Deck 5: Corporate Governance

Question 1

The King Report on Corporate Governance of 1994 incorporated a code of corporate practices and conduct that looked beyond the corporation itself, taking into account its impact on the larger community.

Answer 1

True

Question 2

Creditors, suppliers, and professional consultants represent the inside members of a board of directors.

Answer 2

False
Explanation: The inside members of a board of directors hold management positions in a company. Outside members may have direct connections to the company as creditors, suppliers, customers, or professional consultants.

Question 3

Independent or outside directors are not eligible to be a part of the compensation committee of an organization.

Answer 3

False
Explanation: The compensation committee of an organization is staffed by members of the board of directors plus independent or outside directors.

Question 4

The corporate governance committee of an organization is staffed by members of the board of directors and specialists.

Question 5

The King II report, released by the committee formed by Mervyn King, formally recognized the need to move the stakeholder model forward and to consider a triple bottom line instead of a single bottom line of profitability.

Question 6

The King II report emphasized the need for companies to adopt an exclusive approach to corporate governance instead of an inclusive one.

Question 7

The board members of a company are not accountable to the company and its shareholders.

Question 8

Typically, the compensation package of a CEO and other senior executives of an organization consists of a base salary and stock options but does not include any performance bonus or other perks.

Question 9

Corporate governance does not impact the efficiency of financial markets.

Question 10

The triple bottom line proposed by the King II report, released by the committee formed by Mervyn King, recognizes the economic, environmental, and social aspects of a company's activities.

Question 11

Management consulting is the system by which business organizations are directed and controlled.

Question 12

The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, dealt exclusively with external governance.

Question 13

The corporate governance committee of a company oversees compliance with its internal code of ethics as well as any federal and state regulations on corporate conduct.

Question 14

Members of a board of directors are not eligible to be a part of the audit committee of an organization.

Question 15

The King I report, established by Mervyn King in 1994, failed to recognize the involvement of all the corporation's stakeholders in the efficient and appropriate operation of an organization.

Question 16

A board of directors is a group of individuals who oversee the governance of an organization.

Question 17

The strategic business unit of an organization is responsible for monitoring the financial policies and procedures of the organization.

Question 18

Corporate transparency is concerned with how well an organization meets its obligations to its stakeholders.

Question 19

The stakeholders of a company include its customers, its vendor partners, state and local entities, and the community in which it conducts its business operations.

Question 20

The main responsibility of the auditing committee of an organization is to set the compensation for all the employees of the organization, including its outside contractors.

Question 21

The Sarbanes-Oxley Act of 2002 incorporates the "comply or else" approach to corporate governance.

Question 22

The "comply or explain" methodology refers to the set of guidelines that requires companies to abide by a set of operating standards or face stiff financial penalties.

Question 23

If the board of directors is to serve its purpose in setting the operational tone for an organization, it should be comprised of members who represent professional conduct in their own organizations.

Question 24

Ethical misconduct is possible even if a board of directors passes all the criteria established by Walter Salmon.

Question 25

The argument in favor of merging the roles of the chairperson of the board and the chief executive officer of an organization is one of efficiency.

Question 26

The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, argued for a guideline of "comply or else," which required companies to abide by a set of operating standards or face stiff financial penalties.

Question 27

Running a small company does not require a constant evaluation of risk-versus-reward scenarios.

Question 28

By merging the roles of the chief executive officer and the chairperson of the board of an organization, the oversight provided by the board of directors is magnified.

Question 29

The "comply or explain" guideline proved to be an effective deterrent to corporate financial scandals.

Question 30

Studies show that a commitment to good corporate governance makes a company both more attractive to investors and lenders and more profitable.

Question 31

The CRAFTED principles of governance, offered by the European business school INSEAD, recommend creating a culture and climate of consistency in an organization.

Question 32

By permitting one individual to function as both the chief executive officer of a company and the chairperson of its board, the board is given the benefit of leadership from someone who is in touch with the inner workings of the organization.

Question 33

The "comply or else" methodology is more aggressive than the "comply or explain" methodology.

