Deck 4: Corporate Governance: Founda Tion31 Luet

Question 1

There is some early evidence that the Sarbanes-Oxley Act has made little difference in the attention fmancial executives pay to shareholder reports.

Answer 1

False

Question 2

Shareholders' control is manifested primarily in the right to select the CEO of the company.

Answer 2

False

Question 3

Much of the blame for corporate scandals like Enron and WorldCom can be placed on the audit committees of the boards of directors.

Answer 3

False

Question 4

In the grand scheme of things,the interests of the investing public are more important than those of the management team.

Question 5

Most shareholder resolutions concern some aspect of executive compensation.

Question 6

Practically speaking the corporate CEO often does the work the nominating committee should do.

Question 7

Because of its theoretical role of authority over the CEO,it has always been the board's responsibility to get tough with the senior manager when needed.

Question 8

The corporate system as a whole rarely addresses the idea of social legitimacy.

Question 9

Business,by virtue of its place in society,has an inherent right to exist.

Question 10

Audit committees arguably have the most responsibility of all board committees.

Question 11

Some analysts believe that business's social legitimacy is fragile.

Question 12

During the past forty years,corporate boards have become more diverse.

Question 13

Although initially,companies did not object to the compliance costs of Sarbanes-Oxley,after 10 years experience with the law,they now object strenuously

Question 14

Managers have successfully lobbied Congress to make shareholder lawsuits very difficult to file.

Question 15

The purpose of corporate governance is a direct outgrowth of the question of legitimacy.

Question 16

The Say on Pay movement evolved from concerns over low executive compensation.

Question 17

The major condition of modern corporations that contributes to the corporate governance problem is the separation of ownership from control.

Question 18

Penalties under the Sarbanes-Oxley Act can include fines and prison terms.

Question 19

Research has shown that golden parachutes have had no effect on senior managers' resistance to takeover attempts.

Question 20

Wages have grown faster than CEO salaries over the past decade.

Question 21

Congruence between the organization's activities and society's expectations is called

A)aligrunent.
B)legitimacy.
C)social norms.
D)acceptability.

Question 22

The method by which shareholders elect boards of directors is known as

A)distributive voting.
B)cumulative voting.
C)the proxy process.
D)direct balloting.

Question 23

The people hired by the board to run the company and operate it on a daily basis is

A)the employee council.
B)management.
C)administration.
D)headquarters.

Question 24

Compensation recovery mechanisms that enable a company to recoup compensation funds is called .

A)proxy process.
B)risk arbitrage.
C)golden parachutes.
D)clawback provisions.

Question 25

Executive Excess reports that in 2011 the ratio of CEO pay to average workers' pay was:

A)531 to 1.
B)209 to 1.
C)1,063 to 1.
D)18 to 1.

Question 26

Which of the following is not a method of obtaining the micro level of legitimacy?

A)A company adapts its operations to conform to prevailing standards.
B)A company may seek to avoid detection that it is operating contrary to social norms.
C)A company may attempt to changes the public's values and norms.
D)A company may identity itself with other organization,people,or values.

Question 27

Boards have recently improved in all of the following ways except

A)more directors are independent.
B)reducing executive pay.
C)more directors own stock in the company.
D)more boards are likely to demand change.

Question 28

Directors who have no ties to the frrrn other than membership on the board are called

A)dependent directors.
B)free agent directors.
C)inside directors.
D)outside directors.

Question 29

A major criticism of CEOs and boards during the 1980s,when corporate takeovers were regular occurrences,was

A)not trying to get the best price they could for shareholders.
B)focusing on "making deals" instead of running the business.
C)trying to run up the price of their company's stock in preparation for the sale.
D)being obsessed with self-preservation instead of making optimal decisions on behalf of shareholders.

Question 30

The dynamic process by which business seeks to perpetuate its acceptance is called

A)advertising.
B)marketing.
C)legitimation.
D)embedding.

Question 31

Employees are the people hired by the company to

A)oversee management.
B)work with the board to keep management in line.
C)do the actual work of operating the company.
D)set the course for the company to follow.

Question 32

The macro level of legitimacy refers to the achievement and maintenance of legitimacy by

A)goverrnnent.
B)private/public partnerships.
C)business as a whole.
D)individual businesses.

Question 33

When the interests of management and owners are not aligned,there will likely be a(n)

A)agency problem.
B)free agency dilemma.
C)shareholder rebellion.
D)shareholder resolution.

Question 34

The state-issned docnment that grants the corporation's right to exist and stipulating the basic terms of its existence is a(n)

A)certificate of legitimacy.
B)occupancy permit.
C)charter.
D)article of incorporation.

Question 35

The group that is elected by shareholders to govern and oversee management is the

A)investment council.
B)board of directors.
C)board of trustees.
D)governing council.

Question 36

Shareholders are

A)owners of the corporation.
B)creditors of the corporation.
C)anyone who is affected by the corporation.
D)also employees of the corporation.

Question 37

The method by which a finn is being governed,directed,administered,or controlled is

A)corporate governance.
B)management.
C)management by objectives.
D)management by decree.

Question 38

Directors who have some sort of ties to the firm are termed

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

Question 39

The micro level of legitimacy refers to achieving and maintaining legitimacy by conforming to societal expectations for

A)the business system as a whole.
B)public policy partnerships.
C)non-government organizations.
D)individual businesses.

Question 40

The Say on Pay movement:

A)First began with regulations including a requirement to put a remuneration report to a shareholder vote
B)Began in the United States
C)Evolved from concerns over low executive compensation
D)Is supported by the SEC

Question 41

A contract in which a corporation agrees to make payments to key officers in the event of a change in the control of the corporation is called

A)a golden parachute.
B)golden handcuffs.
C)greenmail.
D)the silver rule.

