Chapter 10 Corporate Governance
A powerful CEO would oppose the appointment of a lead director on the Board of Directors. (A) True (B) False
A
A virtually exclusive reliance on financial controls may occur when outsider-dominated Boards exist. This may lead to all of the following EXCEPT: (A) high executive turnover. (B) increased diversification of the firm. (C) excessive management compensation. (D) reduction in R&D expenditure.
A
Agency costs include incentives for executives, monitoring, enforcement costs, and any individual financial losses incurred by principals. (A) True (B) False
A
Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum amounting to 3 years' salary because DictionAry has been bought in a hostile takeover by its main competitor. Ambrose received: (A) a golden parachute. (B) a poison pill. (C) greenmail. (D) a silver handshake.
A
An advantage of severance packages is that they may encourage top-level managers to accept takeover bids that are attractive to shareholders. (A) True (B) False
A
An agency relationship exists when one or more persons (the principal or principals) hire another person or persons (the agent or agents) as decision-making specialists to perform a service. (A) True (B) False
A
An agency relationship exists when one party delegates: (A) decision-making responsibility to a second party. (B) financial responsibility to employees. (C) strategy implementation actions to functional managers. (D) ownership of a company to a second party.
A
As globalization grows, adequate corporate governance is becoming an important requirement for doing business with a foreign firms and in foreign countries. (A) True (B) False
A
Attitudes toward corporate governance in Japan are affected by the concepts of obligation, family, and consensus. (A) True (B) False
A
Awareness by top managers of the existence of external investors in the form of individuals (e.g., Carl Icahn) and groups (e.g., hedge funds) often positively influences them to align their interests with shareholders. (A) True (B) False
A
Because of recent ineffective performance, Boards of Directors are experiencing increasing pressure from shareholders, lawmakers, and regulators to be more effective in preventing managers from acting in their own interest. (A) True (B) False
A
Boards of Directors are now becoming more involved in: (A) the strategic decision-making process. (B) selecting new CEOs. (C) the firm's tax issues. (D) governmental relations.
A
Boards with many members from the firm's top management team tend to have weak monitoring and control systems for managerial decisions. (A) True (B) False
A
Broadly, the Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to: (A) align financial institutions' actions with society's interests. (B) increase the number of foreign firms listing on U.S. stock exchanges. (C) require CEOs to attest to the accuracy of their companies' financial reports. (D) increase consumer protection in pharmaceutical products.
A
Corporate governance involves oversight in areas where owners, managers, and members of Boards of Directors may have conflicts of interest. (A) True (B) False
A
Corporate governance is a means to establish harmony between parties (the firm's owners and its top-level managers) whose interests may conflict. (A) True (B) False
A
Corporate governance is the set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of an organization. (A) True (B) False
A
Corporate governance mechanisms are designed to ensure that top managers make strategic decisions that best serve the interests of the entire group of stakeholders. (A) True (B) False
A
Critics advocate reforms to ensure that independent outside directors represent a significant majority of the total membership of the Board. But outsider-dominated Boards may emphasize the use of financial as opposed to strategic controls. The risk of reliance on financial controls is that they may encourage managers to make decisions to maximize their interests and reduce their employment risk. (A) True (B) False
A
Ethically responsible companies design and use governance mechanisms that will at least minimally satisfy stakeholders' interests. (A) True (B) False
A
Executive compensation is a governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long-term incentive compensation such as stock awards and options. (A) True (B) False
A
Failures of corporate internal controls and inadequate internal control systems allowed unethical executives at such companies as Enron and WorldCom to act in their own self-interest. (A) True (B) False
A
Hedge funds, as part of the market for corporate control, identifies a firm that is underperforming and then invests in it with the goal of improving that firm's performance. (A) True (B) False
A
Historically, ____ have been at the center of German corporate governance structure. (A) banks (B) institutional shareholders (C) public pension funds (D) government agencies
A
If a stakeholder is dissatisfied with a firm, it will withdraw its support and give it to another firm. (A) True (B) False
A
In a large number of family owned firms, ownership and managerial control are not separated. (A) True (B) False
A
