Chapter 10 - Corporate Governance
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
Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum amounting to three 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 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
Archibald Smith has moved from an upper-middle management job at Chromatic Array, Inc., to a similar position with Pixilair Corporation. The gap between CEO pay and the pay of other top executives at Chromatic was significantly larger than at Pixilair. What difference can Archibald expect? a. The working relationships among the top management team will be more collaborative at Pixilair than at Chromatic. b. The focus of Chromatic's board of directors will have been more on the creation of shareholder wealth than Pixilair's focus. c. The rating of Pixilair by Institutional Shareholders Services will be less favorable than Chromatic's rating. d. Pixilair will be more vulnerable to hostile takeover than Chromatic.
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
Historically, have been at the center of German corporate governance structure. a. banks b. institutional shareholders c. public pension funds d. government agencies
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 repurchase at a premium of shares of stock that have been 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 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
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
A primary objective of corporate governance is to a. determine and control the strategic direction of an organization, so that the top executives are focused on maximizing corporate profits. b. ensure that the interests of top-level managers are aligned with the interests of shareholders. c. lobby legislators to pass laws that are aligned with the organization's interests. d. resolve conflicts among corporate employees.
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 ownership of the corporation is diffused, shareholders' ability to monitor managerial decisions a. increases. b. decreases. c. remains constant. d. is eliminated.
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 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 these.
B
Generally, a board member who is a source of information about a firm's day-to-day activities is classified as a(an) director. a. lead independent b. inside c. related d. encumbered
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 the U.S., the fundamental goal of business is to a. ensure customer satisfaction. b. maximize shareholder wealth. c. provide job security. d. generate profits.
B
International Food Services (IFS) has a contract with the Marines to supply meals for its troops in Iraq 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 the U.S. 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
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 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 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 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 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 chapter Opening Case indicates that many CEOs earn more than times the amount received by their firm's lowest-paid employee. a. 10 b. 100 c. 300 d. 1000
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
When executives have ownership positions or stock options with their employing firm, they are a. going to actively defend their firm from takeover attempts. b. likely to gain financially if their employing firm is taken over by another. c. pressure the board of directors to reprice their stock options. d. likely to be terminated by the acquiring firm even in a friendly takeover.
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. some foreign firms have delisted 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
All of the following are correct about the chapter Strategic Focus on fraud and corporate governance failure at Satyam Computer Services Ltd. EXCEPT a. Satyam's stock price suffered a significant decline. b. The CEO was involved in overstating company revenues and profits. c. The CEO was never held responsible for his unethical actions. d. The CEO was a recipient of the Golden Peacock Award for Corporate Governance.
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 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 rarely have large ownership positions in the firm. 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 U.S., 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% 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 be truly objective by having no ownership interest in the firm.
C
Research suggests that firms with perform better, especially when collaboration among top management team members is important. a. greater emphasis on stock options b. larger proportion of insiders on the board of directors c. smaller pay gap between the CEO and other top executives d. benchmarking used for top executive pay
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 two 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 has been moving towards the Western model in recent years. b. The compensation of top executives of Chinese companies is closely related to prior and current financial performance of the firm. c. The state is becoming far less dominant in determining 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 major conflict of interest between top executives and owners, is that top executives wish to diversify the firm in order to , while 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
A takeover defense wherein preferred stock in the merged firm is offered to shareholders at a highly attractive rate of exchange is called a. greenmail. b. a standstill agreement. c. crossing the palm with silver. d. a poison pill.
D
Agricultural Chemicals, Inc., was the target of a hostile takeover six 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 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
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
In the chapter Strategic Focus, the weakness of corporate boards was exemplified by . a. significant pay reductions for many corporate CEOs b. the appointment by EasyJet of a new chairman of the board c. Borders' decision to increase the size of its board d. The firing by President Obama of the CEO of General Motors because the board had failed to act in previous years
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 board includes employees as voting members. c. the board is homogenous in composition. d. outside directors own significant equity in the organization.
D
Shareholder value is a. the firm's free cash flow. b. the total revenue of the firm. c. determined by the size of the firm. d. reflected in the price of the stock.
D
The CEO of 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 genuinely seeks their greater involvement. What would you recommend? a. Requiring that the directors own stock in the company. b. Implementing a director appraisal system. c. Electing an lead director. d. All of these choices would increase involvement.
D
The chapter Opening Case suggests that is (are) frequently blamed for high CEO pay during periods where corporate performance has been poor. a. poor hiring practices b. greedy CEOs c. lazy stockholders d. inadequate corporate governance
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, U.S. 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. increasing the concentration of ownership of large U.S. firms. c. focusing attention on ineffective boards of directors. d. tying the compensation of CEOs to measurable financial criteria.
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 nonroutine. 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
A board comprised 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.
F
A top-level manager's reputation is a dependable predictor of his/her future behavior.
F
According to the chapter Strategic Focus, the recent crisis in the financial services sector was incorrectly attributed to weak boards of directors.
F
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.
F
As a rule, shareholders prefer more product diversification than do managers because shareholders wish to reduce risk and maximize wealth.
F
As discussed in the chapter Strategic Focus, Borders' decision to downsize its board was a bad one since research shows that larger boards are more effective at governing companies than smaller ones.
F
Attitudes toward corporate governance in Japan are affected by the concepts of obligation, family, and consensus.
F
Because top management decisions are usually complex and nonroutine, determining the quality of executive performance is beyond the power of boards of directors.
F
Both top executives and owners of the firm wish to diversify the firm to reduce risk.
F
DDD MetalWorks plans to go public in the next two 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.
F
Executive compensation is considered an external corporate governance mechanism because it determined in part by market forces.
F
Executive compensation, ownership concentration, and the matrix organizational structure are all examples of internal governance mechanisms.
