Deck 18: Corporate Governance

Question 1

Most companies now design their compensation discussions to satisfy regulators rather than as a communication to the average shareholder.

Answer 1

True

Question 2

With a restricted stock,the recipient receives dividends and can vote the shares but cannot sell them until the restriction is lifted.

Answer 2

True

Question 3

The pay of top corporate officers is set by the board of directors.

Answer 3

True

Question 4

Companies must disclose their compensation plans and the annual compensation of the top five executive officers to shareholders.

Question 5

In the United States,company charters are granted by the federal government.

Question 6

Corporate charters require the directors of the company to protect the financial interests of the company's stockholders.

Question 7

At most companies the chairman of the board is the CEO,giving him/her a dual role.

Question 8

The Sarbanes-Oxley Act requires that accounting firm auditors of a company be rotated every three years.

Question 9

Stock options give an executive the right to buy the company's stock at a variable price in the future and under conditions determined by the board of directors.

Question 10

Most shareholders follow management's voting recommendations.

Question 11

Directors who are employees of the company are called independent directors.

Question 12

Usually,CEO pay is determined by managerial power.

Question 13

The Securities and Exchange Commission (SEC)regulations stipulate that a company must include a shareholder's proposal in its proxy statement if it meets specified requirements.

Question 14

According to the Dodd-Frank Act,shareholders who want to run a board candidate have to contact other shareholders at their own very high expense.

Question 15

When compensation committees base salaries and bonuses on median levels in a group of peer companies,they often choose larger peers.

Question 16

Backdating is granting options shortly before good news causes a share price rise.

Question 17

According to corporate charters,the legal line of authority for a company runs from the state,to directors,to managers,and to shareholders of the company in this sequence.

Question 18

Congress passed the Securities Act of 1933 requiring companies to register securities and provide financial statements and other information to buyers before their sale.

Question 19

According to the Dodd-Frank Act,at least once every three years companies have to submit their executive compensation packages to a stockholder vote,which is binding.

Question 20

The average board of directors has five members and this has not changed for many years.

Question 21

The exercise of authority over members of a corporate community is called:

A) corporate performance management.
B) corporate sustainability.
C) corporate statism.
D) corporate governance.

Question 22

Which of the following statements about the requirements of proxy statements is true?

A) The proposed resolution must be presented to the company for approval at least 100 days before the annual meeting.
B) Stockholders must own $3,000 or more shares for at least one year.
C) The proposal cannot exceed 1,000 words.
D) A shareholder may submit only one proposal for a particular shareholder meeting.

Question 23

Which of the following was perhaps the greatest defect of state corporate governance laws?

A) Inability to control costs in emerging markets.
B) Inability to provide access to low-cost funding sources.
C) Inability to regulate litigation pertaining to fiduciary responsibilities.
D) Inability to prevent fraud and manipulation in national capital markets.

Question 24

Which Act did Congress pass in 1933 that required companies to register securities and provide financial statements and other information to buyers before their sale?

A) The Securities Act
B) The Securities Exchange Act
C) The Sarbanes-Oxley Act
D) The Uniform Securities Act

Question 25

The Securities Exchange Act of 1934 Act:

A) required companies to file annual reports called 10-Qs.
B) obligated companies to file quarterly reports called 8-Ks.
C) entailed companies to file reports known as 10-Ks that quickly update investors on significant events.
D) established the Securities and Exchange Commission (SEC).

Question 26

The legal authority for corporate managers and directors is derived from the:

A) corporate charter.
B) board of directors.
C) stockholders.
D) CEO.

Question 27

Which of the following are also called articles of incorporation?

A) Stock options
B) Share certificates
C) Charters
D) Perquisites

Question 28

Which of the following enacted new regulations on auditing,financial reporting,and legal compliance?

A) The Bankruptcy Act
B) The Sherman Antitrust Act
C) The Sarbanes-Oxley Act
D) The International Emergency Economic Powers Act

Question 29

A proxy card:

A) is also called a proxy statement.
B) is a form stockholders mark giving management the right to vote their shares as indicated.
C) is an inventory of information sent to stockholders before annual votes on directors.
D) contains rules of corporate governance to be adopted by corporations.

Question 30

Identify the correct statement about shareholder influence.

