Which of the following is included under the product functional strategies?

Online Exam 7_06

Part 1 of 2 – 50.0/ 50.0 Points

Question 1 of 40
Which of the following is included under the product functional strategies?

A. Supervision

B. Management

C. Marketing

D. Leadership

Question 2 of 40
One of the two strategic decisions most associated with the organization’s information system is:

A. optimum equity mix.

B. creating an approved vendor list.

C. selecting the correct marketing mix.

D. the choice of system technology.

Question 3 of 40
When an organization competes by providing unique products with features that customers value, perceive as different, and are willing to pay a premium price for, it is using a strategy of:

A. cost leadership.

B. focus.

C. differentiation.

D. niche.

Question 4 of 40
Designing which of the following systems involves making sure we have the information we need, when the information is needed, and in the form needed?

A. Marketing

B. Human resources

C. Information

D. Financial-accounting

Question 5 of 40
When an organization hasn’t developed a low cost or a differentiation competitive advantage, it is said to be

A. stuck-in-the-middle.

B. using an integrated strategy.

C. using a strategy of best cost.

D. pursuing a niche-based competitive advantage.

Question 6 of 40
Which are the two biggest factors in marketing?

A. Competitors and pricing

B. Product and competitors

C. Customers and competitors

D. Pricing and customers

Question 7 of 40
The ________ point(s) to the strategic issues organizational decision makers need to address in their pursuit of sustainable competitive advantage and high levels of performance.

A. portfolio analysis

B. distinctive capabilities

C. strengths

D. SWOT analysis

Question 8 of 40
________ strategies are the short-term goal-directed decisions and actions of the organization’s various functional areas.

A. Competitive

B. Coordinating

C. Corporate

D. Functional

Question 9 of 40
When a company builds a profitable business by “stealing” ideas from other successful peers, it is following a(n) ________ strategy.

A. prospector

B. defender

C. analyzer

D. reactor

Question 10 of 40
The ________ strategy is one in which an organization continually innovates by finding and exploiting new product and market opportunities.

A. prospector

B. defender

C. analyzer

D. reactor

Question 11 of 40
Which of the following is NOT one of Miles and Snow’s adaptive strategies?

A. Defender

B. Prospector

C. Cost leader

D. Analyzer

Question 12 of 40
Determining the optimum mix of equity or debt is a decision made by which organizational support process?

A. Financial-accounting systems

B. Corporate governance systems

C. Procurement systems

D. Product development systems

Question 13 of 40
An organization’s ________ strategies reflect its commitment to and treatment of its employees.

A. procurement

B. corporate

C. HR

D. competitive

Question 14 of 40
The ________ strategy is one in which an organization continually innovates by finding and exploiting new product and market opportunities.

A. prospector

B. defender

C. analyzer

D. reactor

Question 15 of 40
The two main support processes in an organization are:

A. production systems and marketing systems.

B. procurement systems and HR systems.

C. financial accounting systems and HR systems.

D. information systems and financial accounting systems.

Question 16 of 40
The ________ works hard to establish brand loyalty.

A. differentiator

B. cost leader

C. defender

D. reactor

Question 17 of 40
________ refer(s) to the process of creating and providing goods and services.

A. Marketing

B. Production-operations

C. High-performance work practices

D. Information system

Question 18 of 40
In Porter’s cost leadership strategy, the main goal of the cost leader is to have the lowest ________ in the industry.

A. profits

B. prices

C. costs

D. products

Question 19 of 40
________ is when organizations battle or vie for some desired object or outcome.

A. Competition

B. Strategy

C. Goal

D. Objective

Question 20 of 40
If Mr. Carol wanted to introduce high-performance work practices in his organization, which of the following practices would he adopt?

A. Centralized decision making

B. Fixed job assignments

C. Limited communication

D. Self-managed work teams

Part 2 of 2 – 47.5/ 50.0 Points

Question 21 of 40
Both the product-market evolution and McKinsey matrices have the disadvantage of:

A. simplicity.

B. complexity.

C. individuality.

D. subjectivity.

Question 22 of 40
All of the following are reflective of restructuring efforts except:

A. spin-off.

B. liquidation.

C. reengineering.

D. cost cutting.

Question 23 of 40
Developing different uses for a product is an example of a ________ concentration option.

A. product-market diversification.

B. market development

C. product-market exploitation

D. product development

Question 24 of 40
Cash flows from cash cows should be used to support:

A. question marks.

B. stars.

C. dogs.

D. question marks and stars.

Question 25 of 40
For corporate growth strategies, the options for implementation are:

A. diversification, concentration, and international.

B. mergers/acquisitions, internal development, and strategic partnering.

C. cost leadership, differentiation, and focus.

D. offensive, defensive, and concentration.

Question 26 of 40
A business unit with low relative market share and low industry growth rate is referred to as a:

A. dog.

B. cash cow.

C. cat.

D. question mark.

Question 27 of 40
Mr. Wilson is thinking about concentrating on his primary line of business, Italian furniture, and looking for ways to meet its growth goals by expanding its core business. Which of the below strategies is Mr. Wilson following here?

