Deck 2: Corporate Governance

Question 1

According to the text, most publicly owned large corporations today tend to have boards with what degree of involvement in the strategic management process?

A) passive to minimal
B) minimal to nominal
C) rubber stamp type
D) nominal to active
E) active to catalyst

Answer 1

D

Question 2

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 2

A

Question 3

A careless director or directors can be held personally liable for harm done to the corporation if they failed to act with

A) codetermination.
B) figurehead role.
C) cumulative voting.
D) accountability.
E) due care.

Answer 3

E

Question 4

The board of directors has an obligation to approve all decisions that might affect the long-run performance of the corporation.

Question 5

Catalyst-level boards of directors typically

A) are less involved than active participation boards.
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.

Question 6

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.

Question 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 and determine
E) to evaluate

Question 8

Succession planning for the board and top management team is one of the five responsibilities of the board of directors.

Question 9

The more active professional boards are being replaced by the board as a rubber stamp of the CEO.

Question 10

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.

Question 11

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.

Question 12

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

Question 13

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

Question 14

The relationship among the board of directors, top management, and shareholders is referred to as

A) corporate synergy.
B) corporate management.
C) corporate governance.
D) corporate strategy.
E) corporate responsibility.

Question 15

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.

Question 16

Those directors who fail to act with due care and allow the corporation to be harmed may be held personally liable.

Question 17

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%

Question 18

The lowest degree of involvement for a board of directors is the catalyst level of interaction.

Question 19

A 2011 McKinsey and Company survey found that less than ten percent of a board's time is spent on current strategy.

Question 20

From the perspective of the public, the primary job of the board of directors is

A) to lend credence to the decisions of the executive committee.
B) dictated solely by legal requirements.
C) to act as representatives for public identification.
D) to closely monitor the actions of management.
E) insulated from legal judgments because management actually makes the decisions.

Question 21

A study by Korn/Ferry found that ________ of U.S. boards of directors had at least one ethnic minority member in 2007.

A) 6%
B) 26%
C) 47%
D) 78%
E) 96%

Question 22

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

Question 23

Which country pioneered the use of worker participation on corporate boards?

A) England
B) France
C) Sweden
D) Japan
E) Germany

Question 24

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.

Question 25

________ theory argues that senior executives over time tend to view the corporation as an extension of themselves.

A) Population ecology
B) Motivation
C) Stewardship
D) Agency
E) Goal setting

Question 26

The percentage of directors of small, publicly held U.S. corporations who are outsiders is approximately

A) 2 - 12%.
B) 20 - 40%.
C) 40 - 60%.
D) 60 - 80%.
E) 98 - 100%.

Question 27

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.

Question 28

Generally, the smaller the corporation, the less active is its board of directors.

Question 29

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

Question 30

What are the responsibilities of the board of directors?

Question 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

Question 32

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.

Question 33

Explain the continuum of board involvement.

Question 34

Research reveals that the likelihood of a firm engaging in illegal behavior or being sued declines

A) with a larger board.
B) with the addition of insiders on the board.
C) with the addition of outsiders on the board.
D) with a smaller board.
E) with a well-compensated board.

Question 35

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.

Question 36

Korn/Ferry International reported that amongst the 100 largest companies listed in 2011 ________ of boards of directors had at least one female director.

A) 4%
B) 20%
C) 50%
D) 82%
E) 96%

Question 37

Codetermination

A) is the process by which both management and the board establish corporate strategic management.
B) is the inclusion of a corporation's employees 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.

Question 38

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) codetermination.
B) agency theory.
C) interlocking management theory.
D) strategic leadership theory.
E) ownership theory.

Question 39

The average board member of a U.S. Fortune 500 firm serves on ________ board(s).

A) 3
B) 6
C) 9
D) 12
E) only 1

Question 40

Surveys of large U.S. and Canadian corporations found outsiders make up what percentage of total board membership?

A) 2%
B) 30%
C) 50%
D) 80%
E) 98%

Question 41

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.

Question 42

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.

Question 43

A minority percentage of large corporations in the Americas and Europe may keep the firm's recently retired CEO on the board after retirement since there is a greater likelihood of a conflict of interest and less objectivity.

