Question 1

Two important issues in corporate governance are (1)the rules that cover the board's ability to fire the CEO and (2)the rules that cover the CEO's ability to remove members of the board.

Accepted Answer

False

Question 2

Which of the following is NOT normally regarded as being a barrier to hostile takeovers?&#10;A) Targeted share repurchases.&#10;B) Shareholder rights provisions.&#10;C) Restricted voting rights.&#10;D) Poison pills.&#10;E) Abnormally high executive compensation.

Accepted Answer

Abnormally high executive compensation is not normally regarded as being a barrier to hostile takeovers. While it may make the target company less attractive to potential acquirers, high executive compensation is not a defense mechanism against hostile takeovers. Targeted share repurchases, shareholder rights provisions, restricted voting rights, and poison pills are all commonly used as defenses against hostile takeovers.

Question 3

ESOPs were originally designed to help improve worker productivity,but today they are also used to help prevent hostile takeovers.

Accepted Answer

ESOPs (Employee Stock Ownership Plans) were first created in the 1950s to promote employee ownership and improve corporate performance. However, over time, ESOPs have also been used as a defensive measure against hostile takeovers by providing a way for employees to retain ownership and prevent outside investors from gaining control.

Question 4

Which of the following is NOT normally regarded as being a good reason to establish an ESOP?&#10;A) To enable the firm to borrow at a below-market interest rate.&#10;B) To make it easier to grant stock options to employees.&#10;C) To help prevent a hostile takeover.&#10;D) To help retain valued employees.&#10;E) To increase worker productivity.

Accepted Answer

Granting stock options to employees can be achieved through various means and does not necessarily require the establishment of an Employee Stock Ownership Plan (ESOP). ESOPs are primarily used for purposes such as borrowing at favorable rates, preventing hostile takeovers, retaining employees, and boosting productivity, rather than just facilitating stock options.

Question 5

A poison pill is also known as a corporate restructuring.

Accepted Answer

A poison pill is a defensive strategy taken by a company to discourage hostile takeovers by making the target company less attractive to the acquiring company. It is not the same as a corporate restructuring, which involves a significant change in a company's organizational structure, financial or operational policies, or strategic direction to improve its overall performance.

Question 6

The CEO of D'Amico Motors has been granted some stock options that have provisions similar to most other executive stock options.If D'Amico's stock underperforms the market,these options will necessarily be worthless.

Accepted Answer

Stock options granted to executives, including those at D'Amico Motors, typically have a set exercise price. If the company's stock underperforms the market but remains above the exercise price, the options can still hold value, allowing the executive to purchase shares at a price lower than the market value.

Deck 13: Corporate Governance