A. International

B. Vertical integration

C. Diversification

D. Concentration

Question 28 of 40
A company like PepsiCo, with a number of business units such as snack foods, beverages, and prepared foods, is referred to as a:

A. single-business organization.

B. multiple-business organization.

C. multiple-line organization.

D. multiple-function organization.

Question 29 of 40
A legal transaction in which two or more organizations combine operations through an exchange of stock is called a(n):

A. acquisition.

B. merger.

C. takeover.

D. repurchase.

Question 30 of 40
Starting a business from the ground up is referred to as:

A. product development.

B. market development.

C. strategic development.

D. internal development.

Question 31 of 40
The types of renewal strategies include:

A. retrenchment strategy.

B. turnaround strategy.

C. diversification strategy.

D. retrenchment and turnaround strategies.

Question 32 of 40
Examples of portfolio analyses include:

A. the BCG matrix.

B. the McKinsey-GE stoplight matrix.

C. the product-market evolution matrix.

D. All of the answer choices are correct.

Question 33 of 40
The organization’s ability to complete or reach goals is referred to as:

A. efficiency.

B. effectiveness.

C. productivity.

D. stability.

Question 34 of 40
________ are usually “friendly.”

A. Mergers

B. Acquisitions

C. Takeovers

D. Buyouts

Question 35 of 40
A long-term contract is usually an agreement between:

A. two organizations in the same industry.

B. an organization and its suppliers.

C. two organizations in unrelated industries.

D. a domestic and international organization.

Question 36 of 40
When an organization remains with its core industry, this is an example of a ________ strategy.

A. concentration

B. forward integration

C. backward integration

D. horizontal integration

Question 37 of 40
Mr. Wilson, a successful importer of Italian furniture, is considering combining operations by exchanging stock with a competitor, Italian Delights, to create a new store, Supremo Italiano. Which of the following growth strategies is Mr. Wilson following here?

A. Merger

B. Acquisition

C. Hostile takeover

D. Internal development

Question 38 of 40
Related diversification is ________ unrelated diversification.

A. less effective than

B. more effective than

C. just as effective as

D. less profitable than

Question 39 of 40
Which of the following is a type of strategic partnering?

A. Licensing

B. Exporting

C. Joint venture

D. Direct investment

Question 40 of 40
The _______ strategy establishes the overall direction that the organization hopes to go.

A. business

B. functional

C. corporate

D. competitive

Evidence of the prominence of public relations includes:

BUS 300 Week 2 Quiz 1 Chapters 1 and 2

1. Evidence of the prominence of public relations includes:
2. Savvy individuals and institutions must recognize the importance
3. In a 2004 study by the search firm Heyman Associates, which of the following was NOT a characteristic of successful PR leaders?
4. Which of the following are among the five actions Professor Melvin Sharpe indicates can “harmonize” relations between individuals and organizations?
5. To effectively communicate with a public, it is important to recognize that
6. Twisting messages to create the impression of performance is
7. If you target “experiencers,” you’re likely using ________ to segment a public.
8. Which of the following distinguishes the R-O-S-I-E formula from other formulae that summarize the PR process?
9. What happened to Don Imus indicates that
10. Public relations consultants for politicians should point out the importance of the uncommitted public because
11. In John Marston’s R-A-C-E process, the key step is
12. The government affairs function of public relations
13. According to Fraser Seitel, which of the following does NOT describe an aspect of the public relations function?
14. Which is NOT a key technical skill a public relations professional should possess?
15. A function related to public relations that includes creating sales literature, meeting displays and promotions is
16. The attitude of business leaders that the “public be damned” ushered in the need for
Known as the ________ they were a group of ________ who tackled the abuses of American industrialists, exposing deplorable and unsafe conditions.
17. Perhaps one reason publicity and press agentry are too often considered synonymous stems from
18. Which of the following are indications of the growth of global democracy, public opinion and capitalism?
19. Some scholars consider ________ the forerunner to today’s White House press secretary because of the duties he performed for Andrew Jackson.
20. Which major trend below is contributing to the evolution of the practice of public relations in the U.S.?
21. Which of the following has made knowledge of and facility with the Internet a front-burner necessity for practitioners?
22. The growth of public relations as an accepted business-like practice in the United States of America stems from
23. American flirtations with public relations techniques began around the founding of the ________ when ________.
24. During World War I and World War II, public relations techniques to help mobilize United States citizens to support war efforts were used by the
26. A conspicuous, but often negative, public relations practice that took hold in the 1880s was
27. Principles developed by Ivy Lee in working with the press on behalf of business included
28. In the 21st century, recognition of the value of knowing what public relations is about comes from
29. Archaeologists inform us that public relations has roots in
30. A principal contribution to the field of public relations made by Ivy Ledbetter Lee was

Creat A Preliminary EER Diagram Of Your Database Tables.

