions and future actions throughout an organization? A) Rare B) Long-term C) Consequential D) Directive E) Resource outlay Answer: D Difficulty: Moderate Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Analytical thinking 96) Which of the following is not one of Mintzberg and Quinn's four approaches to strategic decision making? A) Entrepreneurial B) Adaptive C) Planning D) Logical incrementalism E) Reactive Answer: E Difficulty: Moderate Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 97) Tesla and SpaceX, founded by Elon Musk and reflecting his vision, are examples of which mode of strategic decision-making? A) Adaptive B) Entrepreneurial C) Logical incrementalism D) Planning E) Customer relationship management Answer: B Difficulty: Challenging Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Analytical thinking 23 .
98) What characterizes the planning mode of strategy formulation? A) Top management believes that the environment is a force to be used and controlled. B) It assumes the environment is too complex to be completely comprehended. C) It involves the systematic gathering of appropriate information for situation analysis, the generation of feasible alternative strategies, and the rational selection of the most appropriate strategy. D) Rather than utilizing a proactive search for new opportunities, it only has the opportunity for reactive behavior. E) It is based on vision and large-picture strategy. Answer: C Difficulty: Moderate Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Analytical thinking 99) Which of the following modes of strategic decision making is sometimes referred to as "muddling through?" A) Adaptive B) Entrepreneurial C) Logical incrementalism D) Planning E) Budgeting Answer: A Difficulty: Challenging Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 100) The mode of strategic decision-making typical of most universities, many large hospitals, a large number of governmental agencies, and a surprising number of large organizations is A) adaptive. B) entrepreneurial. C) logical incrementalism. D) planning. E) reactive. Answer: A Difficulty: Challenging Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge
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101) The mode of strategy formulation used when top management has a reasonably clear idea of the corporation's mission and objectives, but chooses to use "an interactive process in which the organization probes the future, experiments, and learns from a series of partial (incremental) commitments rather than through global formulations of total strategies" is called A) planning mode. B) logical incrementalism. C) entrepreneurial mode. D) adaptive mode. E) strategic mode. Answer: B Difficulty: Moderate Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 102) Which approach to decision-making is most useful when the environment is changing rapidly and when it is important to build consensus and develop needed resources before committing the entire corporation to a specific strategy? A) Planning mode B) Entrepreneurial mode C) Logical incrementalism D) Adaptive mode E) Strategic flexibility mode Answer: C Difficulty: Challenging Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Analytical thinking 103) A tactical decision is rare, consequential, and directive. Answer: FALSE Difficulty: Moderate Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 104) Mintzberg's entrepreneurial mode is sometimes referred to as "muddling through" since this decision-making mode tends to be more reactive than proactive in the search for new opportunities. Answer: FALSE Difficulty: Challenging Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 105) The planning mode is a useful decision-making mode when the environment is rapidly changing and when it is important to build consensus to a specific strategy. Answer: FALSE Difficulty: Challenging Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Analytical thinking 25 .
