chapter 5 - corporate governance

_____ is about the way in which boards oversee the running of a company by its managers and how board members are, in turn, accountable to shareholders and the company.

Corporate governance

Which of the following actions is a step toward running a company successfully

Evaluating risk-versus-reward scenarios frequently, regardless of the company's size

Which of the following is true of ethical misconduct?

It can occur even if all the checks governing a board of directors is in place.

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

It gave companies the flexibility to comply with the governance standards or justify why they didn't in their corporate documents.

Identify a true statement about the corporate governance committee of a company

It monitors the ethical performance of the corporation.

Which of the following is true of the compensation committee of a company

It oversees the salaries and bonuses of the senior executives only

Which of the following is true of the CRAFTED principles of governance

It recommends creating a culture of consistency, accountability, and responsibility

Which of the following is true of the "comply or else" approach to corporate governance

It set stiff financial penalties for companies that refused to abide by the operational standards

The _____ of 2002 incorporates the "comply or else" approach to corporate governance

Sarbanes-Oxley Act

Which of the following principles should a company follow for effective corporate governance

The board of directors and the CEO should work together when evaluating risk-versus-reward scenarios

Which of the following is an effect of merging the roles of the chief executive officer and the chairperson of the board

The independence of the board is compromised

Which of the following checks, when in place, reduces the risk of fraud or unethical behavior in a corporation?

The participants of the governance process must be made accountable effectively.

Identify a feature of the outside members of an organization's board of directors

They may comprise the company's creditors, suppliers, or consultants

Which of the following is true of managers in an organization with good corporate governance?

They should fulfill a fiduciary responsibility to the owners.

In what way did the "comply or else" approach differ from the "comply or explain" approach to corporate governance

Unlike "comply or explain," the "comply or else" approach did not offer corporations an easy way to avoid conforming to the operating standards

Catherine, a board member of Clayton Inc., is also part of an operating committee that is responsible for overseeing the accounting policies of the company. This committee is known as the _____.

audit committee

The _____ of an organization is staffed by members of the board of directors plus independent or outside directors.

audit committee

The _____ of a company is an operating committee responsible for determining the salaries, bonuses, and perks for the CEO and other senior executives

compensation committee

The Cadbury report, established to address financial aspects of corporate governance, argued for a guideline of _____, which gave companies the flexibility to act in accordance with governance standards or clarify why they do not in their corporate documents.

comply or explain

One of the primary responsibilities of an organization's _____ is to ensure compliance with the company's internal code of ethics

corporate governance committee

Corporate governance is the process by which _____.

corporations are directed and controlled

The King II report, released by the committee formed by Mervyn King, on corporate governance

formally recognized the economic, environmental, and social aspects of a company's activities

The inside members of a company's board of directors

hold managerial positions within the company

The main focus of the Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, was on _____.

internal governance

The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, recommended

it considered the impact of corporations' on the larger community

The "comply or explain" approach to corporate governance was problematic because _____.

its definition of what constitutes an acceptable explanation for not complying was vague

Setting up a governance system that allows organizations to be directed and controlled

leads to underpinning the integrity and efficiency of financial markets

A commitment to good corporate governance:

makes a company more attractive to investors.

The first step in a policy of disregarding the corporate governance model is the decision to:

merge the roles of chief executive officer (CEO) and chairperson of the board into one individual.

One of the responsibilities of the audit committee of a company is to

monitor the company's accounting policies and procedures

The board of directors of a company

oversees the governance of the organization

If the board of an organization is to serve its purpose in setting the operational tone for the organization, it should be composed of members who:

represent professional conduct in their own organizations.

Walter Salmon's checklist to assess the quality of the board recommends:

that there be three or more outside directors for every insider

Merging the roles of the chief executive officer and the chairperson of the board of an organization is advantageous because _____.

the board is led by someone familiar with the inner workings of the organization

The Cadbury report, established by Sir Adrian Cadbury in 1992 to address financial aspects of corporate governance, addressed

the financial aspects of corporate governance

The merging of the roles of the chief executive officer and the chairperson of a board is inadvisable because _____.

the power of the stockholders is minimized

One of the common characteristics of the King I and King II reports on corporate governance was that _____.

they both incorporated a code of corporate practices that looked beyond corporations

The fiduciary responsibility of a manager is ultimately based on his or her _____.

trust

If the corporate governance in an organization is poor, it _____.

weakens the company's potential and makes it less attractive to investors