F
Foreign investors are playing a relatively minor role in the governance of firms in many countries.
F
Generally, the board of directors can be classified as insiders, unrelated insiders, outsiders, and unrelated outsiders.
F
Historically, the increased use of the market for corporate control has decreased the sophistication and variety of managerial defense tactics that are used in takeovers.
F
In general, when governance mechanisms are strong, managers have free rein in their decisions.
F
In the U.S., institutional investors are mainly the primary lenders to the firm, usually banks.
F
In the U.S., the members of the board of directors are a firm's key stakeholders and a company's legal owners.
F
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.
F
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.
F
More intense application of governance mechanisms may produce significant changes in strategies, for example, firms may take on fewer risky projects and thus increase potential shareholder wealth.
F
Recent research shows that CEOs of public and private companies in Japan receive similar levels of compensation, but their compensation is not tied closely to observable performance goals.
F
The chapter Strategic Focus indicates that while corporate governance is importance in developed countries such as the United States, it is relatively unimportant in countries such as India where poor corporate governance rarely has an adverse affect on companies.
F
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.
F
The separation of ownership and control is the most effective means used by firms to prevent managerial opportunism.
F
The three internal corporate governance mechanisms are ownership concentration, board of directors, and the market for corporate control.
F
The way that U.S. corporate boards of directors are presently structured, they have little influence on the unethical behavior of top management.
F
Well-designed stock option-based compensation plans should have the option strike prices substantially lower than the current stock prices.
F
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.
F
A powerful CEO would oppose the appointment of a lead director on the board of directors.
T
According to the chapter Strategic Focus, corporate governance failure at Satyam in India caused damage not only to the company, but also to the reputation of corporate governance in India.
T
According to the chapter Strategic Focus, the weakness of corporate boards was exemplified by the fact that the President of the United States had to fire a highly ineffective CEO because the board of General Motors had failed to act in recent years.
T
Agency costs include incentives for executives, monitoring, enforcement costs, and any individual financial losses incurred by principals.
T
Although the market for corporate control lacks the precision of internal governance mechanisms, the fear of acquisition and influence by corporate raiders is an effective constraint on managers acting in their own self interest.
T
An advantage of severance packages is that they may encourage top level managers to accept takeover bids that are attractive to shareholders.
T
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.
T
An appropriately structured and effective board protects owners from managerial opportunism such as that found at financial services firms including AIG and Merrill Lynch where shareholders and employees encountered significant losses.
T
As globalization grows, adequate corporate governance is becoming an important requirement for doing business with a foreign firm.
T
Boards have the power to direct the affairs of the organization, punish and reward managers, and protect shareholders's rights and interests.
T
Boards with many members from the firm's top management team tend to have weak monitoring and control systems for managerial decisions.
T
Corporate governance is a means to establish harmony between parties (the firm's owners and its top- level managers) whose interests may conflict.
T
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.
T
Corporate governance mechanisms are designed to ensure that top managers make strategic decisions that best serve the interests of the entire group of stakeholders.
T
Corporate involves oversight in areas where owners, managers, and members of boards of directors may have conflicts of interest.
T
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.
T
Ethically responsible companies design and use governance mechanisms that serve all stakeholders' interests.
T
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.
T
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.
T
Generous severance packages make executives less resistant to the market for corporate control.
T
If a stakeholder is dissatisfied with a firm, it will withdraw its support and give it to another firm.
T
In ZYX Corp., two shareholders own 85 percent of company stock. This represents a high degree of ownership concentration.
T
In a large number of family-owned firms, ownership and managerial control are not separated.
T
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.
T
In the United States, the primary goal of a firm is to maximize profits to provide a financial gain to shareholders.
T
In the modern U.S. corporation, the ownership and managerial control of the firm are separated.
T
Institutional owners are financial institutions such as stock mutual funds and pension funds that control large-block shareholder positions.
T
Large German firms must include employees, union members, and shareholders in the formal governance structure.
T
Large-block shareholders typically own at least 5% of a corporation's issued shares.
T
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.
T
Poor ethical behavior as seen at Enron and Satyam (described in the Strategic Focus) has devastating effects on the firm's stakeholders (and stockholders in particular) and illustrates a failure of corporate governance mechanisms.
T
Recent emphasis on corporate governance stems mainly from the failure of corporate governance mechanisms to adequately monitor and control top-level managers' decisions.
T
Some of the changes occurring on corporate boards as noted in the chapter Strategic Focus are changes to the balance of independent and inside members, renewed emphasis on audit and compensation committees, and ensuring that outside board members spend more time on board business so that they can make informed decisions.
T
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.
T
Stock options attempt to align managers' and owners' interests by tying managerial compensation and firm performance together.
T
The Chinese governance system has been moving towards the Western model in recent years.
T
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.
T
The most effective defense against a hostile takeover is the poison pill strategy.
T
The performance of individual board members is being evaluated more formally and with greater intensity than in years past.
T
The primary role of the board of directors is to monitor and control top-level executives to protect owners' interests.
T
The separation of the positions of CEO and chairperson of the board of directors reduces the power of the CEO over firm governance practices.
T
The serious problems experienced in the financial services industry are likely the result of poor governance and top-level managers making very bad strategic decisions.
T
The takeover market as a source of external discipline is used only when internal governance mechanisms are relatively weak and have proven to be ineffective.
T
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.
T
The ultimate in shareholder concentration would be one person holding all shares of a company's stock.
T
The use of executive compensation as a governance mechanism is more challenging to firms implementing international strategies than those strictly operating domestically.
T
While the implementation of the Sarbanes-Oxley Act in 2002 has been controversial to some, most believe that the results of it have been generally positive.
T