create_my_guitar_shop.sql

/******************************************************** * This script creates the database named my_guitar_shop *********************************************************/ DROP DATABASE IF EXISTS my_guitar_shop; CREATE DATABASE my_guitar_shop; USE my_guitar_shop; — create the tables for the database CREATE TABLE categories ( category_id INT PRIMARY KEY AUTO_INCREMENT, category_name VARCHAR(255) NOT NULL UNIQUE ); CREATE TABLE products ( product_id INT PRIMARY KEY AUTO_INCREMENT, category_id INT NOT NULL, product_code VARCHAR(10) NOT NULL UNIQUE, product_name VARCHAR(255) NOT NULL, description TEXT NOT NULL, list_price DECIMAL(10,2) NOT NULL, discount_percent DECIMAL(10,2) NOT NULL DEFAULT 0.00, date_added DATETIME DEFAULT NULL, CONSTRAINT products_fk_categories FOREIGN KEY (category_id) REFERENCES categories (category_id) ); CREATE TABLE customers ( customer_id INT PRIMARY KEY AUTO_INCREMENT, email_address VARCHAR(255) NOT NULL UNIQUE, password VARCHAR(60) NOT NULL, first_name VARCHAR(60) NOT NULL, last_name VARCHAR(60) NOT NULL, shipping_address_id INT DEFAULT NULL, billing_address_id INT DEFAULT NULL ); CREATE TABLE addresses ( address_id INT PRIMARY KEY AUTO_INCREMENT, customer_id INT NOT NULL, line1 VARCHAR(60) NOT NULL, line2 VARCHAR(60) DEFAULT NULL, city VARCHAR(40) NOT NULL, state VARCHAR(2) NOT NULL, zip_code VARCHAR(10) NOT NULL, phone VARCHAR(12) NOT NULL, disabled TINYINT(1) NOT NULL DEFAULT 0, CONSTRAINT addresses_fk_customers FOREIGN KEY (customer_id) REFERENCES customers (customer_id) ); CREATE TABLE orders ( order_id INT PRIMARY KEY AUTO_INCREMENT, customer_id INT NOT NULL, order_date DATETIME NOT NULL, ship_amount DECIMAL(10,2) NOT NULL, tax_amount DECIMAL(10,2) NOT NULL, ship_date DATETIME DEFAULT NULL, ship_address_id INT NOT NULL, card_type VARCHAR(50) NOT NULL, card_number CHAR(16) NOT NULL, card_expires CHAR(7) NOT NULL, billing_address_id INT NOT NULL, CONSTRAINT orders_fk_customers FOREIGN KEY (customer_id) REFERENCES customers (customer_id) ); CREATE TABLE order_items ( item_id INT PRIMARY KEY AUTO_INCREMENT, order_id INT NOT NULL, product_id INT NOT NULL, item_price DECIMAL(10,2) NOT NULL, discount_amount DECIMAL(10,2) NOT NULL, quantity INT NOT NULL, CONSTRAINT items_fk_orders FOREIGN KEY (order_id) REFERENCES orders (order_id), CONSTRAINT items_fk_products FOREIGN KEY (product_id) REFERENCES products (product_id) ); CREATE TABLE administrators ( admin_id INT PRIMARY KEY AUTO_INCREMENT, email_address VARCHAR(255) NOT NULL, password VARCHAR(255) NOT NULL, first_name VARCHAR(255) NOT NULL, last_name VARCHAR(255) NOT NULL ); — Insert data into the tables INSERT INTO categories (category_id, category_name) VALUES (1, ‘Guitars’), (2, ‘Basses’), (3, ‘Drums’), (4, ‘Keyboards’); INSERT INTO products (product_id, category_id, product_code, product_name, description, list_price, discount_percent, date_added) VALUES (1, 1, ‘strat’, ‘Fender Stratocaster’, ‘The Fender Stratocaster is the electric guitar design that changed the world. New features include a tinted neck, parchment pickguard and control knobs, and a ”70s-style logo. Includes select alder body, 21-fret maple neck with your choice of a rosewood or maple fretboard, 3 single-coil pickups, vintage-style tremolo, and die-cast tuning keys. This guitar features a thicker bridge block for increased sustain and a more stable point of contact with the strings. At this low price, why play anything but the real thing?\r\n\r\nFeatures:\r\n\r\n* New features:\r\n* Thicker bridge block\r\n* 3-ply parchment pick guard\r\n* Tinted neck’, ‘699.00’, ‘30.00’, ‘2014-10-30 09:32:40’), (2, 1, ‘les_paul’, ‘Gibson Les Paul’, ‘This Les Paul guitar offers a carved top and humbucking pickups. It has a simple yet elegant design. Cutting-yet-rich tone?the hallmark of the Les Paul?pours out of the 490R and 498T Alnico II magnet humbucker pickups, which are mounted on a carved maple top with a mahogany back. The faded finish models are equipped with BurstBucker Pro pickups and a mahogany top. This guitar includes a Gibson hardshell case (Faded and satin finish models come with a gig bag) and a limited lifetime warranty.