Module 16 - Lists

corporate governance involves, at a minimum:

The audited reporting of financial conditions at the corporation so that managers can be evaluated. Legal protections for shareholders so that violators of the law who attempt to take advantage of shareholders can be punished for misbehavior and victims can recover damages for any associated losses.

An outside directors is

The correct answer is "a member of a company's board of directors who is not an employee or stakeholder in the company." Outside directors are paid an annual retainer fee in the form of cash, benefits and/or stock options. Corporate governance standards require public companies to have a certain number or percentage of outside directors on their boards.

Bev is the chief executive officer of Chef Cafés Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Bev must

The correct answer is "certify that the reports are complete and accurate." Section 906 of the Sarbanes-Oxley Act requires that chief executive officers certify the accuracy of the information in the corporate financial statements. The statements must "fairly represent in all material respects, the financial conditions and results of operations of the issuer." This requirement makes the officers directly accountable for the accuracy of their financial reporting and precludes any "ignorance defense" if shortcomings are later discovered.

Dez is the chief financial officer of Elements Corporation, which is required to file certain financial statements with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Dez must personally

The correct answer is "certify that the statements are accurate." Section 906 of the Sarbanes-Oxley Act requires that chief financial officers certify the accuracy of the information in the corporate financial statements. The statements must "fairly represent in all material respects, the financial conditions and results of operations of the issuer." This requirement makes the officers directly accountable for the accuracy of their financial reporting and precludes any "ignorance defense" if shortcomings are later discovered.

Equity Corporation, and its officers, directors, employees, and shareholders, buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 applies to the trading of securities

The correct answer is "in almost any circumstances." Section 10(b) is one of the more important sections of the Securities Exchange Act. This section prohibits the use of any manipulative or deceptive mechanism in violation of SEC rules and regulations. Among the rules that the SEC has promulgated pursuant to the 1934 act is SEC Rule 10b-5, which prohibits the commission of fraud in connection with the purchase or sale of any security. SEC Rule 10b-5 applies to almost all cases concerning the trading of securities, whether on organized exchanges, in over-the-counter markets, or in private transactions. Generally, the rule covers just about any form of security. The securities need not be registered under the 1933 act for the 1934 act to apply. The audit committee of the Board is responsible for seeing to it that there is compliance.

Furnaces & Filters Inc. is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that the firm's financial results are accurate and timely, its senior officers must set up and maintain

The correct answer is "internal "disclosure controls and procedures." Sections 302 and 404 of the Sarbanes-Oxley Act require high-level managers (the most senior officers) to establish and maintain an effective system of internal controls. The system must include "disclosure controls and procedures" to ensure that company financial reports are accurate and timely and to document financial results prior to reporting. Senior management must reassess the system's effectiveness annually. Some companies have had to take expensive steps to bring their internal controls up to the federal standards. Hundreds of companies have reported that they identified and corrected shortcomings in their internal control systems as a result.

The Compensation Committee of the Board is responsible for:

The correct answer is "selecting the components and amounts of executive compensation." The components of compensation plans, as well as how those components are structured and implemented, vary substantially between corporations. Most compensation plans consist of one or more of the following components: Base salary; Bonuses—typically short-term goals with cash-based incentives; Long-term incentives—often come with corporate equity; Benefits—components such as health, dental or life insurance; vacation time; or company-sponsored savings and investment plans; Perquisites—grants or privileges such as company cars, business cell phones and use of corporate properties. While the committee bears the authority for compensation, consistent pressure from investors requires the committee members to establish clear performance targets and a clear mechanism for measuring whether executives have met their benchmarks.

Spectrum Paints Inc. is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, the firm is subject to the direct corporate governance requirements of

The correct answer is "the federal government." In 2002, following a series of corporate scandals, Congress passed the Sarbanes-Oxley Act. The act also created a new entity, called the Public Company Accounting Oversight Board, to regulate and oversee public accounting firms. Other provisions of the act established private civil actions and expanded the SEC's remedies in administrative and civil actions. The Sarbanes-Oxley Act introduced direct federal corporate governance requirements for publicly traded companies. The law addressed many of the corporate governance procedures just discussed and created new requirements to make the system work more effectively. The requirements deal with independent monitoring of company officers by both the board of directors and auditors.

Orbital Flights Inc. is required to register its securities under Section 12 of the Securities Exchange Act of 1934. This means that, with respect to Orbital, Section 16(b) of the act covers

The correct answer is "the short-swing activities of Orbital's insiders." The short-swing profit rule is a Securities and Exchange Commission (SEC) regulation that requires company insiders to return any profits made from the purchase and sale of company stock if both transactions occur within a six-month period. Section 16(b) of the 1934 act provides for the recapture by the corporation of all profits realized by an insider on purchase and sale, or sale and purchase, of the corporation's stock within any six-month period. It is irrelevant whether the insider uses inside information—all such short-swing profits must be returned to the corporation. The audit committee would monitor this.