In modern corporations-especially those in the United States and United Kingdom-a primary objective of corporate governance is to ensure that the interests of top-level managers are aligned with the interests of shareholders. (A) True (B) False
A
In recent years, the number of individuals who are large-block shareholders have declined and been replaced by institutional owners such as mutual funds and pension funds. (A) True (B) False
A
In the United States, the primary goal of a firm is to maximize profits to provide a financial gain to shareholders. (A) True (B) False
A
In the modern U.S. corporation, the ownership and managerial control of the firm are separated. (A) True (B) False
A
Large German firms must include employees, union members, and shareholders in the formal governance structure. (A) True (B) False
A
Large-block shareholders typically own at least 5 percent of a corporation's issued shares. (A) True (B) False
A
Long-term incentives facilitate a Board of Directors' pay-related decisions designed to avoid potential agency problems by linking managerial compensation to the wealth of common shareholders. (A) True (B) False
A
One of the changes to enhance the effectiveness of the Board of Directors is the creation of a "lead director" role that has strong powers with regard to the Board agenda and oversight of non- management Board member activities. (A) True (B) False
A
Ownership of many modern corporations is now concentrated in the hands of institutional investors rather than individual stockholders. (A) True (B) False
A
Recent emphasis on corporate governance stems mainly from the failure of corporate governance mechanisms to adequately monitor and control top-level managers' decisions. (A) True (B) False
A
Research suggests that institutional activism may not have a strong direct effect on firm performance but may indirectly influence the targeted firm's strategic decisions, including those concerned with international diversification and innovation. (A) True (B) False
A
Scandals at Enron, WorldCom, and HealthSouth illustrate the negative effects of poor ethical behavior on a firm's efforts to satisfy stakeholders. (A) True (B) False
A
Stock option repricing where the strike price value of the option has been lowered from its original position sometimes happens when firm performance is poor. (A) True (B) False
A
The Board of Directors of CyberScope, Inc., is designing a stock option plan for its CEO that will motivate the CEO to increase the market value of the firm. Consequently, the Board is: (A) setting the option strike price substantially higher than the current stock price. (B) insuring that the strike price value of the options can be lowered if the organizational environment becomes more risky. (C) having the stock option plan designed by insiders on the Board of Directors who are familiar with day-to-day operations of the firm. (D) consulting accounting advisors to make sure that the plan transfers wealth to the CEO without immediately appearing on the balance sheet of CyberScope.
A
The Dodd-Frank Wall Street Reform and Consumer Protection Act is the most sweeping set of financial and regulatory reforms in the United States since the Great Depression. (A) True (B) False
A
The market for corporate control is composed of individuals and firms that buy ownership positions or take over potentially undervalued corporations and make changes to those corporations, including the replacement of the top managers. (A) True (B) False
A
The market for corporate control may not be as efficient as a governance device as theory suggests because takeover targets are not always low performers with weak governance. (A) True (B) False
A
The most effective defense against a hostile takeover is the poison pill strategy. (A) True (B) False
A
The performance of individual Board members and entire Boards are being evaluated more formally and with greater intensity than in years past. (A) True (B) False
A
The primary role of the Board of Directors is to monitor and control top-level executives to protect owners' interests. (A) True (B) False
A
The repurchase at a premium of the target firm's shares that were acquired by the aggressor firm in a hostile takeover in exchange for an agreement that the aggressor will no longer target the company for takeover is called: (A) greenmail. (B) a standstill agreement. (C) crossing the palm with silver. (D) a poison pill.
A
The separation of the positions of CEO and chairperson of the Board of Directors reduces the power of the CEO over firm governance practices. (A) True (B) False
A
The top management of RavenCrest, Inc. have significant stock options in RavenCrest. They are therefore more likely to gain in making an agreement to be acquired, especially if they have golden parachutes. (A) True (B) False
A
The top management team at Sierra Infusion is concerned about the declining performance of firms in their industry. The team members are becoming concerned about the security of their jobs at Sierra Infusion. At a meeting over dinner, the top management team agrees to go to the Board of Directors with a proposal for: (A) increased diversification of Sierra Infusion. (B) the addition of outside directors to the Board. (C) increased shareholder participation in decision making. (D) greater concentration on Sierra's core industry.
