Quiz 23 Boards of directors and other governance mechanisms and strategy and business ethics

Why does the board of directors exist to represent shareholder interests?

Because of the separation of ownership and control

Which of the following is an important internal corporate-governance mechanism?

Board of directors

Which of the following is true of business ethics?

Certain notions such as fairness, honesty, and reciprocity are universal norms.

_____ is a mechanism to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally.

Corporate governance

Which of the following is an implication for the strategist in the context of corporate governance and a company's success?

Effective corporate governance and solid business ethics are critical to gaining and sustaining competitive advantage.

Frank is a board member at Lofloy Greens Inc., a publicly traded company. In addition to his duties on the board, Frank is also a full-time employee as a senior manager at Spinson Locomotives Inc. Which of the following is most likely to be true of Frank?

Frank is an outside director on Lofloy's board of directors.

Which of the following is an important external corporate-governance mechanism?

Market for corporate control

_____ are board members who are not employees of the firm but frequently are senior executives from other firms or full-time professionals.

Outside directors

All public companies listed on the U.S. stock exchanges must file a number of financial statements and other documents with the _____.

Securities and Exchange Commission (SEC)

Who has legal authority to appoint the board of directors in a public stock company?

Shareholders

In public stock companies, which of the following expectations of principals is most likely to lead to principal-agent problems?

The expectation that the agent will act in the principals' best interest

Which of the following scenarios best exemplifies a leveraged buyout of a telecommunications firm, Telbok Inc.?

The owner of another company buys all the outstanding shares of Telbok financing the purchase largely through debt.

Which of the following is the source of the principal-agent problem in publicly traded companies?

The separation of ownership and control

Which of the following is NOT true about the members of the board of directors in a public stock company?

They are not accountable to shareholders.

Which of the following is true of the codes of conduct of an organization?

They detail how the organization expects an employee to behave and to represent the company in business dealings.

Which of the following is true of the board of directors in a public stock company?

Votes at shareholder meetings determine whose representatives are appointed to the board of directors.

One of the ways to foster ethical behavior in employees is to:

create a control system that encourages desired values.

The board of directors of a public stock company consists of:

individuals who formally represent the firm's shareholders and oversee the work of executives.

Hashim is a board member at Kluster Motors Inc. He is also a senior executive of the firm. On the other hand, the board is chaired by Compton Smith, the CEO of Jensen Electronics. According to this scenario, Hashim _____.

is an inside director of Kluster Motors

The day-to-day operations of a publicly traded company are conducted by:

its managers and lower-level employees.

Travis, the CEO of Riplon Corp., used company funds to buy a car worth $1 million and a house for $6 million in Santa Fe. This is an example of _____.

on-the-job consumption

An individual who is part owner of a company and hires another individual to act on his or her behalf is referred to as a(n) _____.

principal

Clare, the CEO of Femica Inc., reports to the board of directors appointed by the shareholders of Femica. Based on shareholder suggestions, the board ties Clare's compensation to the performance of Femica. Due to this pressure, Clare begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation. This conflict between Clare's interests and the shareholders' interests best illustrates a(n) _____.

principal-agent problem