Guided Case Governance and Activist Investors Outside of the U.S. Ch 10

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Question #1

Many firms in mainland China are still operated by their founder-owners. In order to grow, they may need to seek additional expertise and capital from outsider investors, which could potentially necessitate the owners turning over the management of their firms to managerial specialists. Which of the following scenarios would be the most likely to protect the founder-owners’ rights while ensuring the best strategic decisions for the firm?

A The founder-owners should surrender all control of their firms to directors and managers.

B The founder-owners should retain majority control of their firms.

C The founder-owners should retain enough equity to have influence but not major control.

D The only way to protect the founder-owners’ rights is to refuse any capital investment from outsiders and retain full control.

Question #2

As more and more firms around the world tighten their corporate governance mechanisms by setting up boards of directors made up of insiders, outsiders, and related outsiders, what will be the most likely effect on these firms’ ethical standards and behavior?

A The creation of a board of directors has little to no effect on a firm’s ethical standards and behavior.

B The creation of a board of directors will require a firm to codify and document its ethical standards in a written code of ethics.

C It is easy for top-level managers to hide any unethical behavior from a board of directors; thus, this type of behavior is likely to increase.

D The creation of a board of directors will most likely result in stronger boundaries that will deter unethical behavior among top-level managers.

Question #3

In 2015, Japan adopted a new corporate governance code that strongly encourages domestic firms to elect more independent outside directors to their boards than was previously the custom in that country. Why does the Japanese government want to strengthen the country’s corporate governance mechanisms in this way?

A It makes Japanese firms more competitive with American and German firms.

B It aligns corporate governance with the Japanese value of obligation.

C It attracts foreign investors who feel more confident due to stronger corporate governance.

D It gives the Japanese government greater control over domestic businesses.

Question #4

In recent years, Hong Kong-listed companies have wanted to appear to be more “Westernized,” or modern, in terms of corporate governance. Which of the following is NOT one of the common steps these firms have taken to achieve their goal?

A Adopting two-tiered board structures

B Operating in a more transparent fashion

C Modifying the make-up, function, and operation of their boards of directors

D Loosening restrictions on foreign investment and ownership

Question #5

Despite potentially limited resources, owners in emerging economies are still participating in the market for corporate control. According to the mini-case, which of the following is the primary means by which they are exercising influence in developed and developing economies?

A Supervisory tiers

B Sovereign wealth funds

C Financial services agencies

D Stock connect programs

Question #6

Effectively using executive compensation as a governance mechanism is particularly challenging for multinational firms, such as Brazilian meatpacker JBS-Friboi. Why?

A The interests of the owners are best served by less uniformity in the compensation packages, but a diverse array of plans requires more monitoring, which increases agency costs.

B The interests of the owners are best served by more uniformity in the compensation packages, but tighter controls require more monitoring, which increases agency costs.

C The interests of the owners are best served by offering more generous compensation packages, which increases overall costs.

D The interests of the owners are best served by less uniformity in the compensation packages, but a diverse array of plans requires more external monitoring which increases government costs.

Question #7

Firms around the world can choose among a handful of options for enhancing the effectiveness of their boards of directors. Which of the following methods might Japanese firms find difficult to adopt because it doesn’t fit with traditional cultural values?

A Strengthening their accounting control systems because it violates the Japanese respect for privacy

B Establishing formal processes for evaluating board members’ performance because it violates the Japanese custom of “saving face”

C Including outsiders with different perspectives because it runs contrary to the Japanese emphasis on family and consensus

D Modifying their executive compensation packages because it runs contrary to the Japanese preference for rewards

Question #8

Two investment funds—Cevian Capital and Elliott Management—are described as being involved in the management of various German firms, such as ThyssenKrupp, Bilfinder, and Kabel Deutschland. What does this tell us about these institutional owners?

A They must be foreign investors.

B They are part of the market for corporate control; thus, these companies must be undervalued.

C They must have employees that sit on the boards of these companies.

D They must be large-block shareholders.