Question 44

Agency theory suggests that the majority of a board needs to be from outside the firm.

Question 45

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

Question 46

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

Question 47

The percentage of large U.S. corporations using nominating committees to identify potential new directors is approximately

A) less than 6%.
B) 37%.
C) 57%.
D) 87%.
E) 97%.

Question 48

The concept of the lead director originated in

A) the United Kingdom.
B) the United States.
C) France.
D) Sweden.
E) Germany.

Question 49

What percent of boards now have truly independent chairs?

A) less than 10%.
B) approximately 30%.
C) approximately 50%.
D) approximately 75%.
E) over 90%.

Question 50

Population 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.

Question 51

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

Question 52

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.

Question 53

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.

Question 54

The average large, publicly held U.S. corporation has around

A) 7 directors.
B) 10 directors.
C) 19 directors.
D) 25 directors.
E) 30 directors.

Question 55

A lead director

A) has not been a popular approach in the United Kingdom.
B) creates a balance of power when the CEO is also Chair of the Board.
C) has lost popularity in the United States since 2003.
D) has no involvement in the CEO's evaluation.
E) totally replaces the CEO position.

Question 56

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.

Question 57

Which of the following is not descriptive of interlocking directorates?

A) Interlocking directorates occur because large firms have a large impact on other corporations.
B) Interlocking directorates are more common in small, family-owned companies.
C) Interlocking directorates are a useful method for gaining inside information about an uncertain environment.
D) Interlocking directorates occur in about 20% of the 1000 largest U.S. firms.
E) Interlocking directorates provide objective expertise about a firm's strategy.

Question 58

Stewardship theory proposes insiders (senior leadership) tend to identify with the corporation and its success.

Question 59

The majority of outside directors are active or retired CEOs and COOs of other corporations.

Question 60

Outside directors may be executives of other firms but are not employees of the board's corporation.

Question 61

The New York Stock Exchange (NYSE) requires corporations to have

A) a majority of the board be outsiders.
B) cumulative voting.
C) at least one employee director as a representative on the board.
D) at least two outside directors providing stockholder representation.
E) an audit committee composed entirely of independent, outside members.

Question 62

By 2012, 56% of the S&P 500 boards had split the role of chairperson and CEO.

Question 63

Explain the difference between a direct and indirect interlocking directorate.

Question 64

The combined chairperson/CEO position is being increasingly criticized because of the potential for conflict of interest.

Question 65

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.

Question 66

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.

Question 67

A benefit of the increased disclosure requirements of the Sarbanes-Oxley Act has been more reliable corporate financial statements.

Question 68

Contrast agency theory and stewardship theory.

Question 69

Explain the impact of the Sarbanes-Oxley Act on corporate governance.

Question 70

While 97% of large U.S. corporations now use nominating committees to identify potential directors, this practice is not as common in Europe.

Question 71

A direct interlocking directorate occurs when two corporations have directors who also serve on the board of a third firm.

Question 72

The role of the board of directors in the strategic management of the corporation is likely to

A) be more active in the future.
B) be less active in the future.
C) be nonexistent as planning departments take over.
D) remain the same.
E) shift more toward managing daily operations.

Question 73

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.

Question 74

Codetermination has been used in Germany since the 1950s, but has not been used in the United States.

Question 75

Which of the following is not one of the four major issues researched 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

Question 76

In implementing the Sarbanes-Oxley Act, the SEC required in 2003 that a company disclose

A) the number of insiders on their PR committee.
B) if it has adopted a code of ethics that applied to the CEO and the CFO.
C) the CEO's pay.
D) the CFO's pay.
E) all of the above

Question 77

A survey of directors of U.S. corporations found that the main reason individuals serve on a board is for the compensation.

Question 78

The SEC requires that the audit, nominating, and compensation committees be staffed entirely by outside directors.

Question 79

Which of the following is a trend in corporate governance?

A) Boards are getting less involved in shaping corporate strategy.
B) Shareholders are demanding that directors and top managers own less stock in the company.
C) Boards are establishing mandatory retirement ages for board members.
D) Boards are getting larger.
E) Boards are looking for fewer members with international experience.

Question 80

Why is the use of the combined Chair/CEO role being increasingly criticized?