A
The use of executive compensation as a governance mechanism is more challenging to firms implementing international strategies than those strictly operating domestically. (A) True (B) False
A
Usually, large-block shareholders are considered to be those shareholders with at least ____ percent of the firm's stock. (A) 5 (B) 25 (C) 50 (D) 75
A
Which of the following is TRUE of trends in Japan's corporate governance structure? (A) Compensation of CEOs in both private and public companies is being tied more closely to observable performance goals. (B) Increased regulation in the financial sector has increased the cost of mounting hostile takeovers. (C) Banks' influence over corporations is increasing. (D) The gap in compensation between CEOs in public and private companies is increasing.
A
While the implementation of the Sarbanes-Oxley Act in 2002 has been controversial to some, most believe that it has had positive results in terms of protecting stakeholders and certain stockholder interests. (A) True (B) False
A
A Board composed primarily of outside directors will have better insights as to the firms intended strategic initiatives, the reasons for the initiatives, and the outcomes expected from them than will inside directors. (A) True (B) False
B
A top-level manager's reputation is a dependable predictor of his/her future behavior. (A) True (B) False
B
Amelia Smith is the sole owner of the successful restaurant chain, Amelia's Café. Ms. Smith has taken a no-interest loan from the company in order to build a luxurious seaside house for herself in Carmel, California. This constitutes a classic agency problem. (A) True (B) False
B
Amos Ball, Inc., is a printing company in Iowa that has been family owned and managed for three generations. Which of the following statements is most likely to be TRUE? (A) Agency costs at Amos Ball are high. (B) If research findings are valid, Amos Ball, Inc., will perform better if a family member is CEO than if an outsider is CEO. (C) At Amos Ball, the opportunity for managerial opportunism is high. (D) The functions of risk-bearing and decision making are separate at Amos Ball.
B
As a rule, shareholders prefer more product diversification than do managers because shareholders wish to reduce risk and maximize wealth. (A) True (B) False
B
As ownership of the corporation is diffused, shareholders' ability to monitor managerial decisions: (A) increases. (B) decreases. (C) remains constant. (D) is eliminated.
B
Because top management decisions are usually complex and nonroutine, determining the quality of executive performance is beyond the power of Boards of Directors. (A) True (B) False
B
Both top executives and owners of the firm wish to diversify the firm to reduce risk. (A) True (B) False
B
Compared to managers, shareholders prefer: (A) safer strategies with greater diversification for the firm. (B) riskier strategies with more focused diversification for the firm. (C) safer strategies with more focused diversification for the firm. (D) riskier strategies with greater diversification for the firm.
B
Corporate governance is important to nations because: (A) shareholders want large stock returns. (B) firms seek to invest in nations with national governance standards that are acceptable to them. (C) company Boards have lobbied for strong governance. (D) the United States requires that other nations adopt its governance practices.
B
Corporate governance revolves around the relationship between which two parties? (A) Shareholders and the Board of Directors (B) Shareholders and managers (C) The Board of Directors and managers (D) None of the the above
B
DDD MetalWorks plans to go public in the next 2 years. In order to be listed on the New York Stock Exchange, the firm will need to restructure its present Board of Directors, which is made up of a majority outside independent directors to a Board of Directors that is dominated by insiders and related outsiders. (A) True (B) False
B
Executive compensation is considered an external corporate governance mechanism because it determined in part by market forces. (A) True (B) False
B
For top-level managers, Board acceptance of the acquiring firm's offer usually leads to job loss because the acquiring firm wants new leadership. If the offer is refused, however, the job loss risk is minimal. (A) True (B) False
B
Foreign investors are playing a relatively minor role in the governance of firms in many countries. (A) True (B) False
B
Generally, a Board member who is a source of information about a firm's day-to-day activities is classified as a(n) ____ director. (A) lead independent (B) inside (C) related (D) encumbered
B
Generally, the Board of Directors can be classified as insiders, unrelated insiders, outsiders, and unrelated outsiders. (A) True (B) False
B
In contrast to managers' desires, shareholders usually prefer that free cash flows be: (A) used to diversify the firm. (B) returned to them as dividends. (C) used to reduce corporate debt. (D) re-invested in additional corporate assets.
