Question 1

Which of the following are among the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act in relation to shareholder control of pay for top executives?

Accepted Answer

The Dodd-Frank Wall Street Reform and Consumer Protection Act provides that shareholders of public companies have an advisory vote on company payment practices for top executives and that public companies must hold a shareholder advisory vote on golden parachutes for executives. This means that shareholders have a say in executive compensation, but it is not mandatory and does not apply to privately held companies.

Question 2

Which of the following is considered an inside director of a corporation?

Accepted Answer

An inside director is a director who is also an officer of the corporation.

Question 3

The parties to a friendly merger use deal-protection devices,such as no-talk provisions.The Delaware Supreme Court will generally uphold such devices as long as they:

Accepted Answer

The Delaware Supreme Court will generally uphold deal-protection devices as long as they do not impair the board's ability to exercise its fiduciary duties. The other options listed are not prerequisites for the court's approval of deal-protection devices.

Question 4

The __________ requires that officers and directors not take personal advantage of a desirable business investment that rightfully belongs to the corporation.

Accepted Answer

The corporate opportunity doctrine requires that officers and directors not take personal advantage of a desirable business investment that rightfully belongs to the corporation. The right of first refusal refers to a contractual right to match or better an offer made by a third party for a particular asset; the line of business test is used to determine whether a particular activity falls within a corporation's stated purpose; and the expectancy test is used to determine whether a shareholder has a legitimate expectation of a certain benefit or outcome.

Question 5

In the context of takeovers,board members cannot reject an offer without taking sufficient time to analyze its merit.

Accepted Answer

Under the duty of care and duty of loyalty, board members are required to carefully analyze any takeover offer and ensure that they act in the best interest of the company and its shareholders. They cannot simply reject an offer without undertaking a diligent and informed evaluation of its potential benefits and drawbacks.

Question 6

In the context of executive compensation,__________ stock usually means stock subject to vesting restrictions.

Accepted Answer

Restricted stock is stock that is granted to an executive but is subject to vesting restrictions such as a required holding period or performance-based requirements. This is a common form of executive compensation, designed to align the interests of the executive with those of the company and its shareholders. The other answer choices are not relevant to the context of executive compensation.

Question 7

Managers or directors who are engaged in self-dealing or have a self-interest other than that of a corporate fiduciary have:

Accepted Answer

Managers or directors have a duty of loyalty to act in the best interest of the corporation they represent, and any action that involves self-dealing or pursuing self-interest breaches this duty. Therefore, B is the correct choice. The corporate opportunity doctrine, the business judgment rule, and the breakthrough rule do not apply to situations involving self-dealing or a breach of duty of loyalty.

Question 8

Which of the following is true in regard to the business judgment rule if one or more individual directors have a personal interest in a transaction being considered by the board?

Accepted Answer

If one or more individual directors have a personal interest in a transaction being considered by the board, the decision may still be entitled to the protection of the business judgment rule if it is approved by a majority of the disinterested directors. This means that as long as there are enough directors who do not have a personal interest in the transaction and they approve it, the decision can still be protected by the business judgment rule. However, if the decision is made solely by directors with a personal interest or there is not enough disinterested directors to approve it, the decision may not be protected and a higher level of proof regarding the reasonableness of the transaction may be required. Choice A is incorrect because inside directors can also have personal interests in the transaction. Choice C is partially correct but it does not explain that the decision may still be protected if approved by a majority of the disinterested directors. Choice D is incorrect because not being entitled to the protection of the business judgment rule does not automatically result in a legally established conclusion of illegality.

Question 9

The Smith v.Van Gorkom decision underscores which of the following regarding statements of officers or directors?

Accepted Answer

The Smith v. Van Gorkom decision established that not every statement of an executive officer can be relied upon in good faith. This means that directors must exercise their own independent judgment and conduct a thorough analysis before making decisions based on information provided by executive officers.

Question 10

A shareholder derivative suit is a lawsuit by:

Accepted Answer

A shareholder derivative suit is a legal action brought by shareholders on behalf of the corporation when the board of directors or management of the corporation fails to take action against wrongdoing by officers or directors. The shareholders are filing the lawsuit on behalf of the corporation, not directly for themselves.

Question 11

Which of the following is true regarding hostile takeovers in the European Union?

Accepted Answer

Hostile takeovers in the European Union are governed by the EU Takeover Directive. Member states may opt out of the neutrality rule, which requires the target company's board to remain neutral and not take measures to obstruct the takeover bid. They may also opt out of the breakthrough rule, which allows the bidder to acquire control of the target company if it obtains a certain percentage of shares. Therefore, member states may choose not to observe these rules.

