Deck 18: Owner Stakeholders and Corporate Governance

Question 1

Insider trading refers to the practice of executives purchasing stock in their own firms without paying commission fees to the corporation's stockbrokers.

Answer 1

False

Question 2

Martha Stewart became a household name as a "corporate raider."

Answer 2

False

Question 3

One real problem today is the concern over the extent to which control has been exercised by management groups over boards of directors.

Answer 3

True

Question 4

One major advantage of boards is that all they must do is rubber-stamp management's decisions.

Question 5

Greenmail occurs when corporate executives use company funds, rather than personal funds, to secure the release of kidnapped family members.

Question 6

The issue of executive pay has become one of the principal elements in "me first" management.

Question 7

Recent reports suggest that executive compensation always seems to correlate with corporate performance.

Question 8

While CEO compensation seems to be escalating and becoming a public issue, the average compensation of board members has been stable and unchanged.

Question 9

The composition of the board of directors has no impact on the "ethics" of its decisions.

Question 10

A "golden parachute" is a contract in which an executive agrees to pay his or her corporation a specified fee if the executive decides to "bail out" in the middle of sensitive negotiations.

Question 11

"Golden parachutes" are always restricted to the CEOs of corporations.

Question 12

Of the three roles that boards may assume, it seems that ideally they should aim for the directing role.

Question 13

Currently, charters for business firms are issued by the federal government.

Question 14

One major conflict of interest on boards is having the CEO also serve as chairman of the board.

Question 15

The macro level of legitimacy is the level most closely associated with the corporate governance issue.

Question 16

One major disadvantage of an insider-dominated board is the lack of an independent perspective.

Question 17

One compensation expert has found that 96 percent of CEO pay is directly related to the company's financial performance.

Question 18

The separation of ownership from control in major corporations has been overstated and, in fact, is really not a serious issue anymore.

Question 19

Increases in executive compensation have generally been proportionate to increases in the salaries on the shop floor.

Question 20

Audit, nomination, and compensation committees of the board are ways in which boards may be made stronger.

Question 21

Critics have argued that

A) board members are being unfairly singled out for not doing their jobs.
B) boards ought to be insider-dominated and that would solve most of our governance problems.
C) board members are not fully doing what they legally, morally, and ethically should be doing.
D) there ought to be a law against someone holding more than 3 board directorships at one time.

Question 22

Two of the most questionable top-management practices to come out of the hostile takeover wave have been

A) poison pills and shark repellents.
B) junk bonds and white knights.
C) early retirements and salary bonuses.
D) golden parachutes and greenmail.

Question 23

The major issue embedded in the structure of modern corporations that has contributed to the corporate governance problem has been

A) excessive executive compensation.
B) early retirement programs such as the one implemented by IBM.
C) the separation of ownership from control.
D) union domination of the proxy machinery.

Question 24

Which of the following was not cited in the text as an argument against golden parachutes?

A) Companies, during recessionary times, cannot afford them.
B) They constitute "double dipping."
C) They could be providing a reward for failure.
D) They represent a conflict of interest in situations where executives effectively control their boards.

Question 25

Andrew Rankin is most well known as

A) a hostile takeover magnate.
B) an insider trader.
C) a corporate raider.
D) a CEO.

Question 26

Which of the following is a shareholder rights plan aimed at discouraging or preventing a hostile takeover?

A) greenmail
B) poison pill
C) golden parachutes
D) insider trading scandals

Question 27

As Business Week, and others, have studied the issue of executive compensation, one observation stands out:

A) Auto executives are better paid than insurance industry executives.
B) Executive pay seems to rise despite poor or tenuous financial performance of their firms.
C) Executive compensation is directly and closely correlated with their firm's financial performance.
D) The general public is not interested in how much CEOs get paid.

Question 28

Which of the following practices involves the repurchase of stock from an unwanted suitor at a higher-than-market price?

A) greenmail
B) hostile takeover
C) golden parachute
D) poison pill

Question 29

All the following were purposes corporate boards hoped to achieve with golden parachutes except

A) make their companies less palatable to a corporate raider.
B) ensure that key executives did not jump ship during negotiations.
C) boosting executive self-concepts so that they could negotiate more strongly with opponents.
D) reward the executives handsomely for their loyalty.

Question 30

Which one of the following is a contract in which the corporation agrees to make payments to key officers in the event of a change in control?