B
In general, when governance mechanisms are strong, managers have free rein in their decisions. (A) True (B) False
B
In the United States, the fundamental goal of business is to: (A) ensure customer satisfaction. (B) maximize shareholder wealth. (C) provide job security. (D) generate profits.
B
In the United States, the members of the Board of Directors are a firm's key stakeholders and a company's legal owners. (A) True (B) False
B
Individual shareholders with small ownership percentages are less dependent on the Board of Directors to represent their interests than are large block shareholders. (A) True (B) False
B
Institutional owners, despite their size, are usually unable to discipline ineffective top managers and cannot influence a firm's choice of strategies and overall strategic direction. (A) True (B) False
B
International Food Services (IFS) has a contract with the Marines to supply meals for its troops in Afghanistan and other foreign assignments. As a means of increasing profits, IFS has used substandard ingredients in these meals and has consistently lied about this practice during quality investigations by the Marines. Who is ultimately responsible for the corporate climate that resulted in this wrongdoing? (A) The director of food service for IFS (B) The Board of Directors of IFS (C) The employees directly involved in the wrongdoing (D) The head of contract services for the Marines
B
James Abercrombie has a thriving consulting firm specializing in training Boards of Directors in decision-making skills. Mr. Abercrombie has had striking success in reducing conflict and hostility among directors and allowing Boards to develop more cohesiveness. Mr. Abercrombie is considering expanding his consulting practice overseas. Which of the following statements is most likely to be TRUE? (A) Mr. Abercrombie will have a large market in Japan because the culture highly values consensus decision making. (B) Japanese firms will have little interest in Mr. Abercrombie's specialty because these skills are already practiced at a high level. (C) German firms will not be interested in Mr. Abercrombie's services because the German system of decision making is based on authority and few conflicts emerge. (D) Mr. Abercrombie should find significant need for his services in companies in transitional economies.
B
Managers in firms that have been subjects of hostile takeovers usually find that their value to the new firm has been enhanced because of their in-depth insider knowledge. (A) True (B) False
B
Managers in the United States receive ____ compensation than managers in the rest of the world. (A) equivalent (B) higher (C) lower (D) more variable
B
Managers may decide to invest ____ in products that are not associated with the firm's current lines of business to increase the firm's level of diversification and decrease their employment risk. (A) unsubstantial profits (B) free cash flows (C) marginal profits (D) frozen assets
B
More intense application of governance mechanisms such as mandated by Sarbanes Oxley and Dodd-Frank may cause firms to take on fewer risky projects and thus increase potential shareholder wealth. (A) True (B) False
B
Ownership concentration is determined by both: (A) the number of stockholders and the parties they represent. (B) the number of stockholders and total percentage of shares they own. (C) the number of outside directors and the parties they represent. (D) the number of outside directors and total percentage of shares they own.
B
Research evidence suggests that ownership concentration is associated with lower levels of firm diversification, which conforms to the interests of stockholders. (A) True (B) False
B
Research suggests that the activism of institutional investors such as TIAA-CREF and CalPERS: (A) increases shareholder value significantly. (B) may not have a direct effect on firm performance. (C) is so aggressive that Boards of Directors have become overly cautious. (D) has weakened the effect of other governance mechanisms.
B
Simon Leagreet, the Chairperson and CEO of L-EVA Industries, Inc., has long been the major power at L-EVA. A majority of the directors are concerned that while Mr. Leagreet has been responsible for the firm's earning above-average returns, he has been displaying a tendency toward personal extravagance at the firm's expense. In order to limit Mr. Leagreet's power, the Board of Directors plans to: (A) elect an insider as the lead director. (B) appoint another individual as chairperson of the Board of Directors. (C) require Mr. Leagreet to personally certify the firm's financial reports. (D) reduce the size of the stock option package provided to Mr. Leagreet.