106) Explain briefly logical incrementalism as a strategic decision-making mode. Answer: Quinn added a fourth mode — logical incrementalism — to Mintzberg's three modes. It is a synthesis of the planning, adaptive, and to a lesser extent the entrepreneurial modes. Here, although the mission and objectives are set, the strategy is allowed to emerge out of debate, discussion, and experimentation. This approach is useful when the environment is changing rapidly and when it is important to build consensus and develop needed resources before committing an entire corporation to a specific strategy. Difficulty: Moderate Learning Obj.: 1.7: Explain strategic decision-making modes AACSB: Application of knowledge 107) A checklist of questions, by area or issue, that enables a systematic analysis to be made of various corporate functions and activities is referred to as a(n) A) scenario. B) portfolio. C) strategic audit. D) social responsibility audit. E) SOP. Answer: C Difficulty: Easy Learning Obj.: 1.8: Use the strategic audit as a method of analyzing corporate functions and activities AACSB: Application of knowledge 108) A strategic audit is an all-inclusive process. Answer: FALSE Difficulty: Easy Learning Obj.: 1.8: Use the strategic audit as a method of analyzing corporate functions and activities AACSB: Application of knowledge 109) There are areas of an organization's operations that are not impacted by its strategy. Answer: FALSE Difficulty: Easy Learning Obj.: 1.9: Explain the employment opportunities in Strategic Management AACSB: Application of knowledge 110) The responsibility of a business development group is to research and recommend new directions for the organization. Answer: TRUE Difficulty: Easy Learning Obj.: 1.9: Explain the employment opportunities in Strategic Management AACSB: Application of knowledge
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111) Which of the following is not a clear employment path that relies on the study of strategic management? A) Business development B) Consulting C) Copywriting D) Mergers and acquisitions (M&A) E) Business analysis Answer: C Difficulty: Easy Learning Obj.: 1.9: Explain the employment opportunities in Strategic Management AACSB: Application of knowledge 112) In an organization, the ________ group is traditionally charged with developing and reporting on the Strategic Plan for the organization. A) business analysis B) mergers and acquisitions (M&A) C) strategy D) budgeting E) board of directors Answer: C Difficulty: Easy Learning Obj.: 1.9: Explain the employment opportunities in Strategic Management AACSB: Application of knowledge
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Strategic Management and Business Policy, 16e, Global Edition (Wheelen) Chapter 2 Corporate Governance 1) The board of directors has an obligation to A) lend credence to the decisions of the executive committee. B) make strategic decisions for the corporation. C) act as representatives for public identification. D) approve all decisions that might affect the long-term performance of the corporation. E) insulate the corporation from legal judgments because management actually makes the decisions. Answer: D Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking 2) The relationship among the board of directors, top management, and shareholders in determining the direction and performance of the corporation is referred to as A) corporate synergy. B) corporate management. C) corporate governance. D) corporate strategy. E) corporate responsibility. Answer: C Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 3) The requirements of a board of directors vary significantly by country and by state; however, there is a developing consensus as to what the major responsibilities should be. Which of the following is not one of the responsibilities? A) Effective board leadership including the processes, makeup and output of the board B) Strategy of the organization C) Risk vs. initiative and the overall risk profile of the organization D) Becoming directly involved in managerial decisions E) Sustainability Answer: D Difficulty: Challenging Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking
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4) Which of the following statements is not true regarding the board of directors? A) The board is charged by law to act with due care. B) If a director or the board as a whole fails to act with due care and, as a result, the corporation is in some way harmed, the careless director or directors can be held personally liable for the harm done. C) Director liability insurance is often needed to attract people to become members of boards. D) Directors must be aware of the needs of various constituent groups to balance all their interests. E) More than half of all publicly traded companies in the United States are incorporated in New York, requiring that the corporation be managed in accordance with NY state laws. Answer: E Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking 5) More than ________ of outside directors surveyed said that they had been named as part of a lawsuit against the corporation. A) 40% B) 50% C) 60% D) 70% E) 80% Answer: A Difficulty: Challenging Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 6) A board is charged by law to act with A) codetermination. B) affiliation. C) cumulative voting. D) accountability. E) due care. Answer: E Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge
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7) Which of the following is not a task of the board of directors in strategic management? A) To monitor B) To implement C) To influence D) To initiate E) To evaluate Answer: B Difficulty: Easy Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 8) In the continuum of board of directors, phantom level boards typically A) have no degree of involvement. B) take leading roles in establishing and modifying the company mission, objectives, and strategy. C) are involved in a limited degree of key decision-making. D) are held to a greater degree of legal responsibility. E) experience more financial success than less involved boards. Answer: A Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking 9) A highly involved board does all of the following EXCEPT A) tends to be very active. B) provides advice when necessary. C) keeps management alert. D) takes their tasks of initiating and determining strategy very seriously. E) manage the everyday operations of the organization. Answer: E Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking
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10) The ________ boards typically never initiate or determine strategy unless a crisis occurs. A) rubber stamp B) active participation C) catalyst D) nominal participation E) minimal review Answer: A Difficulty: Easy Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 11) Which type of boards are the most active in the board of directors' continuum? A) Phantom B) Rubber stamp C) Minimal review D) Catalyst E) Active participation Answer: D Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 12) What percentage of public corporations have periodic board meetings devoted primarily to the review of overall strategy? A) 24% B) 34% C) 44% D) 64% E) 74% Answer: E Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge
