Question 1

All of the following reflect survey findings of the reasons for which individuals serve on a board EXCEPT

Accepted Answer

The other choices (notoriety/prestige, interested in the business, make a difference, stay active in the business community) are commonly cited reasons for serving on a board, but willingness to always agree with executive decisions is not typically listed as a reason.

Question 2

A staggered board

Accepted Answer

A staggered board has only a portion of the board stand for election each year, which can reduce the likelihood of a hostile takeover. This is because it can take multiple years for an activist investor or hostile bidder to gain control of the entire board.

Question 3

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.

Accepted Answer

There is a minority percentage of large corporations in the Americas and Europe that keep the recently retired CEO on the board after retirement, but it is not recommended due to potential conflicts of interest and reduced objectivity.

Question 4

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

Accepted Answer

According to agency theory, having a majority of outside directors on a board can help to prevent conflicts of interest and improve corporate governance. This is because outside directors are less likely to be influenced by the interests of the firm or its management, and are more likely to act in the best interests of shareholders.

Question 5

Under what circumstances does an INDIRECT interlocking directorate exist?

Accepted Answer

An INDIRECT interlocking directorate exists when two corporations have directors who serve on the board of a third firm. This creates an indirect connection between the two corporations through the shared director on the third firm's board.

Question 6

According to the text, which of the following is not a typical standing committee of boards of directors?

Accepted Answer

The text lists audit, compensation, executive, and nominating committees as typical standing committees of boards of directors, but does not mention a public relations committee.

Question 7

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

Accepted Answer

The percentage of large U.S. corporations using nominating committees to identify potential new directors is approximately 97%. This reflects a widespread adoption of formal processes for board nominations, indicating a commitment to governance best practices.

Question 8

The concept of the lead director originated in

Accepted Answer

The answer of The concept of the lead director originated...

Question 9

What percent of boards now have truly independent chairs?

Accepted Answer

According to the article, "approximately 30% of S&P 500 companies now have an independent board chair."

Question 10

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.

Accepted Answer

Population theory focuses on how organizations or industries evolve over time and how they adapt to changes in their environment. It does not specifically refer to the willingness of top management to bear responsibility for their decisions based on their ownership of company stock.

Question 11

Under what circumstances does a DIRECT interlocking directorate exist?

Accepted Answer

A DIRECT interlocking directorate exists when two firms share a director or when an executive of one firm sits on the board of a second firm.

Question 12

The U.S. Clayton Act and the Banking Act of 1933

Accepted Answer

The answer of The U.S. Clayton Act and the Banking...

Question 13

All of the following are true of the dual chair/CEO position EXCEPT

Accepted Answer

All of the statements are true except for E. There is no significant evidence that firms with a dual chair/CEO role have better stock performance.

Question 14

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

Accepted Answer

The average large, publicly held U.S. corporation typically has around 10 directors on its board. This size allows for a diversity of expertise and opinions, while still being manageable for effective governance and decision-making.

Question 15

A lead director

Accepted Answer

A lead director is a board member who serves as a liaison between the CEO and the independent directors. The purpose of having a lead director is to create a balance of power when the CEO is also the chair of the board. This approach has become increasingly popular in recent years, especially in the United States.

Question 16

The function of a nominating committee is to

Accepted Answer

The function of a nominating committee is to search for outside board members for election by the stockholders. This ensures a diverse and independent board with a range of expertise and perspectives. The committee should not be focused on finding members with compatible viewpoints with management or candidates who could bring prestige to the board as these criteria do not necessarily ensure effective governance. The committee may consider internal employees as potential candidates, but this should not be their primary focus.

Question 17

Which of the following is not descriptive of interlocking directorates?

Accepted Answer

Interlocking directorates are more common in larger firms, not in small, family-owned companies.

Question 18

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

Accepted Answer

Stewardship theory suggests that senior leaders feel responsible for the well-being of the corporation and act in the best interest of the organization. This can foster a sense of identification with the corporation and a desire to ensure its success.

Question 19

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

Accepted Answer

According to the National Association of Corporate Directors, a significant proportion of outside directors serving on boards are active or retired CEOs and COOs of other corporations.

Question 20

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

Accepted Answer

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

Quiz 2: Corporate Governance