Question 1

Divisions in an M-form organization should be large enough to represent identifiable business entities but small enough so that a division general manager can manage each one effectively.

Accepted Answer

Divisions in an M-form organization are designed to function like separate business entities with their own general managers who have a high degree of decision-making authority. However, to ensure effective management, divisions should not become too large and unmanageable. The size of each division should be such that the general manager can oversee and control all the operations effectively. Therefore, the statement is true.

Question 2

Institutional owners are usually pension funds, mutual funds, insurance companies, or other groups of investors that have joined together to manage their investments.

Accepted Answer

Institutional owners are typically large groups of investors, such as pension funds and mutual funds, who pool their resources together to manage their investments.

Question 3

A board of directors typically consists of 15 to 30 individuals drawn from a firm's top management group and from individuals outside the firm.

Accepted Answer

A board of directors typically consists of individuals outside the firm as well as the top management team, but the specific number can vary widely depending on the company and its size. Some boards may have fewer than 15 members, while others may have more than 30.

Question 4

In an M-form organization the role of the board of directors is to formulate corporate strategies consistent with equity holders' interests and to assure strategy implementation.

Accepted Answer

The answer of In an M-form organization the role of...

Question 5

All firms that use the multidivisional structure use the same criteria for defining the boundaries of profit-and-loss centers.

Accepted Answer

Firms that use the multidivisional structure may use different criteria for defining the boundaries of their profit-and-loss centers depending on their industry, goals, and other factors. There is no one-size-fits-all approach to defining these boundaries.

Question 6

In the multidivisional structure, each business that the firm engages in is managed through a division.

Accepted Answer

In the multidivisional structure, each business that the firm engages in is managed through a division. This allows for greater control and flexibility within each division, as well as the ability to focus on specific markets or products. Overall, this structure is often used by larger corporations that have multiple businesses or product lines.

Question 7

The most common organization structure for implementing a corporate diversification strategy is the U-form.

Accepted Answer

The most common organizational structure for implementing a corporate diversification strategy is the M-form (multidivisional form), not the U-form (unitary form). The M-form allows for separate divisions to manage different product lines or business units, which is suitable for diversified companies.

Question 8

In 1970, institutions owned 62 percent of the equity traded in the United States; by 1990, institutions owned 48 percent of this equity and by 2002, they owned only 32 percent of this equity.

Accepted Answer

The trend described is incorrect; institutional ownership of equity in the United States has generally increased over time, not decreased.

Question 9

Each division in an M-form organization typically adopts a matrix structure and the division general manager takes on the role of senior project executive.

Accepted Answer

In an M-form (multidivisional) organization, each division operates as a separate entity with its own functional departments, not typically adopting a matrix structure. The division general manager usually oversees the division's operations rather than acting as a senior project executive.

Question 10

Research on outside members of boards of directors tends to show that outside directors, as compared to insiders, tend to focus less on monitoring a firm's economic performance than on other measures of firm performance.

Accepted Answer

Research indicates that outside directors often focus more on monitoring a firm's economic performance to ensure accountability and protect shareholder interests, as they are not involved in the day-to-day operations.

Question 11

To the extent that a board of directors begins to operate a business on a day-to-day basis, it goes beyond its capabilities.

Accepted Answer

The primary responsibility of a board of directors is to provide strategic direction and oversight for a business, not to handle day-to-day operational tasks. When a board starts getting involved in operational details, it can become overstretched and lose sight of its primary duties.

Question 12

The M-form structure is designed to create checks and balances for managers that increase the probability that a diversified firm will be managed in ways consistent with the interests of its equity holders.

Accepted Answer

The M-form structure, which stands for multidivisional form, is designed to decentralize decision-making power and create checks and balances for managers to ensure that the different divisions of a diversified firm are managed in ways consistent with the interests of its equity holders. This structure separates the firm into different business units or divisions, each with their own manager responsible for their unit's operations and profitability. Overall, the M-form structure aims to increase efficiency and accountability while reducing the risks associated with centralization.

Question 13

In an agency relationship the party delegating the decision-making authority is called the agent.

Accepted Answer

In an agency relationship, the party delegating the decision-making authority is called the principal, while the party receiving the authority is called the agent.

Question 14

Whenever one party to an exchange delegates decision-making authority to a second party, an agency relationship has been created between these parties.

Accepted Answer

This is a correct definition of an agency relationship.

Question 15

Another name for the M-form is the multidivisional structure.

Accepted Answer

This is true, as the M-form is a type of organizational structure where a company is divided into separate divisions, each with its own distinct business function and operational focus, which is also known as the multidivisional structure.

Question 16

Managerial risk aversion is not as important in diversified firms where risk is distributed.

Accepted Answer

The answer of Managerial risk aversion is not as important...

Question 17

The divisions in an M-form organization are True profit-and-loss centers.

Accepted Answer

The M-form organizational structure is characterized by a multi-divisional structure where each division operates as a semi-autonomous unit with its own profit and loss responsibility. Therefore, the divisions in an M-form organization are true profit-and-loss centers.

Question 18

In principle, only the CEO and the president report to the board of directors while other senior managers report only to the CEO.

Accepted Answer

Senior managers may report to the CEO, but they may also report directly to the board of directors or through a committee appointed by the board. The exact reporting structure can vary by organization.

Question 19

Research has shown that separating the roles of CEO and board chair is positively correlated with firm performance when firms operated in high-growth and very complex environments.

Accepted Answer

Research studies have found that separating the roles of CEO and board chair can have a positive impact on firm performance in certain contexts. Specifically, this separation is more strongly associated with improved performance in firms that operate in high-growth and very complex business environments, where the demands on the CEO and the board are particularly challenging. In these settings, having separate individuals in these leadership roles can provide greater accountability, more effective decision-making, and a better balance of power and oversight within the organization.

Question 20

One common agency problem occurs when managers decide to take some of a firm's capital and invest it in managerial perquisites that do not add economic value to the firm but that do directly benefit those managers.

Accepted Answer

This statement accurately describes one form of agency problem known as managerial opportunism, where managers use their position to take advantage of a company's resources for their personal gain rather than acting in the best interest of the company and its shareholders.

Quiz 8: Organizing to Implement Corporate Diversification