Question 42

Sarbanes-Oxley attempts to ensure auditor independence is by

A)limiting the nonauditing services an auditor can provide.
B)requiring auditing fmns to rotate the auditors who work with a specific client.
C)making it unlawful for accounting fmns to provide auditing services where conflicts of interest exist.
D)all of these.

Question 43

Companies that elected to provide meaningful information to shareholders and securities professionals without also informing small investors were practicing

A)insider trading.
B)programmed trading.
C)selective disclosure.
D)stair-stepping.

Question 44

Boards are now being tougher on CEOs for all of the following reasons except

A)increasing diversity on boards.
B)competitive economic conditions.
C)rising vigilance of outside directors.
D)increasing power oflarge institutional investors.

Question 45

The primary purpose of the Sarbanes-Oxley Act is to

A)provide rules regulating the relationship between CEOs and boards.
B)limit the power of corporate boards.
C)restrict the flow of corporate money into politics.
D)provide better protection for investors in public companies by improving the financial reporting of those companies.

Question 46

Which of the following is not on the ranking of red flags that signal board problems?

A)Company has to restate earnings
B)Poor employee morale
C)Poor customer satisfaction track record
D)Stock price increases

Question 47

The Securities and Exchange Commission's Regulation FD is desigued to

A)streamline the trading process.
B)change stock trading prices to the decimal system.
C)allow small investors to benefit from insider trading.
D)limit the common practice of selective disclosure.

Question 48

One of the main ways in which shareholder activists communicate their concerns to management is through

A)the Internet.
B)blogging.
C)advertisements in mass media outlets.
D)shareholder resolutions.

Question 49

The board's compensation committee has responsibility for

A)setting directors' pay scales.
B)making sure that all employees are paid a fair wage.
C)evaluating executive performance and recommending terms and conditions of employment.
D)determining what bonuses should be paid and to whom.

Question 50

Which of the following is not an argument against the use of golden parachutes?

A)The covered executives are already being well paid for their work.
B)The covered executives are given an incentive to run the company poorly.
C)The covered executives are being rewarded for failure.
D)The covered executives are giving themselves the golden parachutes.

Question 51

Describe how the separation of ownership and control carne about.

Question 52

A new trend in board recruiting focuses more on

A)networking skills.
B)experience than title.
C)business school professors.
D)foreign investors.

Question 53

The practice of obtaining critical information from within a company and then using that information for one's own fmancial gain is

A)arbitrage.
B)programmed trading.
C)insider trading.
D)hedging.

Question 54

Shareholder activism

A)was started by the counter culture during the 1960s.
B)has been around for more than sixty years.
C)is lead by the Roman Catholic church.
D)relies on large institutional investors to introduce most of the shareholder resolutions.

Question 55

The principal responsibilities of the audit committee are to

A)interview auditing fmns to do the company audit.
B)negotiate with the Internal Revenue Service in the event of a tax audit.
C)ensure that published fmancial statements are not misleading.
D)hire the Chief Financial Officer (CFO)and monitor that person's work.

Question 56

The board committee that is responsible for responding to social issues is the

A)ethics committee.
B)public policy committee.
C)community interface committee.
D)rapid response committee.

Question 57

Personal liability for a corporate board member means that

A)directors have a legal obligation to pay all debts of the corporation.
B)directors have a legal obligation to pay all debts of the corporation if the company cannot.
C)directors may be sued for breach of fiduciary duty.
D)directors have a personal responsibility to the shareholders.

Question 58

Which of the following is a step to board repair?

A)Seeking outside help in identifying potential risks
B)Increasing executive compensation
C)Using dependent compensation consultants
D)Reducing involvement in corporate strategy

Question 59

A shareholder rights plan aimed at discouraging or preventing a hostile takeover is known as

A)a poison pill.
B)golden handcuffs.
C)a golden parachute.
D)insider trading.

Question 60

The fact that company information should be made at regular and frequent intervals and should contain information that might affect the investment decisions of shareholders is contained in the concept of

A)full disclosure.
B)transparency.
C)open door reporting.
D)both full disclosure and transparency.

Question 61

What is the difference between an owner and an investor?

Question 62

Discuss the role of shareholder democracy in corporate governance.

Question 63

List the reasons that good candidates for corporate board positions are hard to fmd.

Question 64

Why is the generous nature of CEO retirement packages particularly frustrating to the public?

Question 65

What are the two main issues associated with CEO pay?

Question 66

Explain Harry Markopolos' opinion regarding the SEC.

Question 67

What is the primary problem inherent in management control of the finn?

Question 68

Why is insider trading illegal and considered unethical? Isn't that exactly what financial markets are supposed to do-­
reward those who make good decisions?

Question 69

Should directors be held personally liable in cases of corporate misconduct?

Question 70

Forecast how society would change if business did lose its macro level oflegitimacy.

Question 71

Church groups are key members in the shareholder activist movement.One way that they gain access to corporate executives is by purchasing a small amount of stock and holding it a certain length of time (state laws usually dictate how much they need to buy and how long they need to hold it),which then allows them to introduce shareholder resolutions at stockholder meetings.Should small investors be able to wield influence like this,which arguably goes
beyond their fmancial stake in the finn?

Question 72

Why are inside directors seen as problematic in corporate governance?

Question 73

Summarize the responsibilities that corporations should have toward their shareholders.

Question 74

Why are church groups particularly visible in the shareholder activist movement?

Question 75

The textbook mentions that business as a whole rarely,if ever,addresses the issue oflegitimacy at the macro level.
Imagine that the Chamber of Commerce approaches you to design a campaign to assure its legitimacy with the public.What kinds of issues would you address?