Question 12

A(n)__________ gives the person to whom it is granted the right to buy a certain number of shares at a fixed price for a fixed number of years during the __________ period,which is not usually longer than __________.

Accepted Answer

A stock option gives the person the right to buy a certain number of shares at a fixed price for a fixed number of years during the exercise period, which is typically not longer than 10 years.

Question 13

The business judgment rule is applicable only if the directors make an informed decision.

Accepted Answer

The business judgment rule presumes that a company's board of directors act in good faith, with due care, and in the best interest of the company. However, this presumption is only applicable if the directors make an informed decision based on all relevant information available to them at the time. If the decision is based on incomplete or misleading information, the business judgment rule may not apply.

Question 14

In a shareholder rights plan,any takeover not approved by the directors makes the process prohibitively expensive.This protection of shareholder interests is known as a:

Accepted Answer

The protection of shareholder interests in the form of a shareholder rights plan, which makes a takeover attempt prohibitively expensive if not approved by the directors, is known as a "poison pill." A termination fee is a fee paid to a party if a contract or agreement is terminated. A freeze out refers to when majority shareholders in a company use their power to force minority shareholders out of the company. A constructive trust is a type of trust that a court may impose to prevent unjust enrichment.

Question 15

In Carmody v.Toll Bros.,Inc.,the Delaware Court of Chancery analyzed the question of the legality of a dead-hand pill under Delaware law.In striking down the dead-hand pill,the court ruled that:

Accepted Answer

The Delaware Court of Chancery ruled that the dead-hand pill violated the state general corporation law for a number of reasons including that it violated the directors' duty of loyalty. The court found that the pill prevented shareholders from exercising their right to vote on a merger proposal, and that the directors put their own interests above the interests of the company and its shareholders. The court noted that directors are not entitled to use any means necessary in order to block a hostile takeover, but rather must act in the best interests of the company and its shareholders. Therefore, the directors in Carmody v. Toll Bros., Inc. did not appropriately use the dead-hand pill.

Question 16

The Omnicare,Inc.v.NCS Healthcare,Inc.case,involved a question of whether directors of an insolvent publicly traded company violated their fiduciary duty when they entered into an agreement for the sale of the company to a particular interested buyer regardless of other offers.The court ruled that:

Accepted Answer

The court ruled that the directors violated their fiduciary duty by entering into an agreement for the sale of the company to a particular interested buyer regardless of other offers, and that they lacked the authority to agree to an absolute lock-up guaranteeing the sale and agreeing to forgo consideration of future offers. This suggests that the directors did not act in the best interest of the company and its shareholders, and that they did not exercise due care and loyalty in their decision-making. Thus, choice A is the best answer.

Question 17

The Revlon duty can be summed up as:

Accepted Answer

The Revlon duty refers to the responsibility of a company's board of directors to maximize the company's value for the benefit of its shareholders when the company is up for sale. This concept arises from a landmark case involving Revlon, where the court held that in the context of a sale or change of control, the directors' role shifts from preserving the corporate entity to maximizing the company's value for the shareholders' benefit.

Question 18

In CASE 20.1 Smith v.Van Gorkom (1985),plaintiff-shareholders alleged the directors were grossly negligent in failing to inform themselves adequately before making a decision about a merger.How did the court rule and why?

Accepted Answer

The court ruled in favor of the plaintiff-shareholders because the board of directors had failed to obtain adequate information on the merger terms and therefore was not protected by the business judgment rule. The court held that the directors breached their duty of care by failing to inform themselves adequately before making a decision about a merger.

Question 19

What is required by the Sarbanes-Oxley Act of 2002 in regard to the certification of the accuracy of public companies' SEC filings and the adequacy of internal controls?

Accepted Answer

The Sarbanes-Oxley Act of 2002 requires the chief executive officer and the chief financial officer to certify the accuracy of public companies' SEC filings and the adequacy of internal controls. This is known as the Section 302 certification. It is important to note that the certification applies to both the quarterly and annual filings.

Question 20

Which of the following is true regarding state rules of corporate governance?

Accepted Answer

California has specific rules that apply to quasi-foreign corporations, which are companies incorporated in another state but have significant business operations in California.

Quiz 20: Directors Officers And Controlling Shareholders

Which of the following are among the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act in relation to shareholder control of pay for top executives?

