CH. 29 QUESTIONS AND TERMS (FINAL EXAM)

Captured

Describes a board of directors whose monitoring duties have been compromised by connections or perceived loyalties to management.

Proxy Contests

Disgruntled shareholders can hold a proxy contest and introduce a rival slate of directors for election to the board.

Outside (Independent) Directors

Any member of a board of directors other than an inside or gray director.

Shareholder Voice

Any shareholder can submit a resolution that is put to a vote at the annual meeting.

_____ of the firm are most likely to detect outright fraud because of their inside knowledge.

Employees

T/F: In the U.S the board of directors has a clear fiduciary duty to protect the interests of the shareholders.

True

T/F: When security analysts produce independent valuations of the firms they cover so that they can make buy and sell recommendations to clients, they are also providing a form of firm monitoring.

True

On a board composed of insider, gray and independent directors, the role of the independent director is really that of a ____.

watchdog

Shareholder Approval

Shareholders must approve many major actions taken by the board.

_____ carefully monitor firms to which they are exposed as creditors.

Lenders

The ____ protects the investing public against fraud and stock price manipulation.

SEC

Inside Directors

Members of a board of directors who are employees, former employees, or family members of employees.

Gray Directors

Members of a board of directors who are not as directly connected to the firm as insiders are, but who have the existing or potential business relationships with the firm.

Backdating

The practice of choosing the grant date of a stock option retroactively, so that the date of the grant would coincide with a date when the stock price was lower than its price at the time the grant was actually awarded.

Corporate Governance

The system of controls, regulations, and incentives designed to minimize agency costs between managers and investors and prevent corporate fraud.

Greater managerial ownership is associated with ___ value-reducing actions by managers.

fewer

Smaller boards are associated with ___ firm performance.

greater

The role of the corporate governance system is to mitigate the conflict of interest that results from the separation of ____ and ___ without unduly burdening managers with risk of the firm.

ownership,control