Deck 2: Corporate Governance

Question 1

The more active professional boards are being replaced by the board as a rubber stamp of the CEO.

Answer 1

False

Question 2

The top criterion for selecting a good director in U.S.corporations is their willingness to challenge management when necessary.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

While 97% of large U.S.corporations now use nominating committees to identify potential directors, this practice is not as common in Europe.

Question 5

Fewer large corporations 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.

Question 6

Approximately 70% of the top executives of the US publicly held corporations hold the dual designation of chairman and CEO.

Question 7

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

Question 8

The term corporate governance refers to the relationship among the board of directors, top management, and the shareholders in determining the direction and performance of the corporation.

Question 9

Those directors who fail to act with due care and allow the corporation to be harmed may be held personally liable.

Question 10

The board of directors has an obligation to approve all decisions that might affect the long-run performance of the corporation.

Question 11

Generally, the smaller the corporation, the less active is its board of directors.

Question 12

A 2008 McKinsey and Company survey found that less than 10 percent of a board's time is spent on strategy.

Question 13

Hiring and firing the CEO and top management is one of the five responsibilities of the board of directors.

Question 14

Interlocking directorates are a useful method for gaining both inside information about an uncertain environment and objective expertise about potential strategies and tactics.They are, however, increasingly frowned upon because of the possibility of collusion.

Question 15

Stewardship theory proposes insiders tend to identify with the corporation and its success.

Question 16

Codetermination has been used in Germany since the 1950s, but has not been used in the United States.

Question 17

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.

Question 18

The majority of outside directors are active or retired CEO's and COO's of other corporations.

Question 19

A direct interlocking directorate occurs when two corporations have directors who also serve on the board of a third firm, such as a bank.

Question 20

The lowest degree of involvement for a board of directors is the catalyst level of interaction.

Question 21

Catalyst-level board of directors typically

A)are less involved than active participation boards.
B)take leading roles in establishing and modifying the company mission, objectives, and strategy.
C)are involved in a limited degree of key decision making.
D)are held to a greater degree of legal responsibility.
E)experience more financial success than less involved boards.

Question 22

Which of the following statements is true regarding the board of directors?

A)The board is charged by law to act with due care.
B)If a director or the board as a whole fails to act with due care and, as a result, the corporation is in some way harmed, the careless director or directors can be held personally liable for the harm done.
C)Director liability insurance is often needed to attract people to become members of boards.
D)Directors must be aware of the needs of various constituent groups to balance all their interests.
E)all of the above

Question 23

A benefit of the increased disclosure requirements of the Sarbanes-Oxley Act has been more reliable corporate financial statements.

Question 24

More than ________ of outside directors surveyed that they had been named as part of a lawsuit against the corporation.

A)40%
B)50%
C)60%
D)70%
E)80%

Question 25

Society increasingly expects corporate boards to balance the economic goal of profitability with the social needs of society.

Question 26

Jeff Bezos, CEO of Amazon.com, uses the S team to engage in continuous strategic planning.

Question 27

Transformational leaders transform their organizations from market leaders in one industry to market leadership in another.

Question 28

The role of the board of directors in the strategic management of the corporation is likely to be less active in the future.

Question 29

From the perspective of the public, the primary job of the board of directors is

A)to lend credence to the decisions of the executive committee.
B)dictated solely by legal requirements.
C)to act as representatives for public identification.
D)to closely monitor the actions of management.
E)insulated from legal judgments because management actually makes the decisions.

Question 30

The relationship among the board of directors, top management, and shareholders is referred to as

A)corporate synergy.
B)corporate management.
C)corporate governance.
D)corporate strategy.
E)corporate responsibility.

Question 31

Usually, the strategic planning staff is charged with supporting only top management in the strategic planning process.

Question 32

A highly involved board does all of the following EXCEPT

A)tends to be very active.
B)provides advice when necessary.
C)keeps management alert.
D)takes their tasks of initiating and determining strategy very seriously.
E)manage the every day operations of the organization.

Question 33

The confidence levels of executive leaders may blind them to information that is contrary to a decided course of action; this may help to understand why overconfident CEO's are more likely to conduct mergers and acquisitions.

Question 34

Executive leadership is the directing of activities toward the accomplishment of corporate objectives.

Question 35

The requirements of a board of directors vary significantly by country and by state; however, there is a developing consensus as to what the major responsibilities should be.Which of the following is NOT one of the responsibilities?

A)Reviewing and approving the use of resources.
B)Setting corporate strategy, overall direction, mission or vision.
C)Controlling, monitoring, or supervising top management.
D)Becoming directly involved in managerial decisions.
E)Hiring and firing the CEO and top management.

Question 36

Which of the following is NOT a task of the board of directors in strategic management?

A)to monitor
B)to implement
C)to influence
D)to initiate and determine
E)to evaluate

Question 37

The ________ boards typically never initiate or determine strategy unless a crisis occurs.