\r\n\r\nFeatures:\r\n\r\n* Carved maple top and mahogany back (Mahogany top on faded finish models)\r\n* Mahogany neck, ”59 Rounded Les Paul\r\n* Rosewood fingerboard (Ebony on Alpine white)\r\n* Tune-O-Matic bridge with stopbar\r\n* Chrome or gold hardware\r\n* 490R and 498T Alnico 2 magnet humbucker pickups (BurstBucker Pro on faded finish models)\r\n* 2 volume and 2 tone knobs, 3-way switch’, ‘1199.00’, ‘30.00’, ‘2014-12-05 16:33:13’), (3, 1, ‘sg’, ‘Gibson SG’, ‘This Gibson SG electric guitar takes the best of the ”62 original and adds the longer and sturdier neck joint of the late ”60s models. All the classic features you”d expect from a historic guitar. Hot humbuckers go from rich, sweet lightning to warm, tingling waves of sustain. A silky-fast rosewood fretboard plays like a dream. The original-style beveled mahogany body looks like a million bucks. Plus, Tune-O-Matic bridge and chrome hardware. Limited lifetime warranty. Includes hardshell case.\r\n\r\nFeatures:\r\n\r\n* Double-cutaway beveled mahogany body\r\n* Set mahogany neck with rounded ”50s profile\r\n* Bound rosewood fingerboard with trapezoid inlays\r\n* Tune-O-Matic bridge with stopbar tailpiece\r\n* Chrome hardware\r\n* 490R humbucker in the neck position\r\n* 498T humbucker in the bridge position\r\n* 2 volume knobs, 2 tone knobs, 3-way switch\r\n* 24-3/4″ scale’, ‘2517.00’, ‘52.00’, ‘2015-02-04 11:04:31’), (4, 1, ‘fg700s’, ‘Yamaha FG700S’, ‘The Yamaha FG700S solid top acoustic guitar has the ultimate combo for projection and pure tone. The expertly braced spruce top speaks clearly atop the rosewood body. It has a rosewood fingerboard, rosewood bridge, die-cast tuners, body and neck binding, and a tortoise pickguard.\r\n\r\nFeatures:\r\n\r\n* Solid Sitka spruce top\r\n* Rosewood back and sides\r\n* Rosewood fingerboard\r\n* Rosewood bridge\r\n* White/black body and neck binding\r\n* Die-cast tuners\r\n* Tortoise pickguard\r\n* Limited lifetime warranty’, ‘489.99’, ‘38.00’, ‘2015-06-01 11:12:59’), (5, 1, ‘washburn’, ‘Washburn D10S’, ‘The Washburn D10S acoustic guitar is superbly crafted with a solid spruce top and mahogany back and sides for exceptional tone. A mahogany neck and rosewood fingerboard make fretwork a breeze, while chrome Grover-style machines keep you perfectly tuned. The Washburn D10S comes with a limited lifetime warranty.\r\n\r\nFeatures:\r\n\r\n * Spruce top\r\n * Mahogany back, sides\r\n * Mahogany neck Rosewood fingerboard\r\n * Chrome Grover-style machines’, ‘299.00’, ‘0.00’, ‘2015-07-30 13:58:35’), (6, 1, ‘rodriguez’, ‘Rodriguez Caballero 11’, ‘Featuring a carefully chosen, solid Canadian cedar top and laminated bubinga back and sides, the Caballero 11 classical guitar is a beauty to behold and play. The headstock and fretboard are of Indian rosewood. Nickel-plated tuners and Silver-plated frets are installed to last a lifetime. The body binding and wood rosette are exquisite.\r\n\r\nThe Rodriguez Guitar is hand crafted and glued to create precise balances. From the invisible careful sanding, even inside the body, that ensures the finished instrument”s purity of tone, to the beautifully unique rosette inlays around the soundhole and on the back of the neck, each guitar is a credit to its luthier and worthy of being handed down from one generation to another.\r\n\r\nThe tone, resonance and beauty of fine guitars are all dependent upon the wood from which they are made. The wood used in the construction of Rodriguez guitars is carefully chosen and aged to guarantee the highest quality. No wood is purchased before the tree has been cut down, and at least 2 years must elapse before the tree is turned into lumber. The wood has to be well cut from the log. The grain must be close and absolutely vertical. The shop is totally free from humidity.’, ‘415.00’, ‘39.00’, ‘2015-07-30 14:12:41’), (7, 2, ‘precision’, ‘Fender Precision’, ‘The Fender Precision bass guitar delivers the sound, look, and feel today”s bass players demand. This bass features that classic P-Bass old-school design. Each Precision bass boasts contemporary features and refinements that make it an excellent value. Featuring an alder body and a split single-coil pickup, this classic electric bass guitar lives up to its Fender legacy.