A) Shareholders often exercise their voting power to replace management.
B) In corporate elections,stockholders cannot vote for another candidate.
C) If stockholders submit nominees to board nominating committees,the directors have to accept them.
D) Most shareholders do not follow management's voting recommendations.

Question 31

All of the following statements are true of the requirements of proxy statements EXCEPT:

A) the proposal cannot exceed 1,000 words.
B) a shareholder may submit only one proposal for a particular shareholder meeting.
C) stockholders must own $2,000 or more shares for at least one year.
D) a proposal should receive no less than 3 percent of vote to be presented at the next shareholder meeting.

Question 32

In reality,the sequence of the flow of authority of a corporation from the powers granted in the charter of the corporation is from the:

A) CEO to the directors to the stockholders.
B) directors to the CEO to the stockholders.
C) stockholders to the directors to the CEO.
D) CEO to the stockholders to the directors.

Question 33

Identify the correct statement about the Securities and Exchange Commission (SEC).

A) SEC rules prohibit the dollar value of extra benefits from being disclosed to shareholders.
B) It is a limited regulatory commission with five members,one of whom serves as chairman,appointed by the governor for five years.
C) It now has a staff of 3,500 and an annual budget of approximately $900 million.
D) Under SEC rules,a company can reject a proposed resolution for any of 30 reasons.

Question 34

Corporate charters specify the rights and responsibilities of all of the following EXCEPT:

A) directors.
B) stockholders.
C) officers.
D) consumers.

Question 35

A government document that creates a corporation and defines its authority is called a:

A) corporate charter.
B) state charter.
C) commerce charter.
D) director's charter.

Question 36

This is the legal duty of a representative to manage property in the interest of the owner.

A) Contributory liability
B) Fiduciary responsibility
C) Principal accountability
D) Ownership interest

Question 37

Name the document sent to shareholders before the annual meeting that sets forth matters requiring their vote.

A) Proxy statement
B) Charter
C) Share certificate
D) Financial report

Question 38

Which state charters the largest number of corporations in the United States?

A) Delaware
B) New Jersey
C) California
D) New York

Question 39

Rules of corporate governance adopted by corporations are called:

A) policies.
B) articles of incorporation.
C) bylaws.
D) standing rules.

Question 40

Stockholders:

A) cannot propose resolutions for votes.
B) are said to be owners of corporations.
C) own a fraction of the corporation as property.
D) are liable for the corporation's actions.

Question 41

Shares of company stock awarded after a fixed period of years if individual and company performance goals are met are called:

A) time shares.
B) performance shares.
C) stock options.
D) restricted stock.

Question 42

This is an independent director who chairs regular board meetings of other independent directors.

A) Inside director
B) Lead director
C) Internal director
D) Vocational director

Question 43

What is the primary focus of the Sarbanes-Oxley Act of 2002?

A) Business bankruptcy
B) Pricing practices
C) Individual bankruptcy
D) Accounting rules

Question 44

Which of the following statements about the components of executive compensation is true?

A) NYSE listing standards require that the compensation committee be composed of independent directors as well as the CEO.
B) A compensation committee of expert consultants sets the pay of top corporate officers.
C) The annual base salary is usually set near the median salary for leaders at comparable firms.
D) Base salaries are often around $2 million,the amount that the IRS allows as tax deductible.

Question 45

Directors who are not employees of the company are:

A) inside directors.
B) independent directors.
C) lead directors.
D) outside directors.

Question 46

Which of the following refers to a financing transaction in which one firm lends assets to another firm in exchange for cash with a simultaneous agreement to purchase the assets back?

A) Forward rate agreement
B) Swap agreement
C) Repurchase agreement
D) Future-forward agreement

Question 47

Which of the following statements about compensation of outside board members is true?

A) They are compensated as full-time employees of the firm.
B) They are provided perquisites and pensions.
C) They are usually paid an annual retainer supplemented with company stock.
D) They are paid a monthly salary.

Question 48

A nominating committee:

A) oversees auditing reports and assesses financial risks in the company's strategy.
B) reviews the performance of top executives and sets their compensation.
C) sets the director's pay.
D) identifies candidates for election to the board.

Question 49

All of the following are frequently used types of stock awards EXCEPT:

A) time shares.
B) performance shares.
C) stock options.
D) restricted stock.

