Question 1

For most business decisions, the quorum, or minimum number of directors necessary to conduct business, is usually ____________ of the total number of directors.

Accepted Answer

The quorum, or minimum number of directors necessary to conduct business, is usually a majority (or one more than half of the total number) of the board of directors.

Question 2

____________ is based on the belief that because corporate decision making influences more individuals and groups than just the shareholders and the managers, corporate decisions should be made by an impartial group of corporate outsiders.

Accepted Answer

The governmental control theory of corporate management is based on the belief that because corporate decision making influences more individuals and groups than just the shareholders and the managers, corporate decisions should be made by an impartial group of corporate outsiders, usually government officials.

Question 3

The right to cast another shareholder's vote is called:

Accepted Answer

A proxy is the authority given to one shareholder to cast another shareholder's votes. Proxy solicitation is the process by which one shareholder asks another for their voting right, but refers to actual document used to request the right to vote the other shareholders' votes. A minority shareholder's voting power increases as the number of proxies held rises.

Question 4

Linda, a manager and a currency trader for United Traders, has specific instructions from the CEO not to take a position on any currency in excess of $1 million. Linda sees what she believes to be a sure thing and takes a $20 million position. Unfortunately, the transaction goes bad and costs United $60 million. Does Linda have any liability to United?

Accepted Answer

The actual authority rule states that a manager may be held liable if he or she exceeds his or her authority and the corporation is harmed as a result.

Question 5

Koto, a successful accountant, has been invited to join the board of directors of Big Corp. Koto is concerned that she will face personal liability for her decisions while on the board of Big. Big Corp. can limit Koto's liability at this point in time by including:

Accepted Answer

A voluntary protective measure is one that permits corporate shareholders to fashion their bylaws so as to limit or eliminate the liability of directors for decisions made while carrying out their duties. Such measures would allow recovery of damages only if the director deliberately broke the law, deliberately violated the duty of loyalty, deliberately violated the duty of good faith, or improperly benefited from the transaction in question.

Question 6

Michelson was chairman of the board and chief executive officer of a computer manufacturing firm. When considering whether to purchase CompuPrint, the manufacturer of computer printers, Michelson examined CompuPrint's financial records, consulted with legal and financial experts, and conducted an in-depth study of the marketplace and decided that it would be profitable for his corporation to purchase CompuPrint. If CompuPrint turns out to be a poor investment, and a court hears a case challenging Michelson's decision, the court will most likely analyze his conduct based on the ____________ rule.

Accepted Answer

Under the business judgment rule, the court will not interfere with most business decisions. The rule protects managers who act with due care and in good faith, as long as their decisions are lawful and in the best interests of the corporation. The rule results from the common sense belief that, based on their education, experience, and knowledge, managers are in the best position to run the corporation. In contrast, shareholders and judges are far removed from the day-to-day operations of the business and should not be allowed to second-guess most management decisions.

Question 7

A ____________ refers to the actual document that is used to request the right to vote the other shareholders' votes.

Accepted Answer

Proxy solicitation also refers to the actual document that is used to request the right to vote the other shareholders' votes.

Question 8

Some suggest that the insistence that all disputes involving U.S. corporations be fashioned under ____________ law a trend known as ____________, makes listing in the U.S. unpopular.

Accepted Answer

Some analysts suggest that the American insistence that all disputes be fashioned under American law, a trend known as legal imperialism, makes listing in the United States unpopular today. In contrast, some experts see no crisis at all, and still others suggest that the problem of attracting foreign firms to an American exchange is less troublesome than dealing with the type of widespread corruption that sparked the passage of Sarbanes-Oxley in the first place.

Question 9

In order to bring a derivative suit, a shareholder must own stock:

Accepted Answer

To bring a derivative suit, a shareholder must own stock at the time of the injury and at the time of the suit. Unlike a direct suit, a derivative suit is derived from the corporate injury and shareholders must meet certain prerequisites, including the exhaustion of internal remedies (before bringing suit, the shareholder must attempt to solve the problem by communicating with the board of directors and with other shareholders).

Question 10

____________ elect the ____________, who take whatever actions are appropriate and in the best interests of the corporation.

Accepted Answer

The business affairs of a corporation are managed by a board of directors elected by the shareholders. The board's responsibility is to take whatever actions are appropriate, in keeping with the corporation's rules and regulations.