B
The Board of Directors of CamCell, Inc., wishes to design a CEO compensation plan that will align the personal interests of the CEO with the interests of the shareholders in long-term firm performance. The Board wishes the CEO to take more short-term risks in order to achieve potentially higher long-term returns. Consequently, the Board has decided on an incentive plan that involves payout based on the firm's performance five years in the future. CamCell is presently searching for a new CEO. Which of the following statements is true? (A) This plan will be very attractive in luring candidates for the CEO position. (B) CamCell may have to over-compensate its CEO in order to offset the personal risk a CEO would undertake under this plan. (C) Institutional investors disapprove of long-term executive incentive plans and they may sell their blocks of stock in CamCell. (D) This type of plan is likely to cause the CEO to underinvest in R&D in order to boost CamCell's long-term profitability.
B
The CEO of Skyco, a publicly-traded company that has been earning below-average returns, has been publicly criticized by shareholders for persuading the Board of Directors to give her interest-free loans, for having the company purchase and furnish a lavish apartment in Paris for her personal use on her twice-yearly trips there, and for excessive stock options. The CEO's behavior may be indication of: (A) reasonably compensating a CEO. (B) a weak Board of Directors. (C) the laxity of institutional investors. (D) the difference in risk propensity between owners and managers.
B
The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions related to consumer protection, systemic risk oversight, capital requirements for banks, but not for executive compensation. (A) True (B) False
B
The New York Stock Exchange requires that the audit committee be: (A) available to comment to external analysts. (B) headed by outside directors. (C) liable for any illegal actions by the top management team. (D) made up of CPAs with auditing experience.
B
The increased use of the market for corporate control has decreased the sophistication and variety of managerial defense tactics that are used in takeovers. (A) True (B) False
B
The longer the focus of managerial incentive compensation, the greater the ____ top-level managers. (A) earnings potential for (B) risks borne by (C) incentives for (D) potential tax burden for
B
The market for corporate control serves as a means of governance when: (A) the firm is overpriced in the market. (B) internal controls have failed. (C) the corporation has greatly exceeded performance expectations. (D) the top management team's interests and the owners' interests are aligned.
B
The separation of ownership and control is the most effective means used by firms to prevent managerial opportunism. (A) True (B) False
B
The three internal corporate governance mechanisms are ownership concentration, Board of Directors, and the market for corporate control. (A) True (B) False
B
The way that U.S. corporate Boards of Directors are presently structured, they have little influence on the unethical behavior of top management. (A) True (B) False
B
Well-designed stock option-based compensation plans should have the option strike prices substantially lower than the current stock prices. (A) True (B) False
B
When the option strike prices in an executive stock option-based compensation plan have been lowered it is usually a defense to a hostile takeover. (A) True (B) False
B
Which of the following statements is about corporate governance in Germany is FALSE? (A) The Vorstand (management Board) of a German corporation makes decisions about strategy and management. (B) The Vorstand is elected by the firm's employees. (C) Employees, union members, and shareholders appoint members to the Aufsichsrat (the supervisory tier of the Board). (D) Large institutional investors such as pension funds, and insurance companies are relatively insignificant owners of corporate stock.
B
____ is an important influence in Japanese corporate governance structures. (A) Innovation (B) Consensus (C) Competition (D) Individualism
B
Agency costs reflect all of the following EXCEPT ____ costs. (A) monitoring (B) enforcement (C) opportunity (D) incentive
C
All of the following are consequences of the Sarbanes-Oxley Act EXCEPT: (A) a decrease in foreign firms listing on U.S. stock exchanges. (B) internal auditing scrutiny has improved and there is greater trust in financial reporting. (C) an increased number of IPOs (initial public offerings) are expected. (D) Section 404 creates excessive costs for firms.
C
Complete the following: In small firms, managers often own a ____ percentage of the firm, which means there is ____ separation between ownership and managerial control. (A) small; small (B) small; large (C) large; small (D) large; large
C
German executives are not dedicated to the maximization of shareholder value to the degree that is the case for executives in the UK and United States largely because: (A) the roles of CEO and chairperson of the Board of Directors are usually combined. (B) large institutional investors control large blocks of stock. (C) private shareholders and large institutional investors rarely have large ownership positions in firms. (D) of the focus on stewardship-management in German firms rather than the financial performance focus of U.S. firms.