Question 34

One of the flaws in the board of directors of Enron was that many of the directors were affiliated with organizations that benefited directly from the company's operations.

Question 35

By permitting one individual to function as both the chief executive officer of a company and the chairperson of its board, the power of the stockholders is maximized.

Question 36

The board of directors of an organization can secure its independence by permitting one individual to function as both the chief executive officer of the organization and the chairperson of its board.

Question 37

The "comply or else" guideline gave companies the flexibility to comply with governance standards or explain their noncompliance in their corporate documents.

Question 38

In his Harvard Business Review article, Walter Salmon recommends that a good board comprises three or more outside directors for every insider.

Question 39

Having all the effective mechanisms listed on the corporate governance checklist in place ensures completely effective corporate governance.

Question 40

The ethical conduct of a business can be influenced by the individual personalities involved.

Question 41

Which of the following is true of the "comply or explain" approach to corporate governance?

A)It set stiff financial penalties for companies that refused to abide by the operational standards.
B)It gave companies the flexibility to comply with the governance standards or justify why they didn't in their corporate documents.
C)It was extremely explicit when it came to defining what would be acceptable explanations for noncompliance.
D)It proved to be an effective deterrent to financial scandals and reduced the incidence of unethical behavior in corporations.

Question 42

Catherine, a board member of Clayton Inc., is also part of an operating committee that is responsible for overseeing the accounting policies of the company. This committee is known as the _____.

A)business sales unit
B)audit committee
C)human resourcing unit
D)marketing committee

Question 43

One of the responsibilities of the audit committee of a company is to:

A)elect members of the company's board of directors.
B)manage the company's leadership pipeline.
C)monitor the company's accounting policies and procedures.
D)elect members of the corporate governance committee.

Question 44

Which of the following is true of the compensation committee of a company?

A)It sets the compensation for all the employees of the company.
B)It cannot be staffed by individuals on the company's board of directors.
C)It cannot be staffed by independent or outside directors of the company.
D)It oversees the salaries and bonuses of the senior executives only.

Question 45

One of the primary responsibilities of an organization's _____ is to ensure compliance with the company's internal code of ethics.

A)business sales unit
B)quality assurance unit
C)corporate governance committee
D)proposal committee

Question 46

The King II report, released by the committee formed by Mervyn King, on corporate governance:

A)strongly advocated that companies follow the traditional, single bottom line of profitability.
B)did not look beyond companies or take their impact upon the larger community into account.
C)formally recognized the economic, environmental, and social aspects of a company's activities.
D)did not recognize the involvement of a corporation's stakeholders in the efficient operation of an organization.

Question 47

One of the common characteristics of the King I and King II reports on corporate governance was that _____.

A)they both limited their scope to the financial and regulatory accountability of corporations
B)they both advocated following the traditional, single bottom line of profitability
C)they both rejected the triple bottom line suggested by the Cadbury approach
D)they both incorporated a code of corporate practices that looked beyond corporations

Question 48

The board of directors of a company:

A)is not accountable to the company's stakeholders.
B)should ideally be elected by the CEO.
C)oversees the governance of the organization.
D)should ideally have less power than the CEO.

Question 49

Identify a feature of the outside members of an organization's board of directors.

A)They are not permitted to have financial connections to the organization.
B)They have less importance than the inside members in the decision-making process.
C)They are the ones who make all the major organizational decisions without consulting the inside members.
D)They may comprise the company's creditors, suppliers, or consultants.

Question 50

The _____ of a company is an operating committee responsible for determining the salaries, bonuses, and perks for the CEO and other senior executives.

A)credit committee
B)business sales unit
C)compensation committee
D)quality assurance unit

Question 51

Setting up a governance system that allows organizations to be directed and controlled:

A)leads to underpinning the integrity and efficiency of financial markets.
B)weakens a company's potential and makes it less attractive to investors.
C)paves way for financial difficulties and incidents of fraud.
D)makes managers and board members less accountable to shareholders.