Question 50

The right to buy a company's stock at a fixed price and under the conditions set by the company's board of directors is called a:

A) stock grant.
B) stock option.
C) stock answer.
D) stock bid.

Question 51

A holder of stock options can buy shares from the company at a specified future date,called the _____ date.

A) withdrawal expiration
B) inception
C) vesting
D) annuitization

Question 52

Which of the following statutes was established to reform financial regulation and prevent a recurrence of the 2007-2008 financial crisis?

A) The Sarbanes-Oxley Act
B) The Uniform Securities Act
C) The International Emergency Economic Powers Act
D) The Dodd-Frank Act

Question 53

According to the Sarbanes-Oxley Act of 2002,criminal violations can lead to fines of up to:

A) $100,000.
B) $50 million and lengthy prison terms.
C) $5 million and a minimum of 20 years in prison.
D) $10,000 and a maximum of one year of imprisonment.

Question 54

The right to purchase a specified number of shares of a company's stock for a specified price at a future date is called a:

A) stock bid.
B) stock option.
C) stock grant.
D) stock right.

Question 55

Which of the following is a major duty that state incorporation laws impose on boards of directors?

A) To exercise due diligence in supervising shareholders.
B) To represent the interests of stockholders by conducting a profitable business that enhances share value.
C) To make day-to-day management decisions.
D) To put their own self-interests ahead of the shareholders.

Question 56

Directors who are employees of the company are called:

A) independent directors.
B) inside directors.
C) lead directors.
D) outside directors.

Question 57

Compensation of these directors is determined by compensation committees on boards.

A) Inside directors
B) Internal directors
C) Outside directors
D) International directors

Question 58

Which of the following is a major provision of the Sarbanes-Oxley Act?

A) Audit firms are prohibited from doing consulting work for corporations while also auditing their books.
B) It creates a Private Company Accounting Oversight Board to oversee accounting firms and improve the accuracy of their audits.
C) Every board of directors must create audit committees consisting of independent directors who receive consulting or advisory fees from the company other than their compensation.
D) Boards of directors are permitted to,at their discretion,approve personal loans for company executives.

Question 59

What is the main focus of the Dodd-Frank Act?

A) Financial reform
B) Protected speech
C) Racial harassment
D) Tort reform

Question 60

These are outside directors who do not have business dealings with a corporation that would impair their impartiality.

A) Intermediate directors
B) Independent directors
C) Internal directors
D) International directors

Question 61

List three provisions that were set forth in the Sarbanes-Oxley Act.

Question 62

Explain what a corporate charter allows a corporation to do.

Question 63

These cannot be sold until certain conditions are met,most often the lapse of a time period or meeting a performance goal.

A) Performance shares
B) Perquisites
C) Stock options
D) Restricted stock

Question 64

This is a grant of stock with restrictions on transaction that are removed when a specified condition is met.

A) Performance shares
B) Restricted stock
C) Stock options
D) Perquisites

Question 65

Explain the flow of authority granted by the powers of a charter of a corporation.

Question 66

Explain which state has chartered the largest number of U.S.industrial corporations and why this state is so popular for this activity.

Question 67

Discuss the advantages that management has over shareholders.

Question 68

Explain what is meant by stock options and how these options work and are typically used within a corporation.

Question 69

What are the major shortcomings of CEO compensation?

Question 70

When annual CEO salary and bonus are based on ____,the CEO can take actions to maximize short-term profits.

A) market forces
B) stock awards
C) net income
D) stock options

Question 71

What is a proxy card?

Question 72

Setting the exercise price of stock options at the price on a date before the date they were granted is:

A) day trading.
B) backdating.
C) earmarking.
D) overnight rating.

Question 73

What are two major duties that state incorporation laws impose on boards of directors?

Question 74

Usually,CEO pay is determined by:

A) market forces in the competition for managerial talent.
B) managerial power.
C) assets under management.
D) their ability to set their own pay.

Question 75

Describe the typical duties of boards of directors for U.S.corporations.

Question 76

What is meant by grant price?

Question 77

Describe the maximum penalty directors and managers are subject to for civil and criminal violations as specified in the Sarbanes-Oxley Act.

Question 78

Discuss some of the provisions of the Dodd-Frank Act.

Question 79

What is restricted stock?

Question 80

Explain what is meant by "corporate governance" and what it includes.