C
Given the demands for greater accountability and improved performance, which of the following is NOT a voluntary change many Boards of Directors have initiated? (A) Moving toward having directors from different backgrounds (B) Strengthening the internal management and accounting control systems (C) Compensating directors with stock options rather than with fixed remuneration (D) Establishing and using formal processes to evaluate the Board's performance
C
If the market for corporate control were efficient as a governance device, then only ____ would be targets for takeovers. (A) firms with unethical top executives (B) firms earning above-average returns (C) poorly performing firms (D) over-valued firms
C
In the United States, a firm's key stakeholder(s) is(are) the: (A) government. (B) executives. (C) shareholders. (D) customers.
C
Institutional owners are: (A) shareholders in the large institutional firms listed on the New York Stock Exchange. (B) banks and other lending institutions that have provided major financing to the firm. (C) financial institutions such as mutual funds and pension funds that control large-block shareholder positions. (D) prevented by the Sarbanes-Oxley Act from owning more than 50 percent of the stock of any one firm.
C
Managerial employment risk is the: (A) risk that managers will behave opportunistically. (B) risk undertaken by managers to earn stock options. (C) managers' risk of job loss, loss of compensation, and/or loss of reputation. (D) risk managers will not find a new top management position if they should be dismissed.
C
One means that is considered to improve the effectiveness of outside directors is: (A) mandating that all outside directors be drawn from government or academia rather than industry. (B) requiring that outside directors be former executives of the firm. (C) requiring outside directors to own significant equity stakes in the firm. (D) requiring that outside directors act objectively and have no ownership interest in the firm.
C
Several members of the Board of Directors of American Textile Products (ATP) have proposed creating the position of lead director. What circumstances would most likely have initiated this proposal? (A) ATP has been the initiator of several hostile takeovers in the last 2 years. (B) The Board has been successful in reducing the percentage of CEO pay that is composed of stock options. (C) The CEO/chairperson of the Board has been suspected of opportunistic behavior. (D) The firm is traded on the New York Stock Exchange and must change its corporate governance to comply with the NYSE's new rules.
C
The market for corporate control may not be as efficient as previously thought as recent findings suggest that those firms targeted for takeover by active corporate raiders are: (A) usually on the verge of bankruptcy. (B) typically under-performing their industry. (C) often performing above their industry averages. (D) always outperforming their industry.
C
The separation between firm ownership and management creates a(n) ____ relationship. (A) governance (B) control (C) agency (D) dependent
C
Which of the following is FALSE about corporate governance in China? (A) The Chinese governance system may be tilting toward the Western model. (B) With increasing frequency, the compensation of top executives of Chinese companies is closely related to prior and current financial performance of the firm. (C) The state still uses direct and/or indirect controls to influence the strategies employed by most firms. (D) Firms with higher state ownership tend to have lower market value and more volatility in those values over time.
C
A hostile takeover defense wherein the target firm makes its stock less attractive to a potential acquirer is called: (A) greenmail. (B) a standstill agreement. (C) crossing the palm with silver. (D) a poison pill.
D
A major conflict of interest between top executives and owners, is that top executives wish to diversify the firm in order to ____, whereas owners wish to diversify the firm to ____. (A) generate free cash flows; reduce the risk of total firm failure (B) increase the price of the firm's stock; increase the dividends paid out from free cash flows (C) reduce the risk of total firm failure; reduce their total portfolio risk (D) reduce their employment risk; increase the company's value
D
Agricultural Chemicals, Inc., was the target of a hostile takeover 6 months ago. The CEO and the top executives successfully fended off the takeover and are concentrating on strategies to improve the performance of the firm. Which of the following is most likely to be TRUE? (A) Hostile takeover attempts are so common that they do not reflect negatively on the firm's performance. They are more a function of general market conditions. (B) The fact that a hostile takeover has occurred is proof that the firm was under-performing. (C) Research shows that once a hostile takeover has been defeated, the firm is safe from other hostile takeover attempts for many years. (D) The CEO and top executives should not consider their jobs secure.
D
All of the following are areas covered by the Dodd-Frank Wall Street Reform and Consumer Protection Act EXCEPT: (A) consumer protection. (B) CEO compensation. (C) regulation of derivatives. (D) retirement accounts.