A)rubber stamp
B)active participation
C)catalyst
D)nominal participation
E)minimal review

Question 38

A careless director or directors can be held personally liable for harm done to the corporation if they failed to act with

A)codetermination.
B)figurehead role.
C)cumulative voting.
D)accountability.
E)due care.

Question 39

The SEC requires that nominating and compensation committees are staffed entirely by outside directors.

Question 40

The combined chair/CEO position is being increasingly criticized because of the potential for conflict of interest.

Question 41

Surveys of large U.S.and Canadian corporations found outsiders make up what percentage of total board membership?

A)2%
B)30%
C)50%
D)80%
E)98%

Question 42

According to the text, most publicly owned large corporations today tend to have boards with what degree of involvement in the strategic management process?

A)passive to minimal
B)minimal to nominal
C)rubber stamp type
D)nominal to active
E)active to catalyst

Question 43

When a board of directors is involved to a limited degree in the performance or review of selected key decisions, indicators, or programs of management, there is a ________ degree of involvement.

A)rubber stamp
B)nominal participation
C)active participation
D)minimal review
E)phantom

Question 44

Which of the following regions is the most globalized region of the world in terms of boards of directors with most companies having one or more non-national directors?

A)Asia
B)Middle East
C)North American
D)Pacific Rim
E)Europe

Question 45

Research reveals that the likelihood of a firm engaging in illegal behavior or being sued declines

A)with a larger board.
B)with the addition of insiders on the board.
C)with the addition of outsiders on the board.
D)with a smaller board.
E)with a well-compensated board.

Question 46

The vast majority of inside directors are from all of the following EXCEPT:

A)lower-level operating employee.
B)president of the corporation.
C)vice-president of operational units.
D)chief executive officer.
E)vice-president of functional units.

Question 47

According to ________ theory, _______ directors tend to identify with the corporation.

A)agency, inside
B)corporate governance; inside
C)stewardship; inside
D)corporate governance; affiliated
E)stewardship; outside

Question 48

The percentage of directors of small, publicly-held U.S.corporations which are outsiders is approximately

A)2%.
B)20%.
C)40%.
D)60%.
E)98%.

Question 49

A survey of U.S.corporations found that ________ of boards of directors had at least one African American member in 2006.

A)6%
B)26%
C)46%
D)76%
E)96%

Question 50

________ theory argues that senior executives over time tend to view the corporation as an extension of themselves.

A)Population ecology
B)Motivation
C)Stewardship
D)Agency
E)Goal setting

Question 51

Board members who are most likely to face a conflict of interest are known as

A)family directors.
B)affiliated directors.
C)interlocked directors.
D)retired directors.
E)management directors.

Question 52

The average board member of a U.S.Fortune 500 firm serves on ________ boards.

A)3
B)6
C)9
D)12
E)only 1

Question 53

Codetermination

A)is the process by which both management and the board establish corporate strategic management.
B)is the inclusion of a corporation's employees on its board.
C)occurs when one or more individuals on one board also serve on other boards.
D)is present when all board members are also employed by the corporation.
E)occurs when minority shareholders concentrate their votes.

Question 54

One study conducted by Korn/Ferry International of directors of large U.S.corporations found that more than ________ of directors indicated that their CEOs were not utilizing them to their full potential in the strategy setting process.

A)20%
B)30%
C)60%
D)70%
E)90%

Question 55

Outside directors are defined as

A)those individuals who scan the external environment.
B)individuals on the board who are not employed by the board's corporation.
C)those individuals with public relations responsibilities.
D)board members who are also officers or executives employed by the corporation.
E)individuals who organize and coordinate politically focused activities.

Question 56

Which country pioneered the use of worker participation on corporate boards?

A)England
B)France
C)Sweden
D)Japan
E)Germany

Question 57

The theory which states that problems arise in corporations because top management no longer is willing to bear the brunt of their decisions unless they own a substantial amount of stock in the corporation is called

A)codetermination.
B)agency theory.
C)interlocking management theory.
D)strategic leadership theory.
E)ownership theory.

Question 58

Board members who are not employed by the corporation, but handle the legal or insurance needs of the firm and are thus not a true "outsider" are what kind of directors?

A)affiliated directors
B)family directors
C)retired directors
D)management directors
E)interlocked directors

Question 59

What percentage of the Fortune 1000 U.S.corporations had boards of directors with at least one woman member in 2006?

A)4%
B)20%
C)50%
D)85%
E)95%

Question 60

An agency problem can occur when

A)the desires and objectives of the owners and agents conflict.
B)it is difficult or expensive for the owners to verify what the agent is actually doing.
C)when the owners and agents have different attitudes toward risk.
D)executives do not select risky strategies because they fear losing their jobs if the strategy fails.
E)All of the above.

Question 61

The percentage of CEOs of British corporations who also serve as chairman of the board is

A)5%.
B)20%.
C)46%.
D)68%.
E)over 90%.