Question 11

If Drake, a shareholder of Sweet Corp., feels that he has been deprived of the right to purchase some of the corporation's newly issued stock, he:

Accepted Answer

A direct suit is brought by shareholders who have been deprived of a right that belongs to them as shareholders. These rights include the right to vote, the right to receive dividends, the right to transfer shares, the right to purchase newly issued stock, and the right to examine corporate books and records.

Question 12

Aqua, LLC is a member-managed LLC. Andrew, a member, agrees to resolve a dispute with a customer by submitting the claim to binding arbitration. This action by Andrew is:

Accepted Answer

Generally, whenever a member performs a function within his apparent authority, the LLC will be bound by that action. However, some actions fall outside the member's apparent authority including-but not limited to-disposing of the firm's goodwill and submitting a claim of the LLC to arbitration.

Question 13

When shareholders join together in a temporary arrangement, it is called a:

Accepted Answer

When shareholders join together in a temporary arrangement and agree to vote the same way on a particular issue, it is known as a pooling agreement, a shareholder agreement, or a voting agreement.

Question 14

To submit a shareholder proposal, a shareholder must have owned (for the past year) __________ percent or __________ in market value of the voting stock of the corporation.

Accepted Answer

A shareholder must have owned at least 1 percent or $2,000 in market value of the voting stock of the corporation for one year and may submit only one proposal at a time. In addition, the proposal must be no more than 500 words long and must be submitted to management at least 120 days before the shareholders' meeting.

Question 15

Pogisa is a director at Trendz Corp. After studying and consulting with experts, Pogisa votes to have Trendz sell a tract of land for $500 per acre. Within a year, the land is worth $2,000 per acre, and Trendz shareholders want to sue Pogisa for her vote to sell the land. Under the ____________, Pogisa may be entitled to legal protection.

Accepted Answer

Under the business judgment rule, the court will not interfere with most business decisions. The rule protects managers who act with due care and in good faith, as long as their decisions are lawful and in the best interests of the corporation. The rule results from the common sense belief that-based on their education, experience, and knowledge-managers are in the best position to run the corporation. In contrast, shareholders and judges are far removed from the day-to-day operations of the business and should not be allowed to second-guess most management decisions.

Question 16

In the case United States v. Todd Newman and Anthony Chiasson, the Second Circuit Court of Appeals held that for a ____________ to be ____________, she must have the requisite ____________ to receive a personal benefit in exchange for that information.

Accepted Answer

In the case United States v. Todd Newman and Anthony Chiasson, the court of appeals held that to be criminally liable, tippees must know that they have received information from insiders and that the insiders had received personal benefit in exchange for that information. While at first glance this approach may appear to be a narrowing of the standard, it is really nothing more than simple reestablishment of mens rea, a basic principle of criminal law which requires a criminal defendant to know enough about the facts to understand that his or her conduct is illegal.

Question 17

____________ give(s) shareholders more voting control, because this voting method states that each share of stock has as many votes as there are directors to be elected.

Accepted Answer

The cumulative voting system allows shareholders to multiply the number of their voting shares by the number of directors to be elected. All these votes may be cast for one candidate or distributed among several candidates.

Question 18

Alan, a corporate manager at DollarShopper Corp., decides he would like to pursue a business opportunity he knows DollarShopper would also be interested in. Under the corporate opportunity rule, Alan may:

Accepted Answer

The corporate opportunity doctrine states that corporate managers cannot take a corporate business opportunity for themselves if they know that the corporation would be interested in that opportunity as well. Before taking such an opportunity, a manager must first offer it to the corporation by informing other managers and shareholders. If the corporation rejects the opportunity, then the manager is free to take that opportunity.

Question 19

A ____________ is defined as a coalition of individual outsiders who do not necessarily own stock, but can be affected by corporate decision making.

Accepted Answer

Over the last few decades, corporate law has evolved significantly to now include the stakeholders of the corporation in the decision making process. Stakeholders are those individuals and coalitions who, while officially outside of the corporate decision making structure and outside the corporate ownership establishment, are still dramatically affected by the results of corporate decision making. Included in this number are representatives from employees' unions, consumer protection organizations, suppliers, customers, clients, environmental protection groups, and the local, state, national, and international communities.

Question 20

Some jurisdictions consider managers liable only if they exceed their authority and the violation results in negligent or intentional conduct. This duty is referred to as the duty of:

Accepted Answer

Some states say that the managers will be liable for any violation of the limits of their authority on the basis of absolute or strict liability; some jurisdictions will consider the managers responsible only if the violation results in negligent or intentional conduct. This duty is also sometimes referred to as the duty of obedience.

Quiz 27: Corporate Governance