\r\n\r\nFeatures:\r\n\r\n* Body: Alder\r\n* Neck: Maple, modern C shape, tinted satin urethane finish\r\n* Fingerboard: Rosewood or maple (depending on color)\r\n* 9-1/2″ Radius (241 mm)\r\n* Frets: 20 Medium-jumbo frets\r\n* Pickups: 1 Standard Precision Bass split single-coil pickup (Mid)\r\n* Controls: Volume, Tone\r\n* Bridge: Standard vintage style with single groove saddles\r\n* Machine heads: Standard\r\n* Hardware: Chrome\r\n* Pickguard: 3-Ply Parchment\r\n* Scale Length: 34″ (864 mm)\r\n* Width at Nut: 1-5/8″ (41.3 mm)\r\n* Unique features: Knurled chrome P Bass knobs, Fender transition logo’, ‘799.99’, ‘30.00’, ‘2015-06-01 11:29:35’), (8, 2, ‘hofner’, ‘Hofner Icon’, ‘With authentic details inspired by the original, the Hofner Icon makes the legendary violin bass available to the rest of us. Don”t get the idea that this a just a “nowhere man” look-alike. This quality instrument features a real spruce top and beautiful flamed maple back and sides. The semi-hollow body and set neck will give you the warm, round tone you expect from the violin bass.\r\n\r\nFeatures:\r\n\r\n* Authentic details inspired by the original\r\n* Spruce top\r\n* Flamed maple back and sides\r\n* Set neck\r\n* Rosewood fretboard\r\n* 30″ scale\r\n* 22 frets\r\n* Dot inlay’, ‘499.99’, ‘25.00’, ‘2015-07-30 14:18:33’), (9, 3, ‘ludwig’, ‘Ludwig 5-piece Drum Set with Cymbals’, ‘This product includes a Ludwig 5-piece drum set and a Zildjian starter cymbal pack.\r\n\r\nWith the Ludwig drum set, you get famous Ludwig quality. This set features a bass drum, two toms, a floor tom, and a snare?each with a wrapped finish. Drum hardware includes LA214FP bass pedal, snare stand, cymbal stand, hi-hat stand, and a throne.\r\n\r\nWith the Zildjian cymbal pack, you get a 14″ crash, 18″ crash/ride, and a pair of 13″ hi-hats. Sound grooves and round hammer strikes in a simple circular pattern on the top surface of these cymbals magnify the basic sound of the distinctive alloy.\r\n\r\nFeatures:\r\n\r\n* Famous Ludwig quality\r\n* Wrapped finishes\r\n* 22″ x 16″ kick drum\r\n* 12″ x 10″ and 13″ x 11″ toms\r\n* 16″ x 16″ floor tom\r\n* 14″ x 6-1/2″ snare drum kick pedal\r\n* Snare stand\r\n* Straight cymbal stand hi-hat stand\r\n* FREE throne’, ‘699.99’, ‘30.00’, ‘2015-07-30 12:46:40’), (10, 3, ‘tama’, ‘Tama 5-Piece Drum Set with Cymbals’, ‘The Tama 5-piece Drum Set is the most affordable Tama drum kit ever to incorporate so many high-end features.\r\n\r\nWith over 40 years of experience, Tama knows what drummers really want. Which is why, no matter how long you”ve been playing the drums, no matter what budget you have to work with, Tama has the set you need, want, and can afford. Every aspect of the modern drum kit was exhaustively examined and reexamined and then improved before it was accepted as part of the Tama design. Which is why, if you start playing Tama now as a beginner, you”ll still enjoy playing it when you”ve achieved pro-status. That”s how good these groundbreaking new drums are.\r\n\r\nOnly Tama comes with a complete set of genuine Meinl HCS cymbals. These high-quality brass cymbals are made in Germany and are sonically matched so they sound great together. They are even lathed for a more refined tonal character. The set includes 14″ hi-hats, 16″ crash cymbal, and a 20″ ride cymbal.