D
All of the following statements are TRUE about the use of defense tactics by the target firm during a hostile takeover EXCEPT: (A) defense tactics are usually beneficial for the executives of the target firm. (B) defense tactics are opposed by institutional investors. (C) defense tactics vary in their effectiveness as a defense to takeovers. (D) defense tactics make the costs of a takeover lower.
D
Corporate governance is all of the following EXCEPT: (A) mechanisms used to determine and control the strategic direction and performance of organizations. (B) a means to establish and maintain harmony between owners and top managers whose interests may conflict. (C) ensuring that top managers' interests are aligned with the interests of stockholders. (D) resolve conflicts among corporate employees.
D
Executive compensation is a governance mechanism that seeks to align managers' and owners' interests through all of the following EXCEPT: (A) bonuses. (B) long-term incentives such as stock options. (C) salary. (D) penalties for inadequate firm performance.
D
In Japan, the principal source of the active monitoring of large companies comes from: (A) Boards of Directors. (B) stock brokerage companies. (C) the government. (D) banks.
D
Japanese keiretsu are: (A) management structures related to total quality management systems. (B) company unions, which are a type of governance system. (C) the banks owing the largest shares of stock in the firm. (D) a system of cross-shareholding among firms.
D
Monitoring by shareholders is usually accomplished through: (A) management consultants. (B) government auditors. (C) the firm's top managers. (D) the Board of Directors.
D
Product diversification provides two benefits to managers that do not accrue to shareholders: ____ and ____. (A) greater experience in a wider range of industries; lessening of managerial employment risk (B) the manager frequently invests in the acquired firm, which allows him or her extensive profits; the manager can frequently buy excess assets divested by the acquired firm (C) the manager's supervisory needs are lowered; the manager is allowed greater time to oversee a wider range of activities (D) the opportunity for higher compensation through firm growth; a reduction in managerial employment risk
D
Research suggests that Boards of Directors perform better if: (A) the CEO is also the chairperson of the Board of Directors. (B) the Bard includes employees as voting members. (C) the Board is homogenous in composition. (D) outside directors own significant equity in the organization.
D
The CEO and Chairman of the Board of Directors Alta Corp. is dismayed by a lack of effort and insights his directors provide during Board meetings. The directors are all outsiders, experienced, and run their own successful firms. The CEO/chair genuinely seeks their greater involvement. What would you recommend? (A) Requiring that the directors own stock in the company. (B) Establishing a formal process to evaluate the Board's performance. (C) Electing a lead director. (D) All of these options are correct.
D
The governance mechanism most closely connected with deterring unethical behaviors by holding top management accountable for the corporate culture is: (A) ownership concentration. (B) the market for corporate control. (C) executive compensation systems. (D) the Board of Directors.
D
The interests of multinational corporations' shareholders may be best served when there is: (A) a uniform compensation plan for all corporate executives, United States and foreign alike. (B) executive compensation that is primarily based on long-term performance. (C) elevation of foreign executive compensation to U.S. levels. (D) a variety of compensation plans for executives of foreign subsidiaries.
D
The ownership of major blocks of stock by institutional investors have resulted in all of the following EXCEPT: (A) making CEOs more accountable for their performance. (B) challenges to the decisions of Boards. (C) focusing attention on ineffective Boards of Directors. (D) a direct effect on firm performance.
D
Which of the following is NOT an internal governance mechanism? (A) The board of directors (B) Ownership concentration (C) Executive compensation (D) The market for corporate control
D
Which of the following is a FALSE statement about corporate governance? (A) Governance is used to establish order between parties whose interests may be in conflict. (B) Corporate governance mechanisms sometimes fail to monitor and control top managers' decisions. (C) Corporate governance mechanisms can be in conflict with one another. (D) Corporate governance is best achieved with a Board of Directors with strong ties to management.
D
Which of the following reasons would NOT explain the difficulty of determining appropriate executive compensation? (A) The decisions made by top-level managers are typically complex and non-routine. (B) An executive's decisions often affect firm performance only over the long run. (C) A number of factors intervene between top-level management decisions and firm performance (e.g., unpredictable economic, social, or legal changes). (D) The compensation committee may not have comprehensive firm performance data.
D
