Deck 5: Corporate Governance

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Board members are not accountable to the company and its shareholders.

Answer 3

False

Question 4

The King I report failed to recognize the involvement of all the corporation's stakeholders in the efficient and appropriate operation of the organization.

Question 5

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

Question 6

The King II report 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 7

Typically,the compensation package of the CEO and other senior executives consists of a base salary,performance bonus,stock options,and other perks.

Question 8

The board of directors comprises a group of individuals who oversee the governance of an organization.

Question 9

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

Question 10

Corporate governance does not impact the efficiency of financial markets.

Question 11

The Cadbury report on corporate governance dealt exclusively with external governance.

Question 12

Corporate governance is the system by which business organizations are directed and controlled.

Question 13

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

Question 14

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

Question 15

The triple bottom line proposed by the Kings II report recognizes the economic,environmental,and social aspects of a company's activities.

Question 16

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

Question 17

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

Question 18

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

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 compensation committee is to set the compensation for all the employees of the organization,including its outside contractors.

Question 21

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 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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 Enron's operations.

Question 34

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 35

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

Question 36

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

Question 37

Permitting one individual to function as both the chief executive officer of a company and the chairperson of its board has no impact upon the power of the stockholders.

Question 38

The Cadbury report 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 39

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

Question 40

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

Question 41

Why was the "comply or explain" approach to corporate governance problematic?

A) It was too strict and fined corporations that did not conform to its standards heavily.
B) It did not permit corporations to express why they chose not to comply with certain rules.
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 42

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

A) elect the 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 the members of the corporate governance committee.

Question 43

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 44

The Cadbury report 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 45

The board of directors of a company:

A) is not accountable to its 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 46

Poor corporate governance:

A) weakens a company's potential and makes it less attractive to investors.
B) forces the managers of a company to be accountable to its shareholders.
C) indicates effective mechanisms for monitoring the company's policies.
D) results in underpinning the integrity and efficiency of financial markets.

Question 47

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 the way for financial difficulties and incidents of fraud.
D) makes managers and board members less accountable to shareholders.

Question 48

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 49

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) compensation committee
D) quality assurance unit

Question 50

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

A) are not permitted to have other connections to the company.
B) hold management positions inside the company.
C) play no role in the board of directors' decision-making process.
D) may comprise of the company's creditors,suppliers,or consultants.

Question 51

Corporate governance is the process by which:

A) the government appropriates the assets of a business.
B) corporations are nationalized by the government.
C) corporations monitor the government.
D) corporations are directed and controlled.

Question 52

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 53

Which of the following is true of the King I report?

A) It took a less integrated approach to corporate governance than the Cadbury report.
B) It limited its scope to internal corporate governance.
C) It limited its scope to financial and regulatory accountability.
D) It considered corporations' impact on the larger community.

Question 54

The Cadbury report focused on:

A) environmental equilibrium.
B) corporate social responsibility.
C) internal governance.
D) the triple bottom line.

Question 55

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 its operational standards.
B) It gave companies the flexibility to comply with its 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 56

The corporate governance committee of a company:

A) monitors the ethical performance of the corporation.
B) does not oversee compliance with the company's internal code of ethics.
C) is primarily in charge of recruiting and training new employees.
D) cannot be staffed by members of the company's board of directors.

Question 57

The King II report 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) failed to recognize the involvement of all of a corporation's stakeholders in the efficient operation of the organization.

Question 58

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 59

What did the King I and King II reports have in common?

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 60

The Cadbury report 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 61

_____ members of the board of directors hold management positions in a company.

Question 62

_____ is the process by which organizations are directed and controlled.

Question 63

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 penalizes companies that don't conform to its regulations heavily.
B) Unlike "comply or explain",the "comply or else" approach does not offer corporations an easy way to avoid conforming to its operating standards.
C) Unlike "comply or explain",the "comply or else" approach has 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 64

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.

Question 65

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 its operational standards.
B) It gave companies the flexibility to comply with its standards or explain why they didn't in their corporate documents.
C) It was extremely vague when it came to defining what would be an acceptable explanation for noncompliance.
D) It was not incorporated into the Sarbanes-Oxley Act of 2002-which governs ethical behavior in corporations.

Question 66

The board of directors is a group of individuals,elected by the vote of _____ at the annual general meeting,who oversee the governance of an organization.

Question 67

Which of the following is true of ethical misconduct?

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

Question 68

Which of the following is true of Walter Salmon's checklist to assess the quality of the board?

A) It recommends following an exclusive rather than an inclusive approach.
B) It recommends the consideration of a single bottom line of profitability.
C) It recommends that the roles of the CEO and chairperson of the board be merged.
D) It recommends that there be three or more outside directors for every insider.

Question 69

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

A) Appointments to the board of directors should always be made on 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 70

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 71

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

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

Question 72

Merging the roles of the chief executive officer and the chairperson of the board is inadvisable because:

A) the power of the board of directors increases.
B) long-term goals typically replace short-term goals.
C) the power of the chief executive officer decreases.
D) the power of the stockholders is minimized.

Question 73

The involvement of individual shareholders as owners of an organization helps increase the _____ of managers.

Question 74

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

A) Sarbanes-Oxley Act
B) Comstock Act
C) Rehabilitation Act
D) Federal Intervention Act

Question 75

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 76

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 is increased.
B) the company begins to prioritize long-term goals over short-term goals.
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 77

The _____ is elected by the owners to represent their interests in the effective running of a corporation.

Question 78

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 the board by trading professional favors.

Question 79

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

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

Question 80

A commitment to good corporate governance:

A) necessitates decreasing the independence of the 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.