Question 52

The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, recommended:

A)adopting a Code of Best Practice to achieve high standards of corporate behavior.
B)considering the environmental and social aspects of an organization's activities.
C)formally recognizing all the stakeholders of an organization.
D)considering a company's impact on the larger community.

Question 53

The main focus of the Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, was on _____.

A)external governance
B)corporate social responsibility
C)internal governance
D)recruiting policy

Question 54

The inside members of a company's board of directors:

A)typically have no direct connection with the company.
B)hold managerial positions within the company.
C)comprise the company's creditors and suppliers.
D)include the external consultants used by the company.

Question 55

A feature of the King I report on corporate governance, established by Mervyn King in 1994, is that _____.

A)it was inclusive of the recruiting policies of an organization
B)it limited its scope to internal corporate governance
C)it limited its scope to financial and regulatory accountability
D)it considered the impact of corporations' on the larger community

Question 56

If the corporate governance in an organization is poor, it _____.

A)weakens the company's potential and makes it less attractive to investors
B)forces the board of directors to be accountable to the senior executives against their will
C)leads to employees taking control of their own decisions without consulting their managers
D)results in underpinning the integrity and efficiency of financial markets

Question 57

Corporate governance is the process by which _____.

A)the revenue assets of a business are fixed
B)corporations are nationalized by the government
C)the government is monitored by corporations
D)corporations are directed and controlled

Question 58

The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, addressed:

A)the cultural aspects of a company's activities.
B)the financial aspects of corporate governance.
C)the need to consider the triple bottom line.
D)the failings of the "comply or explain" policy.

Question 59

Identify a true statement about the corporate governance committee of a company.

A)It monitors the ethical performance of the corporation.
B)It does not oversee compliance with the company's internal code of ethics.
C)It is in charge of setting the compensation packages of all the senior executives.
D)It does not include the employees of the company.

Question 60

The "comply or explain" approach to corporate governance was problematic because _____.

A)it did not take into consideration the remuneration packages provided to the employees of a company
B)its stringent measures to deny flexibility to comply with governance standards caused organization-wide friction
C)its definition of what constitutes an acceptable explanation for not complying was vague
D)it expected corporations to abide by an extremely rigid set of operating standards

Question 61

The _____ of an organization is staffed by members of the board of directors plus independent or outside directors.

A)editorial committee
B)human resources team
C)accounting team
D)audit committee

Question 62

The merging of the roles of the chief executive officer and the chairperson of a board is inadvisable because _____.

A)the independence of the board is maximized
B)the financial goals of a company takes utmost importance
C)the power of the chief executive officer decreases
D)the power of the stockholders is minimized

Question 63

The first step in a policy of disregarding the corpo­rate governance model is the decision to:

A)merge the roles of chief executive offi­cer (CEO) and chairperson of the board into one indi­vidual.
B)nominate a compensation committee by the board of directors of an organization.
C)reach out to consultants to find new solutions on maximizing the effectiveness of corporate governance.
D)elect an auditing committee to oversee the financial reporting processes of an organization by the chief executive offi­cer (CEO).

Question 64

In what way did the "comply or else" approach differ from the "comply or explain" approach to corporate governance?

A)Unlike "comply or else," the "comply or explain" approach penalized companies that don't conform to regulations heavily.
B)Unlike "comply or explain," the "comply or else" approach did not offer corporations an easy way to avoid conforming to the operating standards.
C)Unlike "comply or explain," the "comply or else" approach had a vague definition for what constitutes an acceptable explanation for noncompliance.
D)Unlike "comply or else," the "comply or explain" approach was successful in discouraging unethical behavior in corporations.

Question 65

If the board of an organization is to serve its purpose in setting the operational tone for the organization, it should be composed of members who:

A)represent professional conduct in their own organizations.
B)are opposed to the practice of utilitarianism.
C)support a decentralized model of corporate management.
D)are more likely to take risks in high-risk situations.

Question 66

Which of the following is true of ethical misconduct?

A)It can occur even if all the checks governing a board of directors is in place.
B)It cannot be influenced by the personalities of individual board members.
C)It is least likely to occur when a CEO has more authority than board members.
D)It is barred effectively by the "comply or explain" approach to corporate governance.

