Deck 11: Corporate Governance

Question 1

In 1932, Adolf Berle and Gardiner Means argued that the shift in control of modern corporations from owners to professional managers had occurred because:

A) technological evolution changed the role of managers in organizations
B) ownership had become dispersed among many individuals and institutions
C) government regulation weakened the power of owners
D) none of the above

Answer 1

ownership had become dispersed among many individuals and institutions

Question 2

Which of the following is not a part of the decision process under the separation of ownership and control?

A) project monitoring
B) project management
C) project implementation
D) project ratification

Answer 2

project management

Question 3

Directors are not likely to be liable for poor company performance when they:

A) Align the corporate infrastructure with the strategies of each business unit
B) Build a strong corporate culture that supports risk taking and learning
C) Follow the business judgment rule by making decisions they believe are best for the firm
D) Rely on professional managers for control of the organization

Answer 3

Follow the business judgment rule by making decisions they believe are best for the firm

Question 4

Why might dispersed ownership of corporations not be a bad thing?

A) shareholders can diversify their holdings over many firms
B) shareholders can divest poorly performing firms
C) managers may make better decisions
D) all of the above

Question 5

The two primary duties of the board of directors are:

A) the duty of care and the duty of knowledge
B) the duty of care and the business judgment rule
C) the duty of care and the duty of loyalty
D) the duty of loyalty and the business judgment rule

Question 6

Which of the following did a Senate subcommittee find regarding corporate governance at Enron?

A) the independence of board was compromised
B) the board approved excessive compensation for management
C) both of the above
D) neither of the above

Question 7

Board interlocks with other firms:

A) raise the firm's share price
B) lower operating performance
C) make acquisitions less likely
D) make the adoption of a poison pill, and by assumption similar governance practices, more likely

Question 8

Which of the following is not a primary determinant of CEO compensation?

A) CEO ingratiation with the board
B) changes in company share price
C) industry trends
D) company size

Question 9

The duty of loyalty is defined as being loyal to the interests of:

A) shareholders
B) the corporation
C) customers
D) employees

Question 10

Which of the following changes in governance are associated with a rise in share price?

A) a higher paid CEO
B) a higher paid CFO
C) fewer board interlocks
D) smaller board size

Question 11

Which of the following might be a benefit from Rule 404 of the Sarbanes-Oxley Act?

A) more control for professional managers
B) weaker power for corporate boards of directors
C) stronger bonding of foreign firms listed on U.S. exchanges
D) lower internal auditing costs

Question 12

Dispersed ownership of corporations might not be a bad thing because shareholders can divest poorly performing firms.

Question 13

Increasing the number of outsiders on a board of directors can help to turn a company around.

Question 14

Among the different types of CEO compensation, bonuses account for the largest variation in compensation among CEOs.

Question 15

Implicit in the duty of care is the director's responsibility to remain informed about the firm's ongoing activities.

Question 16

It is generally accepted that the board of directors, not managers, have the primary responsibility for corporate governance.

Question 17

The business judgment rule acts as a safe harbor when the duty of loyalty is being questioned.

Question 18

Firms always achieve higher operating performance when they add more independent directors.

Question 19

To adhere to Rule 404, a firm has to inspect every one of its processes that has an effect on financial reporting.

Question 20

Antitakeover defenses are not in the interest of shareholders.

Question 21

Independent directors act as conduits of innovations to a firm, some potentially harmful.

Question 22

How do a firm's shareholders control and monitor the managers that make the firm's strategic decisions?

Question 23

If antitakeover defenses help to protect a company, its board, or its employees, why might they be considered a bad form of corporate governance?

Question 24

Give an example of a country where government intervention and interfirm networks influence corporate governance.