\r\n\r\nFeatures:\r\n\r\n* 100% poplar 6-ply/7.5mm shells\r\n* Precise bearing edges\r\n* 100% glued finishes\r\n* Original small lugs\r\n* Drum heads\r\n* Accu-tune bass drum hoops\r\n* Spur brackets\r\n* Tom holder\r\n* Tom brackets’, ‘799.99’, ‘15.00’, ‘2015-07-30 13:14:15’); INSERT INTO customers (customer_id, email_address, password, first_name, last_name, shipping_address_id, billing_address_id) VALUES (1, ‘allan.sherwood@yahoo.com’, ‘650215acec746f0e32bdfff387439eefc1358737’, ‘Allan’, ‘Sherwood’, 1, 2), (2, ‘barryz@gmail.com’, ‘3f563468d42a448cb1e56924529f6e7bbe529cc7’, ‘Barry’, ‘Zimmer’, 3, 3), (3, ‘christineb@solarone.com’, ‘ed19f5c0833094026a2f1e9e6f08a35d26037066’, ‘Christine’, ‘Brown’, 4, 4), (4, ‘david.goldstein@hotmail.com’, ‘b444ac06613fc8d63795be9ad0beaf55011936ac’, ‘David’, ‘Goldstein’, 5, 6), (5, ‘erinv@gmail.com’, ‘109f4b3c50d7b0df729d299bc6f8e9ef9066971f’, ‘Erin’, ‘Valentino’, 7, 7), (6, ‘frankwilson@sbcglobal.net’, ‘3ebfa301dc59196f18593c45e519287a23297589’, ‘Frank Lee’, ‘Wilson’, 8, 8), (7, ‘gary_hernandez@yahoo.com’, ‘1ff2b3704aede04eecb51e50ca698efd50a1379b’, ‘Gary’, ‘Hernandez’, 9, 10), (8, ‘heatheresway@mac.com’, ‘911ddc3b8f9a13b5499b6bc4638a2b4f3f68bf23’, ‘Heather’, ‘Esway’, 11, 12); INSERT INTO addresses (address_id, customer_id, line1, line2, city, state, zip_code, phone, disabled) VALUES (1, 1, ‘100 East Ridgewood Ave.’, ”, ‘Paramus’, ‘NJ’, ‘07652’, ‘201-653-4472′, 0), (2, 1, ’21 Rosewood Rd.’, ”, ‘Woodcliff Lake’, ‘NJ’, ‘07677’, ‘201-653-4472’, 0), (3, 2, ‘16285 Wendell St.’, ”, ‘Omaha’, ‘NE’, ‘68135’, ‘402-896-2576’, 0), (4, 3, ‘19270 NW Cornell Rd.’, ”, ‘Beaverton’, ‘OR’, ‘97006’, ‘503-654-1291’, 0), (5, 4, ‘186 Vermont St.’, ‘Apt. 2’, ‘San Francisco’, ‘CA’, ‘94110’, ‘415-292-6651’, 0), (6, 4, ‘1374 46th Ave.’, ”, ‘San Francisco’, ‘CA’, ‘94129’, ‘415-292-6651’, 0), (7, 5, ‘6982 Palm Ave.’, ”, ‘Fresno’, ‘CA’, ‘93711’, ‘559-431-2398′, 0), (8, 6, ’23 Mountain View St.’, ”, ‘Denver’, ‘CO’, ‘80208’, ‘303-912-3852’, 0), (9, 7, ‘7361 N. 41st St.’, ‘Apt. B’, ‘New York’, ‘NY’, ‘10012’, ‘212-335-2093’, 0), (10, 7, ‘3829 Broadway Ave.’, ‘Suite 2’, ‘New York’, ‘NY’, ‘10012’, ‘212-239-1208’, 0), (11, 8, ‘2381 Buena Vista St.’, ”, ‘Los Angeles’, ‘CA’, ‘90023’, ‘213-772-5033’, 0), (12, 8, ‘291 W. Hollywood Blvd.’, ”, ‘Los Angeles’, ‘CA’, ‘90024’, ‘213-391-2938’, 0); INSERT INTO orders (order_id, customer_id, order_date, ship_amount, tax_amount, ship_date, ship_address_id, card_type, card_number, card_expires, billing_address_id) VALUES (1, 1, ‘2015-03-28 09:40:28’, ‘5.00’, ‘32.32’, ‘2015-03-30 15:32:51’, 1, ‘Visa’, ‘4111111111111111’, ’04/2020′, 2), (2, 2, ‘2015-03-28 11:23:20’, ‘5.00’, ‘0.00’, ‘2015-03-29 12:52:14’, 3, ‘Visa’, ‘4012888888881881’, ’08/2019′, 3), (3, 1, ‘2015-03-29 09:44:58’, ‘10.00’, ‘89.92’, ‘2015-03-31 9:11:41’, 1, ‘Visa’, ‘4111111111111111’, ’04/2017′, 2), (4, 3, ‘2015-03-30 15:22:31’, ‘5.00’, ‘0.00’, ‘2015-04-03 16:32:21’, 4, ‘American Express’, ‘378282246310005’, ’04/2016′, 4), (5, 4, ‘2015-03-31 05:43:11’, ‘5.00’, ‘0.00’, ‘2015-04-02 14:21:12’, 5, ‘Visa’, ‘4111111111111111’, ’04/2019′, 6), (6, 5, ‘2015-03-31 18:37:22’, ‘5.00’, ‘0.00’, NULL, 7, ‘Discover’, ‘6011111111111117’, ’04/2019′, 7), (7, 6, ‘2015-04-01 23:11:12’, ‘15.00’, ‘0.00’, ‘2015-04-03 10:21:35’, 8, ‘MasterCard’, ‘5555555555554444’, ’04/2019′, 8), (8, 7, ‘2015-04-02 11:26:38’, ‘5.00’, ‘0.00’, NULL, 9, ‘Visa’, ‘4012888888881881’, ’04/2019′, 10), (9, 4, ‘2015-04-03 12:22:31’, ‘5.00’, ‘0.00’, NULL, 5, ‘Visa’, ‘4111111111111111’, ’04/2019′, 6); INSERT INTO order_items (item_id, order_id, product_id, item_price, discount_amount, quantity) VALUES (1, 1, 2, ‘1199.00’, ‘359.70’, 1), (2, 2, 4, ‘489.99’, ‘186.20’, 1), (3, 3, 3, ‘2517.00’, ‘1308.84’, 1), (4, 3, 6, ‘415.00’, ‘161.85’, 1), (5, 4, 2, ‘1199.00’, ‘359.70’, 2), (6, 5, 5, ‘299.00’, ‘0.00’, 1), (7, 6, 5, ‘299.00’, ‘0.00’, 1), (8, 7, 1, ‘699.00’, ‘209.70’, 1), (9, 7, 7, ‘799.99’, ‘240.00’, 1), (10, 7, 9, ‘699.99’, ‘210.00’, 1), (11, 8, 10, ‘799.99’, ‘120.00’, 1), (12, 9, 1, ‘699.00’, ‘209.70’, 1); INSERT INTO administrators (admin_id, email_address, password, first_name, last_name) VALUES (1, ‘admin@myguitarshop.com’, ‘6a718fbd768c2378b511f8249b54897f940e9022’, ‘Admin’, ‘User’), (2, ‘joel@murach.com’, ‘971e95957d3b74d70d79c20c94e9cd91b85f7aae’, ‘Joel’, ‘Murach’), (3, ‘mike@murach.com’, ‘3f2975c819cefc686282456aeae3a137bf896ee8’, ‘Mike’, ‘Murach’); — Create a user named mgs_user GRANT SELECT, INSERT, UPDATE, DELETE ON * TO mgs_user@localhost IDENTIFIED BY ‘pa55word’;