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13) When a board of directors is involved to a limited degree in the performance or review of selected key decisions, indicators, or programs of management, the degree of involvement is referred to as A) rubber stamp. B) nominal participation. C) active participation. D) minimal review. E) phantom. Answer: B Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Analytical thinking 14) A board is charged by law to make strategic decisions for the corporation. Answer: FALSE Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 15) The term "corporate governance" refers to the relationship among the board of directors, top management, and the shareholders in determining the direction and performance of the corporation. Answer: TRUE Difficulty: Easy Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 16) In terms of the degree of involvement in strategic management, the phantom board is the most active. Answer: FALSE Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 17) Succession planning for the board and top management team is one of the five responsibilities of the board of directors. Answer: TRUE Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge
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18) Those directors who fail to act with due care and allow the corporation to be harmed may be held personally liable. Answer: TRUE Difficulty: Challenging Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 19) Law and standards defining the responsibilities of boards of directors are uniform throughout the world. Answer: FALSE Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 20) The lowest degree of involvement for a board of directors is the catalyst level of interaction. Answer: FALSE Difficulty: Easy Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 21) A board can delineate a corporation's mission and specify strategic options to its management. Answer: TRUE Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 22) What are the roles of the board in strategic management? Answer: The role of the board of directors in strategic management is to carry out three basic tasks: 1. It should bring to management's attention developments from inside and outside the corporation that may have been overlooked. This is the monitoring role. 2. It evaluates and influences management's proposals, decisions, and actions. 3. It can delineate a corporation's mission and specific strategic options to its management. This is the initiation and determination role. Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge
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23) Explain the continuum of board involvement. Answer: The board of directors' continuum reflects the degree of involvement (from high to low) in the strategic management process. Boards can range from phantom boards with no real involvement to catalyst boards with a very high degree of involvement. Passive phantom or rubber stamp boards typically never initiate or determine strategy unless a crisis occurs. Nominal participation reflects a board involved to a limited degree in the performance or review of selected key decisions, indicators, or programs of management. An active board approves, questions, and makes final decisions on mission, strategy, policies, and objectives. It also has active board committees and performs fiscal and management audits. The catalyst board takes the leading role in establishing and modifying the mission, objectives, strategy, and policies. It also has a very active strategy committee. Difficulty: Moderate Learning Obj.: 2.1: Describe the role and responsibilities of the board of directors in corporate governance AACSB: Application of knowledge 24) Outside directors are defined as A) those individuals who scan the external environment. B) individuals on the board who are not employed by the board's corporation. C) those individuals with public relations responsibilities. D) board members who are also officers or executives employed by the corporation. E) individuals who organize and coordinate politically focused activities. Answer: B Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 25) According to ________ theory, ________ directors tend to identify with the corporation and its success. A) agency; inside B) corporate governance; inside C) stewardship; inside D) corporate governance; affiliated E) stewardship; outside Answer: C Difficulty: Challenging Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge
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26) The board of directors in a typical small U.S. corporation has ________ members. A) 1-2 B) 6-7 C) 4-5 D) 8-9 E) 10-11 Answer: C Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 27) The percentage of directors of small, publicly held U.S. corporations who are outsiders is approximately ________ members. A) 2-3 B) 1-2 C) 3-4 D) 6-7 E) 8 or above Answer: B Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 28) The theory which states that problems arise in corporations because top management no longer is willing to bear the brunt of their decisions unless they own a substantial amount of stock in the corporation is called A) stewardship theory. B) agency theory. C) interlocking management theory. D) strategic leadership theory. E) ownership theory. Answer: B Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking
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29) Research on family businesses has found that boards with a larger number of ________ tended to have better corporate governance and better performance than boards with fewer ________. A) outsiders; outsiders B) insiders; insiders C) family members; non-family members D) outsiders; insiders E) insiders; outsiders Answer: A Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Ethical understanding and reasoning 30) A survey of corporate directors found that 44% served on ________ board(s). A) 2 or more B) 6-7 C) 9 D) 12 E) only 1 Answer: A Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 31) Board members who are not employed by the corporation, but handle the legal or insurance needs of the firm and are thus not true "outsiders," are what kind of directors? A) Affiliated directors B) Family directors C) Retired directors D) Management directors E) Interlocked directors Answer: A Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 32) Sixty-six percent of the outstanding stock in the largest U.S. and UK corporations is now owned by A) family directors. B) affiliated directors. C) institutional investors. D) retired directors. E) management directors. Answer: C Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 9 .
