Management of Strategy Chap 10

Corporate governance is :

• –the set of mechanisms used to manage relationships among stakeholders and to determine and control the strategic direction and performance of organizations.

• –concerned with identifying ways to ensure that strategic decisions are made more effectively.

• –used in corporations to establish harmony between the firm’s owners and its top-level managers whose interests may be in conflict.

• All of that

Agency relationship problems includes:

• •Principal and agent have divergent interests and goals.

• •Shareholders lack direct control of large, publicly traded corporations.

• •Agent makes decisions that result in the pursuit of goals that conflict with those of the principal.

• All of that

Managerial opportunism is:

• The seeking of self-interest with guile

• The seeking of group-interest with guile

• The seeking of leader-interest with guile

• All of that

Response towards managerial opportunism

• Principals establish governance and control mechanisms to prevent managerial opportunism.

• Principals adopt "wait and see" attitude before establishing governance and control mechanisms to prevent managerial opportunism.

• Principals wait for instructions before establishing governance and control mechanisms to prevent managerial opportunism.

• Principals wait and see which procedure and control mechanisms need to be establish first to prevent managerial opportunism.

Problems of product diversification:

• –Increased size and the relationship of size
  to managerial compensation

• –Reduction of managerial employment risk

• All of that

• None of that

Usage of cash flow as an example of agency problem:

• Managers prefer to invest these funds in additional product diversification

• –Shareholders prefer the funds as dividends so they control how the funds are invested

• All of that

• None of that

It is important to serve the interests of the firm’s multiple stakeholder groups.

• Shareholders (in the capital market stakeholder group) are viewed as the most important stakeholder group.

• The focus of governance mechanisms is on the control of managerial decisions to assure shareholder interests.

• Interests of shareholders is served by the Board of Directors.

• All of that