Which of the following is considered an inside director of a corporation?

The parties to a friendly merger use deal-protection devices,such as no-talk provisions.The Delaware Supreme Court will generally uphold such devices as long as they:

The __________ requires that officers and directors not take personal advantage of a desirable business investment that rightfully belongs to the corporation.

In the context of takeovers,board members cannot reject an offer without taking sufficient time to analyze its merit.

In the context of executive compensation,__________ stock usually means stock subject to vesting restrictions.

Managers or directors who are engaged in self-dealing or have a self-interest other than that of a corporate fiduciary have:

Which of the following is true in regard to the business judgment rule if one or more individual directors have a personal interest in a transaction being considered by the board?

The Smith v.Van Gorkom decision underscores which of the following regarding statements of officers or directors?

A shareholder derivative suit is a lawsuit by:

Which of the following is true regarding hostile takeovers in the European Union?

A(n) gives the person to whom it is granted the right to buy a certain number of shares at a fixed price for a fixed number of years during the period,which is not usually longer than __.

The business judgment rule is applicable only if the directors make an informed decision.

In a shareholder rights plan,any takeover not approved by the directors makes the process prohibitively expensive.This protection of shareholder interests is known as a:

In Carmody v.Toll Bros.,Inc.,the Delaware Court of Chancery analyzed the question of the legality of a dead-hand pill under Delaware law.In striking down the dead-hand pill,the court ruled that:

The Omnicare,Inc.v.NCS Healthcare,Inc.case,involved a question of whether directors of an insolvent publicly traded company violated their fiduciary duty when they entered into an agreement for the sale of the company to a particular interested buyer regardless of other offers.The court ruled that:

The Revlon duty can be summed up as:

In CASE 20.1 Smith v.Van Gorkom (1985) ,plaintiff-shareholders alleged the directors were grossly negligent in failing to inform themselves adequately before making a decision about a merger.How did the court rule and why?

What is required by the Sarbanes-Oxley Act of 2002 in regard to the certification of the accuracy of public companies' SEC filings and the adequacy of internal controls?

Which of the following is true regarding state rules of corporate governance?

Quiz 20: Directors Officers And Controlling Shareholders

Which of the following are among the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act in relation to shareholder control of pay for top executives?

Which of the following is considered an inside director of a corporation?

The parties to a friendly merger use deal-protection devices,such as no-talk provisions.The Delaware Supreme Court will generally uphold such devices as long as they:

The __________ requires that officers and directors not take personal advantage of a desirable business investment that rightfully belongs to the corporation.

In the context of takeovers,board members cannot reject an offer without taking sufficient time to analyze its merit.

In the context of executive compensation,__________ stock usually means stock subject to vesting restrictions.

Managers or directors who are engaged in self-dealing or have a self-interest other than that of a corporate fiduciary have:

Which of the following is true in regard to the business judgment rule if one or more individual directors have a personal interest in a transaction being considered by the board?

The Smith v.Van Gorkom decision underscores which of the following regarding statements of officers or directors?

A shareholder derivative suit is a lawsuit by:

Which of the following is true regarding hostile takeovers in the European Union?

A(n) __________ gives the person to whom it is granted the right to buy a certain number of shares at a fixed price for a fixed number of years during the __________ period,which is not usually longer than __________.

The business judgment rule is applicable only if the directors make an informed decision.

In a shareholder rights plan,any takeover not approved by the directors makes the process prohibitively expensive.This protection of shareholder interests is known as a:

In Carmody v.Toll Bros.,Inc.,the Delaware Court of Chancery analyzed the question of the legality of a dead-hand pill under Delaware law.In striking down the dead-hand pill,the court ruled that:

The Omnicare,Inc.v.NCS Healthcare,Inc.case,involved a question of whether directors of an insolvent publicly traded company violated their fiduciary duty when they entered into an agreement for the sale of the company to a particular interested buyer regardless of other offers.The court ruled that:

The Revlon duty can be summed up as:

In CASE 20.1 Smith v.Van Gorkom (1985) ,plaintiff-shareholders alleged the directors were grossly negligent in failing to inform themselves adequately before making a decision about a merger.How did the court rule and why?

What is required by the Sarbanes-Oxley Act of 2002 in regard to the certification of the accuracy of public companies' SEC filings and the adequacy of internal controls?

Which of the following is true regarding state rules of corporate governance?

A(n) gives the person to whom it is granted the right to buy a certain number of shares at a fixed price for a fixed number of years during the period,which is not usually longer than __.