33) ________ theory argues that senior executives over time tend to view the corporation as an extension of themselves. A) Population ecology B)M otivation C) Stewardship D) Agency E) Goal setting Answer: C Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 34) An agency problem can occur when A) the desires and objectives of the owners and agents conflict. B) there is too much oversight. C) the owners and agents share the same attitudes toward risk. D) executives select risky strategies because they fear losing their jobs if the strategy fails. E) there is a dual role for the CEO and chair of the board. Answer: A Difficulty: Challenging Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 35) Which of the following regions is the most globalized region of the world in terms of boards of directors with most companies having one or more non-national directors? A) Asia B) Middle East C) North American D) Pacific Rim E) Europe Answer: E Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 36) A 2018 Deloitte study of the board makeup of the Fortune 500 found that people of color held ________ of the corporate board of directors seats. A) 4.8% B) 20.23% C) 50.09% D) 33.25% E) 19.5% Answer: E Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Diverse and multicultural work environments 10 .
37) According to the Spencer Stuart executive recruiting firm, ________ of U.S. boards had an international director. A) 6% B) 26% C) 33% D) 78% E) 96% Answer: C Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Diverse and multicultural work environments 38) The vast majority of inside directors are from all of the following EXCEPT A) lower-level operating employee. B) president of the corporation. C) vice-president of operational units. D) chief executive officer. E) vice-president of functional units. Answer: A Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 39) Codetermination A) is the process by which both management and the board establish corporate strategic management. B) is the inclusion of a corporation's workers on its board. C) occurs when one or more individuals on one board also serve on other boards. D) is present when all board members are also employed by the corporation. E) occurs when minority shareholders concentrate their votes. Answer: B Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 40) Which country pioneered the use of worker participation on corporate boards? A) England B) France C) Sweden D) Japan E) Germany Answer: E Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge
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41) Under what circumstances does a DIRECT interlocking directorate exist? A) When both management and the board establish corporate strategic management B) When a corporation's employees are included on its board C) Occurs when two firms share a director or when an executive of one firm sits on the board of a second firm D) When all board members are also employed by the corporation E) When two corporations have directors who serve on the board of a third firm Answer: C Difficulty: Challenging Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 42) Under what circumstances does an INDIRECT interlocking directorate exist? A) When both management and the board establish corporate strategic management B) When a corporation's employees are included on its board C) When one or more individuals on one board also serve on a board of a second firm D) When all board members are also employed by the corporation E) When two corporations have directors who serve on the board of a third firm Answer: E Difficulty: Challenging Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 43) The U.S. Clayton Act and the Banking Act of 1933 A) promote interlocking directorates by U.S. companies to foster better communications and working relationships. B) prohibit acts or contracts tending to create a monopoly. C) prevent unfair practices in interstate commerce. D) promote racial parity on the board of directors. E) prohibit interlocking directorates by U.S. companies competing in the same industry. Answer: E Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 44) What percentage of the 1000 largest U.S. firms shared at least one board member? A) 45 B) 20 C) 5 D) 14 E) 30 Answer: B Difficulty: Challenging Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking
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45) The function of a nominating committee is to A) find board members who have compatible viewpoints with management. B) find outside board members for election by the stockholders. C) search for internal employees who would provide valuable insight into the working operations of the corporation. D) search for candidates who could bring prestige to the board. E) find inside board members for election by the stockholders. Answer: B Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 46) In Europe, ________ percent of boards use nominating committees to identify potential directors. A) 60 B) 30 C) 50 D) 87 E) 97 Answer: A Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 47) A staggered board A) increases the chances of a hostile takeover. B) has only a portion of the board stand for election each year. C) makes it easier for shareholders to curb a CEO's power. D) is seen in less than 50% of U.S. boards. E) provides little continuity. Answer: B Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 48) All of the following reflect survey findings of the reasons for which individuals serve on a board EXCEPT A) notoriety/prestige. B) interested in the business. C) make a difference. D) willing to always agree with executive decisions. E) stay active in the business community. Answer: D Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 13 .