.What role does corporate culture play in risk-taking and accountability?

© T

o m

T o

m cz

y k

Chapter Objectives

To define corporate • governance

To describe the history • and practice of corporate governance

To examine key issues • to consider in designing corporate governance systems

To describe the application • of corporate governance principles around the world

To provide information on the • future of corporate governance

Chapter Outline

Corporate Governance Defined

History of Corporate Governance

Corporate Governance and Social Responsibility

Issues in Corporate Governance Systems

Corporate Governance Around the World

Future of Corporate Governance

Corporate Governance C H A P T E R 3

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Fannie Mae and Freddie Mac: Poor Decisions Contributed to Crisis

O P E N I N G C A S E

Fannie Mae and Freddie Mac will go down in history as major players in the mortgage crisis. Fannie Mae is a stockholder-owned corporation created to purchase and securitize mortgages so funds are available to institutions that lend money to homebuyers. Freddie Mac buys and sells mortgages and resells them as mortgage-backed securities. This increases the money available for mortgage lending and home purchases. Both companies were encouraged by President Clinton and Congress to buy loans from banks that made higher-interest mortgage loans to low-income families (known as subprime loans). Yet with a lack of proper oversight, the companies mismanaged the situation and the government had to intervene during the 2008 mortgage crisis.

Before 2008, Fannie Mae and Freddie Mac guaranteed about half of the $12 trillion in the mortgage market. Yet with the economy in decline homeowners increasingly could not afford the mortgage payments on their houses. The shares of Fannie and Freddie plummeted as more houses were foreclosed on and fewer people were in the market to buy.

As early as 1999, the New York Times predicted that giving out subprime loans could cause trouble during an economic downturn, requiring government intervention. Yet the companies appeared to ignore these warnings. They donated large amounts to lawmakers sitting on committees that regulated their industry; and as late as 2007, the government passed new rules saying that Fannie Mae and Freddie Mac could buy $200 billion more in subprime loans. The prophetic warnings of critics came true during the next economic downturn, forcing the companies to regret their poor decisions.

However, Fannie Mae’s situation went beyond bad decision making. The company was also under investigation for accounting errors. Civil charges had already been filed against Fannie Mae’s CEO, CFO, and the former controller, who

allegedly manipulated earnings to increase their bonuses.

Similarly, in 2003 Freddie Mac announced that it had underreported earnings by over $5 billion, which was the largest corporate restatement in financial history. Three years later, it was forced to pay $3.8 million after it was revealed the company had been making illegal campaign contributions between 2000 and 2003.

In 2008, James Lockhart of the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac would be put into a conservatorship of the FHFA, using funds from the U.S. Treasury, as part of the government efforts to stem the hemorrhaging in the mortgage industry. CEOs Daniel Mudd and Ryan Syron were investigated for allegedly lying to investors about earnings, portraying Fannie Mae and Freddie Mac as being more stable than they were. Bad decisions and managerial misconduct clearly contributed to these companies’ downfall and to the financial crisis of 2008–2009.1

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84 CHAPTER 3

B usiness decisions today are increasingly placed under a microscope by stake- holders and the media, especially those made by high-level personnel in publicly held corporations. Stakeholders are demanding greater transpar-

ency in business, meaning that company motives and actions must be clear, open for discussion, and subject to scrutiny. Although some organizations have oper- ated fairly independently in the past, recent scandals and the associated focus on the role of business in society have highlighted a need for systems that take into account the goals and expectations of various stakeholders. To respond to these pressures, businesses must effectively implement policies that provide strategic guidance on appropriate courses of action. This focus is part of corporate gov- ernance, the system of checks and balances that ensures that organizations are fulfi lling the goals of social responsibility.

Governance procedures and policies are typically discussed in the context of publicly traded firms, especially as they relate to corporations’ responsibili- ties to investors.2 However, the trend is toward discussing governance within many industry sectors, including nonprofits, small businesses, and family-owned enterprises. We believe governance deserves broader consideration because there is evidence of a link between good governance and strong social responsibility. Corporate governance and accountability are key drivers of change for business in the twenty-first century. It is abundantly clear, to experts and nonexperts alike, that corporate governance is in need of immediate attention by a wide range of firms and stakeholders. The corporate scandals at firms such as AIG, Countrywide Financial, and Lehman Brothers represented a fundamental break- down in basic principles of the capitalist system. Investors and other stakeholders must be able to trust management while boards of directors oversee managerial decisions.

Late 2008 and 2009 marked the beginning of a crisis of confidence in global business, particularly in the financial industry. Some of the nation’s oldest and most respected financial institutions teetered on the brink of failure and were either bailed out or acquired by other firms. The 2008–2009 global recession was caused in part by a failure of the financial industry to take appropriate responsibility for its decision to utilize risky and complex finan- cial instruments. Loopholes in regulation and the failures of regulators were exploited. Corporate cultures were built on rewards for taking risks rather than rewards for creating value for stakeholders. The governance systems at many of these companies did not take into account the risks or how to provide adequate oversight to prevent misconduct. In some cases, managers looked for loopholes in the laws or in unregulated areas such as derivatives. Ethical decisions were based more on what is legal rather than what was the right thing to do.