Question 67

Walter Salmon's checklist to assess the quality of the board recommends:

A)following an exclusive rather than an inclusive approach.
B)the consideration of a single bottom line of profitability.
C)that the roles of employees in senior positions must be increased.
D)that there be three or more outside directors for every insider.

Question 68

Which of the following is an effect of merging the roles of the chief executive officer and the chairperson of the board?

A)The power of the stockholders is maximized.
B)The oversight provided by the board is increased.
C)The independence of the board is compromised.
D)The influence of the CEO is minimized.

Question 69

Which of the following actions is a step toward running a company successfully?

A)Merging the roles of the chief executive officer and the chairperson of the board
B)Liberating the chief executive officer from constraints laid by the board members
C)Evaluating risk-versus-reward scenarios frequently, regardless of the company's size
D)Reducing the board's independence and decreasing the power of stockholders

Question 70

_____ is about the way in which boards oversee the running of a company by its man­agers and how board members are, in turn, account­able to shareholders and the company.

A)Management consulting
B)Corporate governance
C)Corporate transparency
D)Management education

Question 71

Which of the following is true of managers in an organization with good corporate governance?

A)They must be nominated by the compensation committee.
B)They should fulfill a fiduciary responsibility to the owners.
C)They must consider only the single bottom line of profitability.
D)They should follow an exclusive, rather than an internal, approach.

Question 72

The _____ of 2002 incorporates the "comply or else" approach to corporate governance.

A)Sarbanes-Oxley Act
B)Comstock Act
C)Multi-divisional Form Act
D)Trade Act

Question 73

Which of the following is true of the "comply or else" approach to corporate governance?

A)It set stiff financial penalties for companies that refused to abide by the operational standards.
B)It gave companies the flexibility to comply with the standards or explain why they didn't in their corporate documents.
C)Its definition of what would be an acceptable explanation for not complying was not clear.
D)It was not incorporated into the Sarbanes-Oxley Act of 2002-which governs ethical behavior in corporations.

Question 74

The Cadbury report, established to address financial aspects of corporate governance, argued for a guideline of _____, which gave companies the flexibility to act in accordance with governance standards or clarify why they do not in their corporate documents.

A)basic limiting principle
B)comply or else
C)comply or explain
D)maximum power principle

Question 75

Merging the roles of the chief executive officer and the chairperson of the board of an organization is advantageous because _____.

A)the power of the stockholders and the independence of the board are increased
B)the power vested in external public shareholders is decreased
C)the checks that the board set in place against unethical behavior become more effective
D)the board is led by someone familiar with the inner workings of the organization

Question 76

The fiduciary responsibility of a manager is ultimately based on his or her _____.

A)educational background
B)work experience
C)charisma
D)trust

Question 77

Which of the following is true of the CRAFTED principles of governance?

A)It recommends creating a culture of consistency, accountability, and responsibility.
B)It considers only the financial profitability of all operational actions.
C)It favors a tight information flow managed by a company's senior executive leaders.
D)It approves of selecting members of a board by trading professional favors.

Question 78

A commitment to good corporate governance:

A)necessitates decreasing the independence of a board.
B)often affects a company's public image adversely.
C)means adopting the "comply or explain" approach.
D)makes a company more attractive to investors.

Question 79

Which of the following principles should a company follow for effective corporate governance?

A)The appointments to the board of directors should always be done on the basis of quid pro quo agreements.
B)The board of directors and the CEO should work together when evaluating risk-versus-reward scenarios.
C)The board of directors should consist solely of members who have direct connections to the company.
D)The roles of the chairperson of the board and that of the chief executive officer should be merged.

Question 80

Which of the following checks, when in place, reduces the risk of fraud or unethical behavior in a corporation?

A)The participants of the governance process must be made accountable effectively.
B)The roles of the chief executive officer and the chairperson of the board must be merged.
C)The authority of the chief executive officer should be absolute and unchallenged.
D)The company should follow the "comply or explain" approach to governance.