Business Ethics Chapter 5

Guidelines that require companies to abide by a set or operating standards or face stiff financial penalties

"Comply of Else"

Two Governance Methodologies

"Comply of Explain" or "Comply or Else"

Guidelines that require companies to abide by a set of operating standards or explain why they choose not to

"Comply of explain"

The Cadbury report argued for a guideline of ______

"Comply of explain"

Governance of the Modern Corporation

- Owners - Audit Committee, compensation committee, board of directors, corporate governance committee - CEO, CFO, COO - Managers and Employees, Creditors (Financial institutions, bondholders) - Stakeholders (customers, vendor partners, state and local entities, community partners)

In 1992, who led a committee in Great Britain on the newly topical issue of corporate governance?

Adrian Cadbury

An operating committee staffed by members of the board of directors plus independent or outside directors. The committee is responsible for monitoring the financial policies and procedures of the organization-- specifically the accounting policies, internal controls, and the hiring of external auditors

Audit Committee

Three Major Oversight committees

Audit committee, Compensation committee, and corporate governance committee.

A group of individuals who oversee governance of an organization. Elected by vote of the shareholders at the annual general meeting (AGM), the true power of the board can vary from institution to institution from a powerful unit that closely monitors the management of the organization to a body that merely rubber-stamps the decisions of the CEO and executive team

Board of Directors

Managers carry accountability to ________.

Both the owner's and the public's interest

The process by which organizations are directed and controlled is known as which of these? A) Corporate management B) Corporate guidance C) Corporate governance D) Corporate control

C) Corporate governance

The _______ is an operating committee staffed by members of the board of directors plus independent or outside directors, and they are responsible for setting the compensation for the CEO and other senior executives.

Compensation

An operating committee staffed by members of the board of directors plus independent or outside directors. The committee is responsible for setting the compensation for the CEO and other senior executives. Typically, this compensation will consist of a base salary, performance bonus, stock options, and other perks

Compensation Committee

The cadbury report argued for a guideline of ______.

Comply of Explain

the "CRAFTED" principles of governance

Consistency Responsibility Accountability Fairness Transparency Effectiveness that is Deployed throughout the organization

The systems by which business corporations are directed and controlled

Corporate Governance

Committee (staffed by board members and specialists) that monitor the ethical performance of the corporation and oversees compliance with the company's internal code of ethics as well as any federal and state regulations on corporate conduct

Corporate Governance Committee

Before the development of ______, managers and owners of organizations were the same people. A) venture capitalists B) proprietorships C) partnerships D) large corporations

D) large corporations

What would be a reason to support the merger of the role of the chief executive officerand the chairman of the board?

Efficiency

Mangers only are accountable to their owners. (true/false)

False

Oversight of the board of directors remains in tact even when the roles of chief executive officer and chairman of the board merge. (true/false)

False

The development of separate corporate entity limited organizations to raising funds from indivudual shareholders in order to grow their operation. (true/false)

False

To be truly effective, a board of director can foster a culture of "no dissent." (true/false)

False

Walter salmon developed a 50-question checklist to assess the quality of an organization's board. (true/false)

False

Seperate roles of chairman and CEO; Company maintenance of a roster of independent directors with flawless resumes; and maintenance of an audit committee consisting exclusively of nonexecutives.

Good Corporate governance examples

What was the focus of the Cadbury report?

Internal governance

Which of the following is true of the King II report?

It went beyond companies' financial and regulatory accountability

Which of the following is true of a company with good corporate governance?

Its board members are accountable to its shareholders

Published in 1994, Mervyn King's report changed the emphasis on corporate governance from internal governance of corporate operations to practices that looked beyond the corporation itself and included its impact on the community at large.

King I

Released in 2004, formally recognized the need to incorporate all stakeholders and consider a triple bottom-line approach to corporate perfromance and profitability.

King II

Released in 2004, formally recognized the need to incorporate all stakeholders and consider a triple bottom-line approach to corporate perfromance and profitability.

King II; companies must "comply or explain" or "comply or else"

Before the development of ______, managers and owners of organizations were the same people.

Large corporations

Which of the following describes the first step in a policy of disregarding the corporate governance model?

Merge the roles of chief executive officer and chairman of the board into one individual

The ______ incorporated the comply or else approach

Sarbanes-Oxley Act of 2002

Create a climate of trust and candor; Foster a culture of open dissent; Mix up roles; Ensure individual accountability; and Let the board assess leadership talent.

Six steps to effective corporate governance

Who is responsible for overseeing the financial reporting process of an organization?

The Audit Committee

Who oversees the governance of an organization?

The Board of Directors

Who is responsible for monitoring the ethical business practices of an organization?

The Governance Committee

Which of the following is true of the members of a company's board of directors?

They are elected by the shareholders as the annual general meeting

A fiduciary responsibility is ultimately based on trust. (true/false)

True

A fiduciary responsibility is ultimately basesd on trust.

True

Corporate governance is the system that directs and controls business corporations. (true/false)

True

Simply having the mechanisms in place will not, in itself, guarantee good governance.

True

The King II report stated that successful governance requires and "inclusive" rather than an "exclusive" approach. (true/false)

True

The first step in a policy of disregarding the corporate governance model is the decision to merge the roles of CEO and chairperson of the board into one individual. (true/false)

True

The key safeguards to defend against fraud or incompetence are properly constituted boards, separation of the functions of chairman and the chief executive, audit committees, vigilant shareholders, and financial reporting and auditing systems that provide full and times disclosure. (true/false)

True

Walter Salmon developed a 22 question checklist to assess the quality of an organization's board

True

Which of the following is NOT a step in being a truly effective board. a) Create a climate of trust and candor b) Foster a culture of "rubber stamping" c) Let the board assess leadership talent. d) Ensure individual accountability.

b) Foster a culture of "rubber stamping"

The boards of directors are typically made up of ______

both inside and outside members

Which of the following steps benefits corporations most?

evaluating risk-versus-reward scenarios constantly

In 1992 Sir Adrian Cadbury led a committee in Great Britain to address ______ in response to public concerns over directors' compensation at several high-profile companies in Great Britain

financial aspects of corporate governance

Which of the following is true of the "comply or explain" approach to governance?

it offered a vague definition of what constitutes an acceptable explanation for noncompliance

The board is typically made up of inside and outside members-- inside members hold management positions in the company, whereas _____ _____ do not.

outside members

Some _____ may have direct connections to company as creditors, suppliers, customers, or professional consultants

outside members; outside director

______ supply equity or risk capital to the company by purchasing shares in the corporation

owners of the corporation

In 1994 King I report changed the emphasis on corporate governance from internal governance of corporate operations to practices that looked beyong the corporation itself and included its impact on the community at large.

recognized the involvement of all the corporation's stakeholders; advocated for the highest standards for corporate governance

The owners of a corporation are typically a fragmented group consisting of all of the following except:

the government