49) ________ percent of U.S. boards have staggered boards. A) 45 B) 63 C) 28 D) 37 E) 17 Answer: B Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 50) What percent of S&P 500 boards now have truly independent chairs? A) Less than 10% B) Approximately 30% C) Approximately 50% D) Approximately 75% E) Over 90% Answer: B Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 51) A lead director creates a balance in power when the CEO is also A) the largest stockholder. B) the Chair of the Board. C) a board member. D) the corporation's founder. E) the chief financial officer (CFO). Answer: B Difficulty: Challenging Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 52) All of the following are true of the dual chair/CEO position EXCEPT A) it is being increasingly criticized because of the potential for conflict of interest. B) it endangers the ability to properly oversee top management. C) it is separated by law in Germany, the Netherlands, and Finland. D) it is more popular in American corporations than firms in the United Kingdom. E) firms with a dual chair/CEO role have significantly better stock performance. Answer: E Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge
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53) In which of the following countries is the combination of CEO and Chair roles (where one person takes on both roles) not banned by law? A) The Netherlands B) The United States C) Finland D) South Africa E) Germany Answer: B Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 54) According to the text, which of the following is not a typical standing committee of boards of directors? A) Audit committee B) Compensation committee C) Executive committee D) Nominating committee E) Public relations committee Answer: E Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 55) Outside directors are sometimes called management directors. Answer: FALSE Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 56) Stewardship theory states that problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation. Answer: FALSE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 57) Agency theory suggests that the majority of a board needs to be from outside the firm. Answer: TRUE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge
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58) Stewardship theory proposes insiders (senior leadership) tend to identify with the corporation and its success. Answer: TRUE Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 59) Outsiders tend to be more objective and critical of corporate activities. Answer: TRUE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 60) The majority of inside directors are the chief executive officer and either the chief operating officer or the chief financial officer of the corporation. Answer: TRUE Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 61) Codetermination has been used in Germany since the 1950s, but has not been used in the United States. Answer: FALSE Difficulty: Easy Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 62) An indirect interlocking directorate occurs when two corporations have directors who also serve on the board of a third firm. Answer: TRUE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 63) Interlocking directorates are a useful method for gaining both inside information about an uncertain environment and objective expertise about potential strategies and tactics. They are, however, increasingly frowned upon because of the possibility of collusion. Answer: TRUE Difficulty: Challenging Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking
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64) The practice of using nominating committees to identify potential directors is more common in Europe than in the United States. Answer: FALSE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 65) An argument in favor of staggered boards is that they make it more difficult for concerned shareholders to curb a CEO's power. Answer: FALSE Difficulty: Challenging Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 66) As of 2018, approximately 50% of the S&P 500 boards had split the role of chair and CEO. Answer: TRUE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 67) The combined chair/CEO position is being increasingly criticized because of the potential for conflict of interest. Answer: TRUE Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 68) In agency theory, how is conflict of interest different from moral hazard? Answer: Agency theory states that problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation. A conflict of interest arises when the desires or objectives of the owners and the agents conflict. In contrast, moral hazard refers to the situation where it is difficult or expensive for the owners to verify what the agents are actually doing. Difficulty: Challenging Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge 69) Explain the difference between a direct and indirect interlocking directorate. Answer: A direct interlocking directorate occurs when two firms share a director or when an executive of one firm sits on the board of a second firm. An indirect interlock occurs when two corporations have directors who also serve on the board of a third firm. Difficulty: Challenging Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Application of knowledge