Question 62

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

A)promote interlocking directorates by U.S. companies to foster better communications and working relationships.
B)prohibit acts or contracts tending to create a monopoly.
C)prevent unfair practices in interstate commerce.
D)promote racial parity on the board of directors.
E)prohibit interlocking directorates by U.S. companies competing in the same industry.

Question 63

Under what circumstances does a DIRECT interlocking directorate exist?

A)When both management and the board establish corporate strategic management.
B)When a corporation's employees are included on its board.
C)Occurs when one or more individuals on one board also serve on a board of a second firm.
D)When all board members are also employed by the corporation.
E)When two corporations have directors who serve on the board of a third firm.

Question 64

The concept of the lead director originated in

A)the United Kingdom.
B)the United States.
C)France.
D)Sweden.
E)Germany.

Question 65

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

A)audit committee
B)compensation committee
C)executive committee
D)nominating committee
E)public relations committee

Question 66

In implementing the Sarbanes-Oxley Act, the SEC required in 2003 that a company disclose

A)the number of insiders on their PR committee.
B)if it has adopted a code of ethics that applied to the CEO and the CFO.
C)the CEO's pay.
D)the CFO's pay.
E)all of the above

Question 67

The New York Stock Exchange (NYSE)requires corporations to have

A)a majority of the board be outsiders.
B)cumulative voting.
C)at least one employee director as a representative on the board.
D)at least two outside directors providing stockholder representation.
E)an audit committee composed entirely of independent, outside members.

Question 68

The Sarbanes-Oxley Act was designed to protect

A)retired workers from losing their pensions.
B)CEO's from losing their golden parachutes.
C)CEO salary increases.
D)shareholders from the excesses and failed oversight of firms.
E)corporations from misguided whistleblowers.

Question 69

The function of a nominating committee is to

A)find board members who have compatible viewpoints with management.
B)find outside board members for election by the stockholders.
C)search for internal employees who would provide valuable insight into the working operations of the corporation.
D)search for candidates who could bring prestige to the board.
E)find inside board members for election by the stockholders.

Question 70

The percentage of CEOs of U.S.Fortune 500 corporations who also serve as chairman of the board is

A)less than 10%.
B)20%.
C)46%.
D)70%.
E)over 90%.

Question 71

All of the following criteria reflect survey findings of the characteristics of a good director EXCEPT

A)willing to challenge management when necessary.
B)expertise on global business issues.
C)understands the firm's key technologies and processes.
D)available outside meetings to advise management.
E)willing to always agree with executive decisions.

Question 72

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

A)7 directors.
B)10 directors.
C)19 directors.
D)25 directors.
E)30 directors.

Question 73

Which of the following is NOT a trend in corporate governance expected to continue?

A)Institutional investors are becoming active on boards.
B)Boards are getting more involved in shaping company strategy.
C)Boards are getting larger.
D)Shareholders are demanding that directors and top managers own more than token amounts of stock in the corporation.
E)Outside directors are taking charge of annual CEO evaluations.

Question 74

A staggered board

A)increases the chances of a hostile takeover.
B)has only a portion of the board stand for election each year.
C)makes it easier for shareholders to curb a CEO's power.
D)is seen in less than 50% of U.S. boards.
E)all of the above

Question 75

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

A)it is being increasingly criticized because of the potential for conflict of interest.
B)it endangers the ability to properly oversee top management.
C)it is separated by law in Germany, the Netherlands, and Finland.
D)it is more popular in American corporations than firms in the UK.
E)firms with a dual chair-CEO role have significantly better stock performance.

Question 76

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

A)less than 6%.
B)37%.
C)57%.
D)87%.
E)97%.

Question 77

Which of the following is NOT descriptive of interlocking directorates?

A)Interlocking directorates occur because large firms have a large impact on other corporations.
B)Interlocking directorates are more common in small, family-owned companies.
C)Interlocking directorates are a useful method for gaining inside information about an uncertain environment.
D)Interlocking directorates occur in about 20% of the 1000 largest US firms.
E)Interlocking directorates provide objective expertise about a firm's strategy.

Question 78

Which of the following is NOT one of the four major issues researched by the S & P Corporate governance Scoring System?

A)ownership structure and influence
B)research and development initiatives
C)financial stakeholder rights and relations
D)financial transparency and information disclosures
E)board structure and processes

Question 79

The role of the board of directors in the strategic management of the corporation is likely to

A)be more active in the future.
B)be less active in the future.
C)be nonexistent as planning departments take over.
D)remain the same.
E)shift more toward managing daily operations.

Question 80

Under what circumstances does an INDIRECT interlocking directorate exist?

A)When both management and the board establish corporate strategic management.
B)When a corporation's employees are included on its board.
C)When one or more individuals on one board also serve on a board of a second firm.
D)When all board members are also employed by the corporation.
E)When two corporations have directors who serve on the board of a third firm.