A) Greenmail
B) poison pill
C) golden parachutes
D) Trading

Question 31

The method by which a firm is being governed, directed, administered, or controlled and to the goals for which it is being governed is referring to

A) corporate governance
B) charter issues
C) corporate ownership
D) compensation issues

Question 32

Regarding corporate legitimacy,

A) micro-level legitimacy addresses the corporate governance problem.
B) Talcott Parsons has argued that European firms have more legitimacy than North American firms.
C) what is at stake is the existence and form of business as an institution in our society.
D) none of the above.

Question 33

Corporate governance is concerned with

A) the trend toward more women on boards of directors.
B) hostile takeovers becoming the norm.
C) the legitimacy of charters issued in Ontario.
D) the relative roles, rights, and accountability of such stakeholder groups as owners, board members, managers, employees, and others.

Question 34

Which of the following has become one of the principal elements in "me first" management?

A) greenmail
B) early retirement bonuses
C) executive compensation
D) executive "birth order"

Question 35

The interest of the shareholder were not aligned with the interests of the manager, and the manager began to pursue self-interest instead refers to

A) proxy progress.
B) agency problem.
C) outside directors.
D) executive reports.

Question 36

Which of the following directly follows the charter phase in the corporation's hierarchy of authority?

A) shareholders
B) board of directors
C) management
D) employees

Question 37

In addition to a move toward independent, outside directors, it has also been recommended that companies

A) appoint smaller boards.
B) place foreigners on boards because we are now in a global economy.
C) create boards with a broader diversity of backgrounds.
D) appoint more members of government regulatory bodies to their boards.

Question 38

One major sign suggesting that a corporate governance problem exists in North American industry is the

A) increased number of discrimination suits filed.
B) increased shareholder activism of the past twenty years.
C) public outcry against doing business in South Africa.
D) rising complaints about poor service by North American firms.

Question 39

At which level of legitimacy do we refer to individual business firms achieving and maintaining legitimacy by conforming with societal expectations?

A) Macro
B) Micro
C) Organizational
D) Departmental

Question 40

Which of the following was not one of the major criticisms of boards discussed in the text?

A) Board is a "rubber stamp."
B) Boards are, on average, too small and thus easily dominated by strong personalities.
C) Boards are dominated by the CEO.
D) Boards are plagued with conflicts of interest.

Question 41

Which of the following refers to the practice of obtaining critical information from inside a company and then using that information for one's own personal financial gain?

A) golden parachutes
B) insider trading
C) Greenmail
D) none of the above

Question 42

Shareholder initiatives may be classified into three major, overlapping areas. Which one of the following is not one of the three?

A) the rise of shareholder activist groups
B) the filing of shareholder resolutions and activism
C) the filing of shareholder lawsuits
D) all of the above

Question 43

It has been suggested that corporate boards move through three stages in which they assume different roles. What are these three stages called?

A) alpha, gamma, omega
B) elementary, advanced, mature
C) legitimizing, auditing, directing
D) leading, directing, controlling

Question 44

Which of the following is not an advantage of outsider-dominated boards?

A) They provide a bridge between shareholders and professional managers.
B) Directors show little interest in the company except in times of crisis.
C) Prominent directors enhance corporate image.
D) There is an extra layer of review to confirm major decisions.

Question 45

Which committee has the responsibility of evaluation executive performance and recommending terms and conditions of employment?

A) audit committee
B) nominating committee
C) compensation committee
D) public issues committee

Question 46

Which of the following may be defined as a contract in which a corporation agrees to make a payment to a key officer in the event of a change in control of the corporation?

A) "sweetheart" clause
B) greenmail clause
C) golden salute
D) golden parachute

Question 47

Which of the following board committees is useful in dealing with such issues as environmental affairs, equal employment opportunity, and political action?

A) audit committee
B) compensation committee
C) public policy committee
D) nominating committee

Question 48

The Sarbanes Oxley Act

A) was introduced in the U.S. in 2002.
B) is aimed at making public companies more accountable.
C) increases the transparency in financial reporting.
D) all of the above

Question 49

Which of the following was not discussed in the text as a major shareholder initiative?

A) rise of shareholder activist groups
B) shareholder-initiated golden parachutes
C) shareholder resolutions and annual meetings
D) shareholder lawsuits

Question 50

Which committee is typically responsible for assessing the adequacy of internal control systems and the integrity of financial statements?

A) audit committee
B) nominating committee
C) compensation committee
D) public issues committee