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70) What is the role of a lead director on a board? Answer: In boards where the CEO and Chair positions are combined, a recommendation is that the outside directors elect a lead director. This person is consulted by the CEO/Chair regarding board affairs and coordinates the annual evaluation of the CEO. A lead director creates a balance in power when the CEO is also the Chair of the board. Difficulty: Moderate Learning Obj.: 2.2: Explain how the composition of a board can affect its operation AACSB: Analytical thinking 71) Individuals who report incidents of questionable accounting or auditing in corporations are called A) stakeholders. B) whistleblowers. C) auditors. D) shareholders. E) directors. Answer: B Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Ethical understanding and reasoning 72) The Sarbanes-Oxley Act was designed to protect A) retired workers from losing their pensions. B) CEOs from losing their golden parachutes. C) CEO salary increases. D) shareholders from the excesses and failed oversight of firms. E) corporations from misguided whistleblowers. Answer: D Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Ethical understanding and reasoning 73) The Sarbanes-Oxley Act requires that a company disclose A) the number of insiders on their PR committee. B) whether it has an outside director who is a "financial expert" serving on the audit committee. C) the CEO's pay. D) the CFO's pay. E) the COO's pay Answer: B Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Ethical understanding and reasoning
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74) Which of the following is not one of the four major issues examined by the S&P Corporate Governance Scoring System? A) Ownership structure and influence B) Research and development initiatives C) Financial stakeholder rights and relations D) Financial transparency and information disclosures E) Board structure and processes Answer: B Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Ethical understanding and reasoning 75) Minority shareholders have virtually no power in A) large publicly owned corporations. B) controlled corporations. C) small publicly owned corporations. D) technology corporations. E) most publicly owned corporations. Answer: B Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Application of knowledge 76) The main purpose of the Sarbanes-Oxley Act was to protect the legal liabilities of directors in publicly owned corporations. Answer: FALSE Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Application of knowledge 77) Independent research using generally accepted measures of S&P's Corporate Governance Scoring System revealed that moving from the poorest to the best-governed categories had no effect on a firm's likelihood of receiving an investment-grade credit rating. Answer: FALSE Difficulty: Moderate Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Application of knowledge
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78) Briefly describe what a "controlled company" is and its corporate governance implications. Answer: A number of corporations are concerned that various requirements to improve corporate governance will constrain top management's ability to effectively manage the company. One approach to sidestepping new governance requirements is to become a "controlled company." This is a corporation in which an individual group or another company controls more than 50% of the voting shares. Such a firm is exempt from the requirements by the New York Stock Exchange and NASDAQ that a majority of the board and all members of key board committees be independent outsiders. In controlled companies, minority shareholders have virtually no power. Difficulty: Challenging Learning Obj.: 2.3: Describe the impact of the Sarbanes-Oxley Act on corporate governance in the United States AACSB: Ethical understanding and reasoning 79) Which of the following is not a trend in corporate governance expected to continue? A) Institutional investors are becoming active on boards. B) Boards are getting more involved in shaping company strategy. C) Boards are getting larger. D) Shareholders are demanding directors and top managers own more than token amounts of stock in the corporation. E) Outside directors are taking charge of annual CEO evaluations. Answer: C Difficulty: Moderate Learning Obj.: 2.4: Discuss trends in corporate governance AACSB: Application of knowledge 80) A ________ is a term that refers to a dramatic event that empowers the current owners which will take place upon receiving an unwanted attempt at acquisition. A) merger B) poison pill C) capitulation D) takeover E) greenmail Answer: B Difficulty: Moderate Learning Obj.: 2.4: Discuss trends in corporate governance AACSB: Application of knowledge 81) One trend in corporate governance is that corporate boards are getting bigger. Answer: FALSE Difficulty: Easy Learning Obj.: 2.4: Discuss trends in corporate governance AACSB: Application of knowledge
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82) Identify and briefly describe any three recent trends in corporate governance. Answer: One trend in corporate governance is that institutional investors (such as pension funds and mutual funds) are becoming active on boards and are putting increasing pressure on top management to improve corporate performance. A second trend is the demand from shareholders that directors and top managers own more than token amounts of stock in the corporation, in other words, to have more skin in the game. Finally, society, in the form of special interest groups, increasingly expects boards of directors to balance the economic goal of profitability with the social needs of society. Difficulty: Moderate Learning Obj.: 2.4: Discuss trends in corporate governance AACSB: Application of knowledge 83) A large-scale research study that used more than 1500 companies with large market capitalization found that A) there is a negative correlation between CEO pay and company performance. B) there is a positive correlation between CEO pay and company performance. C) there is no correlation in the large companies studied between CEO pay and company performance. D) CEO pay packages were rejected by 90% of shareholders. E) most compensation systems were aligned with the interests of shareholders. Answer: A Difficulty: Challenging Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Analytical thinking 84) ________ is when the confidence of executive leaders blinds them to information that is contrary to a decided course of action. A) Overconfidence B) Lethargy C) Cognitive dissonance D) Hubris. E) Agency problems Answer: D Difficulty: Challenging Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Analytical thinking