Unfortunately, most stakeholders, including the public, regulators, and the mass media, do not always understand the nature of the financial risks taken on by banks and other institutions to generate profits. The intangible nature of financial products makes it difficult to understand complex financial trans- actions. Problems in the subprime mortgage market, which deals with giving higher-rate mortgages to people who do not qualify for regular credit, sounded the alarm in the most recent economic downturn.

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CORPORATE GOVERNANCE 85

In this chapter, we define corporate governance and integrate the concept with the other elements of social responsibility. Then, we examine the corpo- rate governance framework used in this book. Next, we trace the evolution of corporate governance and provide information on the status of corporate governance systems in several countries. We look at the history of corporate governance and the relationship of corporate governance to social responsibility. We also examine primary issues that should be considered in the development and improvement of corporate governance systems, including the roles of boards of directors, shareholders and investors, internal control and risk management, and executive compensation. Finally, we consider the future of corporate gover- nance and indicate how strong governance is tied to corporate performance and economic growth. Our approach in this chapter is to demonstrate that corporate governance is a fundamental aspect of social responsibility.

CORPORATE GOVERNANCE DEFINED In a general sense, the term governance relates to the exercise of oversight, con- trol, and authority. For example, most institutions, governments, and businesses are organized so that oversight, control, and authority are clearly delineated. These organizations usually have an owner, president, chief executive officer (CEO), or board of directors that serves as the ultimate authority on decisions and actions. Nonprofit organizations, such as homeowners associations, have a president and board of directors to make decisions in the interest of a community of homeowners. A clear delineation of power and accountability helps stakehold- ers understand why and how the organization chooses and achieves its goals. This delineation also demonstrates who bears the ultimate risk for organizational decisions. Sarbanes-Oxley and the Federal Sentencing Guidelines put responsibil- ity on top officers and the board of directors.

Although many companies have adopted decentralized decision making, empowerment, team projects, and less hierarchical structures, governance remains a required mechanism for ensuring continued growth, change, and accountability to regulatory authorities. Even if a company has adopted a consensus approach for its operations, there has to be authority for delegating tasks, making tough and controversial decisions, and balancing power throughout the organization. Governance also provides oversight to uncover and address mistakes, risks, and misconduct. Consider the failure of boards at Enron, AIG, and Tyco to address risks and provide internal controls to prevent misconduct.

We define corporate governance as the formal system of oversight, account- ability, and control for organizational decisions and resources. Oversight relates to a system of checks and balances that limit employees’ and managers’ oppor- tunities to deviate from policies and codes of conduct. Accountability relates to how well the content of workplace decisions is aligned with a firm’s stated strategic direction. Control involves the process of auditing and improving orga- nizational decisions and actions. The philosophy that is embraced by a board or firm regarding oversight, accountability, and control directly affects how corpo- rate governance works.

corporate governance the formal system of oversight, accountability, and control for organizational decisions and resources

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86 CHAPTER 3

Corporate Governance Framework The majority of businesses and many courses taught in colleges of business operate under the belief that the purpose of business is to maximize profits for shareholders. In 1919, the Michigan Supreme Court in the case of Dodge v. Ford Motor Co.3 ruled that a busi- ness exists for the profit of shareholders, and the board of directors should focus on that objective. On the other hand, the stake- holder model places the board of directors in the central position to balance the interests and conflicts of the various constituencies. External control of the corporation includes government regulation, but also includes key stakeholders such as employees, consumers, and communities, who exert pressures for responsible conduct. Many of the obliga- tions to balance stakeholder interest have been institutionalized in legislation that pro- vides incentives for responsible conduct. The

Federal Sentencing Guidelines for Organizations (FSGO) provides incentives for developing an ethical culture and efforts to prevent misconduct. At the heart of the FSGO is the carrot-and-stick approach: By taking preventive action against misconduct, a company may avoid onerous penalties should a violation occur. Sarbanes-Oxley legislation holds top officers and the board of directors legally responsible for accurate financial reporting.

Today, the failure to balance stakeholder interests can result in a failure to maximize shareholders’ wealth. General Motors and Chrysler failed to understand customer needs, employee reactions to downsizing, and government regulatory issues. This resulted in both companies failing to achieve shareholder goals. Most firms are moving more toward a balanced stakeholder model, as they see that this approach will sustain the relationships necessary for long-run success.

Both directors and officers of corporations are fiduciaries for the shareholders. Fiduciaries are persons placed in positions of trust who use due care and loyalty in acting on behalf of the best interests of the organization. There is a duty of care, also called a duty of diligence, to make informed and prudent decisions.4 Directors have an obligation to avoid ethical misconduct in their role and to provide leader- ship in decisions to prevent ethical misconduct in the organization. Directors are not held responsible for negative outcomes if they are informed and diligent in their decision making. Ford’s directors can be held responsible for the accuracy of financial reporting, however. Manufacturing cars that lose market share is a serious concern, although it is not a legal issue. This means directors have an obligation to request information and research, use accountants and attorneys, and obtain the services of consultants in matters where they need assistance or advice.

“The philosophy that is embraced

by a board or firm regarding

oversight, accountability,

and control directly affects how corporate

governance works.”

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CORPORATE GOVERNANCE 87