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85) ________ leadership is the directing of activities toward the accomplishment of corporate objectives. A) Operational B) Functional C) Executive D) Autocratic E) Democratic Answer: C Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 86) Leaders who provide change and movement in an organization by providing a vision for that change are called A) transactional leaders. B) transformational leaders. C) functional leaders. D) organizational leaders. E) top leaders. Answer: B Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 87) A strategic vision is a description of what the company A) has done in the past. B) is doing currently. C) is capable of becoming. D) is doing in the marketplace. E) is doing to be profitable. Answer: C Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge
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88) Individuals such as Thasunda Brown Duckett at TIAA and Anita Roddick at The Body Shop who energized their companies and provided change and movement by providing a vision for that change are known as A) transformational leaders. B) strategic implementers. C) strategists. D) corporate governors. E) directors. Answer: A Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 89) Which of the following is not a key characteristic of transformational executive leaders? A) The CEO presents a role for others to identify with and to follow. B) The CEO communicates high performance standards for all employees. C) The CEO demonstrates confidence in the employees' abilities to meet the expressed high standards. D) The CEO energizes the board to formulate strategy. E) The CEO articulates a strategic vision for the corporation. Answer: D Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 90) According to the research, in stable environments, the most appropriate type of planning for multidivisional corporations is A) top-down strategic planning. B) bottom-up strategic planning. C) horizontal strategic planning. D) concurrent strategic planning. E) composite strategic planning. Answer: B Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Analytical thinking
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91) According to a survey of 156 large corporations, in what percentage of the firms were strategies first proposed in business units and then sent to headquarters for approval? A) 10% B) 36% C) 50% D) 66% E) 96% Answer: D Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 92) In what became clear was a mistake, Carly Fiorina used the power of her office and her considerable influence with a relatively weak board of directors to push through the Compaq Computer acquisition over the objections of the founders family and many significant shareholders. In this instance, Carly Fiorina is an example of a(n) A) transformational leader. B) overconfident leader. C) transactional leader. D) successful leader. E) functional leader. Answer: B Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 93) Top management responsibilities, especially those of the CEO, involve getting things accomplished through and with others in order to meet the corporate objectives. Answer: TRUE Difficulty: Challenging Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 94) Top management's enthusiasm (or lack of it) about the corporation tends to be contagious. Answer: TRUE Difficulty: Easy Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge
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95) Transformational leaders transform organizations from market leaders in one industry to market leadership in another. Answer: FALSE Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 96) The negative side of confident executive leaders is that their very confidence may lead to hubris, in which their confidence blinds them to information that is contrary to a decided course of action. Answer: TRUE Difficulty: Challenging Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 97) Jeff Bezos, CEO of Amazon, uses the S team (senior management) to engage in continuous strategic planning. Answer: TRUE Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 98) Usually, the strategic planning staff is charged with supporting only top management in the strategic planning process. Answer: FALSE Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 99) What are the key characteristics of transformational leaders? Answer: Transformational leaders are those who provide change and movement in an organization by providing a vision for that change. They exhibit three key characteristics. The first is that they articulate a strategic vision for the corporation. They do this by envisioning the company not as it currently is but as it can become. The second is that they present a role for others to identify with and to follow. They empathize with followers and set an example in terms of behavior, dress, and actions. Finally, transformational leaders communicate high-performance standards and also show confidence in the followers' ability to meet these standards. They achieve this by empowering followers by raising their beliefs in their own capabilities. Difficulty: Moderate Learning Obj.: 2.5: Explain how executive leadership is an important part of strategic management AACSB: Application of knowledge 25 .